Experts: Bad Credit Mortgage Problems Will Take Time to Fix
While the bad credit home loan firms in the mortgage industry have experienced woes that have kicked up dust in the past few weeks, experts say the problems underlying the recent bad news have been brewing for a good deal longer.
The Lakeland Ledger reports that in December, 12.6 percent of bad credit home loans were 30 or more days delinquent in the fiscal quarter ending in September, compared with 4.7 percent of all mortgages. That’s an increase from a 10.8 percent delinquency rate for the third quarter of 2005.
Ellen Schloemer, director of the Center for Responsible Lending, said about a quarter of bad credit home loans sold since 1998 have gotten into trouble at some point although they didn’t always go into default or foreclosure.
Still, she said the housing market boom and the large number of home loan lenders led many of them to approve loans that clearly weren’t sustainable.
“It was a disaster waiting to happen and people were looking the other way because there was money to be made,” Schloemer said.
Analysts aren’t being that critical, but they agree that a shakeout in the industry could do it some good, creating a better environment by ousting the fly-by-night mortgage lenders and strengthening the survivors.
A resurgence in the housing market and lower mortgage rates would certainly help as well, but that assumes the industry can recover quickly enough to keep banks interested in underwriting people with questionable credit.
“If the investment banks and larger institutional lenders are afraid to lend … the money to underwrite [bad credit mortgage] loans on a short term basis, that’s the concern we have with these companies,” said Morningstar analyst Ryan Lentell.
“If they can’t finance new loans, that would have a detrimental effect. That’s what has led a lot of these companies to leave the business.”
Some lenders are trying to show they still have control over the situation, saying they’re tightening credit requirements or are selling off the worst of their home loans. They say the loans sold in 2006 should be the bottom of the barrel and the ones sold in 2007 will be much more reliable.
H&R Block Inc., which is looking to sell its Option One subprime home mortgage company, said Thursday it has seen default rates in the first 30 days of loans decline from 3.83 percent in the second quarter to 3.13 percent in the third quarter.
“Six months into having identified this issue we’re starting to see the light at the end of the tunnel,” Chief Executive Mark Ernst said.
SOURCE: Lakeland Ledger