Reuters - The long list of participants in the subprime/bad credit mortgage crisis will not go unscathed in sharing the pain, but should work together to find solutions to the problem, a U.S. banking regulatory official said on Wednesday.
“I believe there is more than enough blame to go around,” Sara Kelsey, general counsel of the Federal Deposit Insurance Corporation, said.
In a speech to a group of financial professionals, Kelsey sounded off a long list of market participants who are likely to learn a “hard lesson” from what regulators, lawmakers and the lending industry expect is a tsunami of defaults and foreclosures over the next years.
The pain starts with borrowers and then home mortgage brokers and bankers to brokerage firms, parties involved in securitizing mortgages, domestic and foreign investors, and insurance companies, she said.
The list also includes pension funds, mutual funds and hedge funds, as well as banks that provided money to each of the market participants, she added.
She said data suggest 52 percent of subprime mortgages are originated by independent mortgage banking companies, 23 percent by banks and thrifts, 13 percent by mortgage banking subsidiaries of bank and thrifts and 12 percent by mortgage banking units of bank and thrift holding companies.
The business of lending to people with poor credit had boomed in recent years as home values rose in a super-heated real estate market. The spread of adjustable-rate mortgages and other new loans also allowed more people to buy their own homes.
The Federal Reserve encouraged this but also has hiked interest rates. Now with housing prices cooling and interest rates up, defaults and foreclosures are up sharply on subprime loans. Monthly payments on variable mortgages are likely to increase as lenders reset mortgage rates this year and next.
“I believe that the hard lesson we are all learning from the current situation will involve shared pain, all along the line,” Kelsey said.
She said all parties have to roll up their sleeves and work together to bring liquidity back into securitization for subprime mortgages.
With that in mind the FDIC and other regulators are planning to host a forum on April 16 with participants in the subprime mortgage securitization to discuss ways to jump-start the funding and still protect as many vulnerable subprime borrowers as possible.
Default rates in the subprime segment of the U.S. mortgage market have soared amid a housing industry slowdown. At least 20 subprime lenders have quit or sold their businesses.
The crisis has triggered broad concerns that fallout from the industry may spread and damage the economy. Regulators and industry officials were scrutinized in the last several days by U.S. lawmakers who plan to hold additional hearings.
Kelsey said lending to bad credit home loan borrowers did not cause the current crisis because she said both borrowers and banks have benefited for years from these arrangements.
“Rather, the situation is the result of predatory lending practices and poor underwriting controls,” she said.
According to one research group, the Utah housing market is the worst in the country when it comes to mortgage fraud.
And, sadly, many people don’t realize they’re being scammed until it’s too late.
In fact, you may be wondering, what can people do to keep from becoming victims of Utah mortgage fraud?
The state says check out the people you do business with: check licenses, call the state ask if they’ve had complaints on this particular real estate agent or lender. However, there’s no real way to explain why so many have gotten away with mortgage loan fraud in this state. For example …
Sean Anderson was sold on a deal to build a house and earn fast equity.
“It sounded like a great deal,” says Sean. “They hooked us up with the mortgage company, hooked us up with the appraisal, which came in um at $464,000. And I built the house for $425,000.”
Sean was told he could use the equity to make the payments. What he didn’t know was the agent and lender used an inflated appraisal.
“I can’t make the payments,” says Sean. “There was no equity.”
Cases like Sean’s put Utah at the top for mortgage fraud.
“We’re disappointed, the numbers are unacceptable,” says Francine Giani with the Utah Department of Commerce.
The state says people need to make sure they work with licensed realtors and lenders. And beware of fake sales pitches.
“Telling you sign this application and we can inflate what you make and all those kinds of things. Those are all illegal activities and people need to question that,” Giani said.
Michael Blackburn tracks home loan fraud in Utah. He knows one reason it’s so common.
“A lot of times when you do find someone who’s convicted of mortgage fraud here in the state of Utah, the sentences are very, very lenient,” says Blackburn.
Francine Giani says the state is trying to change that with new laws: “We’re looking forward to working with county attorneys, as well as the Attorney General’s Office and even the U.S. Attorney to try to put some of these people in jail.”
But that won’t help Sean.
“Well, right now I’m into this over $100,000,” Sean said.
H&R Block won’t meet its self-imposed March target for a deal to sell its Option One Mortgage Corp. operation because of weakness in the bad credit mortgage (subprime) market, the company said Friday.
The company said back in November it planned to sell its troubled mortgage lender division by March. But Friday it announced that it still is trying to negotiating a sale.
“Subprime” lending provides money to people with questionable credit, and a rise in home mortgage loans defaults has caused myriad problems for many of these major lenders.
Late last month, H&R Block CEO Mark Ernst, told reporters he still expected to get at least $1.3 billion for Option One and predicted he would have an announcement by the end of March.
He repeated that timeline two weeks ago. But the problems in the bad credit mortgage loan industry, and for Option One, have continued to escalate.
On March 14, the mortgage company increased its previously announced third fiscal quarter loss by $15.5 million to a total of $60.3 million.
The larger loss reflected a $29.2 million cut in the carrying value of its mortgage business.
The company also said it didn’t expect Option One to meet minimum profit levels required by its lenders, forcing it to request further waivers.
A few days later, a group of those lenders lowered the amount of funding for Option One to make home loans from $4 billion to $2 billion.
Analysts have predicted that H&R Block would have trouble selling Option One in such a turbulent environment, especially as other bad credit home loan providers cut back on the number of loans they’re making.
“The non-sale is disappointing; we think (Block) has lost credibility by waiting to the last minute to confirm what many thought,” said Michael Millman of Soleil Securities/Millman Research.
Millman said he still believed the company had value in its tax business and, at least in the long term, its mortgage business. But such a delay could bring big changes in management or even a sale of the company.
SOURCE: Houston Chronicle
Mortgage rates moved slightly or not at all in the past week, which saw conflicting signals about the direction of the housing market.
The benchmark 30-year fixed-rate mortgage didn’t change over the past week, according to Freddie Mac’s weekly survey of mortgage lenders.
The mortgage remained at 6.16 percent for the week ending March 29. The 30-year mortgage loan averaged 6.35 percent a year ago.
“Despite concerns about possible spillovers from the troubles in the [bad credit mortgage loan] market, rates on 30-year fixed-rate mortgages remained stable,” said Frank Nothaft, Freddie Mac V.P. and chief economist.
Meanwhile, data on both existing and new home sales sent conflicting messages about where the housing market is heading.
“The rise in existing home sales in February to a 6.69 million unit pace, the highest level since last April, offered some hope of firming housing demand. In contrast, February’s new home sales fell, unexpectedly, to 848,000 units, the slowest pace since June 2000. That suggests more time will be needed before a housing recovery takes place,” Nothaft said.
The 15-year fixed-rate mortgage averaged 5.86 percent, a decline from last week’s 5.90 percent average. The mortgage averaged 6.00 percent a year ago.
Five-year Treasury-indexed hybrid ARMs averaged 5.88 percent, down from last week’s 5.91 percent. The ARMs averaged 6.02 percent a year ago at this time.
One-year Treasury-indexed adjustable-rate mortgages averaged 5.43 percent, up from last week’s 5.40 percent, and down from 5.51 percent a year ago.
To obtain the mortgage rates listed above, the 30- and 15-year fixed-rate loans required payment of an average 0.4 point. The 5-year ARM required the payment of an average of 0.5 points and the 1-year ARM required an average 0.6 points.
A point is 1 percent of the amount of the home loan, charged as prepaid interest.
In a separate survey, the Mortgage Bankers Association reported that mortgage application volume decreased 0.2 percent during the week of March 23. Volume was up by about 17 percent compared with the same week in 2006.
SOURCE: MarketWatch
While delinquency rates on residential New Hampshire mortgages rose during the fourth quarter of 2006, they remained below the national average and were the third-lowest in New England.
Total mortgage delinquencies in New Hampshire increased by 48 basis points to 4.37 percent in fourth quarter 2006, up from 3.89 percent in the third quarter of 2006.
- Some 188,313 home loans were serviced in the Granite State during fourth quarter 2006, up 1.5 percent from the previous quarter.
- Of those, 158,167, or 84 percent, were prime loans while 23,358, or 12 percent, were subprime mortgages.
- FHA loan and VA loan transactions made up the remaining 4 percent.
Despite a jump in New Hampshire mortgage delinquencies, the state remains below the national rate of 4.95 percent rate and behind the New England average of 4.46 percent.
While all four major mortgage types saw increases in delinquencies during the fourth quarter, increases in subprime loan delinquencies - those bearing high interest rates and given to borrowers with poor credit histories - were the most notable in New Hampshire and across the nation.
Mortgage delinquencies on bad credit home loans in New Hampshire increased by 156 basis points to 14.45 percent during the fourth quarter of 2006, up from 12.89 percent during the third quarter. Third-quarter numbers showed a 114-basis point jump.
Nationally, delinquencies on subprime (bad credit mortgage loans) increased by 77 basis points to 13.33 percent in the fourth quarter.
Nationally, foreclosures on subprime home loans during the fourth quarter were 3.74 percent, up 7 basis points from the previous quarter.
Delinquencies on prime rate loans were at 2.63 percent, up 34 basis points from the 2.29 percent reported for third quarter 2006. Foreclosures on the prime loans issued during the fourth quarter were 0.31 percent, up slightly from the 0.28 percent reported in third quarter.
Delinquencies on FHA loans increased by 83 basis points to 12.10 percent during the fourth quarter of 2006, up from 11.27 percent.
Delinquencies on VA loans were up 66 basis points to 6.97 percent, compared to 6.31 percent in the third quarter.
SOURCE: New Hampshire Business Review
Construction employment losses linked to the faltering California housing market may slow the East Bay job market, researchers warned Thursday.
According to the Contra Costa Times, more than 3,000 construction jobs are expected to vanish in the East Bay from 2007-2009, according to a report from the Business Forecasting Center at University of the Pacific.
“The weakness in housing is slowing job growth,” said Sean Snaith, a consultant for the Stockton-based forecasting center and a University of Central Florida economist.
Still, the Alameda-Contra Costa County region will continue to add jobs during the coming years, forecasters said. The area should create about 33,550 jobs in that 2007-09 period, an average of just more than 11,000 each year.
But that pace would be well below the recent annual average for job gains in the area.
In past years, low California mortgage rates spurred record home buying and subsequent employment gains.
“The East Bay will be weaker than it has been the past year and a half,” Snaith said. “The East Bay bucked the trend for a while and was stronger than the rest of the state. But the economy is finally cooling off.”
That would be a reversal of the East Bay housing market’s fortune. The region fended off much of the devastation unleashed by the dot-com meltdown that ravaged the economies of the San Francisco-San Mateo area and the South Bay.
While California will average job growth of 1.2 percent from 2007 to 2009, the East Bay is expected to add jobs at a yearly pace of 0.9 percent in 2007, 1 percent in 2008 and 1.2 percent in 2009, the university center predicted in a quarterly update.
The prognosticators say that because of myriad concerns over California home loan and housing activity, job growth won’t exactly sparkle in other Bay Area regions. Here is their assessment for the pace of employment expansion in selected markets during 2007:
- San Francisco-San Mateo-Marin counties area, up 1.2 percent.
- Santa Clara County, up 0.6 percent.
- Solano County, up 1.2 percent.
- Sonoma County, no change.
- San Joaquin County, up 1.2 percent.
Yet while home builders scramble to sell their oversupply of homes, they will curb hiring of construction workers. Even so, people in the building and construction trades in the East Bay are still finding employment in sectors that are expanding more rapidly than housing.
“The bond measures have created, and will continue to create, considerable amounts of work in some of our major markets, commercial and public works,” Callan said. “We don’t see a downturn.”
Callan said plenty of openings exist for the construction of big industrial projects and commercial real estate buildings. Contractors also are eager to hire people for street, highway, and bridge projects.
So when might the home building ailments abate and the home mortgage loan demand return to the area?
Joseph Perkins, president of the San Ramon-based Home Builders Association of Northern California, says the sluggish times are about at an end.
“What I hear from my members is, the situation during the first quarter of 2007 is better than the fourth quarter of 2006,” Perkins said. “They are cautiously optimistic that the second and third quarters of this year will be better.”
SOURCE: Contra Costa Times
Posted by Richard Barber on Mar 30 2007 under California
Sales of new homes and Alabama home loan in metropolitan Birmingham rose in February from the previous month, continuing to buck a national trend.
The Greater Birmingham Association of Home Builders says its members sold 384 new homes last month, compared to 367 in January. That’s a 4.6 percent increase.
February’s area new home sales, as compiled by the Rudolph/Brander Monthly Birmingham Area Real Estate Report, were down from the 423 sold in February 2006.
Still, the local builders association said it was pleased that February’s figure outpaced January’s number, considering the turmoil in the home mortgage and housing markets nationally.
The U.S. Commerce Department reported this week that sales of new single-family homes across the nation fell 3.9 percent in February to the slowest pace in nearly seven years.
The decline doused hopes that a rebound was in the making for the nation’s housing market, even as mortgage rates remain near historic lows.
Garth Day, director of the Greater Birmingham Association of Home Builders, said it is not surprising to see the metro area real estate market holding up while many other cities across the country are experiencing declines in new and existing homes sales.
“Despite the slowdown in the national housing industry over the last year and a half, home sales have continued to be strong in Birmingham month after month,” Day said. “We expect that to continue - in fact Birmingham is poised for a very good year in home sales.”
Day points to Alabama’s strong economy and unemployment rates at historic lows as reasons the Birmingham housing market should remain robust.
Sales of new and existing homes are monitored as a key economic indicator, and combined with low Alabama mortgage costs, the area continues to thrive as other overvalued markets falter.
SOURCE: Birmingham News
Posted by Richard Barber on Mar 30 2007 under Alabama
Don’t pop that champagne just yet.
While the mortgage application process may seem complicated, there are actually a handful of costs and issues to consider beyond the just payments of points and interest rates. Consider the following home ownership notes …
Get Out Your Checkbook
Unexpected closing and move-in costs can ruin the best of real estate deals before they reach fruition. Many first-time home buyers are unaware of credit fees, legal charges, escrow, notary, and Realtor fees among the many closing costs. They haven’t considered the sudden glut of sales taxes, moving costs, furnishings, immediate improvements, and utility hook-up fees.
Often new buyers prepare a budget, leaving out annual mortgage costs and homeowner’s insurance.
The average cost for homeowner’s insurance in 2004 was estimated at $608. As for mortgage rates, they vary by individual credit, the down payment, and whether the owner settles on a long-term, fixed rate, or an adjustable rate. Figure at least 10% of the total cost of the house as a monthly payment.
Novice buyers frequently fail to plan for the annual costs of maintaining their new home and its appliances. The need for new paint or electrical and plumbing repairs may seem unpredictable, but they are inevitable.
Closing Costs Can Be Killers
Although the hidden costs seem like lurking icebergs, new buyers can still follow through on their purchase if they budget for them. It’s wise to lead with a mortgage calculator, not new owner emotions.
Often, first-time buyers believe that even with zero-down deals they won’t have to spend money up front. But closing costs are typically 4% to 6% of the total price of the home. Real estate agents advise buyers to have at least $1,000-$5,000 on hand just to get in the door. Although closing costs can be negotiated and split with the seller, these costs typically go beyond what new buyers usually plan to spend.
It’s important to have a frank discussion with the seller or Realtor on closing costs. A sound budget must include possible expenditures for appraisal fees and inspections. It’s wise for buyers to ask their Realtors to include a purchase agreement clause stipulating that the home has to pass inspections for stability, code violations, appliance conditions, termites, and molds.
If not, the buyer risks having to finance work to improve these conditions after they move in.
Negotiations determine who conducts the deed title search and pays for it. The title should be clear of any liens, judgments, defects, or encumbrances that a new owner may end up having to settle. Title insurance will cost from $500-$2,000, depending on the value of the home.
Any prospective owner should be aware of the itemized costs of all taxes and closing fees, including mortgage application fees that are passed on to buyers.
New homebuyers should also budget wisely for mortgage insurance. The cost is added to the mortgage principal, ranging from 1.25% for 20% down to 3.75% for 5% down. Some people purchase mortgage life insurance, a term policy that pays off the mortgage if they die, instead of leaving the burden to their families. Lenders often charge more than insurance brokers in adding this to monthly mortgage payments.
Maintenance Means More Budgeting
Once move-in costs are settled, there’s still more to pay. Annual property taxes shock many first-time homebuyers. Property taxes are levied as a percentage of the home’s assessed value. Local taxes range by municipality, but they average from 1-5% annually.
At 5%, a home assessed at $250,000 would have a yearly property tax bill of $1,250. If the previous owners paid a portion of the year’s taxes ahead of time, new owners may have to reimburse them as well as pre-pay taxes for the months ahead. They will also have to pay for annual repairs that they’re used to turning over to landlords.
It’s just one more thing to be aware of as you fill out that home mortgage application - but it’s also no reason to stop now. Just be sure to take good notes.
SOURCE: Guide to Realty
Each week, Bankrate.com surveys home loan experts to see where mortgage rates are headed. Let’s see what they have to say ..
“As the perceived risk of mortgage lending increases, investors will demand higher yields.”
- Dan Green, mortgage planner, Mobium Mortgage, Chicago
RATE VOTE: Up
“The techs say that rates should fall so I say that rates should fall. Life is so simple; we just make it complicated.”
- Dick Lepre, senior loan officer, Residential Pacific Mortgage, San Francisco
RATE VOTE: Down
“Twelve times in the past four months we have tried to break to lower rates, only to be turned away by a tough technical barrier. We will need a significant set of events to drive rates lower from here but they should remain stable. [Mortgage rates] are still very attractive.”
- Jim Sahnger, mortgage consultant, Palm Beach Financial Network, Stuart, Fla.
RATE VOTE: Unchanged
“The Mortgage Rate Market has been in a level trading rage for a month now. Up a little, than down a little. I expect that to continue for the near future.”
- Ed Conarchy, financial educator and trainer, Majestic Mortgage and Consulting, Vernon Hills, Ill.
RATE VOTE: Unchanged
“The 10-year Treasury closed at 4.6 percent this evening, which is .05 above last week and .10 above two weeks ago when we were are the all-important 4.5 percent. We are still at the low end of our trading range that I talk about each week. The Fed left rates unchanged as we all expected but there is new trouble coming our way. The market is starting to price in that the Fed may lower rates to help with the housing fallout. If that theory continues and actually happens, the long [home loan rates] will shoot up making things worse.”
- Mitch Ohlbaum, president, Legend Mortgage, Los Angeles
RATE VOTE: Unchanged
“We are on the verge of a government bailout for millions of homeowners that face foreclosure and homelessness. For millions of other (marginal) borrowers on the verge of foreclosure, the government will do everything possible to keep them in their homes.”
- Jeff Lazerson, president, Mortgage Grader, Laguna Niguel, Calif.
RATE VOTE: Down
Do you want to buy a home in Las Cruces?
The good news is that there are more homes on the market than in years past. The bad news? New Mexico home prices continue to rise.
Around the nation, the housing market has been repeatedly referred to as “troubled.” The U.S. Commerce Department reported Monday that sales of new homes fell sharply in February for a second consecutive month. While sales of existing homes rose in February, worries about bad credit mortgage loans and lenders tempers any enthusiasm, according the National Association of Realtors.
“Our view is that the tightening in the subprime market will have a negative impact on home sales,” David Lereah, chief economist for the NAR, told The Associated Press.
Even though 2006 was another record-setting year for home sales in Las Cruces with more than 2,300 homes sold, the first quarter of 2007 reflects a major step back from that pace. According to Annette West, a Las Cruces real estate agent with NM Apartment Advisors, 352 homes have been sold so far this year. Through March of last year, 507 homes had been sold.
“That’s a big change in volume,” West said.
The average price for a home in Las Cruces stands at $226,151. As of late March 2006 that figure was $193,481. The median price has increased from $170,000 in 2006 to $182,450 this year.
West bases her findings on the Multiple Listings Service, which while not an exact science - the MLS “is only as good as the agents entering data” - it still provides a solid comparison, she said.
Trend emerges
One pattern is clear: Fewer houses are selling in this New Mexico housing market and the ones that do are taking longer.
West reported that the average stay on the market for a home sold in 2006 was 106 days. So far this year, that average was 117 days.
The housing slump reported in other parts of the nation is affecting Las Cruces, experts said. The record-setting pace of the past several years was fueled in part of out-of-town buyers. Many potential newcomers are now having difficulty selling their old house, which makes it difficult for them to take out a New Mexico mortgage here.
Prices on rise
A housing index released Tuesday by Standard & Poor’s showed that prices of single-family homes across the nation fell in January compared to a year ago, registering the lowest growth since January 2004.
In Las Cruces, the average and median price of a home has risen from 2006. Despite that increase, many people still view the prices in southern New Mexico as a bargain. Let our brokers discuss the options you have in this region today.
SOURCE: Las Cruces-Sun News
Posted by Jed Moss on Mar 30 2007 under New Mexico
