Damage Control: Mortgage Industry Leaders Say Not to Overreact
U.S. mortgage industry leaders Wednesday urged both lenders and financial markets not to overreact to the crisis of confidence in high-risk home loans amid signs of distress from some providers of mortgages.
Angelo Mozilo, CEO of Countrywide Mortgage, the biggest U.S. lender, said the industry is under “tremendous pressure” to continue to provide home financing to people with less-than-perfect credit ratings while needing to protect itself from increasing incidence of default and delinquency.
Mozilo acknowledged “a pretty massive correction” in the mortgage industry, but said the latest market reaction risked worsening the situation.
“We may look back on this time and say that there has been a severe overreaction, and that exacerbated the problem,” he said.
The Mortgage Bankers Association said on Tuesday that late payments on home mortgages rose to a 3 1/2-year high, with the steepest increase among subprime adjustable-rate loans.
New foreclosure rates also hit a record high.
The report came as investors dumped their shares of Accredited Home Lenders Holding Co. and New Century Financial Corp., both lenders in the subprime (bad credit mortgage) market, fearing they’ll run out of cash.
John Robbins, chairman of the MBA, also attempted to play down distress in the subprime mortgage loan market, saying that most such borrowers are a good risk.
“Eighty-six percent of subprime borrowers make their payments on time,” Robbins said.
He dismissed reports that more than 2 million homes owned by such borrowers could go into foreclosure, and said every bad credit home loan would have to be delinquent for that to happen.
Robbins acknowledged the current shakeout in the subprime market, which he said was caused by lax credit requirements by certain bad credit mortgage lenders who wanted to make a quick profit from rapidly rising house prices.
“There are companies who tried to gain market share by easing underwriting standards, and the market is punishing them severely,” Robbins said.
But he argued that the subprime market has an important role to play for first-time home buyers who would not otherwise be able to afford to buy their own home, and that the housing market would be damaged if such loans were not available.
“It’s the beginning of the food chain, and if you destroy that, it will have a ripple effect all the way through,” he said.
S.A. Ibrahim, CEO of Radian Guaranty, a risk-management company, argued that the U.S. housing market is fundamentally sound, partly thanks to low unemployment, despite the tendency of some homeowners to finance increased consumption with home equity from their properties.
He predicted the mortgage industry as a whole will benefit from the failure of some lenders whose credit standards exposed them to exorbitant risk.
“The vast majority of players will come out of this stronger,” Ibrahim said.
SOURCE: Reuters