Posted on 12/20/2006 8:07:27 AM PST by GodGunsGuts
The Mortgage Bust Goes On
Matthew Swibel, 12.19.06
WASHINGTON, D.C. - A record-high 19% of high-cost mortgages originated during the past two years will end in foreclosure, a consequence of the growth in risky mortgage products, according to new data compiled by an industry group.
The nonpartisan Center for Responsible Lending predicts 2.2 million households in this mortgage segment, known as subprime borrowers, either have lost their homes or hold mortgages doomed for foreclosure in the next few years. This estimate comes a week after a grim survey from Fitch Ratings, which studies residential mortgage securities, showing a 16-fold increase in past-due subprime loans in the third quarter of 2006, compared with 1998.
Subprime borrowers, who typically pay interest rates 2% to 3% higher than those with good credit, currently account for a quarter of all mortgage originations.
In Pictures: Ballooning Foreclosure Rates "This is the largest rash of mortgage foreclosures in the modern mortgage market," says Michael Calhoun, president of the Center for Responsible Lending.
The worst-hit areas for rising foreclosures include cities in California, Nevada, New York, New Jersey and the greater Washington, D.C., area that recorded steep housing price appreciation in the past few years. As the market cools, homeowners will find it harder to tap their homes for bigger lines of credit or to take cash out in refinancing.
Here comes the pinch: To manage household debt, Americans have used such moves to pull over $2 trillion out of their homes in the past five years. In the first six months of 2006, consumers extracted over $500 billion.
The sharp increase in foreclosures poses "a serious threat to neighborhood stability," said Pat Vredevoogd, president-elect of the National Association of Realtors, in a conference call with reporters on Tuesday. "It can cause all homes in the neighborhood to lose value."
The deterioration of homeowners' ability to keep up with mortgage payments will add oomph to calls on Capitol Hill for new regulation of mortgage lenders and brokers. "There is considerable discussion by incoming House Finance Committee Chairman Barney Frank [D-Mass.] to enact a predatory lending law for these mortgage lending problems," says Keith Ernst, senior policy counsel for the Center for Responsible Lending.
The Senate Banking Committee's agenda under Sen. Chris Dodd, D-Conn., will scrutinize the home-buying process, too. "The amount of household and mortgage debt as a percentage of disposable income is at its worst levels in over a quarter of a century--putting countless Americans on the financial brink," Dodd told a press conference earlier this month. "In many respects, the American Dream is at risk in a way it has never been before. I do not intend to preside over its demise, but rather to do everything possible for its revival."
The growing chorus of concern over mortgage costs and foreclosures could ensnare more than just the lenders like Countrywide Financial, Wells Fargo and H&R Block who peddle adjustable-rate mortgages with low teaser rates and interest-only features. On Wall Street, risky mortgages get bundled into large pools of mortgage-backed securities, which now account for 23% of all bond market debt outstanding, making it the largest single segment of the U.S bond market.
Increased regulatory oversight could lead to a demand that mortgage servicers give greater flexibility to delinquent borrowers to avoid foreclosure. This would increase a pool's income, but it would also raise its servicing costs--something investors dearly want to avoid.
Okay what part of the article don't you understand? The Ad Hominem or the crap?
"Wow, literally swimming in debt. That must be bad."
And you think these folks have trouble with the English language... you should try to see how much trouble they have understanding 6th grade math.. They think interest rates are a tough form of fractions and that real estate has to do with trailers.
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You posted:
"WASHINGTON, D.C. - A record-high 19% of high-cost mortgages originated during the past two years WILL [emphasis supplied] end in foreclosure, a consequence of the growth in risky mortgage products, according to new data compiled by an industry group..."
I really hope (for your sake) that SOME day you figure out how to deal with the "future tense" thingy that you seem to find so confusing.
Let's see if you can get your mental arm around these few statements:
(1) A "prediction" is not a "fact".
(2) There is no "data" from the future -- only predictions (and guesses) based on historic data (and bias).
(3) A "predicter" is rarely a "prophet" -- but very often a "profiteer", who hopes to exploit the insecurities of the most gullible. IMHO, that category includes YOU.
And I am always surprised at how many "half-empty" FReepers there seem to be, each breathlessly seeking a chance to worry about whatever economic "crisis" is being breathlessly touted by our "cheap-shot" media.
Such lemming-like pessismism would be funny if it wasn't such a danger to our Republic.
Lumber prices have fallen, just read an article on that fact.
Now that's funny. A record-high prediction. Talk about a bunch of nothing.
But as this guy is talking about, housing stocks have been rallying and morons and stock pumpers are saying its proof that everything is just fine in the housing industry.
But I suspect much more is going on behind the scenes on why these stocks haven't started to tank yet. Talk about catching a falling knife.
I'm sorry, but anyone who buys a 50-year-old, 1,600 square foot house on 7200 square feet of land for almost a million dollars (and I don't care what part of the country we're talking about), and then expects to flip it and make a profit, deserves to take a bath.
It's always something. You had a gold and oil bubble in the 1970's, an S&L crisis in the 1980's, a tech market bubble in the 1990's, and now a housing bubble.
The herd stampedes from one fad to another (leaving a few laggards from each generation to pine for an earlier fad). Don't be shocked.
Nor should you be surprised when the next big thing turns to a bubble and then a bust. I'm guessing bonds, but who really knows.
Chase has most likely packaged many of these garbage loans into complex mortgage backed securities and sold them to domestic and foreign investors.
The whole key is that when you sell these loans to others, there is a period of time that needs to pass before the loans go into forclosure, or the seller of the loan is legally obligated to buyback the loans/loans. This system was put in place to keep mortgage firms from issues tons of subprime junk loans and quickly selling them off to others. I'm sure the past year, Chase was VERY PROACTIVELY selling off a lot of these loans praying that the legal time period would pass before they would be forced to buy back.
What really scares me is the amount of this crap that's being held by Freddie Mac and Fannie Mae.
And as always happens, a few guys at the front of the herd make a huge score, add to it by selling their "secrets" to the rest of the herd, increasing its size, and a bunch of people at the back of the herd are left holding an empty bag, wondering what went wrong this time.
It's the Lucy-Charlie Brown routine.
The lead WSJ editorial discussed just this - I think they mentioned at least $1 trillion in MBSs held by Freddie and Fannie. They also mentioned that the people at Freddie and Fannie are pleased that the Dims are now in charge, as it increases the likelihood that we the taxpayers will just bail them out without too much attention being paid to their accounting shenanigans.
Lumber is at 1990 prices here in AZ.
Cement is still way up.
"Lumber prices have fallen ..."
It is true that lumber prices at the stump have fallen in the past year. However, a builder friend of mine told me that the price of finished, interior trim (mainly pine) had recently gone up for the first time in about 12 years.
There is all the regulation needed to keep banks and all other lenders from "screwing" the consumer and plenty of enforcement for rogue operators.
What cannot be done is to legislate, regulate, or adjudicate intelligence, probity, thrift, or common damn sense in consumers.
People will be stupid and act in opposition to their interest and there is nothing that can be done about it.
The Good Book also says that "the man who builds his house on the sand is a foolish man". Doesn't stop people from building houses on the beach and screaming for FEMA to insure it for them.
Amazing, isn't it how often "literally" is used to mean "not literally?"
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