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.
These are sub prime notes. Most of the people should not have been homeowners in the 1st place. I have a sister with a financially retarded husband that has one of these. I have been sick with worry for her for 18 months knowing that she will probably loose her house. They have no worries. By the way they went to Europe for a couple weeks for the holidays. Go figure.
BTW, the Center for Responsible Lending is chockfull of lefties and poverty pimps.
HOWEVER
I tend to agree with the summary of their press release as well as their concernes over lending practices.
Right. More government intervention and more legislation needed. Let's ignore personal responsibility.
"You mean taking a out a 30 year loan on a trip to Hawaii and a car that may last 7 years is a bad idea?"
Amazing how many people don't understand that, not even after you explain it to them. The reply is: But my payment only goes up $200 a month and I get what I want NOW.
Good move... 200 x 360 that's $72,000 for that car and trip, sicker price of $30k.
Doomed in a FEW YEARS? So they can predict the future? Wow. And all this time I thought it was impossible.
BTTT!!! There are a remnant of conservatives left on this website.
"sicker price of $30k."
Ha! That's supposed to be "sticker price" ....
Freudian slip anyone?
I looked to see your sign-up date. You've been on a conservative website since 2000 and you really believe that? or am I missing your sarcasm tag?
Well it's certainly true that alot of folks who never should have been borrowers qualified.
But what happens when the houses go back on the market? What happens to the perceived value of a house YOU or your neighbor just bought?
What happens if the valuations of property nationwide, but particularly in the specific speculative markets start to fall, and qualified homeowners see their assessments drop, and watch their loans turn upside down?
Those loans did not happen in a vacuum. And if they go belly up, the impact will be on more than the single borrower.
Time to short Home Depot.
And either put me out of a job (see profile) or slice my income in half, leaving me to find other work in the newly-destroyed economy. Thanks, Barney.
Sorry, but the use of the name Barney Frank and the term "predatory" in the same sentence should really be discussing a different topic all together.
LOL!
"So they can predict the future?"
Not that hard. The mortages that are seen to be doomed are held by households where the mortgage is an excessive percentage of the total income. Let's say 70%, I don't know the exact criteria they use.
If you're paying that much, and the appreciation rate of housing drops, or goes negative, you're likely to lose the house. You don't build equity, so equity loans become one less option. Sure some of those who are paying that much will tough it out, or get a better job, or hit the lotto. Most will go bust.
I'm going to add a huge "it depends" to all of your points.
ARMS? Some are OK, but it depends on a few things. If you have enough equity and can easily afford the higher payment when the rate adjusts, go for it. But for most people, you're correct.
Zero down? Again, depends. If you do zero down so as to keep cash for other purposes, and the payment is easily affordable (<20% of your income or so,) why not? Buying a house with zero down because you HAVE nothing to put down, that's risky. But doing it for other purposes, can be just fine. Perhaps adding a caveat that you must have cash reserves of a certain amount for a zero-down loan makes sense.
The over 40% thing? In some markets, that's what a starter home is! In places where average incomes are 50 grand and the average house is 400k, what other choice is there? Of course your points do illustrate one reason the prices are so high to begin with.
So you're saying that anyone whose ever had credit issues deserves to rent forever?
No comment? Is this good news or bad news? Is the glass half full or....
"You've been on a conservative website since 2000 and you really believe that?"
This is sort of off topic, but I can't resist. I have already stated that it's the borrowers not the lenders who have created this situation. But, I tend to agree with Fee. Especially in today's environment.
Used to be mortgages were difficult to get because they qualified you, and scrutinized your ability to repay. Now, with all the fly by nights that have popped up, you can get a mortgage quickly, with almost no effort. These guys operate like car salesmen. They don't care what you want, or what you need, they just want to get the most out of you.
Making money is great. Being a predator, preying on the ignorant isn't a way I'd want to make money.
As a mortgage loan officer, I know there can be issues.
For example, there were lenders that will allow total debt obligations (mortgage plus credit cards, car, other notes etc) to equal 55% of total gross income. (since then many have clamped down to 45% or 50%) That does not include food, utilities, etc.
Um...my take home pay after taxes is about 62% of my income. Now, granted, that brings up another entirely different issue (excessive taxation) but it is a bit insane. So, say you make $3000 a month gross (before taxes.) This lender lets you go to total debt obligations of $1650 for someone whose total take home pay per month is about $1900. They have $250 to pay for food, gas, utilities, and all that?
"You mean taking a out a 30 year loan on a trip to Hawaii and a car that may last 7 years is a bad idea?"
Sounds good to me, but to each his own...
I'm ready to watch the show and sit back and laugh.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.