International Herald Tribune (02/01/08)
Mortgage brokers are struggling to maintain their reputations and businesses as various individuals and entities point fingers at them for the subprime mortgage crisis. Many have been forced out of business, with a report from the Labor Department indicating that 26,000 have lost their jobs since April 2006. Friedman, Billings, Ramsey & Co. analyst Paul Miller expects another 130,000 of the remaining 400,000 mortgage industry jobs to be lost before the market's troubles subside. Industry groups are ramping up efforts to promote mortgage brokers as ethical professionals in the meantime, with the Upfront Mortgage Brokers Association making members pledge not to impose unanticipated fees on borrowers. Meanwhile, the National Association of Mortgage Brokers will institute mandatory continuing education standards and criminal background checks as well as require members to abide by an ethical code of conduct in order to secure the group's "seal of approval." Wholesale Access forecasts a drop in brokers' market share of new mortgages to 40 percent this year from 60 percent during the last decade, with banks making more direct loans.
Friday, February 1, 2008
Lenders Now Designating Risk According to ZIP Codes
Daily Herald (02/01/08); Harney, Ken
Mortgage lenders have begun to rate entire counties or zip codes based on lending risk and require larger down payments for borrowers who will live in areas ranked as risky or declining, in response to new down-payment restrictions imposed by Fannie Mae in late 2007. For example, Countrywide lists hundreds of counties across the country as "soft markets" with rankings from one to five, in ascending order of perceived risk, and will now require 5 percent larger down payments from most applicants in the approximately 100 areas nationwide in categories four and five. David Berenbaum, executive vice president of the consumer advocacy group National Community Reinvestment Coalition, calls the approach redlining and says it would violate federal fair lending and civil rights statutes; while Paul Skeens, head broker for Carteret Mortgage, in Waldorf, Md., says labeling areas as "declining" and then requiring larger down payments would be a self-fulfilling prophecy. "People can't buy there because they need more cash upfront, the houses don't sell, and prices go down," he reasons.
Mortgage lenders have begun to rate entire counties or zip codes based on lending risk and require larger down payments for borrowers who will live in areas ranked as risky or declining, in response to new down-payment restrictions imposed by Fannie Mae in late 2007. For example, Countrywide lists hundreds of counties across the country as "soft markets" with rankings from one to five, in ascending order of perceived risk, and will now require 5 percent larger down payments from most applicants in the approximately 100 areas nationwide in categories four and five. David Berenbaum, executive vice president of the consumer advocacy group National Community Reinvestment Coalition, calls the approach redlining and says it would violate federal fair lending and civil rights statutes; while Paul Skeens, head broker for Carteret Mortgage, in Waldorf, Md., says labeling areas as "declining" and then requiring larger down payments would be a self-fulfilling prophecy. "People can't buy there because they need more cash upfront, the houses don't sell, and prices go down," he reasons.
Mortgage Rates Make About Face
San Jose Mercury News (CA) (02/01/08); Crutsinger, Martin
Following four consecutive weekly declines, Freddie Mac reports a jump in the 30-year fixed mortgage rate to 5.68 percent during the week ended Jan. 31 from 5.48 percent the prior week. The 15-year fixed mortgage rate rose to 5.17 percent from 4.95 percent over the same time span. Meanwhile, the five-year adjustable mortgage rate edged up to 5.32 percent from 5.13 percent; and the one-year ARM climbed to 5.05 percent from 4.99 percent. Freddie Mac chief economist Frank Nothaft attributes the recent gains to an uptick in 10-year Treasury bonds.
Following four consecutive weekly declines, Freddie Mac reports a jump in the 30-year fixed mortgage rate to 5.68 percent during the week ended Jan. 31 from 5.48 percent the prior week. The 15-year fixed mortgage rate rose to 5.17 percent from 4.95 percent over the same time span. Meanwhile, the five-year adjustable mortgage rate edged up to 5.32 percent from 5.13 percent; and the one-year ARM climbed to 5.05 percent from 4.99 percent. Freddie Mac chief economist Frank Nothaft attributes the recent gains to an uptick in 10-year Treasury bonds.
Trying to Tap Into Home Equity? We'll See
Los Angeles Times (02/01/08); Kristof, Kathy M.; Reckard, E. Scott; Colker, David
Thanks to a drop in residential values that has stripped them of most or all of their equity, tens of thousands of homeowners are finding themselves shut off from access to second mortgages. Countrywide Financial Corp. and other lenders are notifying clients that they no longer can borrow against their home equity lines of credit, usually because what they owe on the real estate now surpasses the property's market value; others, including IndyMac Bancorp and JPMorgan Chase & Co., are cracking down on eligibility requirements to open new credit lines. Second mortgages were available for the taking until about six months ago, when home delinquencies and foreclosures took off. As a buffer against financial straits, lenders are beginning to mandate that borrowers maintain a significantly bigger share of equity in their homes.
Thanks to a drop in residential values that has stripped them of most or all of their equity, tens of thousands of homeowners are finding themselves shut off from access to second mortgages. Countrywide Financial Corp. and other lenders are notifying clients that they no longer can borrow against their home equity lines of credit, usually because what they owe on the real estate now surpasses the property's market value; others, including IndyMac Bancorp and JPMorgan Chase & Co., are cracking down on eligibility requirements to open new credit lines. Second mortgages were available for the taking until about six months ago, when home delinquencies and foreclosures took off. As a buffer against financial straits, lenders are beginning to mandate that borrowers maintain a significantly bigger share of equity in their homes.
Subprime-Loan Losses Are Seen Expanding
Wall Street Journal (02/01/08) P. C2; Ng, Serena; Reilly, David
With the housing market continuing to show no signs of even a slight rebound, Moody's Investors Service has boosted its projections for losses among subprime mortgage loans. The credit rater now expects total losses on subprime mortgages taken out in 2006 to settle between 14 percent and 18 percent compared to the firm's previous projection last fall of average losses in the range of 6.6 percent to 15 percent. The revision was prompted by two factors: the deteriorating outlook for residential values and the increasing number of subprime borrowers who have stopped making mortgage payments. Moody's pessimism, coupled with a tidal wave of mortgage-debt downgrades from Standard & Poor's on Jan. 31, has had a ripple effect on the nation's credit markets, driving prices of some agency mortgage securities lower.
With the housing market continuing to show no signs of even a slight rebound, Moody's Investors Service has boosted its projections for losses among subprime mortgage loans. The credit rater now expects total losses on subprime mortgages taken out in 2006 to settle between 14 percent and 18 percent compared to the firm's previous projection last fall of average losses in the range of 6.6 percent to 15 percent. The revision was prompted by two factors: the deteriorating outlook for residential values and the increasing number of subprime borrowers who have stopped making mortgage payments. Moody's pessimism, coupled with a tidal wave of mortgage-debt downgrades from Standard & Poor's on Jan. 31, has had a ripple effect on the nation's credit markets, driving prices of some agency mortgage securities lower.
Tenancy-in-Common Fractionalized Loans Weather the Mortgage Storm
San Francisco Chronicle (02/01/08); Lloyd, Carol
Since their creation in 2005, fractionalized Tenancy in Common (TIC) loans have boasted a nearly spotless record even in this era of defaults and foreclosures. Fractionalized TIC loans were created at the peak of the mortgage boom by California's Circle Bank and Bank of Marin to offer consumers the opportunity to buy into TIC homes without sharing a loan for the entire building; several other daring lenders followed their lead on what was considered a high-risk product. Despite the perception of risk, the loans have performed exceptionally well. Insiders say one reason is the fact that their innovative nature makes TIC loans virtually impossible to resell on the secondary market—meaning that the banks that write them must keep them on their books and face catastrophic losses in the event of widespread foreclosures. As such, lenders of fractionalized TIC products tend to require full documentation and employment verification and generally will bankroll no more than 75 percent of the property value.
Since their creation in 2005, fractionalized Tenancy in Common (TIC) loans have boasted a nearly spotless record even in this era of defaults and foreclosures. Fractionalized TIC loans were created at the peak of the mortgage boom by California's Circle Bank and Bank of Marin to offer consumers the opportunity to buy into TIC homes without sharing a loan for the entire building; several other daring lenders followed their lead on what was considered a high-risk product. Despite the perception of risk, the loans have performed exceptionally well. Insiders say one reason is the fact that their innovative nature makes TIC loans virtually impossible to resell on the secondary market—meaning that the banks that write them must keep them on their books and face catastrophic losses in the event of widespread foreclosures. As such, lenders of fractionalized TIC products tend to require full documentation and employment verification and generally will bankroll no more than 75 percent of the property value.
Regulators Urge Fast Action by Lenders on Risky Loans
Wall Street Journal (02/01/08) P. A8; Paletta, Damian
Speaking at a meeting of the Florida Bankers Association, Comptroller of the Currency John Dugan says banks that underwrite commercial real estate loans should expect more scrutiny from the federal government in the coming months, as a report from the Federal Deposit Insurance Corp. (FDIC) reveals a nine-fold increase in write-offs of construction and development loans to $524 million in the 2007 third quarter from the same period in 2006. To safeguard against additional losses, Dugan expects lenders to seek new appraisals, hike loan-loss reserves, generate more capital and downgrade assets. Given that many commercial units typically are not owner-occupied, commercial real estate loans are deemed higher-risk than residential properties, as they are vulnerable to high vacancy and default rates when the economy slows. Meanwhile, FDIC Chairman Sheila Bair testified before the Senate Banking Committee that residential loan servicers need to do more to prevent widespread foreclosures when 1.7 million in nontraditional mortgages experience rate resets in 2009; she pointed out that the rate freeze plan orchestrated by the Bush administration and the mortgage industry does not help these borrowers.
Speaking at a meeting of the Florida Bankers Association, Comptroller of the Currency John Dugan says banks that underwrite commercial real estate loans should expect more scrutiny from the federal government in the coming months, as a report from the Federal Deposit Insurance Corp. (FDIC) reveals a nine-fold increase in write-offs of construction and development loans to $524 million in the 2007 third quarter from the same period in 2006. To safeguard against additional losses, Dugan expects lenders to seek new appraisals, hike loan-loss reserves, generate more capital and downgrade assets. Given that many commercial units typically are not owner-occupied, commercial real estate loans are deemed higher-risk than residential properties, as they are vulnerable to high vacancy and default rates when the economy slows. Meanwhile, FDIC Chairman Sheila Bair testified before the Senate Banking Committee that residential loan servicers need to do more to prevent widespread foreclosures when 1.7 million in nontraditional mortgages experience rate resets in 2009; she pointed out that the rate freeze plan orchestrated by the Bush administration and the mortgage industry does not help these borrowers.
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