June 5, 2007
Alphonso Jackson, secretary of Housing and Urban Development, urged Congress on June 4, 2007 to quickly enact legislation that he said could help stave off future distress for homeowners with high-risk mortgages without spending government money.
Nearly 2 million adjustable-rate mortgages are resetting to higher rates this year and next, setting up a potential wave of foreclosures that has put policymakers on edge.
“We knew that this was coming. We just didn’t know it would come as quickly as it came,” said Jackson. He also indicated that “we can address upcoming subprime problems if we have the wisdom to get ahead of the curve. And we had better get ahead of the curve — or we’re going to have serious problems.” About 20 percent of all subprime mortgages “are headed for trouble,” he said.
Jackson urged Congress to enacting a long-standing proposal to overhaul HUD’s Federal Housing Administration. The proposal would allow FHA to raise the maximum mortgage amount it can insure in higher-cost areas such as the Northeast, California and the mid-Atlantic. It is backed by the White House and has garnered support from Democrats in the House.
“FHA could help those thousands of borrowers who need an exit strategy from their suicide mortgages,” Jackson said in his address to the National Press Club.
With many homeowners in trouble frightened to call their lenders to ask for help, HUD also has asked Congress for an increase in funds for housing counseling so that people can turn to local nonprofit agencies, Jackson noted.
“This is not a bailout program,” Jackson said. HUD should not be a “bailout agency” and government money shouldn’t be committed to such plans, he said.
Legislation proposed by Sen. Charles Schumer, D-N.Y., calls for $300 million of government money to be channeled to community groups to work with distressed homeowners to help them avoid foreclosure. Unfortunately, Schumer’s proposal doesn’t seem to be going very far in the Senate.
Source: MSNBC.
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May 1, 2007
An interesting investigation of North Carolina foreclosures conducted by The Fayetteville Observer covering 2001 to 2005 showed that 1,770 out of 4,979 foreclosure auctions in Cumberland County involved loans guaranteed by the U.S. Department of Veterans Affairs. In those cases, borrowers were active-duty military families or retired veterans.
Experts have blamed a surge in foreclosures across the state on mortgages that have expensive fees and adjustable interest rates. Companies give loans to families regardless of credit or income, but the lenders can sometimes charge thousands of dollars in fees if borrowers fall behind.
Not many soldiers in dire trouble seek help from program available on-base, perhaps because they feel self-conscious about their financial situations. Severe cases of debt and foreclosures can cost soldiers their security clearance.
According to the newspaper’s analysis, foreclosure auctions in the county featured between about 800 and 1,200 homes each year between 2001 and 2005. The property was worth more than $316.6 million. Of the nearly 5,000 home foreclosures, almost half were bought or refinanced less than four years before, meaning many homeowners likely signed loans they couldn’t afford or loans with adjustable interest rates.
The number of people losing homes could get even bigger, as industry observers have said higher payments will kick in and result in up to $3 trillion in adjustable mortgages nationwide within the next two years.
In North Carolina, about 45,000 foreclosures were filed against homeowners last year _ a 6 percent increase from the year before. The number of cases has shot up nearly 174 percent since 1998.
Source: The Fayetteville Observer
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April 10, 2007
Litigation against mortgage lenders and servicers is on the rise, according to cases chronicled by http://www.mortgagedaily.com/.
DLJ Mortgage Capital filed a lawsuit against Sunset Direct Lending seeking nearly $24 million in repurchases, a spokesman for DLJ’s parent told MortgageDaily.com. Another suit was filed against Infinity Home Mortgages for $3 million. The spokesman said in both cases the loans became delinquent shortly after purchase by DLJ.
Another lawsuit by DLJ for $4 million alleges NetBank failed to forward borrower payments, neglected to pay mortgage insurance and refused to comply with requests for mortgage insurance information, the spokesman said.
Morgan Stanley Mortgage Capital Inc. has sued Baltimore American Mortgage Corp. seeking indemnification for losses and expenses it incurred when the lender failed to cure or repurchase 32 loans.
Although Morgan Stanley gave notice of these defaults to Baltimore American on five occasions, the lender “neither cured the breaches nor repurchased any of the defaulted loans as required under the sale agreements,” according to the suit.
Option One Mortgage Corp. is being sued by a former originator who claims the company failed to pay overtime. But a spokeswoman denied the allegations and said the company pays properly authorized overtime.
“The lawsuit has not been served on us,” she said. “We, however, assume that the class allegations are similar to previous lawsuits … which were dismissed by the courts.”
EMC Mortgage Corp. has been sued by Performance Credit Corp. over claims it delayed the purchase of subprime mortgages — driving down their value by more than $20 million, according to a SEC filing.
EMC allegedly agreed to purchase and securitize all of its monthly loan production and assume responsibility for any early payment defaults. But because EMC delayed the acquisition of loans, Performance claims it lost more than $20 million.
“Based on our preliminary review, we believe this case is without merit,” the head of Bear’s fixed income communications told MortgageDaily.com.
Source of post: MortgageDaily.com
Technorati Tags: DLJ Mortgage, Morgan Stanley Mortgage, Option One, EMC Mortgage, subprime
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April 7, 2007
The number of borrowers in the U.S. falling behind on the riskier types of home mortgages continues to grow, according to new data from First American Loan Performance, a research firm in San Francisco.
The rapid rise in overdue payments and defaults has forced dozens of lenders out of business or into bankruptcy protection in recent months and darkened the outlook for the U.S. housing market.
The National Association of Realtors recently reported that pending U.S. home sales in February was down 8.5% from a year earlier. The First American data show that in January payments were at least 60 days late on 14.3% of loans made to borrowers with weak credit records or large
debts in relation to their incomes, up from 13.4% in December and 8.4% in January 2006.
As more borrowers fall behind or default, many lenders have eliminated no-money-down loans for subprime borrowers and are insisting on seeing evidence of income.
Overdue payments and defaults will get worse in the months ahead, warns Mark Zandi, chief economist at Economy.com, in a recent report. The number of foreclosures in the U.S. is likely to reach a record 1.3 million this year, compared with an estimated 900,000 in 2006, Mr. Zandi
says.
Source: Wall Street Journal
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April 5, 2007
Civil rights groups called Wednesday for a six-month moratorium on foreclosures resulting from high-risk loans given to people with shaky credit, arguing that lenders should help borrowers refinance their mortgages - or face lawsuits.
A coalition of advocacy groups said mortgage lenders should immediately halt foreclosures on subprime mortgage loans made at high interest rates to people with weak credit histories.
At a news conference in Washington, D.C., the groups said a predicted wave of foreclosures stems from “reckless and unaffordable loans” for which investors bear some responsibility. They also said lenders, real estate agents and investors who bought subprime loans could face lawsuits under a federal law prohibiting housing discrimination.
Lenders, they said, should help affected homeowners by allowing them to refinance into conventional 30-year mortgages with a fixed interest rate.
“We know that there are safe and affordable loans that meet the needs of our communities,” said Janet Murguia, president of the National Council of La Raza, the nation’s largest Hispanic civil rights group. “We are calling on them to match families to the sustainable loans that they should have gotten in the first place. … There are homes of families that can be salvaged.”
The mortgage industry said lenders already are working to help distressed borrowers. John Robbins, chairman of the Mortgage Bankers Association, said many lenders are setting up payment plans to help avoid foreclosures among borrowers, many of whom have a hard time qualifying for refinancing.
“They are trapped, and we are doing everything we can to help them, including looking at new products designed to help troubled borrowers,” Robbins said in a prepared statement.
James Ballentine, director of housing and economic development at the American Bankers Association, said the call for a six-month moratorium is an “overreaction” to problems in the mortgage market.
There are many reasons borrowers default - including medical bills or the loss of a job - that don’t necessarily mean a lender took advantage of them, Ballentine said.
The advocacy groups said high-interest subprime loans harm black and Hispanic home buyers the most, citing data from 2005 showing subprime loans represented more than 50 percent of all mortgages taken out by African-American borrowers and 40 percent of those by Latino borrowers, compared with 19 percent of white borrowers.
The coalition argued that under the nation’s fair-housing laws, anyone involved in providing risky loans to minority borrowers who could not afford them could be held legally responsible - including real estate brokers, banks, mortgage companies and investment firms.
Investment banks and commercial banks such as Bank of America, Citigroup, Credit Suisse Group, Goldman Sachs Group and Morgan Stanley provided subprime-mortgage originators with short-term financing, bought loans from them and pooled those loans into securities to sell to investors.
The advocacy groups also said any anti-predatory-lending legislation considered by Congress should give borrowers the right to sue their lenders.
The chairman of the House Financial Services Committee, Rep. Barney Frank, D-Mass., said providing relief to homeowners in danger of foreclosure is a priority, but said something as far-reaching as a six-month moratorium may not be possible, given the difficulties in determining who would qualify.
“Clearly, some action is necessary,” Frank said in an interview.
Source of post: San Jose Mercury News
Technorati Tags: subprime, mortgage, foreclosure, default, National Council of La Raza
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April 3, 2007
As financial regulators and Congress probe more deeply into delinquencies and foreclosures in the subprime home loan market, one contributing factor is receiving increased attention: the lack of mandatory escrow accounts. Why? Because many subprime mortgages carry no escrows for property taxes and hazard insurance. That is in stark contrast to the prime mortgage market for consumers with good credit, where mandatory escrow accounts are routine.
Escrow accounts are set up by lenders to guarantee the timely payment of property-tax bills and insurance premiums. On top of principal and interest charges for the mortgage every month, the lender also collects money to be paid when tax bills and insurance premiums come due during the year. But when there are no escrows and a borrower fails to pay real estate taxes, local governments can file liens against the property; this often leads to the taxing authority selling the property to obtain the unpaid amounts. The lender then faces financial loss if the sale proceeds are not enough to pay off the mortgage. Escrows for insurance also are designed to protect the homeowner against loss in the event of a fire or other damage, and to cover the lender’s security interest in the property.
So why no escrows in these dangerous types of loans? Subprime lenders dispense with mandatory escrows to keep monthly payments low.
Federal financial regulators have begun focusing on the subprime industry’s frequent omission of escrow accounts. In proposed guidelines issued March 8, regulators from the Federal Reserve, Treasury and other agencies said lenders should disclose and explain upfront to credit-impaired borrowers that without an escrow, the burden is completely upon them to pay all property taxes and insurance premiums in a timely manner, and that such payments “can be substantial.”
Source of post: Washington Post.
Technorati Tags: mortgage, subprime, escrow, foreclosure
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April 3, 2007
According to some data, foreclosures were up 42% nationally in 2006. That pales in comparison to what lies in store, based on data from sub-prime lender Novastar Financial’s recent securitizations.
Some things to note when looking at these charts:
- Securitizations from 2004 saw a big spike in defaults around months 24-27 when many of the 2-year ARMs reset. Many borrowers simply couldn’t make their payments at the higher rates. 2005 & 2006 securitizations have yet to see their spikes.
- 2006 was a big year for emergency refinancings for people who couldn’t make their adjusted ARM payments. Consequently securitizations from 2006 are of extremely poor quality and are going bad very rapidly.
- Things started getting ugly around November when credit started tightening measurably and borrowers had more trouble getting emergency refis.
- 2005 mortgages were mostly made at the peak of the housing bubble so homeowners have reduced chances of doing cash-out refis.
OK, that’s all bad enough, but now consider:
- NFI has had to buy back a many defaulted loans out of the newer securitizations due to fraudulent applications and early defaults. So total defaults within the original securitizations are likely much worse.
- Many of the loans in the earlier securitizations have been prepaid through emergency refis. So total defaults within the original securitizations are likely much worse.
- NFI’s lending practices were probably more conservative than those of the 44 lenders who have already gone kaput”.
Check out the source of this post, which includes the charts. It’s frightening, but the cards are on the table.
Technorati Tags: foreclosure, mortgage, securitization
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April 2, 2007
April 2 (Bloomberg) — New Century Financial Corp. became the biggest subprime mortgage company to go bankrupt in the past year after the lender, which specialized in loans to people with poor credit records, was overwhelmed by customer defaults.
The company filed for Chapter 11 bankruptcy protection from its creditors today in federal court in Wilmington, Delaware. The largest creditors included Wall Street firms that financed New Century’s lending operations, including Morgan Stanley, Goldman Sachs Group Inc. and Credit Suisse Group. No amounts were listed in the filing.
“They’re clearly going to be the poster child for bad practices in the mortgage industry,” said Matthew Howlett, an analyst at Fox-Pitt Kelton in New York. “When all is said and done, the management team will be to blame.”
New Century rode the U.S. housing boom to become the largest independent provider of mortgages to borrowers with low credit ratings, only to collapse into insolvency as a rising number of customers failed to repay on time. The Irvine, California-based company extended about $60 billion in loans last year, second only to London-based HSBC Holdings Plc in total U.S. subprime mortgages granted.
Late payments on subprime mortgages reached a four-year high in the fourth quarter, the Mortgage Bankers Association reported. At least 30 home lenders have halted operations or sought buyers in the past 12 months, including four that have gone bankrupt since last November, according to data compiled by Bloomberg.
Shares Fall
The company’s shares fell 11 cents, or 10 percent, to 95 cents at 10:57 a.m. New York time in over-the-counter trading. They’ve fallen 97 percent this year.
Ownit Mortgage Solutions Inc. of Agoura Hills, California; Mortgage Lenders Network USA Inc. of Middletown, Connecticut; ResMae Mortgage Corp. of Brea, California; and People’s Choice Financial Corp. of Irvine are among companies that have filed for Chapter 11 protection.
U.S. prosecutors have begun a criminal probe of accounting errors and trading in securities at New Century, the company said March 2 in a filing with the U.S. Securities and Exchange Commission. Since then, more than a dozen states have told the company to halt operations, citing complaints from borrowers that their loans weren’t being funded. New Century had said it needed concessions from its own lenders to stay in business.
Large financial companies financed New Century to create a steady flow of mortgages they could package into bonds. With delinquent home loans rising nationwide, those firms have cut back credit to mortgage lenders.
New Century was founded in 1995 by a trio of former managers at Option One Mortgage, including current Chief Executive Officer Brad Morrice. It survived an industry shakeout in the late 1990s. The company employed about 7,200 people at the end of 2005.
Source of Post: Bloomberg.
Technorati Tags: new century, foreclosure, subprime, mortgage
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