Mortgage Meltdown
2 mensagens
|Página 1 de 1
Mortgage crisis: Don't forgive debt, just postpone repayment
Mais lenha para a fogueira! Então e se a subida não se acontece tão cedo como esperam? E se a desvalorização aumenta?
O sistema de fuga para a frente só vai enterrar ainda mais alguns, na esperança de respirar por uns dias.
O sistema de fuga para a frente só vai enterrar ainda mais alguns, na esperança de respirar por uns dias.
A new plan from the Office of Thrift Supervision would have lenders reduce mortgage balances, but let them collect the difference later.
February 20 2008: 4:56 PM EST
Special Reportfull coverage
Mortgage crisis: Don't forgive debt, just postpone repayment
Subprime loans defaulting even before resets
Home builder outlook remains dim
Home prices in steepest quarterly drop
NEW YORK (CNNMoney.com) -- A plan that would help troubled mortgage borrowers today - and might make lenders whole later on - was unveiled Wednesday in Washington.
The Office of Thrift Supervision (OTS) is urging the federal savings and loans lenders under its authority to refinance loans by reducing mortgage balances to the current market values of the homes. Thanks to falling home prices, many homeowners are now stuck with mortgages that are actually worth more than the houses themselves.
But instead of having lenders forgive the difference between the old mortgage and a house's current resale value, called a short sale, the OTS advises that lenders issue a warrant or "negative amortization certificate" for the difference. If a home regains its market value and is then sold, lenders have first claims to the profits.
"If a house has a $100,000 mortgage originally," said Bill Ruberry, a press spokesman for the agency, "and the fair market value is $80,000, there's $20,000 in negative equity. The lender could refinance for $80,000 and a warrant [for the $20,000 in lost value]."
If the house later sold for $100,000, the lender would collect the $80,000 mortgage balance plus the $20,000. If the sale realized more than $100,000, the certificate holder might even get interest on top of the $20,000. Any profit beyond that would go to the borrower. The warrants could be publicly traded.
Home prices still falling
The hope is that this plan will help prevent foreclosures while minimizing the hit that lenders will take, all without putting any burden on the taxpayers.
All borrowers are likely to be eligible, according to Jaret Seiberg of the Stanford Group, a policy research company, but the proposal appears to be aimed at those with subprime ARMs, negative amortization mortgages and interest-only mortgage borrowers. They're the ones most likely to have negative equity.
The savings and loan industry, which held 31% of mortgage loans last year, saw record losses of $5.24 billion for the fourth quarter of 2007, according to the OTS.
Can't pay? Just walk away
Few details about the plan have been settled, but it would not involve any legislation, nor would it be mandated in any way. Adoption would be on a voluntary basis by the hundreds of thrift institutions in the United States, like Washington Mutual (WASH) and IndyMac Bancorp (IMB).
Indeed, banks may not want to take this approach in markets where prices have fallen so steeply that it is unlikely they'll recover any money.
The plan's biggest attraction for lenders, according to Seiberg, is that rather than spending $50,000 to foreclose on a home or to write-off the negative amortization in a short-sale, they get a certificate that permits them to share in the up-side, if and when housing markets recover.
"The plan still needs to be discussed, but it has some attractions," said Ruberry. "We're putting it out there and urging our institutions to give it a look."
Um abraço e bons negócios.
Artur Cintra
Artur Cintra
- Mensagens: 3153
- Registado: 17/7/2006 16:09
- Localização: Cascais
Mortgage Meltdown
A FED gastou 1,25 bp que não adiantou em quase nada. E agora o que se segue? O plano Bush deve ficar bloqueado devido às eleições e se avançar só vai fazer com que exista mais divida.
Subprime loans defaulting even before resets
It turns out that massive interest rate spikes aren't the problem -- many borrowers couldn't afford these mortgages even at the low, introductory interest rates.
February 20 2008: 5:59 AM EST
Even after government relief, some homeowners still fear being squeezed out of their homes.
Play video
Current Mortgage Rates
Type Overall avgs
30 yr fixed mtg 5.92%
15 yr fixed mtg 5.37%
30 yr fixed jumbo mtg 6.87%
5/1 ARM 5.11%
5/1 jumbo ARM 5.76%
Find personalized rates:
Special Reportfull coverage
Subprime loans defaulting even before resets
Home builder outlook remains dim
Home prices in steepest quarterly drop
Hope Now: When loan workouts don't work out
NEW YORK (CNNMoney.com) -- For months, we've fretted about the Armageddon that will hit when subprime adjustable rate mortgages start resetting to much higher interest rates.
What's happening is even worse: Many of these loans are defaulting well before their rates increase.
Defaults for subprime loans issued in 2007 - none of which have reset yet - hit 11.2 percent in November. That represents perhaps 300,000 households, and is twice the default rate that 2006 loans had 10 months after being issued, according to Friedman, Billings Ramsey analyst Michael Youngblood.
Defaults are spiking well before resets come into play thanks to the lax lending environment of the past few years. Many borrowers were approved for mortgages that they had little chance of affording, even at the low-interest teaser rates .
"I was rather shocked by the characteristics of the 2007 loans," said Youngblood.
Hybrid ARMs start with very affordable fixed-rate terms of two or three years. After that, rates can jump three percentage points or more, and then re-adjust even higher every six months to a year. On a $200,000 mortgage, a reset could add nearly $400 to the monthly mortgage payment.
Originally, concerns about these loans focused on the fact that that most homeowners wouldn't survive such pricey resets. In late 2006, the Center for Responsible Lending (CRL), predicted that 2.2 million subprime ARM borrowers would lose their homes in the following two years due to reset shock.
For instance, in both 2006 and 2007, well over 40 percent of subprime borrowers were awarded mortgages with either little or no documentation of their ability to pay. With these so-called "liar loans," borrowers did not have to show proof of either earnings or assets.
And even when borrowers did go on the record about their earning power, it didn't bode well. Both 2006 and 2007 ushered in a large proportion of loans with high debt-to-income ratios (DTI), which indicates the percentage of gross income required to pay debt. In 2007 subprime originations, the DTI hit 42.1 percent, up from 41.1 percent in 2006. Borrowers were simply taking on more debt that they could afford.
What's more, many borrowers started out with low- or no-down payment loans, which left them with almost no equity in their home.
During the boom, rapid price appreciation meant borrowers built up home equity quickly. That minimized defaults, since owners could draw from that equity to pay their bills - including their mortgages - through home equity loans, lines of credit or cash-out refinancings.
But prices fell starting in 2006,leaving borrowers with less home equity to draw upon when they run into financial problems.
Median home prices fell 5.8 percent nationally, and by double digits in many areas. That, along with the deterioration in underwriting, changed the default math.
Owners with mortgages worth more than their homes simply began walking away from their homes when costs become unmanageable.
Lenders were slow to react
By late 2006, lenders knew that the housing market was heading south. Foreclosure filings took off during the third quarter that year, up 43 percent from 12 months earlier, according to RealtyTrac, the online marketer of foreclosure properties.
And the National Association of Realtors started to report median home-price drops in some markets.
But instead of tightening standards and cutting back on risky loans, lenders kept lending. Why?
"Because investors continued to buy the loans," said Doug Duncan, chief economist of the Mortgage Bankers Association.
Despite their quality, subprime mortgages were as profitable as any other for lenders like Countrywide (CFC, Fortune 500) and Wells Fargo (WFC, Fortune 500), who were able to quickly securitize the loans and sell them in the secondary market. The loans sold easily because they carried the promise of high yields. Thus, lenders transferred the risk to the investors.
"As long as you could sell the loan, you made the deal," Duncan said.
Lenders needed the fees that these loans generated because their finances were weakening. Their cost of borrowing money was rising, while competitive pressures were keeping mortgage interest rates low.
"Lending had been highly profitable through the second quarter of 2005," said Youngblood, "but by 2006 many lenders were running into red ink."
So, they revved up lending to increase short-term profits. And, to outside analysts, there appeared to be nothing wrong with loan quality.
"There were very few overt changes in industry underwriting guidelines," said Youngblood. What did change, he said, was that lenders were making more exceptions to their standard practices.
If borrowers had reasonable credit scores but short work histories, they might be approved for loans that would have been turned down in the past. An inability to prove income from, say, a part-time business, might be tolerated.
"These exceptions generally amounted to no more than 5 percent [of subprime loans] before 2006," said Youngblood, "but they represented the majority of these loans issued in 2006 and 2007."
The reason for that shift: Lenders depended on independent mortgage brokers for much of their business, and the brokers were pushing them to approve subprime loans because they delivered big profits for the brokers.
"Lenders felt they had to take the loans to preserve their access [to the rest of the loan pool]," he said. They were willing to accept some risky subprime loans so that the mortgage brokers would also send them safer prime and Alt-A loans.
Of course that's a bet that went bad. And it's likely to get worse as resets for ARMs issued in 2006 and 2007 kick in this year.
Um abraço e bons negócios.
Artur Cintra
Artur Cintra
- Mensagens: 3153
- Registado: 17/7/2006 16:09
- Localização: Cascais
2 mensagens
|Página 1 de 1
Quem está ligado:
Utilizadores a ver este Fórum: Google [Bot], rg7803 e 49 visitantes