[Loderunner]

Subprime losses lead to drop in home ownership

$this->bbcode_second_pass_quote('', 'D')espite the mortgage industry's claims to the contrary, an advocacy group says that subprime foreclosures will leave 1 million fewer homeowners.
By Les Christie, CNNMoney.com staff writer
March 27 2007: 4:28 PM EDT

NEW YORK (CNNMoney.com) -- About 2.4 million holders of subprime mortgage loans made between 1998 and 2006 will lose their properties to foreclosure, according to a report from the Center for Responsible Lending, a non-profit policy and advocacy organization for home owners.

Worse, that will result in a net home ownership loss of one million households.

CRL's analysis rebutted the mortgage industry's claims that the increase in subprime loans has opened up home ownership for millions of low income buyers. Instead, CRL contends, relatively little subprime lending is used for first-time home buying.

Testifying before the House Finance Committee today, CRL's president, Michael Calhoun, said the primary reason for the jump in foreclosures is "the abandonment of underwriting standards."

The report criticized both lax underwriting - noting in particular a disregard for the ability of borrower's ability to repay loans - as well as dangerous loan vehicles, such as "exploding ARMs," which have low rates for the first two or three years before resetting at much higher rates.

CRL contends that few subprime loans went to first time buyers, a notion that was seconded by Emory Rushton, chief national bank examiner for the Office of Comptroller of the Currency, in his testimony before the Finance Committee. He pointed out that Mortgage Bank Association figures revealed only 11 percent of subprime loans went to first-time buyers last year.

CRL says the record going back to 1998 is even worse; only 9 percent of subprime loans went to first-time buyers in the nine years through 2006.

The bulk of these loans actually went to refinance existing mortgages, incurring additional fees. And many of these refinancings involved cash back deals which increased the size of the original mortgages. When all was said and done, borrowers owed more on their homes after refinancing.

Because of the lower teaser rates, however, the new loans were affordable - at first. But when they reset at the higher, fully indexed rates, many borrowers could no longer make their payments.

Often that forced home owners to refinance yet again, extracting even more equity from their house. Since home prices kept rising, there was home value to draw on.

But now that prices are stagnant, even falling in some areas, many owners find themselves tapped out or even underwater, owing more on the mortgage than the house is worth and unable to make their monthly mortgage payment.

Borrowers in this kind of a bind are likely to find themselves in foreclosure, and that's what's going to lead to the decline in home ownership that CRL is predicting.

[Eli]

Well I saw this coming Bernanke sees inflation as High which means the Fed could raise not lower interest rates.

The housing market just got a whole lot worse.

Summer of high energy prices and we will be in a world of hurt.

[threadbear]

$this->bbcode_second_pass_quote('Eli', 'W')ell I saw this coming Bernanke sees inflation as High which means the Fed could raise not lower interest rates.

The housing market just got a whole lot worse.

Summer of high energy prices and we will be in a world of hurt.

[PrairieMule]

The writing is all over the wall here at work. I wish you could hear the calls I get from account execs and sales reps that got fat the last 7 years on the teet of sub prime now begging me for advice on how to increase a fico for a 100% LTVs in California, New Jersey, Florida, and other places that have had artificial boom. Sub prime reps always love to quote the Ben Affleck quote from Boiler Room about "making the Lexus payments". Not to many Lexuses in the parking lot today, at least there are noticibly less than a year ago. I think the company will survive as one of the few players left just because of it's name and size, but their will be casualties.

Tommorow I have interview with a insurance company and plan to go back to fixing dented bumpers w/my Texas P&C lisc (Thank god I kept up with the continuing ed). Got to save my hide because the tallest blade of grass seems to be the first to be hit by the lawnmower.

[mmasters]

$this->bbcode_second_pass_quote('threadbear', '')$this->bbcode_second_pass_quote('Eli', 'W')ell I saw this coming Bernanke sees inflation as High which means the Fed could raise not lower interest rates.

The housing market just got a whole lot worse.

Summer of high energy prices and we will be in a world of hurt.

[seahorse2]

PM,

First, good thinking on keeping your license current and good luck.

Can you give us anymore insight into some particulars, like how easy it is to increase someone's fico score? how many loans have been disaproved bc of tightening standards? are tightening standards starting to effect people other than subprime borrowers? any layoffs in your company yet, meaning, in your particular location which prompts you to move on?

Thanks

[PrairieMule]

$this->bbcode_second_pass_quote('seahorse2', '
')
Can you give us anymore insight into some particulars, like how easy it is to increase someone's fico score?

[seahorse2]

Mortgage crisis hits million dollar homes.

Yahoo News

[TommyJefferson]

$this->bbcode_second_pass_quote('PrairieMule', 'I')'m talking about a households of civil servants, cops and nurses owing over a half a million plus in consumer and real estate debt....they are going to f--ked hard in the next 3-10 years

[PrairieMule]

$this->bbcode_second_pass_quote('seahorse2', 'M')ortgage crisis hits million dollar homes.

Yahoo News

[PrairieMule]

See on that paticular call it was just to get a address for a payoff. Stuff like this is still happening despite all changes in for tougher underwriting and "boo-hoo" ing by lenders over foreclosures.

Full speed ahead, lets see how fast we can race our economy until we throw a rod and burn out the engine .

[PenultimateManStanding]

PM, though it is fun to bash California, and I don't fault you for it, I should point out some facts listed in a local newspaper today: the default rate per thousand homes in San Diego county is 3.3. The highest California county, San Juaquin county, has a default rate of 6.9. Cleveland has a rate of 24.9 and cities such as Denver, Indianapolis, Atlanta are close behind.

BTW, Henry Liu at atimes.com has an interesting article about this. (sorry, I'm posting on an ancient iMac or I'd add a link) He says that the banks are intermediators and not exposed to much risk. In a nutshell, most of the money going into real estate is pension funds. So it seems to me that our retirement money is going into our homes and that we are thereby pricing ourselves out of our own homes in a futile attempt to provide security in the future. As we know, all too painfully, there is no security or protection from the mess that's coming.

[PrairieMule]

PMS-

You are right, California is not alone. You can find this kind of behavior in FL,NV, AZ, TX,NJ, and VA as well. Sorry if I am generalizing. From my point of view it seems like the a lot of Americans have dug a deep financial pit.

[threadbear]

Prairie Mule, How bad will it get? What does your gut tell you and how does it register with what your brain is telling you, or are they in synch, on this one?

[PenultimateManStanding]

The highest default rates are in the Midwest. However, San Diego and Los Angeles are the two "worst housing markets" in the whole country. As is usual with financial things, I'm not real clear what the jargon means, but I think they are talking about expected price drops, with expectations of a 13% drop in prices for San Diego. If there is a lot of that in the coming years, then a lot of pension funds may wind up going broke: what I was talking about in that last post.

[PrairieMule]

$this->bbcode_second_pass_quote('threadbear', 'P')rairie Mule, How bad will it get? What does your gut tell you and how does it register with what your brain is telling you, or are they in synch, on this one?

[PenultimateManStanding]

BTW, speaking of financial jargon, I was reading some of Mr. Bill's posts in the Depletion Economics section. It's so strange to read that kind of financial-insider talk. The words don't seem to be English, the vocabulary is so arcane. The Oil Drum has a good article today on financial evidence that the Saudis don't believe their own rosy pronouncements on future production expectations. This article discussed these matters in a way that was informative to non specialists. Mr. Bill types seem to enjoy speaking an inscrutable language that makes no sense to anyone execpt other "players", i.e. people who have learned the esoteric lingo.

[PenultimateManStanding]

I do read Mr. Bill's posts avidly, as there are gems in them and he obviously knows a great deal. It's just frustrating to a financial layman who doesn't know the lingo and I have vague suspicions that there might be clearer ways of saying things. Maybe that's unwarranted, in fact, it probably is. But I read that thread at the oildrum by someone who clearly understands finance and he was able to make himself understood so I have to wonder. Is there a bravado component? And do people in finance really know what going on or do they use their specialized jargon to conceal their ignorance? My guess a mixture of both.

[mmasters]

$this->bbcode_second_pass_quote('PenultimateManStanding', 'B')TW, speaking of financial jargon, I was reading some of Mr. Bill's posts in the Depletion Economics section. It's so strange to read that kind of financial-insider talk. The words don't seem to be English, the vocabulary is so arcane. The Oil Drum has a good article today on financial evidence that the Saudis don't believe their own rosy pronouncements on future production expectations. This article discussed these matters in a way that was informative to non specialists. Mr. Bill types seem to enjoy speaking an inscrutable language that makes no sense to anyone execpt other "players", i.e. people who have learned the esoteric lingo.

[PenultimateManStanding]

thanks, mmasters. As a finance industry insider, I value your opinion. I noted your anger at what MrBill was saying. I have no way of knowing who is trustworthy. There does seem to be a lot of ego at stake.