Housing Bubble Bursting?

[Dee Dee]

Yikes!

I don't know how I missed this:

http://realtytimes.com/rtcpages/20061120_thinkingbig.htm

Lereah called the big Democratic congressional win a "positive turn." "From a regulatory perspective, I think it's great," the economist said. "The Bush White House, a White House that has been pro-banking, not pro-real estate, has been declawed."

Also next year, NAR expects the probable new chairman of the House Banking Committee, Rep. Barney Frank, to focus more on affordable housing and less on predatory lending. Describing the Massachusetts Democrat as "reasonable" and "pragmatic," staff lobbyist Lynn King told a convention briefing that Rep. Frank "is no fan or regulators who attempt to legislate by regulation."

Specifically, the NAR as well as other housing finance interests want to eliminate the FHA's 3 percent downpayment requirement, increase its loan limits, raise the cap on loan terms to 40 years, allow the agency to switch to risk-based pricing, move the condominium loan program to the single-family loan fund, and strike the limit on reverse mortgages.

:Eyecrazy:

 

[Randolph Kinney]

Brad:

So, does this level of exotic lending mean that all these guys will default? Of course not. What we do not yet know, as you pointed out, is whether or not the causal effect of exotics will really substantially exacerbate the overall market.

The over all default rate of sub prime loans is rising faster than the historical models have predicted and are at levels now (double-digits) that are truely record breaking. You have access to this data, I am sure. The data I have seen suggests that sub prime mortgages made up 25% of all loans in 2005, or about $600 billion.

There are new predictions now (the NYT and WSJ stories on the expected 20% default rate on sub prime mortgages) that suggest the problem of non-performing suprime loans will cause more CMOs to be down graded to less than investment grade. This does have market participants worried more so about what they have bought and are buying today.

HSBC Finance Corp., for example, underscored the loan situation has been worsening because of the unexpected rise in delinquency rates in mortgage-related debt. HSBC said in Securities and Exchange Commission filings that it first experienced deterioration in the second quarter with loans originated in 2005. By the third quarter, HSBC was seeing a weakening of loans originated in 2006. That meant new loans quickly were running into trouble. Douglas Flint, HSBC's group finance director, said, "We have seen more data now coming into the fourth quarter, and there is a weakening trend."

http://www.cnbc.com/id/16328319

Friday, 22 Dec 2006
More Tremors Rock Subprime Mortgage World


More tremors to tell you about in the subprime world. Fitch Ratings downgraded 100 subprime mortgage bonds, citing even more deterioration next year. Now, late payments aren't the only concern affecting the risky sector. CNBC’s Erin Burnett examined whether these "cracks" are going to spread.

Glenn Costello, The Managing Director for Fitch Rating’s Residential Mortgage Group said we've downgraded a number of bonds in the 4th quarter. "Some of the downgrades are technical and some (of the downgrades) come from concern over home price growth slowing and subprime borrowers coming under pressure."

 

[Randolph Kinney]

An Economy of Extremes

An Economy of Extremes

The housing market has fallen into a deep freeze; so has the auto industry. Yet on several other fronts, including commercial construction and high-end consumer spending, economic activity appears to be sizzling.

That is making it challenging for both economists and the Federal Reserve to decide which risk is greater: that housing will drag down the rest of the economy, pushing the Fed to cut rates, or that inflation will remain above the Fed’s comfort zone, forcing it to push up rates instead.


But others say that next year hot and cold could end up canceling each other out, turning the economy balmy.


http://www.nytimes.com/2006/12/26/business/26econ.html?_r=1&th&emc=th&oref=slogin

 

[Randolph Kinney]

Subprime-mortgage bonds

In another sign of weakness in the subprime mortgage-backed securities market, Standard & Poor's lowered its rating on 23 subprime mortgage bonds last month, according to RBS Greenwich Capital. The ratings firm had downgraded 195 subprime mortgage loans through the end of November--compared with 103 upgrades, said RBS analyst Peter DiMartino in an e-mail report last week. RBS said subprime mortgage bonds account for two-thirds of the ratings agency's downgrades on residential mortgage bonds. According to the Mortgage Bankers Association, late payments on subprime mortgage loans jumped 0.93 percentage points from a year earlier to 12.56% in the third quarter.

 

[Randolph Kinney]

2006 subprime mortgage collateral heads south

2006 subprime mortgage collateral heads south


NEW YORK, Dec 11 (Reuters) - As the housing market trends downward and overextended borrowers find it increasingly difficult to make their mortgage payments, delinquencies, foreclosures and early payment defaults (EPDs) are on the rise, said Dominion Bond Rating Service in a report on Monday.
Although performance is weakening throughout the subprime sector, the 2006 home equity collateral is distinguishing itself as one of the worst performers, it said.

When looking at 60-days-plus delinquencies for 2003 through 2006 subprime home equity collateral at 11 months of seasoning, delinquencies are 25 percent higher for the 2006 vintage versus the 2005 collateral and approximately 66 percent higher versus 2003 and 2004 vintages, said Dominion in the report.

The weaker performance of the 2006 vintage can be attributed to several factors, it said, including the greater leverage inherent in "affordability products", the migration of lenders down the credit spectrum and the sharp decline in home price appreciation (HPA) rates.

In order to support corporate earnings and maintain production volumes that had reached unprecedented levels, subprime originators continued to underwrite "affordability products" and the corresponding "loan at the margin," the rating service added.

And, compared with earlier vintages, more loans in 2006 were made to first-time home buyers, stated wage earners, borrowers who finance 100 percent of the purchase price ("piggybacks") and those who opt for 40- to 50-year amortization mortgages to reduce their monthly payments.

"Although "risk layering" has been pervasive in the mortgage market over the past several years, borrowers in earlier vintages who ran into financial stress were bailed out by high HPA rates and a favorable interest rate environment," it said in the report. "Unlike their predecessors, the 2006 vintage borrowers will have much more difficulty in either finding refinancing options, where they may be able to lower their monthly payments, or a buyer for their home," it added.

Refinancing options for this vintage of borrowers will also be limited as originators conform their underwriting standards to more stringent guidelines.

In addition, in a flat or declining housing market, mortgage servicers have little incentive to wait for homes to gain value, and therefore more quickly begin the foreclosure process, it said.

"In response to the recent weaker performance in the sector, some lenders have already begun to tighten underwriting standards. Although this tightening should strengthen the collateral quality of the 2007 vintage, the performance of the subprime sector in the near term will continue to remain vulnerable to HPA trends and interest rates," Dominion said.

 

[Brad Ellis]

Randolph,

Actually I do not have that data. You see, all these guys are going only a few years back. What I want to see is how the current (or even anticipated) forclosure rate compares with more normal market- not those within a hot market nationally.

Anytime a hot market cools you see these dramatic drops or upticks just like you see wild projections of long term gains when a market is coming off its lows.

I prefer a longer historical outlook.

And the quote from HSBC is really remarkable! Where have these guys been? I was projecting at least a tripling in the foreclosure rate over a year ago and was making additional staff requests nearly 18 months ago (not that anyone listened).

The alarm on the HELOCs will fall on deaf ears I predict. Most banks look at these as nothing more than credit card type loans.

And anyone who was making an assumption that banks were witholding the foreclosure process in the hopes of the subject property going up enough in value knows virtually nothing-zip-zilch about this market. You never wait- the only delay you will allow is when the borrower appears to want to try to cure the default (and something like 90% do). The "HPA" will never catch up with your loss after you get done factoring in arrearage costs, marketing costs, etc. etc. That is just plain dumb.

So, we shall see. What gos up must come down and what goes down will eventually go up. The real question is by how much and over what period of time.

Brad

 

[Pamela Crowley (Florida)]

One of the suggestions at the Vegas mortgage fraud conference was to hold on going with foreclosure. The suggestion was IF the property is owner/borrower occupied to negotiate for whatever they can pay instead of foreclosing.

Hide what would be the real foreclosure rates??? :new_eggface:

 

[JSmith43]

Hide what would be the real foreclosure rates???

I'd like to see someone keep records of short sales The fact that there has been far more $$ in second mortgages within the last several years might make it harder to make sense of the numbers when making long term comparisons.

 

[Brad Ellis]

Pam,

The coment you heard in Vegas proves the point. Once you foreclose on the property a ton of its value just disapears, or the resulting costs from accruals overtakes any hope of recouping all the loan.

That is specifically why they suggest trying to negotiate with the borrower.

However, please do note that such negotiations do not always happen, and often when they do it is a direct result of the initial foreclosure proceedings. Some borrowers care a lot and do try to make arrangements; others need to have the threat of losing the home.

Either way you do not hold back on the action until/unless the borrower contacts you to try to work it out. The overwhelming majority do not.

And yes, this would slightly understate the FC rate; however, even when you blend them in with the short sales that Roger mentions, it is still a drop in the proverbial bucket when you compare it to foreclosure proceedings.

BTW, it is the foreclosure action quantity that is tracked. Virtually no one keeps track of when such an action is withdrawn due to a workout with the borrower.

Brad

 

[Greg Bell]

Get ready for the rosey news about to come out about home sales.I predict
new home sales will be "UP" and general home sales will be "Slightly" down from the previous "Banner year".Stock market is up (Just like September 1929) so please go out and shop , just like president Bush told us to do.Keep the american dream afloat and purchase a new Florida condo for 600K with and Ocean view when you stick your head out of the Bathroom window.