Housing Bubble Bursting?

[Greg Bell]

50
lenders have now gone kaput

Last addition: Apr 5, 2007. Latest imploded: People's Mortgage, Zone Funding, SouthStar Funding, Warehouse USA, H&R Block..

 

[Randolph Kinney]

Stagflation Deja Vu Spurs Rising Demand for TIPS, Loss of Respect for Fed

http://www.bloomberg.com/apps/news?pid=20601109&sid=a44cwAz_arQY&refer=exclusive

April 9 (Bloomberg) -- Rising oil prices, Mideast conflicts and a U.S. president perceived as ineffective contributed to the stagflation of the 1970s. Today, in the bond market, where Yogi Berra's immortal lines are increasingly invoked, ``it's deja vu all over again.''


Nowhere is that more evident than with Treasury inflation- protected securities. The difference in yields between 10-year TIPS and conventional notes has widened to about 2.5 percentage points, a seven-month high, and up from 1.43 percentage points in 2002. The gap suggests so-called real returns on the fixed-rate notes will be eroded by about $2.5 million annually on $100 million of securities.

 

[Randolph Kinney]

Alt-A lenders under pressure; investors shun mortgages

http://www.bloomberg.com/apps/news?pid=20601087&sid=aA4TvWRTrSIw&refer=worldwide

April 9 (Bloomberg) -- American Home Mortgage Investment Corp. shares fell as much as 19 percent after the lender cut its dividend and said profit will miss analysts' forecasts, citing a lack of buyers for home loans it sells to investors.


American Home said loan pools offered for sale received few bids and drew lower-than-expected prices in the first quarter. A week earlier, M&T Bank Corp., the New York bank partly owned by Warren Buffett's Berkshire Hathaway Inc., cut its forecast because of weaker-than-expected demand for Alt-A mortgages it was trying to sell, citing investor fears that rising defaults on subprime loans may presage losses on less-risky loans.


The company's stock declined $4.10, or 16 percent, to $21.74 at 10 a.m. in New York Stock Exchange composite trading. The shares had dropped 26 percent this year before today.

The lender said it had to write down its portfolio of low- investment-grade and residual securities to reflect current market values, and boost reserves to pay for Alt-A loans that it had to repurchase from investors because borrowers didn't make their payments.


Among rival Alt-A lenders, IndyMac Bancorp Inc. shares fell as much as 5 percent today and Impac Mortgage Holdings Inc. fell 4.7 percent. Countrywide Financial Corp., the nation's biggest mortgage lender, fell as much as 2.9 percent.

 

[Randolph Kinney]

Subprime crisis mortgage brokers fault?

http://www.marketwatch.com/news/story/subprime-crisis-shines-spotlight-mortgage/story.aspx?guid=%7B5343C57B%2DAB5B%2D4D90%2DA9D4%2DAF9A76F7D9B3%7D

SAN FRANCISCO (MarketWatch) - The subprime mortgage crisis has re-ignited scrutiny of the industry and people who broker home loans, with some critics arguing that hidden fees and other dubious practices have contributed to the surge in delinquencies.


The main problem is that, counter to common perception, mortgage brokers do not represent the borrowers who pay them for advice. Instead, they are more like independent salespeople who are often paid as much by the lenders offering loans as the borrowers.


A controversial fee called a Yield Spread Premium, which is paid by the lender to the broker, has come in for particular criticism and is the subject of a class-action lawsuit against NovaStar Financial, one of the largest subprime mortgage originators. The case is set to go to trial in May.

Subprime mortgages are sold to home buyers with lower credit scores. This corner of the home loan business has been hit hard as borrowing costs climbed and the housing market cooled. In January, more than 14% of subprime mortgages were at least 60 days delinquent, almost double the rate a year earlier, according to real estate data specialist First American Loan Performance.


As the housing market boomed, mortgage brokers' influence grew as they became involved in arranging the majority of home loans. Now the broking business should bare some of the blame for the ensuing crisis, say critics, including some who are brokers themselves.

There's a basic problem with mortgage brokers being paid by lenders as well as borrowers and "very few" people know this happens, he added.


"It's a dirty little secret of this business," he said. "It shows a lack of confidence on the part of a mortgage broker to not tell the client what they're making on the back side."


Official industry associations also admit to some of the system's short-comings.

Some say the problem of mortgage brokers being paid by both borrowers and lenders makes them indistinguishable from salespeople hired by banks to sell loans. That means borrowers should beware when hiring a broker to help them get a mortgage.

One of the most controversial payments that mortgage brokers receive from lenders is called a Yield Spread Premium (YSP).


The YSP, which averages almost $2,000 according to one study, was originally developed as a way to help poorer people buy houses. It's still used legitimately in many mortgages.


It works like this: a lender may be willing to offer a mortgage at a specific interest rate - 6% for example. That's called the par rate.


But the originator will also offer other alternatives through mortgage brokers. If a broker can persuade a borrower to accept a mortgage with a 6.25% rate, that broker will get a fee from the lender equal to perhaps 1% of the value of the mortgage. That's the YSP, which rewards the broker for arranging a loan that pays an above-market interest rate. The higher the interest rate, the higher the YSP.


The originator likes this arrangement because it can sell that loan on in the secondary market at a higher price than a mortgage paying the par, or market, interest rate.


YSPs are helpful because if poorer home buyers can't afford all the upfront closing costs on a mortgage, the fees spread out those costs over the many years the loan is in force. This works because when the mortgage broker gets paid by the lender, the broker's client is charged fewer fees.


But some experts counter that the YSP is being abused by mortgage brokers who want to collect as many fees as possible for arranging a loan and don't care that borrowers can end up paying a higher interest rate without even knowing it.


Weak YSP disclosure is being challenged in a class action lawsuit against subprime originator NovaStar.

The suit claims that NovaStar worked with brokers to sign homeowners in Washington state to loans with higher interest rates than were available from the lender itself. The borrowers didn't know this happened and are now stuck paying higher rates on their mortgages, the complaint adds.


NovaStar failed to inform the borrowers properly about the YSPs it was paying brokers to help them place these above-market-rate mortgages, the suit alleges.

Correspondent lenders are a cross between mortgage brokers and banks. Like a bank, they fund the mortgage with their own money, or from a line of credit provided by a larger lender. Once the deal closes, they immediately sell the loan on to another lender at a pre-negotiated price. But like a broker, correspondent lenders can initially shop around for mortgages from different providers.

Mortgage brokers wanting to avoid YSP disclosure will sometimes do a deal with a correspondent lender, rather than a regular lender, even though the borrower ends up with a higher interest rate, Warren said.

When she was a mortgage broker, Warren said she had correspondent lending relationships with many different companies including Countrywide Financial, Wells Fargo and Chase, which is now part of J.P. Morgan Chase.

So-called table financing involves mortgage brokers ushering the loan process all the way to the closing table. But instead of the lender funding the mortgage with its own money, the company advances the money to the broker, who closes the deal in his name, Guttentag explained.

So what's the difference between correspondent lending and table financing?


Correspondent lenders hold the loans they close for usually about four weeks before delivering them to another larger lender, Guttentag explained. On a table-funded loan, ownership of the loan changes immediately after closing.


Correspondent lenders also have to buy back mortgages they've sold on if any of the borrowers on those loans miss the first or second payment. Brokers don't have such a requirement, he added.

Another common tactic is not to tell borrowers about the prepayment penalty on their mortgage, Warren added. Prepayment penalties require home owners to pay a large fee if they pay off their loan early, usually through refinancing.


Mortgages that come with large YSPs for the brokers often carry big prepayment penalties too, Heideman noted. That helps the lender recoup some of the cost of paying the broker because it ensures that borrowers either keep paying their current loan off at the higher interest rate, or pay a penalty to get into a cheaper mortgage, he explained.

 

[Randolph Kinney]

California foreclosure sales near $2 Billion in March

http://www.centralvalleybusinesstimes.com/stories/001/?ID=4794

• Foreclosure sales now 15 percent of all home sales in California

With the Central Valley leading the way, 5,316 homes were lost to foreclosure sales in March in California, according to figures compiled by Foreclosure Radar, a Discovery Bay-based foreclosure listings and software company.

The homes sold at auction last month represented a 27 percent increase from February and a 264 percent increase in the last six months, the company says. Of the $2 billion worth of properties sold in March, 4,796 went back to the lender after receiving no bids, representing $1.82 billion, it says.

While foreclosure sales are increasing throughout the state, Foreclosure Radar says there are significant regional differences.


Despite considerable news coverage of San Diego foreclosures, San Diego County ranked 15th highest with one foreclosure for every 5,668 residents in March and while Los Angeles easily ranks number one in volume each month, adjusted for population, Los Angeles County ranks 38th with one foreclosure for every 12,182 residents.

The real foreclosure leaders are in the Central Valley, the company says.

“Foreclosures sold at auction now account for 15 percent of all home sales in California and continue to rise,” says Sean O’Toole, CEO and founder of Foreclosure Radar. “This isn’t just a story about failing subprime lenders and their customers. At the current pace, foreclosures will be a significant part of the real estate economy. A fact which bears close scrutiny even in areas that are not yet affected.”

 

[Greg Bell]

I think in th 80's we were paid a Warehouse fee for a higher interest rate.The borrower knew nothing about the fee.It may be different today.Another spiffy name , same shaft...4 RE0'S Today , yippeee..I sure hope they keep on buying those storage bins , or temporary housing , which is the same thing as a home debter...

 

[Randolph Kinney]

Countrywide Home Loans - Foreclosures Rising

Countrywide Foreclosures

Count: 7,231 Homes in Inventory
Total Asking Price: $1,327,586,974
(As of Monday, April 9)

1120 homes foreclosure inventory California = $449,004,000

 

[Randolph Kinney]

D.R. Horton orders fall 37% - no recovery yet

http://www.marketwatch.com/News/Story/Story.aspx?guid={6DC53A3C-95B5-46D6-83AE-6F634C148405}&siteid=mktw&dist=nbk

BOSTON (MarketWatch) -- D.R. Horton Inc. said Tuesday its cancellation rate remains elevated and that it hasn't seen a rebound in market activity that's typically associated with the spring home-selling season.

"Market conditions for new home sales continue to be challenging in most of our markets as inventory levels of both new and existing homes remain high," the CEO said, adding the company still sees the use of more incentives to lure buyers in many of its markets.

The fears rippling out in the mortgage market from the subprime mess have shaken an already unstable housing market that's wrestling with a glut of unsold homes on the market.


Last week, another big home builder, Ryland Group Inc., said it expected to post a quarterly loss. Like others in the industry, it's booking land charges as home prices in many areas of the country pull back.

 

[Terrel L. Shields]

Well, I’d argue that Lereah and the National Association of Realtors have actually crossed significant ethical boundaries in an endeavor that I see as essentially analogous to the less-than-principled process of home sales itself, but on a grand scale.

couldn't help but notice that comment in the RE blog. Lereah wrote a book in 05 saying the 'boom' would continue thru the end of the decade...

I just cannot help but notice, too. Those who 'pooh poohed' the ones who called this boom a looming bubble and argued that we were all Chicken Little in appraisers hats, where are they? They don't post much do they? I am sure the word "bubble" has never left their lips, but I am wondering if they are still having double digit growth in their real estate market?

 

[moh malekpour]

http://www.washingtonpost.com/wp-dyn/content/article/2007/04/09/AR2007040901463.html

Thirty years ago, most Americans got their mortgages at a savings-and-loan association from bankers who obeyed conservative lending rules. But sweeping changes in the finance world have created a far different system. It has helped raise homeownership to record levels, but many real-estate professionals say it also has led to far looser lending standards.

Nowadays, instead of poring over paperwork for weeks, lenders often verify loans through electronic underwriting programs in which numbers can easily be tweaked. About 70 percent of Americans get their home loans from independent mortgage brokers, many of whom are paid bonuses for pushing higher-interest loans

The housing boom brought another change. Mortgages are no longer held for long by banks but are packaged together as massive bonds and sold on Wall Street. Propelled in part by demand for these bonds, companies began offering loans that required little or no documentation of borrowers' income.

These "stated income" loans were designed for a limited purpose: giving self-employed people a crack at homeownership. But during the boom, the number of such loans exploded to the point that they became a running joke in the industry, earning the nickname "liar loans." Estimates vary widely, but research suggests that they made up a significant portion of all mortgages during the boom -- 58 percent in a study by First American LoanPerformance.

Mortgage lenders in theory have a right to compare loan documents to a buyer's tax returns, but they rarely do. In the few cases where it has been done, results were startling. In a study published by the Mortgage Asset Research Institute, one lender sampled 100 stated-income loan applicants and found that 90 had exaggerated take-home pay by 5 percent or more and that nearly 60 inflated their pay by more than 50 percent.

Mortgage originators often neglected extensive document verification because it slowed loan approvals. "Everyone in the mortgage industry is trying to approve loans faster than their competitors," said James Croft, founder of MARI in Reston. "They all offer the same basic rates and the same basic mortgage products. But if I can get the loan faster, that gives me a competitive advantage."

Many industry experts say stated-income loans became an invitation to fraud, while mortgage brokers -- paid commissions to put loans through, not slow them down -- often looked the other way.

In this climate, industry people say, fraud of two types became easier.

In the first type, known to law enforcement as "fraud for housing," people lied on their mortgage applications to get into homes they otherwise could not afford. Even on a loan where the buyer is asked to provide no proof of income, lying about it on the application is a federal crime.