Housing Bubble Bursting?

[Randolph Kinney]

Bond Investors Need to Be Held Accountable for Subprime Loans, FDIC Says

http://www.bloomberg.com/apps/news?pid=20601009&sid=alv4_tVVKtYs&refer=bond

April 17 (Bloomberg) -- A top U.S. banking regulator said many investors in bonds backed by subprime mortgages and businesses that profited from the loans failed to heed the risks and should suffer losses from the rising number of foreclosures.


``I think we should hold the servicers' and the investors' feet to the fire,'' Sheila Bair, chairman of the Federal Deposit Insurance Corp., said today, referring to a failure of investors to conduct due diligence before buying mortgage bonds. ``We did not have good market discipline with investors buying all these mortgages.''


Bair's comments are an indication that regulators may take a hard line in dealing with the ripple effects of subprime mortgage foreclosures on U.S. markets. Late payments on subprime loans reached a four-year high of 13.3 percent in the fourth quarter, while foreclosures on all home loans also set records, according to the Mortgage Bankers Association.


Some of the loans past due are unusually risky, with second liens or high loan-to-value ratios, Bair said. ``It was clear to investors there was huge risk, so I think everybody needs to share the pain now.''

Senate and House lawmakers are scrutinizing whether the creation of mortgage-backed securities compromised underwriting standards and fueled the increase in failed subprime loans.


``As long as it appears to me as there is an overzealous secondary market for these loans, they'll continue to flourish without checks and balances,'' said Senator Robert Menendez, a New Jersey Democrat, at a Senate Banking subcommittee hearing today on securitization and the subprime mortgage market.


Congress should restrict the creation and sale of mortgage bonds ``to ensure that we don't have the animal instincts of the marketplace take over as they seem to have today,'' Menendez said.

 

[Tim The Enchanter]

[quote

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Turn that upside down and it looks like what prices have done. But prices lag.

Look how steep the recent curve is!

 

[Brad Ellis]

Lee,

I see two very interesting things in that chart apart from what is obvious.

First, I note that the peak looks like it was in mid-1997 +/-. That would be well after the SoCal market took its hits- no?

Second is just the fact that, if we were really in a fairly normal market back in 1997, what really caused that level of foreclosures back then? If different from what is going on today (I suspect so), then why all the had wringing over the current level of foreclosures?

Politics, maybe????????

Brad

 

[Randolph Kinney]

Turn that upside down and it looks like what prices have done. But prices lag.

Look how steep the recent curve is!

The curve looks steep alright, just like this curve:

 

[Randolph Kinney]

Lee,

I see two very interesting things in that chart apart from what is obvious.

First, I note that the peak looks like it was in mid-1997 +/-. That would be well after the SoCal market took its hits- no?

Second is just the fact that, if we were really in a fairly normal market back in 1997, what really caused that level of foreclosures back then? If different from what is going on today (I suspect so), then why all the had wringing over the current level of foreclosures?

Politics, maybe????????

Brad

Brad, that historical chart of foreclosures was taken from an article that was in the LA Times.

http://www.latimes.com/classified/realestate/news/la-fi-forclose17apr17,0,5392708.story?coll=la-class-realestate-news

In that article, it said:

Foreclosures peaked at 15,418 in third-quarter 1996, at the tail end of the last big slowdown in the state.

The article is making the point, SLOWDOWN.

Most of the loans going into default now were made at the peak of the boom, when it seemed like the good times would continue forever and lending standards were lax.

There is a difference between the last time and this time concerning the reason for the number of foreclosures.

Last time, you had base closings and job losses, a slowdown economically. This time, there is no slowdown economically however, there is a slowdown in the house price appreciation and now a change in lending standards (tightening). Going forward, you will have a large number of ARMs resetting this year, which will add to the foreclosure statistics.

You bet this is going to be a political football. The economy has not slowed down to the point of job losses. What's causing the problem?

 

[Couch Potato]

What if ...

You bet this is going to be a political football. The economy has not slowed down to the point of job losses. What's causing the problem?

Just think what will happen if the economy does slow down. I try to keep an optimistic outlook, but I just can't do that right now. :new_all_coholic:

 

[Randolph Kinney]

Supreme Court: States Can't Regulate Loan Subsidiaries

http://www.washingtonpost.com/wp-dyn/content/article/2007/04/17/AR2007041700611.html

The Supreme Court ruled yesterday that states may not regulate the mortgage-lending subsidiaries of national banks, in a case that pitted all 50 states and consumer groups against banks and their federal overseers.

The national banks had argued that their subsidiaries were subjected to an unduly burdensome patchwork of state rules and regulations when Congress had made it clear they should be regulated by the U.S. Office of the Comptroller of the Currency (OCC). The states had argued that their role was lawful and necessary to protect consumers from predatory lending practices and other potential violations.

The Supreme Court's ruling coincides with national debate on how to stem a surge in missed home mortgage payments and foreclosures, both of which have risen to record levels in some parts of the country. As the mortgage crisis unfolds, federal and state regulators have been accused of failing to properly monitor industry practices, most notably abusive lenders who charged excessive or unnecessary rates and fees for their loans.

Punt! The political football is now back to the U.S. Congress to do something about the foreclosure problems.

 

[Randolph Kinney]

Alt-A Update: Downey Financial Reports

http://biz.yahoo.com/prnews/070418/law028.html?.v=100

Highlights:

• REO doubled in Q107 from $8.5MM to $17.2MM
• Non-performing assets were .94% of all assets, up from .68% at 06 year-end and .22% a year ago
• Delinquencies were 1.32% of total loans, up from 1.03% at Q406 and .32% a year ago
• Neg am ARMs are down to a mere 81% of portfolio, from 92% a year ago. Neg am during Q1 was $37MM or 3.56% of neg am portfolio, representing 31% of loan interest income
• Allowance for loan losses was unchanged from Q406 and down $9.4MM from a year ago

 

[JSmith43]

http://www.washingtonpost.com/wp-dyn/content/article/2007/04/17/AR2007041700611.html

Punt! The political football is now back to the U.S. Congress to do something about the foreclosure problems.

The states are doing a bit of political grandstanding right now, with laws directed at MB's, the only dog they can legally kick at this point.

I may have to change employers to get federal protection, if the BS passed in MN is too thick. Right now, it appears to be the case. The state legislators should call it The Big Bankers Protection from Competition Act, since that is how it appears it will end up.

 

[Randolph Kinney]

California default and foreclosure anaylsis

Lending institutions filed 46,760 defaults in Q1 2007. The notices serve as the first step in a lengthy process toward foreclosure.

On primary mortgages, homeowners were a median five months behind on their payments when the lenders started the default processes. The borrowers owed a median $10,784 on a median $331,200 mortgage.

Many lenders have raised their standards requiring a minimum credit score of 670, and a down payment on the property. This makes it nearly impossible to refinance for a homeowner whose property lost value, and now has more to pay the bank than what was originally owed.

Statewide, the loss of homes to foreclosure totaled 11,033 during the first quarter.

The people who are losing their homes are not typically people who have lost their jobs, but because they've had to deal with the structure of the loan and don't have enough equity to sell or refinance.

Investors are not drawn to foreclosures because the asking prices do not give them a sufficient return. REO properties are sitting vacant adding to existing inventory of homes for sale.

There is going to be a wave of foreclosures statewide later this year. That's when there's going to be blood in the streets. There are calls already to rescue the homeowner and to take legislative action against mortgage brokers and lenders.

Get ready for FIRREA redux part two. No one is going to escape the blame.