Economy and General Discussion
http://www.post-gazette.com/pg/07095/775289-28.stm
Modified loans help struggling borrowers
Thursday, April 05, 2007
By Ellen Simon, The Associated Press
NEW YORK -- As home foreclosures mount, mortgage companies are knocking on doors, sending letters and making phone calls with a simple message for struggling homeowners: They'd rather modify your loan than foreclose.
EMC Mortgage Corp., which has a $78 billion loan portfolio that includes subprime loans to homeowners with weak credit, this week launched a 50-person team it calls "the Mod Squad." Members will spend an unlimited time on the phone with troubled borrowers, sifting through their bills to compute a workable monthly payment. In an industry that often rewards workers for getting off the phone quickly, each team member has time to speak to as few as three people a day.
Critics say lenders made loans to borrowers who weren't creditworthy with terms that would be impossible for them to meet. Whether the current wave of workouts will merely postpone foreclosures -- and delay bad loans hitting lenders' books -- is an open question.
Loose lending standards followed by lax modifications can merely delay a problem, Mr. Lawler said. He pointed to the raft of modifications done in the manufactured housing business in the mid 1990s, when easy credit led to a wave of defaults and reposessions.
"If people had known what the servicers were doing, red flags would have been raised; but by the time people knew what was going on, it was too late," he said.
Civil rights groups called yesterday for a six-month moratorium on foreclosures resulting from high-risk loans given to people with shaky credit, arguing that lenders should help borrowers refinance their mortgages or face lawsuits.
New foreclosures hit their highest ever level in the fourth quarter of 2006, according to the Mortgage Bankers Association. Homeowners are the obvious losers, but all the financial services companies involved lose. The lender loses the steady stream of payments it counted on. If it sold the loan as part of a securitization, a package of mortgage-backed securities, that investor loses. Loan servicers, who usually are paid a fraction of the interest on a loan, lose too.
With home values falling in some parts of the country, none of the finance companies wants to be stuck owning a house that has depreciated, or, worse, a house surrounded by other homes in foreclosure. EMC says it loses, on average, 40 percent of the value of a loan in foreclosure and also has to pay taxes and other expenses on the property. Detroit Home Sellers Lack Buyers as Foreclosures Rise (Update1)
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http://www.bloomberg.com/apps/news?pid=20601170&sid=a8SsAHYoeLk8&refer=home
Detroit Home Sellers Lack Buyers as Foreclosures Rise (Update1
By Kathleen M. Howley
Even homeowners who haven't fallen behind on their mortgage payments are feeling the pain of foreclosures, said John Kilpatrick, president of Greenfield Advisors, a Seattle real estate consulting firm. Living on a block with multiple foreclosures can result in a 10 percent to 20 percent decrease in property values, he said. In some cases that can wipe out the equity of homeowners or leave them owing more on their mortgage than the house is worth.
`Auction Signs'
``If you see a neighborhood with a couple of foreclosures on the block, a couple of auction signs in the yards, that's going to be a neighborhood that's stigmatized,'' Kilpatrick said.
``The innocent houses that just happen to be sitting next to those properties are going to take a hit.''
``Falling prices and foreclosures affect everybody, they're not discriminating,'' said Maupin.
``There's fear in the market because tomorrow your neighbor could go into foreclosure and there goes your value. If you need to sell for one reason or another, you can't.''
Oak Tree
On Wildemere Street in the northwest corner of Detroit, where properties sell for double the city's median price, Tudor-style homes with two-car garages line the street. About a quarter of the houses stand empty, many with signs announcing foreclosures and pending auctions.
Freddie Mac, the second-largest U.S. mortgage buyer, in February foreclosed on a brick home on the street, near the private Detroit Golf Club where Edsel Ford, former head of Ford Motor, once played. The two-story brick house was purchased in 2005 for $275,000. Now it stands empty and old Christmas decorations hang over the front door.
There's an oak tree in the backyard that has a swing hanging from its thickest bough. Next to the back door is a sign made to look like a two-foot-high gravestone, with a hand-drawn skull at the top. It has lettering that says: ``As you are, so once were we. As we are, so shall you be.'' The former owners didn't return messages left with their lawyer.
Gutted Homes
Tighter lending standards may slash subprime mortgage sales in half this year and cut by 25 percent so-called Alt A mortgages lent to people who have close to a prime rating, estimates Ivy Zelman, a New York-based analyst at Credit Suisse Group, who covers homebuilders. The new requirements will force some prospective homebuyers to save more money for a down payment or pay off some of their debt before they can secure credit.
Last Updated: April 4, 2007 10:57 EDT
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Expert: Subprime Lending Crisis to Spread to Alt-A Mortgage Sector Next
.Dire as the bad credit Florida mortgage crisis already is, it’s likely to spread to a higher tier of home loans known as Alt-A.
That’s according to a respected economist affiliated with the University of California at Los Angeles.
“The question is to what extent,” David Shulman, a senior economist with the UCLA Anderson Forecast in Los Angeles, said. “That could be the next shoe to drop. Certainly, it’s a very reasonable concern.”
California is home to half of the 20 biggest U.S. bad credit and Alt-A mortgage lenders, which are also prevalent in Florida.
The deteriorating subprime mortgage industry has spawned a probe by the California Attorney General, Jerry Brown. Congress is considering regulations to tighten lending standards for such mortgages.
Subprime loans, a term applied to some of the riskiest Florida mortgage products, are typically made to borrowers with poor credit or extremely high debt burdens.
An Alt-A mortgage is made to people who are considered good credit risks, but who may lack documents needed to qualify for conventional loans.
“We suspect the problem in the [subprime mortgage] area is just the tip of the iceberg for the mortgage market as a whole,” he wrote.
UCLA Anderson Forecast is affiliated with the University of California at Los Angeles and is located at the UCLA Anderson School of Management
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http://www.chron.com/disp/story.mpl/ap/fn/4687992.htmlApril 4, 2007, 1:38PM
Bonds Linked to Subprime Loans Wane
By JOE BEL BRUNO AP Business Writer
© 2007 The Associated Press
About 13.3 percent of subprime loans were delinquent in the fourth quarter, according to Standard & Poors Corp. This has caused a number of lenders to go bankrupt, including New Century Financial Corp.'s Chapter 11 filing on Monday.
"It is highly unlikely subprime loans in the next two years will sustain small losses with 13.3 percent already delinquent," said TCW Group chief investment officer Jeffrey Gundlach, who is the lead portfolio manager for the firm's total return bond fund.
"This is a golden opportunity for investors to be decreasing their risk postures in the marketplace," he said. "I couldn't advise that more strongly. I suspect you'll be better off to own quality bonds."
Standard & Poor's said last week subprime mortgage bonds in 2006 may be the "worst performing in recent history." This has triggered investors to shy away from these securities, and investment banks have become reluctant to bring them to market.
There were some $79.3 billion of bonds backed by loans to subprime lenders issued so far this year, according to a research report issued by Citigroup. That's down 37 percent from the $125 billion reported in the same period last year.
Collateralized debt obligations, known in the market as CDOs, have also taken a hit this year. These securities are backed by pools of bonds and asset-backed securities instead of individual loans.
Brokerages raced to get CDO deals to market earlier this year, sensing that a breakdown in the subprime market was brewing, according to Morgan Stanley analyst Vishwanath Tirupattur. The first two months of the year there was $31.2 billion worth of CDOs backed by subprime bonds that went to market, about double from the same period last year.
With news of subprime woes worsening, CDO and bond issuance connected to risky mortgages will drastically decline. Specifically, 2005 and 2006 CDOs will be under greater ratings pressure as they have substantially larger concentrations of subprime exposure, according to Fitch.
Ratings volatility will likely be experienced in next 12 to 18 months as the actual losses becomes clearer, according to Fitch senior director Derek Miller.
"Though 2006 performance will be very poor, Fitch's more immediate concerns focus on near-term ratings volatility that will arise from earlier subprime residential mortgage-backed securities," said Miller in a report released Tuesday.'
But when people with shaky credit began to miss mortgage payments, it triggered concerns about the wider subprime market. Investors have punished not only punished shares of mortgage lenders, but sold off subprime mortgage-backed bonds.
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http://thehousingbubbleblog.com/?p=2590
April 4, 2007
Some housing bubble news from Wall Street and Washington. “Mortgage lender SouthStar Funding has closed its doors, the latest victim in the battered subprime lending market, a company executive said Tuesday. ‘We really felt like we could weather the storm and that we would outlive some of the competition,’ said Tyler Wood, SouthStar executive VP. ‘Wall Street’s appetite for the Alt-A and subprime market disappeared.’”
United Press International. “The troubled U.S. housing market has led to nearly the same job-cut number so far this year as in all of 2006, an outplacement consulting firm said Wednesday.”
“Job cuts in the housing-related industries of real estate, construction and mortgage lending surged 346 percent to 21,245 in the first quarter from 4,764 in 2006’s three months, Challenger, Gray & Christmas Inc. said.”
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