Real Estate Related News

**James48843** · 03-03-2007, 10:24 AM

Foreclosures rising among high-risk US mortgages

By Alexandra MarksRon Scherer, Staff writers of The Christian Science Monitor

One of the great legacies of the housing boom of the past six years is that almost everyone – even people with questionable credit – has access to a mortgage.

But now, some housing advocates contend, all that easy credit is on the verge of creating the worst mortgage crisis since the 1980s. The reason: A rising number of homeowners are shouldering mortgages they can no longer afford. For example:

•In 2004, John Silva refinanced the modest home he and his wife own in Willow Springs, N.C. Today, with their mortgage at almost 10 percent, he worries he's just a "hiccup" away from foreclosure.

•Ten months ago, newly divorced Tammy Myers got a no-down-payment loan to buy a house in Denver. The interest rate is now so high it's difficult to make her monthly payment.

•Susie Smith – a retired social worker who's too embarrassed to use her real name – almost lost the house in St. Paul, Minn., she had lived in for most of her life. That was after she refinanced it and her monthly payments more than doubled from $675 to more than $1,400 a month.

Across the nation, foreclosures and defaults are rising as mortgages that were once affordable are now expensive albatrosses as the introductory "teaser rates" that made the loan possible end and higher interest rates kick in. Some housing specialists worry that the mortgage industry – with more than 20 companies already in bankruptcy – will raise its lending standards so high that would-be homeowners with less-than-perfect credit will be frozen out. There is even some concern that the pullback in lending will extend the slump in the nation's housing market.

"It's the most serious threat to the economy," says Mark Zandi of Moody's Economy.com. "It has the potential to set the housing market back since there could be a whole class of people who can't get credit."

At issue is a class of mortgages that lenders call "subprime" because they do not qualify for the lowest or prime interest rate. These are designed for high-risk borrowers, those with fixed incomes, or those who have had credit problems in the past. Since 1998, more than 6 million Americans have borrowed in this way, according to the Center for Responsible Lending (CRL). The majority of these loans are adjustable mortgages (ARM) that are tied to changes in interest rates.

One in five loans subprime That's a dramatic increase in only a decade. In 1995, subprime represented a niche market: less than 5 percent of mortgages originated. Today, Wall Street analysts estimate they make up from 18 percent to 24 percent.

Advocates contend they've made it possible for millions of Americans who in the past would not be able to qualify for a mortgage to own their home. But critics contend they've also become open to abuse, in part because qualification standards are now so low.

Deregulation has allowed the mortgage industry to create products like the no-down-payment mortgage and the even riskier "no documentation" loan where all borrowers have to do is state their income without providing proof of their ability to repay the loan.

"There was a real rush to make these loans and make as many loans as they could," says Jordan Ash, of ACORN Financial Justice Center, a national low-income housing advocacy organization. "That's because the mortgage companies could sell them off right away" to Wall Street investors.

Investors profited from the high interest rates that consumers were paying.

"Wall Street wanted the mortgage brokers to keep making loans even though they were riskier and riskier," says Ira Rheingold,of the National Association of Consumer Advocates. "They didn't care that ... people were getting loans they couldn't afford because there was so much money to be made."

Abuses got so bad that some lenders were making loans to borrowers who ended up defaulting on their very first payment, according to housing experts.

Defaults ignored in soaring market. While the housing market was soaring, lenders shrugged off borrowers' problems because the value of the property was rising. But now that the housing market is in a tailspin, as many as 2.2 million people could end up losing their homes, worth a total of $164 billion. Another report, concluded that as many as 30 percent of people who obtained subprime loans in 2006 may end up defaulting on them.

"Many families are going to lose their homes," says Deborah Goldstein, executive vp of the CRL in Durham, N.C. "There's a need for federal regulators to address the kinds of abusive mortgage practices that we're seeing."

Last fall federal regulators started to step in, requiring lenders to disclose more clearly the benefits and risks of some subprime loans to borrowers. On Tuesday, Freddie Mac, a quasi-public backer of home loans, announced it would cease purchasing the riskiest subprime mortgages. This week, Fannie Mae, another quasi-public housing organization, said it is working on "rescue" products to try to help troubled borrowers.

Housing advocates believe the regulators are reacting too late. "They're good positive steps but it's not close to being enough – the genie's already out of the bottle," says Rheingold. "What we're seeing now with the incredibly high foreclosure rates ... is a product of the complete deregulation of the mortgage industry over the last 10 to 15 years."

The Mortgage Bankers Association, which represents the nation's major lenders, points out that deregulation has helped create record homeownership.

And the market is already correcting itself, says Kurt Pfotenhauer, the MBA's senior vp for government affairs. Investors are now requiring stricter standards and mortgage companies are weeding out overly aggressive brokers.

"Government regulation of this market will result in fewer people having access to credit," he says. "If you care about people having access to credit you shouldn't regulate the market."

Rate hikes could cause more defaults The catalyst for a lot of defaults will be a change in the interest rates many borrowers pay. This year, holders of some $250 billion in ARMs will see their interest rates rise – perhaps by as much as 1.5 percentage points.

Hugh Moore, an investment manager who runs Guerite Advisors in Greenville, S.C., estimates as many as 1.4 million subprime borrowers will face the prospect of higher interest rates. "I don't know if that constitutes a tidal wave, but you have to believe a number of those people don't have a lot of additional cushion," he says.

Take Mr. Silva's case. In 2004, he was paying 7.6 percent on his $139,000 ARM. Last summer, the two-year teaser interest rate ended and his mortgage jumped 2 percentage points to 9.6 percent. His payments went from $920 to more than $1,200.

The interest on his mortgage, along with his monthly payments, will increase every six months until it reaches a high of 13 percent – if interest rates continue to climb.

"I had wanted a 30-year fixed rate and they told me I'd qualify for one," he says. "Then when I got to the closing they told me I could only qualify for the adjustable rate."

Silva initially walked away. But he had some debts to pay that were due from a stint of unemployment after the dotcom crash in 2000. After two days, he returned and signed the new mortgage.

"I felt like it was a switch and bait," he says.

Ms. Myers is also coping with mortgage sticker shock. As sales director at a Colorado golf course, her commission-driven income depends on weather. When she got her no-down payment loan last spring, costing $2,200 a month, the weather was good and she was bringing home as much as $6,000 a month. When snow came early to Denver, the golf course closed, and her monthly income has plummeted to $2,200 – only enough to cover the mortgage and nothing else. She's maxed out her credit cards and borrowed from family to make payments over the last few months. Her March payment is now due and she only has $1,000 left in the bank.

"They won't take a partial payment, and they say they won't work with me until I've been 60 days late on my mortgage," she says. "I've never been late before, and I don't ever remember being in a financial situation like this before."

Ms. Smith nearly lost her St. Paul house to foreclosure. A retired social worker on a fixed income who is raising a grandson on her own, she had no intention of refinancing her 30-year fixed-rate mortgage. Then her insurance company said her old house needed structural repairs – and it wouldn't issue a policy until the work was done. That's when a mortgage broker came around. He told her he could get her an adjustable-rate mortgage that would allow her to take out equity to pay for the repairs without increasing her monthly payment too much – at least for the first two years. When she asked what would happen after the two-year "teaser rate" was up, the broker told her she could just refinance again.

"And voilà, at the end of the two years, I get this slap in the face – they start raising the interest rates every few months and said, 'No, we're not going to refinance,' " she says. Eventually, her payments doubled to more than $1,400 a month. "I told them I don't make $1,400 a month," she says. "'Tough,' they said, 'It's just too bad.' "

Eventually, the lender started foreclosure proceedings. Smith then contacted ACORN, the national housing organization, which negotiated a new fixed-rate loan for her. But her payments are still more than $1,300 a month and she's now working as many part-time jobs as she can find.

"I hate for anyone to find out that I was this stupid, that I could get caught up in something like this," she says. "The sad thing is that I'm not the only one. There are thousands of people that this is happening to."

http://news.yahoo.com/s/csm/20070302/ts_csm/asubprime

**ChemEng** · 03-03-2007, 02:25 PM

Im reminded of the proverb "A fool and their money are quickly parted."

Its sad that so many people are in this situation, but a BIG part of me believes that they did it to themself. If you dont like the product the brokers were pushing, then you could always walk away. No one made them sign the papers.

The idea that the government needs to take action on the lenders is equally laughable. The buyer made a poor choice of mortgage type. Plain and simple. How can government action correct this?

I just wish more people would take accountability for their role in the whole process rather than trying to blame it on a sneaky lender.

**James48843** · 03-03-2007, 05:50 PM

Originally Posted by James48843

"I hate for anyone to find out that I was this stupid, that I could get caught up in something like this," she says. "The sad thing is that I'm not the only one. There are thousands of people that this is happening to."

There you have it.

Come on people- you screwed yourself.

The time to educate yourself is BEFORE you borrow the money. Now the rest of us will suffer and the economy will tank because you failed to figure out that the payment is going to double in a couple years.

This it what is going to sink the economy into severe recession over the next two or three years.

**ChemEng** · 03-03-2007, 06:03 PM

Unfortunately, she is the exception to the rule. Not to mention, Im sure there is much more money involved with getting some form of government instead of leaning on the accountability of the loan signers.

**pyriel** · 03-03-2007, 11:40 PM

Education and due diligence is the key. People are spreading themselves too thin by accumulating properties left and right. I hope that people reading this article doesnt get scared and shy away from RE. I've decided to hunker down and build up cash. I only have one purchase left and will probably not do anymore purchase until we have another crash. I suggest that people have an emergency nest egg that they can tap into. I'm looking at 1 year total expenditure coverage. This means that if I have zero tenants for all my properties, I should be able to survive for a year.

I hope that this becomes an eye opener to all of our members.

**Gilligan** · 03-04-2007, 04:47 AM

James,
thanks for this new thread, we needed a place to post some good RE stories.

Originally Posted by ChemEng

Its sad that so many people are in this situation, but a BIG part of me believes that they did it to themself.

ChemEng,
I agree with you, most of these people did it to themselves by living above their means, spending all their money then borrowing more at an adjustable rate, then they want someone to bail them out. There are a few RE companies out there that buy houses headed to foreclosure but they only pay about 50%-80% of the value.

**Gilligan** · 03-04-2007, 04:55 AM

The New York Times

by Karen Crouse

Published: March 3, 2007

Matt White, L.A. Dodgers pitcher, discovered some rocks while clearing a place to build a house on 50 acres that he bought from his Aunt for $50,000.
A geologist who inspected the property last summer told White that he was sitting on roughly 24 million tons of mica rock worth an estimated $1.2 billion to $2.4 billion.

The article can be found at:

http://www.nytimes.com/2007/03/03/sp...l/03white.html

**James48843** · 03-22-2007, 08:05 PM

Government says sub-prime foreclosures not risking the rest of the economy-

http://news.yahoo.com/s/nm/20070322/..._subprime_dc_1

Officials downplay wider risks of subprime failures By Chris Reese

Government officials on Thursday minimized the broader economic impact of a crisis in the subprime mortgage market, but the largest U.S. mortgage lender said foreclosures in 2006 may be the worst yet.

A U.S. home builder also warned that increased foreclosures could prolong the housing slump.

A senior staffer for the Federal Reserve said the central bank is not seeing signs that problems in the subprime market are spilling over into other market sectors. The U.S. Office of Thrift Supervision said its 17 savings and loan banks with significant subprime lending operations were "well positioned" to absorb increases in losses due to foreclosures.

Credit deterioration in the housing market is focused on the narrow subprime sector, Fed Division of Banking Supervision and Regulation Director Roger Cole told a Senate Banking Committee investigating problems among lenders who write mortgages for people with weak or no credit histories.

"At this time we are not observing spillover effects from the problems in the subprime market to the traditional mortgage portfolios or, more generally, to the safety and soundness of the banking system," Cole said.

Scott Polakoff, deputy director of the Office of Thrift Supervision, told the committee that thrifts with significant subprime lending operations were "generally well capitalized."

The chairman of the committee, Connecticut Democratic Sen. Christopher Dodd (news, bio, voting record), told the hearing that while he plans legislation on predatory lending, the solution to the problem of those facing foreclosure on their mortgages may not be legislative.

"Instead, I would seek to ask leaders from all the stakeholders ... to come together and try to work out an efficient process providing some relief for these homeowners who will be caught in this bind," Dodd said.

The largest U.S. mortgage lender, Countrywide, said on Thursday its subprime mortgage defaults for 2006 loans may exceed the company's highest on record.

Countrywide's "worst single origination year was 2000, for which the cumulative foreclosure rate was 9.89 percent," Sandor Samuels, the company's executive managing director, said in prepared remarks to the government panel examining mortgage lending.

"We believe that declining home prices and other factors ... may produce foreclosures numbers on 2006 originations approaching or exceeding those on loans originated in 2000," he said.

One U.S. home builder also warned on Thursday that higher foreclosures could prolong weakness in the housing sector and impact financial performance.

KB Home, the No. 5 U.S. home builder, said its net profit fell 84 percent in its fiscal first quarter ended February 28. The company's chief executive said lending problems in the broader market from rising default rates and tighter lending requirements for borrowers with riskier credit histories could strangle any improvement in the situation.

KB Home shares fell 27 cents to $47.52 in midday trading on the New York Stock Exchange.

A representative of the Conference of State Bank Supervisors told the Senate committee that Congress should not bail out subprime lenders and brokers who made risky mortgage loans to borrowers with bad credit.

Joseph Smith, North Carolina's commissioner of banks, said the overall U.S. mortgage market is strong even if some large subprime lenders suffer financial losses.

(Additional reporting by John Poirier and Kevin Drawbaugh in Washington and Ilaina Jonas in New York)

**pyriel** · 03-22-2007, 11:59 PM

I really feel for these people that was baited to get these kinds of teaser loans. This country thrives in debts and it is what is keeping this country afloat. However, being buried in debts doesnt last long and somehow, at one time or another, the house of cards shall fall.

But instead of concentrating on this negativity, how about we look at the positive side of what is going on. This means that in a about a year or so (maybe even earlier), we might see another big RE drop. As for me, I welcome this wholeheartedly. Yes, it might sound very selfish but I am an investor. And like any investors, we make our profits when we buy really low and sell high. In fact, this is how we are all playing our TSP here. An advice for everyone, dig in now, raise cash, look at your financial statements, fix your credits, learn about mortgage, etc etc et... These would get you ready to move in to some bargain RE properties out there. Good luck to all.

Pyriel

**James48843** · 03-29-2007, 01:39 PM

More sub-prime news articles:

http://biz.yahoo.com/cnnm/070322/032....v=1&.pf=loans

Why you should care about the subprime fallout
Thursday March 22, 12:26 pm ET

By Gerri Willis, CNN

The Senate Banking Committee held hearings Thursday on the crisis in the subprime mortgage lending industry. But we're going to tell you why you should care about the subprime mortgage meltdown and how it's going to affect you.
1: As a homeowner

Even if you're sitting nice and cozy in your 30-year fixed mortgage rate home, this subprime lending mess could really put a dent in your home's value.

A recent study shows that about 1 in 5 subprime mortgages will go into foreclosure. And whether that foreclosed property is across the street, or in the same neighborhood, that is not going to reflect very well on your property value.

The Center for Responsible Lending estimates that one foreclosure in the neighborhood lowers the value of nearby single-family homes by about 1 percent. So, if there are 10 foreclosures in your area, you're talking about 10 percent dip in your home's value.

2: In the market

If you're in the market for a home, you're at an advantage. Sellers are becoming very competitive with each other since there are more houses on the market. And prices have come down in some areas too. That means you may be able to score your dream home at quite a bargain.

If you do have solid credit, the 30-year fixed interest rate is very attractive at just above 6 percent. If you don't have good credit however, you may find it more difficult to qualify for a loan.

3: Selling your home

It used to be that securing credit for just about anyone was a no-brainer, but those rules are changing. Lenders tightening their standards, so there may be fewer borrowers out there who qualify to get a mortgage. And that means that fewer people will have the means to buy a home.

That means if you want to sell your home, you need to price it right. You may also have to market your home more aggressively. Make low-cost improvements that can really help to sell your home like sprucing up the backyard or adding some fresh paint to the exterior.

4: In the market for a mortgage

With all the turmoil in the subprime market, it's more important now than ever that you find a mortgage lender that you trust and feel comfortable with. If you have good credit, you'll find that rates are in your favor. That's because there's a real demand now for homeowners that can make their monthly payments.

Make sure you get at least three mortgage rate quotes from banks and credit unions. You may also want to ask friends and family to recommend a lender. Don't fall for promises that seem too good to be true. The day of "low-low" rates and no money down are long gone.

What to do if your mortgage lender goes out of business

Subprime risk: Most vulnerable markets

**robo** · 10-29-2007, 04:23 AM

Feds cut down-payment assistance programs
By Holden Lewis • Bankrate.com

For a decade, credit-challenged homebuyers have used a regulatory loophole that lets them get Federal Housing Administration mortgages without putting their own money down, while at the same time avoiding costly subprime loans. About 7,000 buyers per month were exploiting the loophole, and now the feds are squeezing it shut.

The new policy means that prospective homebuyers with marginal credit will have to act quickly if they want to buy houses without putting any money down. Otherwise, they will have to save for down payments or wait for the FHA to roll out its own zero-down program.

At issue is a controversial method of scraping together the down payment for a house. Many subprime lenders require down payments of at least 5 percent. That's a high hurdle for people who already have credit problems; luckily for those borrowers, loans insured by the Federal Housing Administration require smaller down payments -- as little as 3 percent.

Lenders mandate down payments for several reasons, the main one being that borrowers are less likely to stop making monthly payments if their own money is at risk. To make sure that borrowers have something to lose, no lender allows sellers to make down payments on behalf of buyers. But for FHA-insured loans, there has been a way to get around that seller-funded prohibition.

The housing boom and the loophole
The FHA allows homebuyers to accept gifts of down-payment money from nonprofit organizations. There's your loophole: Since the 1990s, the FHA has grudgingly allowed home sellers to "contribute" money to nonprofits, and for the nonprofits to then "donate" the money to homebuyers. In effect, sellers could fund buyers' down payments, which was a no-no, but the enterprise was technically legal because the money was shuttled through nonprofits. The nonprofits collected service fees from sellers.

A lively down-payment assistance industry grew quickly behind the protection of this loophole in FHA regulations. In the 2000 fiscal year, 6 percent of FHA-insured purchase loans had down payments channeled through nonprofits; four years later, 33 percent did. When this funding method was most popular, in fiscal years 2003 through 2005, more than 10,000 people per month were taking advantage of it, boosting the housing boom. From 2000 through 2006, more than 650,000 buyers got their down payments through nonprofits.

The federal housing department and Congress have commissioned at least three studies since 1999 that concluded these loans were riskier than FHA loans that didn't involve down-payment gifts. Sellers inflated home prices to recoup their contributions to the nonprofits, researchers found.

The studies recommended that the nonprofit down-payment assistance loophole be closed. Mortgage lenders, home builders and down-payment assistance programs argued to keep the loophole open, on the grounds that boosting the homeownership rate was good for everyone. The feds didn't take action until now.

http://www.bankrate.com/brm/news/mor...istance_a1.asp

**pyriel** · 11-02-2007, 05:56 AM

Depending on who is reading these articles about the housing woes, we can either say that it is bad or it is good. For those on the red end of the stick, of course it will be bad. However, for those RE investors, do you think that they are panicking right now? I'm not talking about those speculators that bought properties hoping that the RE market will continue to rise and they were getting all those crazy mortgages and overextending themselves. Those good RE investors are actually smiling from ear to ear. Ask yourself when you read this kind of articles; are you seeing an opportunity or seeing that this market will come crashing down.

Guam is currently in the uptrend right now. I say we have another 5 good years. Hopefully, I will be in better positions 5 years from now so when the wall start crushing down, I will be ready to scoop up some bargains out there...

Pls be careful...

Pyriel