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Saturday, March 10, 2007

The Mortgage Lender Implode-O-Meter

Please click onto the title of this post for the story.

posted by Bob at Saturday, March 10, 2007

5 Comments:

Anonymous Anonymous said...

Move it on over Repke! All the landlords who have sold out now will back when the values have been driven to "rock bottom" and the jury award are in for the Federal Lawsuits, and they'll be buyin these places up for $10,000. to $15,000. a piece.....just like in the early 90's.

For Rent: 2 BR, no hot water, limited electricity, some crime problems. $1300.00 per mo. Apply at Helltown Housing.

10:32 AM  
Anonymous Anonymous said...

Looks like the real estate values are going to be sinking fast. People like Rick Mons will be bringing their "Bottom Feeders" to town by the bus load.

11:04 AM  
Blogger Bob said...

Down payment levels are recipe for trouble
Low down payments are now the norm, as home prices have risen faster than buyers' incomes and savings.
By Kenneth Harney, Washington Post Writers Group
Last update: March 09, 2007 – 6:30 PM

Homes
Down payment levels are recipe for trouble

You can have it for...

Bargains galore, novices beware

Suit claims buyers steered to affiliated title company

Forward thinking
Does anybody remember the old days when home buyers actually made sizable down payments -- often 20 percent or more -- when they bought their first house?
New national survey research reveals just how dated and quaint that concept has become in today's market, thanks to rocketing home prices that have far eclipsed buyers' incomes and savings.

From mid-2005 to mid-2006, according to a statistical sampling of a representative group of 7,548 purchasers, nearly half of all first-time buyers financed the entire transaction, obtaining mortgages in the full amount of the home price. Another 30 percent put down 10 percent or less, and 20 percent put down 5 percent or less.

The research was conducted by the National Association of Realtors, using information on home transactions supplied by Experian, a major credit and realty data firm. The median down payment of first-time purchasers, according to the study, was just 2 percent. In other words, the median-sized mortgage for first-timers represented 98 percent of the home purchase price.

The highest loan-to-value ratios for first-time buyers were in the South, where the median mortgage amount was 100 percent of the sale price. In the West, the median was 99 percent, in the Midwest 98 percent, and in the East, 96 percent.

By comparison, the typical repeat home buyer nationwide invested a median 16 percent as a down payment to purchase a replacement home -- typically from home sale proceeds -- and financed the remaining 84 percent.

Where did first-time buyers obtain even the relatively modest down payments they made? Seventy-three percent of the survey respondents said at least part of it came from savings accounts, and 22 percent said relatives or friends chipped in as well. One out of 10 said their down payment came from liquidations of stocks or bonds.

The biggest down payment resources for repeat buyers were the profits they made from their previous sales. Sixty-two percent of repeat buyers depended on those resources. But 40 percent also took money from savings accounts to help swing the deal, and 6 percent sold stocks or bonds. Just 3 percent got help from relatives or friends.

Besides high prices, a key reason for the relatively high levels of leverage being used by both first-time and repeat buyers has been the explosion of low-down-payment options by mortgage lenders and insurers in recent years.

Before the mid-1980s, the plain-vanilla, 20 percent down mortgage was virtually the only game in town. Now, 100 percent financing -- often using a "piggyback" first mortgage of 80 percent or 90 percent of the home value combined with a second mortgage or credit line for 20 percent or 10 percent -- is commonplace. So are 5 percent and 10 percent down payment conventional loans with private mortgage insurance, and 3 percent down payment Federal Housing Administration (FHA) loans.

Although all these minimal-down plans have been highly successful in pushing the homeownership rate in the United States to record heights -- currently just under 69 percent -- they've achieved this in an atmosphere of steadily appreciating home prices and values. The possibility of low or no appreciation hasn't been a concern for buyers using minimal down payments in most parts of the country since the mid-1990s. That's because if you could obtain a loan that got you into a house with almost no money down, there was no problem: Appreciation -- sometimes at double-digit annual rates -- would take care of you from then on.

But that's no longer the case. Buyers who made small down payments in 2005 and 2006 face a starkly different prospect: They started with minimal or no equity, and they might still be in the same position. Worse yet, they could be temporarily "upside down" on their mortgages, with a principal balance greater than their current home value.

The unknown about minimal down payment loans is how they perform in flat or depreciating market conditions. People who bought in hyper-appreciating markets could be vulnerable financially if they have to sell on short notice because of a job transfer or they can no longer handle the monthly payments.

Bottom line: Leverage in real estate slices both ways. A minimal investment can produce impressive returns if the appreciation tide is rising. But it can also expose you to a negative equity situation when the tide recedes.

The jury is still out on how well highly leveraged recent buyers from 2003-2006 will handle a period of slow growth in their home values. Can they hang on until appreciation returns and raises their equity holdings? The mortgage and real estate industries -- to say nothing of the Wall Street bond investors who have financed trillions of dollars worth of these loans -- are banking on it.


Kenneth Harney is a nationally syndicated real estate columnist. He can be reached at the Washington Post Writers Group, 1150 15th St. NW., Washington, DC 20071-9200 or by e-mail at kenharney@earthlink.net.

3:50 PM  
Blogger Bob said...

Legislators take aim at predatory lending
A House panel approved two bills to crack down on the practice, but some mortgage brokers and community leaders worry the legislation could be too restrictive.
By Jackie Crosby, Star Tribune
Last update: March 09, 2007 – 8:57 PM

Rising concern over foreclosures and the impact on neighborhoods played out at a House subcommittee on Thursday as legislators approved two bills to crack down on predatory mortgage lending.
It was the first time legislators have come together to listen to victims, consumer advocates, housing experts and members of the real estate industry in an effort to tackle the looming problem. Several more mortgage lending bills will be considered in the coming weeks.

"This is one of the most urgent economic issues we have on our plate this year at the Legislature," said Rep. Karen Clark, a DFLer who represents three inner-city neighborhoods in Minneapolis.

Despite leading the nation with 78 percent home ownership, Minnesota's economy is threatened by what bill sponsor Rep. Jim Davnie, DFL-Minneapolis, called a "rising wave of foreclosures."

Attorney General Lori Swanson joined consumer advocates and housing experts from the University of Minnesota in laying blame on a raft of "exotic" adjustable-rate loans pushed by unscrupulous real estate agents during the housing boom.

Such loans, with low initial "teaser" payments, eventually get recalculated or adjusted, which often doubles or triples the monthly payment.

Experts also testified during the sometimes tearful two-hour hearing that an unprecedented growth in subprime loans has contributed to the cycle of foreclosures. Subprime loans, which typically are adjustable-rate mortgages, are high-interest-rate loans that help borrowers with poor credit records get mortgages.

Representatives from the banking and real estate industries testified that they welcomed lawmakers' efforts to weed out crooks but cautioned against regulations that would lock out low-income borrowers, recent immigrants or others in nontraditional situations.

Keenan Raverty, president of the Mortgage Bankers Association of Minnesota, said his industry is "screaming mad" at the "greedy scoundrels" who have taken advantage of the system. But he pushed lawmakers to come up with guidelines for loans to nontraditional borrowers.

Lisamarie Sanchez Leadens, who runs a school that trains brokers and bankers, offered a similar position.

"If we do not amend this bill with objective measurements, this new regulation could end up hurting the very people it is designed to protect by making it difficult for borrowers to qualify," she said.

Separately, Gov. Tim Pawlenty announced Thursday that he backs a bill that would make mortgage fraud a crime. Currently, such cases are prosecuted as mail fraud or money laundering.

Additionally, Pawlenty and Commerce Commissioner Glenn Wilson would require mortgage originators to be legally incorporated as a corporation or business in Minnesota and to meet minimum net worth or bond requirements.

"The idea is to force these mortgage originators to get some skin in the game," said Bill Walsh, a spokesman for the state Commerce Department. "You're less likely to defraud people if you have a stake in the community."

The bill, which could get a hearing next week, would also authorize the Commerce Department to audit mortgage companies, as is done in banking and insurance.

Davnie's bill, like Clark's, would clamp down on deceptive practices, such as not disclosing full monthly payments to prospective home buyers. It also would curb "churning" and fast turnover of homes by brokers and put a 5 percent cap on mortgage loan fees.

A related measure, sponsored by Rep. Joe Mullery, DFL-Minneapolis, would add civil and criminal penalties for those who allow "grossly unsuitable" mortgages. This could include situations in which the borrower lacks the capacity to repay the loan or any case in which the loan officer knowingly processes an application that includes false information.

The bills will move on to the full Commerce and Labor Committee, which could hold another hearing as early as next week. The Senate is scheduled to discuss a companion bill next Tuesday.


Jackie Crosby • 612-673-7335 • jcrosby@startribune.com

3:52 PM  
Anonymous Anonymous said...

What we will wind up seeing a year from now are a bunch of laws that hurt the ones that were supposed to be helped and the only ones being prosecuted will be lawabiding people who made technical mistakes, and the crooks will jsut keep on stealing our money.

4:31 PM  

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