 |
| 30 Yr Fix |
6.37% |
0.02% |
| 15 Yr Fix |
5.91% |
-0.01% |
| 1 Yr ARM |
5.17% |
0.00% |
| 5/1 ARM |
5.82% |
0.04% |
| 30 Yr Tres |
4.47% |
-0.05% |
| Fed Prime |
5.00% |
-0.25% |
|
|
|
|
 |
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Subprime Disaster Continues To Unfold
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It seems that nary a week can pass without a subprime disaster
of some type. This week is no exception although there was at least a bit of variety
due to bad news coming from other parts of the housing industry.
Here is the rundown.
On Tuesday Moody's Investors Service announced it was downgrading
its ratings on 399 bonds backed by subprime mortgages because of higher than
expected delinquencies in the loans. These residential mortgage-backed securities
(RMBS) were largely underwritten by loans issued in 2006 and over 60 percent
of the underlying loans were sold by GE, Washington Mutual (now known as WaMu),
Fremont General Corporation, and New Century Mortgage which filed for bankruptcy
several months ago. Moody's said it may add another 32 bonds to the list.
At about the same time Standard & Poors (S&P) said it would probably
follow suit before the end of the week, downgrading about $12 billion of subprime
RMBS. Most of the S&P targets are also tied to the four lenders downgraded
by Moody's although S&P is also looking at other players such as Merrill
Lynch & Company.
Several analysts said that they expected the big rating services would soon
start looking at those lenders that deal in so-called Alt-A
mortgages which are tailored to borrowers who lack the documentation to
obtain conventional or prime mortgages or may have slightly damaged credit.
As we reported earlier, American Home Mortgage (AHM) one of the larger Alt-A
lenders announced it was withdrawing earlier estimates of second quarter
performance because of a contractual necessity to redeem many of the mortgages
it had sold to investors because of elevated delinquencies. The price of stocks
of Alt-A lenders such as AHM and IMPAC Mortgage Holdings fell on Wednesday and
Thursday with AHM reaching the mid-$14 range from recent highs in the mid-$30s.
Rex Nutting, in a strongly worded commentary for MarketWatch
accused S&P of having been among the enablers of the wildly active subprime
market but said that "S&P isn't going along with the charade anymore."
Nutting predicted that a lot of subprime debt will be downgraded to junk status.
"A lot of that debt will have to be sold at fire-sale prices. A lot of
pension funds and hedge funds that once thrived on the high returns they could
get from investing in subprime junk will now lose a lot of money." He
predicted that the S&P notice that they were re-evaluating the bonds "is
a death warrant for the subprime industry. No longer will mortgage brokers be
able to help buyers lie their way into a home" and fewer homeowners will
be able to refinance themselves out of trouble, thus extending and exacerbating
housing problems.
Wow!
In related news, two major builders announced that they expected
to post quarterly losses. Ryland Group and D.H. Horton both announced that heavy
cancellations of home-building contracts and the necessity of opting out of
agreements to buy land would cause their most recent quarterly figures to slip
into the red zone. Ryland expects to book charges of $145 to $155 million and
Horton said quarterly orders for new homes fell 40% from a year earlier
A smaller Ohio based builder, M/I Homes, also backed off of earlier earnings
projections saying its orders for new homes and deliveries both fell in the
second quarter; new contracts by 10 percent year-over-year and deliveries 24
percent to a total of 755 homes.
Another sector beginning to feel the pinch from the declining
housing market is home improvement stores. Home Depot said that it is lowering
its year-long profit forecast because the weakening housing market is dampening
earnings more than anticipated.
HD executives said they expect adjusted earnings per share to drop 15 to 18
percent to a range of $2.30 to 2.36. Two months ago the corporation said it
anticipated a drop in income of 15% but that things would pick up in the second
half of the year.
The monthly forecast by the National Association of Realtors® issued on
Wednesday was among the more pessimistic we have seen. It projected
that new home sales will total 865,000 this year and 878,000 next year compared
to 1.05 million in 2006. In more bad news for builders, the forecast projected
housing starts at 1.43 million units this year and 1.44 million next. This is
a substantial drop from the 1.80 million starts last year.
Lawrence Yun, NAR senior economist projected that existing home sales will
pick up late this year and will total 6.11 million in 2007 and 6.37 million
in 2008. If the projections hold this would bring the 2008 figures back close
to the 6.48 million sales recorded in 2006.
Existing home prices are also expected to recover, rising 1.8 percent to a
median price of $222,700 next year, offsetting the 1.4 percent decline expected
this year. The median new-home price should rise 2.2 percent to $245,400 in
2008 following a 2.6 percent drop this year.
Finally, Thursday the NAACP filed a class action suit against
14 of the nation's largest subprime lenders to stop these lenders from engaging
in systematic, institutionalized racism in making home mortgage loans. We will
have more information on this suit in the next few days.
Related Tags
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Comments (17)
| I'm a mortgage broker that works hard and have been in the biz for 5 years and it is our responsibility to protect the public just as they do in real estate. Unfortunately, federal aw well as state laws are too laxed and anyone and everyone along with their cousins, nieces and dogs were becoming Mortage PRO's... Sad. |
|
| Above Posted By:
Joel Dozal
| Sun, 26 Aug 2007 21:14:23 EST |
| I'm a mortgage broker who like any other broker sold the programs available to them. Some of this programs were very aggresive, in some cases didn't make much sense. However, we as mortgage brokers can't denide a customer of a loan base in our personal opinion. We could only advice them of what we think, at the end the customers make thier own decisions. Negative arm loans make no sense at 100% or even at 90%. We should get prepare for a very high volume of forclosure in the nest two years. |
|
| Above Posted By:
Tom
| Mon, 20 Aug 2007 10:36:06 EST |
| I work, well, as of today, worked for a wholesale lender, and was a broker for 5 years. No matter what anyone says, the blame rests on all of us. The lenders for their lax guidelines, the brokers for overstating income, and the borrowers for not making their payments. Unfortunately, it is the people who are trying to make an honest buck that get hurt the most. Now, I am worried that I won't be able to feed my kids. For someone to say that one group is entirely responsible is asinine. |
|
| Above Posted By:
KjFine
| Thu, 16 Aug 2007 02:24:59 EST |
| I've been in Wholesale Lending for 10 years. Brokers give us the info for their borrowers. We give the broker ALL the loan options the borrower qualifies for. In the vast majority of cases the rate and term the borrower get's in the end was the best they could QUALIFY for. The credit score, % of financing they needed, the loan $ and most of all...whether they could prove their income or not is what dictated their final deal. True, some brokers can and do abuse the system...but most don't. |
|
| Above Posted By:
Ron
| Mon, 13 Aug 2007 10:05:55 EST |
| How many times do I have to go through this again? I have been in the mortgage loan business for almost 30 years. 7 years ago, I said t his is going to blow up in their faces. Property values go up for a while - but as we saw in the 80's and the early 90's they also go down. It is a gamble they took, and the risk is higher then vegas.It is not just lenders - realtors - brokers - builders - it is everyone trying to make a buck. What happened to making loans the common sense way? |
|
| Above Posted By:
Stehanie Argo-Ray
| Wed, 8 Aug 2007 11:47:58 EST |
| ...greed from both sides...I worked for a home builder when this craziness started. I watched as they would say on their pricing sheets "price increase of $20K after the next 2 sales, then $20 k more it prompted me to move up from my townhome to a single family. They took advantage of the unbelievably low rates, creative financing, the "need" of everyone to keep up with the Jones'. I think McMansions will be less and less appealing, especially as the cost to heat/ cool them increases as well! |
|
| Above Posted By:
Jennifer
| Wed, 18 Jul 2007 11:03:51 EST |
| How can one blame the broker when the broker is given access to bank programs and it is his job to qualify consumers based on the products they are given. If a bank allows 60% DTI's, and the broker gets a client who has 60% DTI's on an arm but 62% DTI on their fixed loan. What would anyone do....give the client the arm because that is the only product they can qualify for...It is a no brainer. Lenders should go out of business due to their laxed guidelines..Brokers sell what is given to them. |
|
| Above Posted By:
Chuck Norris
| Tue, 17 Jul 2007 09:07:46 EST |
| I am unemployed along with a couple hundred other people due to the mortgage fraud and over zealous lending of Alliance Bancorp. They closed their doors on Friday with no notice or severance for the loyal employees who remained with them in spite of the problems. I only hope the FBI and other law enforcement agencies will prosecute those people that have already been identified as part of one of the fraud schemes that wracked our company. |
|
| Above Posted By:
Cathy
| Mon, 16 Jul 2007 21:43:43 EST |
| The people who cause this are not realtors or mortgage brokers, we do not make the rules and did not come up with these ridculous loan programs. Its your government and the financial institutions who made billions off these programs.
Its the banks who should correct the problem and how bout asking the government who new these programs were going on yet did nothing but collect tens of billions of dollars in taxes. |
|
| Above Posted By:
Robert Dawson
| Mon, 16 Jul 2007 15:23:07 EST |
| Fred is right. Much more pain to come. I have been watching this market develop since October of 2005. We are just now heading towards seeing the real magnitude of the problem. NAR is still out of touch with the reality - agents (such as myself) will do well to adapt to the best ways to make a living in a down market. |
|
| Above Posted By:
Donna Robinson
| Sat, 14 Jul 2007 08:54:18 EST |
| Subprime mortgage meltdown. $1 TRILLION in loans to "reset" interest rates between 9/07 - 12/08. What NO ONE IS TALKING about is the lender "RECAST" of the neg am/OptionARM loans - - it takes an average of 30 months of minimum payments for the principle amount to increase to 110% of the loan, at which time the lender "recasts" the loan and the borrower, who had an original loan of $600K, now has 110%, or $660K, and the house is worth $560K. Foreclosure is his only relief. This fiasco is ahead |
|
| Above Posted By:
Marilyn Morrin
| Fri, 13 Jul 2007 23:43:59 EST |
| If every state would develop or adopt a test equal to NAMB's certification standards, or as challenging as the CPA exam, a lot of problems could be solved. While everyone has their finger in the air don't forget to point it to the states whose legislators have allowed "just hang a shingle" mortgage shops to open up without qualification or license. Yet, some of them will be first in line to sue a mortgage company when their first line of defense to protect the consumer was themselves. |
|
| Above Posted By:
Chuck
| Fri, 13 Jul 2007 16:07:08 EST |
| I've been in the mortgage business for 16 years and see a lot of fingerpointing to "mortgage brokers" doing misdeeds. Has it ever occurred to anyone that the major builders have been walking all over RESPA for years, apparently with HUD looking the other way, using near extortion tactics to entice the buyer to use their mortgage company (or lose the upgrades). They may have had market rates, but you can bet the ysp was in the price of the house. Suppose? |
|
| Above Posted By:
Chuck
| Fri, 13 Jul 2007 15:37:43 EST |
| As I have continually stated, this is an industry problem let the industry who caused it fix it, developers, Sales Agents, Brokers, lenders, apprasial industry and most importantly the builders. The problem we are in today is due to pure Greed, nothing more nor less just plain Greed..........no tax payer dollars, no tax dollars and especially no bail out from any governmental agency should even be entertained.....The Industry got themselves in this mess, let them fix it. |
|
| Above Posted By:
Rockinon
| Fri, 13 Jul 2007 15:04:40 EST |
| Lenders are to blame for problems. People will buy whatever they get approved for and the lieniency by the lenders created the problem. |
|
| Above Posted By:
Sam
| Fri, 13 Jul 2007 14:32:39 EST |
| The worst is yet to come. Not only are Home Depot and retailers like them having sales declines, but so are furniture stores, title companies, electricians, plumbers and the list goes on and on. Slower housing demand affects the entire economy and tricals down the line. We are looking at a good 5 years for things to turn around. But how many people can lose money for that long? People in the mortgage industry are going out of business left and right. Other trades are likely to follow suit. |
|
| Above Posted By:
Sandra
| Fri, 13 Jul 2007 13:57:56 EST |
| Much more pain to come. There is no way to avoid it too far down the road. Greed and the home ownership mania made this inevitable. Those who should not have been able to buy a home due to financial limitations will "pay" the most. Blaming the new home builders will be the politically correct way to play this, but sadly the "anger" will be misdirected.
The party simply had to end some day. |
|
| Above Posted By:
Fred Widicus
| Fri, 13 Jul 2007 11:33:31 EST |
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