Posted by Hugh Nations Signing Agents of Austin on 6/15/07 6:01pm
Msg #195409
Latest on Sub-Prime Predators from NY Times
By VIKAS BAJAJ
Published: June 15, 2007
WASHINGTON, June 14 — Delinquencies and foreclosures among homeowners with weak credit moved higher in the first quarter, particularly in California, Florida and other formerly hot real estate markets, according to an industry report released on Thursday.
The report, published by the Mortgage Bankers Association, came as the Federal Reserve held a hearing on what regulators could do to address aggressive abusive lending practices. Also Thursday, the latest survey showed that mortgage rates this week reached their highest level in almost a year; the national average for a 30-year mortgage was 6.74 percent, up from 6.53 percent last week, according to Freddie Mac, the mortgage giant.
The delinquency report presented a mixed picture. It indicated that more homeowners with tarnished, or subprime, credit are likely to have trouble making house payments, especially as interest rates rise. But it also suggested that, at least so far, the problems have not extended very far into the larger pool of prime borrowers, whose interest rates are lower because of their stronger credit.
At the end of March, the percentage of all loans that were delinquent or in foreclosure, 6.12 percent, was little changed from the end of last year and up from 5.39 percent from March 2006.
The national numbers benefited from a decrease in the defaults among loans insured by the Federal Housing Administration. The agency and the lenders it works with have been restructuring two out of every three loans in foreclosure, said Douglas Duncan, chief economist with the Mortgage Bankers Association. And it appears similar efforts to renegotiate mortgages to keep borrowers in their homes may also be holding down defaults overall.
“We are seeing more loan modifications and foreclosures and once loans go through either of those processes the loans go out of those databases,” said Mark Zandi, chief economist at Moody’s Economy.com. But he cautioned “they might come back. The recidivism on those loans is very high.”
For subprime borrowers, the outlook remained bleak.
Nearly 19 percent of all subprime loans, or 1.1 million mortgages, were either delinquent by more than 30 days or in foreclosure, up from 17.9 percent at the end of last year. About 140,000 subprime mortgages entered foreclosure, a process that can last several months, in the first three months. About 20,000 of those were in California.
“The storm of foreclosure is happening silently across the country,” said Martin D. Eakes, chief executive of the Center for Community Self-Help, a nonprofit organization based in North Carolina that operates a credit union and the Center for Responsible Lending.
Mr. Eakes, who was speaking at the Fed hearing, criticized the central bank for failing to use its authority over mortgage lending to curb practices that, he said, caused the current problems by giving people loans they could not afford.
Fed officials did not directly respond to the complaints. But in opening remarks, Randall S. Kroszner, a governor on the Fed’s board, said the central bank shared responsibility over mortgage lending with other state and federal regulators.
“Rising foreclosures in the subprime market over the past year have led the board to consider whether and how it should use its rulemaking authority to address these concerns,” Mr. Kroszner said. “In doing so, however, we must walk a fine line. We must determine how we can help to weed out abuses while also preserving incentives for responsible lenders.”
The Fed first heard from a panel of mortgage lenders and non-profit housing groups and in the afternoon from a panel of state regulators, attorneys general and academics.
In the morning, representatives from mortgage companies and an association of mortgage brokers parried, mostly in good humor, with people representing nonprofit housing groups that are the leading advocacy voice speaking on behalf of subprime borrowers.
The opposing sides appeared to agree that the mortgage industry got carried away in the recent housing boom but disagreed sharply on the scope of the problem and what should be done.
The nonprofit housing advocates attacked no-documentation loans, in which lenders do not verify that borrowers earn incomes listed on loan applications; prepayment penalties, which make it more expensive to refinance; and underwriting practices that overlook whether borrowers can ultimately repay their loans.
Lenders generally argued against new regulations, saying that most of the practices being criticized may have been abused but can be very effective in helping lower-income borrowers if used prudently.
“There are folks that do this business the right way,” said Pablo Sanchez, a national mortgage production specialist with JPMorgan. “I would hate to have this as the last record that this is all the lenders’ fault.”
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