Fed to Assist with National, Bad Credit Mortgages?
As late payments and new foreclosures on adjustable-rate Florida mortgages made to people with spotty credit spiked to all-time highs in the first three months of this year, the Federal Reserve is considering reforms to crack down on lending abuse.
The Mortgage Bankers Association, in its quarterly snapshot of the mortgage market released Thursday, reported that the percentage of payments that were 30 or more days past due for “subprime” adjustable-rate home mortgages jumped to 15.75 percent in the January-to-March quarter.
That was a sizable increase from the prior quarter’s delinquency rate of 14.44 percent and was the highest on record, the association’s chief economist Doug Duncan said.
People who have taken out subprime mortgages, especially adjustable-rate loans, have been clobbered as rising Florida mortgage rates and weak home prices have made it increasingly difficult for them to keep up with their monthly payments. Lenders in the subprime market have been hard hit, with some being forced out of business.
Federal Reserve Governor Randall Kroszner said Thursday that the central bank may use its legal authority to limit predatory lending.
The Fed held an all day-hearing to discuss the possibility of writing new rules to ban or restrict questionable practices in the market for high-risk Florida mortgages in response to increasing pressure on the government to do something about the troubled housing market.
The hearing came one day after Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, threatened to strip the Fed of its authority to write rules against abuses in the market for high-risk mortgages if the central bank does not act quickly.
“We must determine how we can help to weed out abuses while also preserving incentives for responsible lending,” Kroszner said, adding that improvements are needed in the way home-loan terms are disclosed to consumers.
The Fed’s discussion comes amid new signs that the housing market’s downturn is worsening. Late payments and new foreclosures on adjustable-rate home mortgages made to people with spotty credit histories spiked to all-time highs in the first three months of this year, the Mortgage Bankers Association said Thursday.
The percentage of payments that were 30 or more days past due for subprime adjustable-rate Florida mortgages jumped to 15.75 percent in the January-to-March quarter, up from the prior quarter’s delinquency rate of 14.44 percent and the highest on record.
Also on Thursday, investment banks Goldman Sachs Group Inc. and Bear Stearns Cos. both reported that the mortgage market’s problems hurt second-quarter profits.
Foreclosure filings in May were up nearly 90 percent from a year ago, industry data firm RealtyTrac Inc. said Tuesday.
“This is a moment of great concern in our economy as to whether subprime is going to pull us all down,” Susan Wachter, a professor of real estate and finance at the University of Pennsylvania’s Wharton School of Business said in an interview Wednesday.
Nearly two million adjustable-rate mortgages are resetting to higher rates this year and next, setting up a potential new wave of foreclosures with uncertain economic impact.
Among the issues being considered by the Fed is whether to limit the use of so-called “liar loans” that do not require income documentation whether it is unfair for subprime Florida mortgage lenders to provide loans without requiring set-aside payments for taxes and insurance.
At Thursday’s meeting, industry executives urged the board not to overreact to the problems in the market. Consumer groups - exasperated by what they see as a lack of action among regulators and lawmakers - said the central bank bore some of the blame for the market’s problems, arguing it should have cracked down on abusive Florida home loan practices years ago.
SOURCE: The Chicago Tribune
