Federal lawmakers can take steps to protect consumers from certain Florida mortgages in the future - but they have limited options in how to assist troubled borrowers today, a Congressional panel heard on Tuesday.
The chief executives of mortgage finance companies Fannie Mae and Freddie Mac are expected to unveil plans on Tuesday to help subprime borrowers, the Wall Street Journal reported on its site.
Care to pick up the check for every homeowner who got saddled with a risky mortgage? It’s a big one - on the order of $120 billion.
Lawmakers and consumer groups in recent weeks have been calling for assistance for those at risk of defaulting on their national or Florida mortgage.
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If you thought the current housing market was crumbling amidst a spate of bad credit Florida mortgage foreclosures, things could get a whole lot worse.
Reuters - Homeowners who bought a home with a subprime mortgage, and now face foreclosure because they cannot make their payments, may have an unlikely remedy: get another bad credit Florida home loan.
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U.S. politicians are putting together a bill that could make it less attractive for banks to repackage risky national and Florida mortgages into securities and sell them to investors, the Financial Times reported on Thursday.
Option ARMs remain an option.
Despite problems in the mortgage market, Florida mortgage brokers say lenders are still willing to make risky loans - including those that allow borrowers to make monthly payments that don’t even cover the interest (so-called “option ARMs”).
Dire as the bad credit Florida mortgage crisis already is, it’s likely to spread to a higher tier of home loans known as Alt-A.
That’s according to a respected economist affiliated with the University of California at Los Angeles.
“The question is to what extent,” David Shulman, a senior economist with the UCLA Anderson Forecast in Los Angeles, said. “That could be the next shoe to drop. Certainly, it’s a very reasonable concern.”
California is home to half of the 20 biggest U.S. bad credit and Alt-A mortgage lenders, which are also prevalent in Florida.
The deteriorating subprime mortgage industry has spawned a probe by the California Attorney General, Jerry Brown. Congress is considering regulations to tighten lending standards for such mortgages.
Subprime loans, a term applied to some of the riskiest Florida mortgage products, are typically made to borrowers with poor credit or extremely high debt burdens.
An Alt-A mortgage is made to people who are considered good credit risks, but who may lack documents needed to qualify for conventional loans.
UCLA Anderson Forecast dropped its forecast for housing starts this year to 1.33 million units from a previous estimate of 1.48 million units. Constructors broke ground on new homes at a 1.53 million rate in February.
Lawmakers have criticized the Federal Reserve and other bank regulators in recent weeks for allowing too many borrowers to get mortgages they couldn’t afford to repay.
Tom Marano, head of the mortgage business at Bear Stearns Cos. in New York, said on March 29 that he doesn’t see a significant risk of the subprime lending problem spreading to other parts of the home loan market.
Shulman disagreed.
“We suspect the problem in the [subprime mortgage] area is just the tip of the iceberg for the mortgage market as a whole,” he wrote.
UCLA Anderson Forecast is affiliated with the University of California at Los Angeles and is located at the UCLA Anderson School of Management.
SOURCE: Bloomberg News
The meltdown in the bad credit Florida mortgage market is making it tough for many potential home buyers to find financing. It’s a given that buyers with damaged or thin credit histories may be shut out.
But what about people with the best credit? Will the problems in subprime have any impact on how costly or easy it is to get mortgages for so-called prime borrowers?
Jay Brinkmann, economist for the Mortgage Bankers Association, says subprime problems may “bleed over” into prime.
As evidence of this he cites “a general increase in credit spreads across the board.” When the supply of money for loans falls, credit spreads - the difference between what lenders pay in interest versus what they get from borrowers - tend to rise, making all Florida home loans more expensive, including prime.
What a difference a year makes.
In 2004, 2005 and through early 2006, the South Florida housing market was still hot and home loans of all kinds were easy to come by. Investors were pumping money into the mortgage markets and were willing to buy riskier loans in return for high yields; sometimes, it now seems clear, the risks were over the top.
“Investors signaled that they willing to buy some stupid loans, so mortgage brokers went out and wrote some stupid loans,” says Randy Johnson, president of Independence Mortgage Co. and author of “How to Save Thousands of Dollars on your Mortgage.”
For years, gains of 10 percent or more in home prices had insulated lenders from their mistakes; owners could keep up payments by tapping their growing home equity. Or they could sell at a profit.
That changed when price appreciation finally slowed to more normal levels. And now, banks have become much more cautious, and much more likely to turn down borrowers with marginal credit scores.
Plus, the subprime lending industry itself is undergoing a shake-out with many lenders exiting the scene. Because of stiff losses from non-performing loans, more than 20 have either already closed their doors or are scrambling to find added financial backing. Fewer industry players will also dry up some liquidity.
Fewer apply for mortgages
Meanwhile, late last month Freddie Mac announced more restrictive standards for subprime mortgages. It will no longer buy hybrid adjustable-rate loans that will have a high likelihood of failure when their rates reset at much higher rates later. This is likely to further restrict the source of funds for subprime loans.
And others are following Freddie Mac’s lead by scrutinizing applicants more carefully.
At a Senate Banking Committee hearing last Thursday, Laurent Bossard, CEO of WMC Mortgage, said his company has made many improvements over the past 12 months to reduce subprime loan risk, including restricting subprime hybrid ARM loans to those borrowers the bank judges are able to make payments based on higher reset rates rather than the initial low “teaser” rates.
Other lenders, such as Countrywide Financial and First Franklin, have also pledged to maintain high underwriting standards.
All these factors will make it much harder for borrowers with damaged or thin credit scores to qualify for loans. For prime borrowers, the picture is less clear, though most likely few will have trouble finding a loan. But will the terms be as favorable?
Rates fall
According to Patrick Newport, an economist with Global Insight, a provider of financial news coverage and analysis, the subprime crisis has had little negative impact on prime markets.
“If you look at the 30-year fixed [Florida mortgages], rates have been dropping,” he said. “I’m surprised that the 30-year rates have not edged up and it’s probably because subprime problems don’t affect most borrowers.”
