FHA: Who Says The Subprime Party's Over? - Housing Tracker

Quote of the Day

“I guess it’s almost better to be a troubled subprime borrower these days.” – An industry source, who suggested that political pressure has helped create more programs to help subprime borrowers, and few programs for struggling prime borrowers.” (Housing Wire, Apr. 28th)

Subprime Fallout

All Quiet on the Western Front. “The better alternative is to initiate a limited mark-to-market write-down of private mortgage debt as envisioned in the Dodd-Frank Congressional proposal combined with government-subsidized loans at below market rates… You can allow a home to fall in price from $400,000 to $300,000 and force an upside-down "short sale" foreclosure, or you can reduce the homeowners’ $400,000 mortgage to $350,000, refinance the loan through the FHA at 4% and stabilize the neighborhood and its home prices. Surely Republicans, Democrats, AND Wall Street mortgage holders (PIMCO included) can recognize that stability as opposed to freefall market clearing is the better alternative, especially if the pain is shared by all parties.” (PIMCO Newsletter, May 2008)

Countrywide Loss Focuses Attention on Underwriting. “Countrywide Financial Corp. (CFC) reported an $893 million loss for Q1, [while a] federal probe… is turning up evidence that sales executives at the company deliberately overlooked inflated income figures for many borrowers… Countrywide’s quarterly financial results included $3.05 billion of credit-related charges… Late payments increased across the board: About 36% of "subprime" loans to people with weak credit records were at least 30 days overdue, up from 20% a year before. For all loans serviced by Countrywide, a category mostly made up of prime loans, the delinquency rate was 9.3%, nearly double the year-earlier 4.9%. (Wall St. Journal, Apr. 30th)

Centex Corp. F3Q08 (Qtr. End 12/31/07) Earnings Call Transcript. “Timothy Eller - Chairman and CEO, Centex Corp.: “We further reduce prices in many of our neighborhoods to enable buyers to qualify under government agency criteria. For example, 45% of our home buyers in backlog are financing with an FHA mortgage compared to only 7% a year ago. The home price reductions we've had to make were the principal reason for the additional impairments Centex incurred this quarter… We need to get back to pricing that is reflective of value. It's also… for financing reasons, because right now, what people can qualify for is generally a Fannie Mae, a Freddie Mac or increasingly only FHA.” (Seeking Alpha, Apr. 30th)

S&P Downgrades $41 Billion Mostly Alt-A Deals. “Reuters: Standard & Poor's cut the ratings on about $41 billion of mostly higher-rated U.S. residential mortgage-backed securities backed by so-called Alt-A loans on Tuesday. The rating agency's action affected 2,183 RMBS classes from 334 Alt-A deals originated during 2006.” (Calculated Risk, Apr. 29th)

No Assets? No Problem. “Many Americans can still buy homes with nothing down thanks in large part to the federal government and a legal loophole that lets builders and bankers ensure a steady stream of asset-challenged borrowers for taxpayer-insured loans… The Federal Housing Administration is already offering the next-best thing to nothing down on a house: a payment of just 3.0% will get practically any American with a pulse and a job a mortgage of up to $729,000, at least until the end of this year… A not-for-profit organization can give prospective buyers the teensy down payment… Of the 180,881 loans that the FHA insured in FH1’08, 36.7%, or 66,337, were seller-funded.” (Forbes, Apr. 29th)

More Subprime, Alt-A Mortgages May Head `Underwater’. “Barclays Capital: About half of recent subprime and Alt-A borrowers may soon owe more on their mortgages than their houses are worth or hold minimal equity, putting $800 billion of debt at greater risk of default. Subprime loans from 2006-2007 that exceed the value of the homes jumped 5% to 19.8% in Q4, and may reach 26% by midyear if prices drop at the same pace. Alt-A loans, a grade better than subprime, would grow to 23% from 16.3%. Many of the loans are in areas where prices are falling faster than the U.S. average, so the size of the shift is underappreciated.” (Bloomberg, Apr. 29th)

GMAC Far From A-OK. “General Motor's finance company GMAC (GJM) reported a first-quarter loss on Tuesday nearly double the one incurred during Q1’07. GMAC, which deals in automotive and home loans, cited an increase in customer defaults and pushed its projected return to profitability further into the future… General Motors (GM) [owns] 49.0% of the company [after] it sold the rest in 2006 to private equity outfit Cerberus Capital Management… GMAC's loss increased to $589 million from $305M a year earlier. The dent included an $859M loss at its subsidiary Residential Capital. [A] sixth consecutive quarterly loss, though the amount lost fell from $910M last year.” (Forbes, Apr. 29th)

Report: Subprime Servicers Too Swamped to Help Borrowers. “State Foreclosure Prevention Working Group: Most borrowers at risk of losing their homes remain very close to foreclosure… Part of the problem may be the sheer numbers involved. "Data suggests that loss mitigation departments are severely strained in managing current workload," the report states. Between October 2007 and January 2008, the number of seriously delinquent loans increased 25%, to 1,025,508. Yet most lenders and servicers still are handling each case individually as it moves toward foreclosure, which could be averted by modifying the loan terms or negotiating a repayment plan with the borrower.” (Builder Online, Apr. 29th)

Mortgage Delinquencies To Jump 34 Percent By Year End: TransUnion. “TransUnion’s financial services group: Mortgage delinquencies will get worse before they get better, with more than 4% of mortgages 60+ days in arrears by the end of this year. Less than 3% of mortgages were 60+ days delinquent to start 2008. TransUnion’s quarterly analysis found that average mortgage debt per mortgage borrower nationally fell 3.9% during Q4’07; only two states showed any increases in average mortgage debt from the previous quarter — Hawaii (0.31%) and Alaska (0.22%), with West Virginia showing the smallest percent decline (-0.11%).” (Housing Wire, Apr. 29th)

Servicers Increase Focus on Modifications; Foreclosures Jump 35 Percent in First Quarter. “The difference in workouts offered to prime and subprime borrowers is likely not due to a plan announced in December by the American Securitization Forum that would fast-track solutions for subprime ARM borrowers who could afford their starter rate, but not the reset rate — resets have since become a minimal problem for borrowers, as rates have dipped significantly, essentially eliminating payment shock as a key problem for every class of borrower… HOPE NOW alliance data: There were 431,171 subprime 2/28 and 3/27 loans scheduled to reset during Q1’08; 14,418 were modified, while 203,000 of these loans — that’s 47% of scheduled resets — were paid in full via refinancing or a sale.” (Housing Wire, Apr. 28th)

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Comments

[buyitcheap]

Could the 40 year conventional mortgage be far behind? That would lower monthly payments in combination with the Dodd-Frank proposal. And could result in less of a write down.

[billddrummer]

The difference in payment between a 30 and 40 year mortgage is miniscule. On a $200,000 5.75% mortgage the payment savings is $101/month. As rates go up, the savings go down, because the interest cost becomes a larger percentage of the total payment. It's the equivalent of a Starbucks latte per day.