Subprime Regulatory Options [Housing Tracker]

by: Judy Weil

Subprime Fallout 

Housing: Barron’s Calls A Bottom.  “Amongst Barron’s data:  Home price indexes are skewed by steep drops in the value of subprime properties - which account for only 10% of the all U.S. housing. A $300B congressional effort to allow FHA support of troubled mortgages, and/or a government takeover of Fannie (FNM) and Freddie (FRE), would ease lack-of-credit concerns. Home sales of 5M/year are the same as a decade ago - yet the population has grown by 25M and the job market by 10M since then. The much-feared hump in adjustable-rate-mortgage resets has been blunted by early mortgage defaults. Early- and late-stage delinquencies on subprime properties have been falling for the past 6-8 months.”  (Eli Hoffmann in Seeking Alpha, July 13th)

Federal Reserve Bans Penalties On Mortgages That Make It Harder For People To Refinance.  The Fed prohibition on prepayment penalties, part of a broader response to the collapse of the subprime mortgage market, targets high-cost loans with interest rates that reset in the first four years. The new rules and regulations also would limit charges when borrowers seek to pay off mortgages in the first two years on other types of high-priced loans... Some experts [say] this still falls short of what consumer groups have advocated which is an outright ban on prepayment penalties for all subprime and non- traditional mortgages.”  (India Daily, July 12th)

States Aren't Waiting for Feds to Clean Up Reckless Lending. “Earlier this week the North Carolina General Assembly became the first in the nation to ban "yield-spread premiums" -- kickbacks that encourage brokers to overcharge -- on subprime mortgages. These kickbacks, which brokers received for delivering subprime loans with higher interest rates than the lender had set, are one of the main reasons that subprime borrowers have typically paid thousands of dollars in unnecessary costs on brokered loans… If enacted [as expected,] North Carolina will join about a dozen other states that have passed significant new lending protections since the start of the foreclosure crisis.”  (Fox Business, July 11th)


FDIC's Covered Bond Effort Wins Support From Bernanke.  Federal Reserve Chairman Ben Bernanke said he supports proposals to boost mortgage financing through the use of covered bonds, with the caveat that the U.S. may need legislation before a viable market develops. The Federal Deposit Insurance Corp. is seeking to change its regulations on how covered bonds would be treated in the event of a bank failure, addressing concerns that bondholders could face delayed payment… Covered bonds, typically top-rated securities, are on-balance sheet obligations of their issuers that unlike mortgage- backed securities rely on both the borrower and loans for repayment. Treasury Secretary Henry Paulson has been trying to spur a market for them as an alternative to mortgage securities. [The] $3 trillion market is a primary source of financing from home and public-sector lenders in Europe.”  (Bloomberg, July 10th)

Seeking Alpha's Housing Tracker is a collection of housing-related excerpts from various sources, grouped by topic. Feel free to post any interesting links on the subject in the comments section below.

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