WASHINGTON - With home foreclosures skyrocketing, the House on Thursday voted to crack down on mortgage lenders by forcing them to get licenses, making them responsible for discovering whether borrowers can really repay and fining them for steering people toward risky subprime loans.
The measures are designed to keep more people from sinking into the current mortgage crisis, where prospective home owners with shaky credit got mortgages with low interest rates only to see the rates rise and bring monthly mortgages up to prices they cannot afford.
More than 2 million adjustable rate mortgages are scheduled to reset by the end of 2008.
Many American homeowners are expected to go spiraling into debt, with the number of homes involved in foreclosure proceedings nationwide almost doubling in the third quarter of this year when compared with 2006, according to RealtyTrac Inc.
"What we have today is a bill that cannot undo what happened, but makes it much less likely it will happen in the future," said Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee.
But Republicans and the White House warned that congressional meddling with mortgage markets could make things even worse. Many Republicans argued the bill would make it harder for borrowers to refinance loans due to reset at higher interest rates, and make it almost impossible for poor people to get loans to buy a house.
"Congress does two things very well: one is nothing and two is overreact," said Rep. Tom Price, R-Ga. "While we have had a period here where some credit, some loans, were unwisely given, but allowing individuals, allowing Americans to purchase homes and realize their American dream is a good thing."
But Democrats said the subprime market needs to change to ensure that people get loans that are beneficial to them, not just good for the bottom line of some corporation. "This bill is not designed to harm the subprime market, it's designed to reform and correct it and make it work properly," said Rep. Keith Ellison, D-Minn.
The bill passed 291-127. It now goes to the Senate, where a similar bill has been stalled for weeks.
The White House did not threaten to veto the bill. "But the administration has concerns with the bill as drafted because it includes provisions that unduly restrict access to credit for potential homebuyers and reduce re-financing opportunities for current homeowners," the administration said in a statement.
Included in the legislation are provisions that would:
_Ban lenders from making loans that borrowers don't have the ability to repay;
_Prohibit lenders from steering homeowners into refinanced mortgages that don't provide any benefit and create fines of triple the broker fee and costs;
_Make Wall Street banks that package mortgage securities into investments liable for violations of lending laws;
_Prohibit excessive fees for payoff information or late payments, the financing of points and fees and practices that increase the risk of foreclosure like balloon payments and encouraging borrowers to default; and
_Create a nationwide licensing system for mortgage brokers and bank loan officers called the Nationwide Mortgage Licensing System and Registry.
Democrats and Republicans agreed the final product pleased no one.
But "we need not let the perfect get in the way of the good," said Rep. Spencer Bachus, R-Ala. Rep. Mel Watt, D-N.C., added, "Maybe the best tribute to all of us is that we have a bill that no one is completely comfortable with."
Republicans were particular perturbed with the idea that lenders are responsible for knowing whether borrowers can actually pay back their loans. "This kind of murky language would invite litigation from every borrower who misses a payment," said Rep. Ed Royce, R-Calif.
Also, the House has provided $200 million for foreclosure prevention counseling in the Transportation, Housing and Urban Development Appropriations conference report. The Senate must now approve the conference report.
The money will be used by nonprofit foreclosure prevention programs to counsel those who may lose their homes because of risky subprime loans.
Thursday, November 15, 2007
Tuesday, November 6, 2007
Recession Woes
NEW YORK (Reuters) - The economy might be edging toward a recession in the wake of mortgage-related credit woes plaguing the financial markets, bankers and analysts said on Monday.
"I think that the risk of a recession is greater than people realize," James Dunne, chief executive of Sandler O'Neil & Partners, said at the Reuters Finance Summit in New York.
With home prices dropping, more people about to lose their homes due to unaffordable mortgages and sharply higher oil prices, the economy could be on the brink of slowing down, they said.
"I think there is a serious risk to the economy," Howard Lutnick, CEO of Cantor Fitzgerald, told the summit.
Charles Peabody, partner at New York-based research firm Portales Partners LLC, said the Fed may have to take more aggressive action and drop the benchmark fed funds rate in an effort to prevent a Japanese-style economic stagnation, which eventually evolved into a deflationary recession.
"We're moving into a recession, and over time -- the length of which is difficult to predict -- there is going to be a lot more credit problems," he said.
Preliminary data released by the U.S. government last week showed that the gross domestic product grew by 3.9 percent in the third quarter, compared with 3.8 percent in the previous quarter and 0.6 percent in the first three months of this year.
Last week the Fed announced at the end of a two-day meeting of its policy-setting Federal Open Market Committee that it was reducing its federal funds rate a quarter percentage point to 4.5 percent, citing its expectation that "economic expansion will likely slow in the near term" because of the housing sector's problems.
The Fed noted that growth was "solid" in the third quarter and said it thought financial-market strains were easing, but still opted for some insurance to add stimulus.
When asked where the U.S. economy is headed over the next year or so, John Duffy, chairman and CEO of Keefe, Bruyette & Woods, said at the summit: "In the toilet."
With the recent data and Fed moves, Wall Street firms believe the Fed will be forced to reduce interest rates on loans to banks to 3 percent, or even as low as 1 percent, at least over the next year.
Duffy said Fed action alone will not cure what ails the U.S. economy and financial institutions, which are experiencing a liquidity squeeze in the markets for credit and other financial products.
"I don't think they (the Fed) have a silver bullet,' he told Reuters.
"I think that the risk of a recession is greater than people realize," James Dunne, chief executive of Sandler O'Neil & Partners, said at the Reuters Finance Summit in New York.
With home prices dropping, more people about to lose their homes due to unaffordable mortgages and sharply higher oil prices, the economy could be on the brink of slowing down, they said.
"I think there is a serious risk to the economy," Howard Lutnick, CEO of Cantor Fitzgerald, told the summit.
Charles Peabody, partner at New York-based research firm Portales Partners LLC, said the Fed may have to take more aggressive action and drop the benchmark fed funds rate in an effort to prevent a Japanese-style economic stagnation, which eventually evolved into a deflationary recession.
"We're moving into a recession, and over time -- the length of which is difficult to predict -- there is going to be a lot more credit problems," he said.
Preliminary data released by the U.S. government last week showed that the gross domestic product grew by 3.9 percent in the third quarter, compared with 3.8 percent in the previous quarter and 0.6 percent in the first three months of this year.
Last week the Fed announced at the end of a two-day meeting of its policy-setting Federal Open Market Committee that it was reducing its federal funds rate a quarter percentage point to 4.5 percent, citing its expectation that "economic expansion will likely slow in the near term" because of the housing sector's problems.
The Fed noted that growth was "solid" in the third quarter and said it thought financial-market strains were easing, but still opted for some insurance to add stimulus.
When asked where the U.S. economy is headed over the next year or so, John Duffy, chairman and CEO of Keefe, Bruyette & Woods, said at the summit: "In the toilet."
With the recent data and Fed moves, Wall Street firms believe the Fed will be forced to reduce interest rates on loans to banks to 3 percent, or even as low as 1 percent, at least over the next year.
Duffy said Fed action alone will not cure what ails the U.S. economy and financial institutions, which are experiencing a liquidity squeeze in the markets for credit and other financial products.
"I don't think they (the Fed) have a silver bullet,' he told Reuters.
Tuesday, October 2, 2007
Pending Home Sale Index Hits Record Low
Tuesday October 2, 12:09 pm ET
By Alan Zibel, AP Business Writer
Index That Forecasts Near-Term Home Sales Fell in August to a Low Amid Mortgage Market Woes
WASHINGTON (AP) -- An index that forecasts near-term home sales fell in August to a record low as would-be homebuyers had difficulty getting mortgages. Economists said the housing market's woes show no sign of improving soon.
The National Association of Realtors said Tuesday its seasonally adjusted index of pending sales for existing homes fell 6.5 percent from July and 21.5 percent from a year ago.
The pending home sales index has done a farily good job of predicting sales levels over the following two months said Joshua Shapiro, chief U.S. economist with MFR Inc. in New York.
Shapiro and other analysts expect prices to fall further before home sales rebound. Developers are already making big price cuts to move unsold new homes, but existing homeowners are more reluctant to do so.
"We haven't reached bottom yet," Shapiro said.
August's reading of 85.5 was below analysts' expectations and the lowest ever for the index, which started in January 2001. An index reading of 100 is equal to the average level of sales activity in 2001.
With defaults rising among borrowers with weak credit, lenders in August backed off from all but the safest mortgages.
The problems, experts say, were seen especially in expensive areas where borrowers need to take out "jumbo" home loans above $417,000 that can't be sold to government-sponsored mortgage companies Fannie Mae and Freddie Mac
In late August, the gap in mortgage rates between jumbo loans and "conforming" loans below the $417,000 limit widened to 0.93 percentage points, up from a typical level of 0.2 percentage points, according to financial publisher HSH Associates.
That difference makes it harder for prospective buyers -- particularly in the pricey Northeast and West Coast markets -- to afford more expensive homes.
"This is probably the most challenging credit market environment that's faced the housing market in 10 years," said Keith Gumbinger, vice president of HSH.
As of last week, the gap had narrowed to a difference of 0.76 percentage points, with 30-year fixed rate jumbo home loans nationwide averaging 7.22 percent and conforming loans averaging 6.46 percent, according to HSH's weekly survey.
While that's an improvement, Gumbinger said, it could take months for the situation to improve.
In some areas, up to 30 percent of signed contracts fell through in August, said Lawrence Yun, senior economist at the real estate trade group.
"Some creditworthy people are trying to buy homes but can't," Yun said in a prepared statement.
The Realtors' index is based on a sample representing about 20 percent of existing home sales nationwide.
Last week the trade group said that sales of existing single-family homes dropped by 4.3 percent in August to the lowest point in five years. Sales dropped to 5.5 million units that month, the slowest pace since August 2002.
While the real estate trade group has forecast a recovery in home sales by next year, some investors see a long, deep housing market decline and a recession ahead.
"The housing bubble has burst," said Peter Schiff, president of Euro Pacific Capital in Darien, Conn. "Prices are going to collapse and sales are going to fall through the floor."
By Alan Zibel, AP Business Writer
Index That Forecasts Near-Term Home Sales Fell in August to a Low Amid Mortgage Market Woes
WASHINGTON (AP) -- An index that forecasts near-term home sales fell in August to a record low as would-be homebuyers had difficulty getting mortgages. Economists said the housing market's woes show no sign of improving soon.
The National Association of Realtors said Tuesday its seasonally adjusted index of pending sales for existing homes fell 6.5 percent from July and 21.5 percent from a year ago.
The pending home sales index has done a farily good job of predicting sales levels over the following two months said Joshua Shapiro, chief U.S. economist with MFR Inc. in New York.
Shapiro and other analysts expect prices to fall further before home sales rebound. Developers are already making big price cuts to move unsold new homes, but existing homeowners are more reluctant to do so.
"We haven't reached bottom yet," Shapiro said.
August's reading of 85.5 was below analysts' expectations and the lowest ever for the index, which started in January 2001. An index reading of 100 is equal to the average level of sales activity in 2001.
With defaults rising among borrowers with weak credit, lenders in August backed off from all but the safest mortgages.
The problems, experts say, were seen especially in expensive areas where borrowers need to take out "jumbo" home loans above $417,000 that can't be sold to government-sponsored mortgage companies Fannie Mae and Freddie Mac
In late August, the gap in mortgage rates between jumbo loans and "conforming" loans below the $417,000 limit widened to 0.93 percentage points, up from a typical level of 0.2 percentage points, according to financial publisher HSH Associates.
That difference makes it harder for prospective buyers -- particularly in the pricey Northeast and West Coast markets -- to afford more expensive homes.
"This is probably the most challenging credit market environment that's faced the housing market in 10 years," said Keith Gumbinger, vice president of HSH.
As of last week, the gap had narrowed to a difference of 0.76 percentage points, with 30-year fixed rate jumbo home loans nationwide averaging 7.22 percent and conforming loans averaging 6.46 percent, according to HSH's weekly survey.
While that's an improvement, Gumbinger said, it could take months for the situation to improve.
In some areas, up to 30 percent of signed contracts fell through in August, said Lawrence Yun, senior economist at the real estate trade group.
"Some creditworthy people are trying to buy homes but can't," Yun said in a prepared statement.
The Realtors' index is based on a sample representing about 20 percent of existing home sales nationwide.
Last week the trade group said that sales of existing single-family homes dropped by 4.3 percent in August to the lowest point in five years. Sales dropped to 5.5 million units that month, the slowest pace since August 2002.
While the real estate trade group has forecast a recovery in home sales by next year, some investors see a long, deep housing market decline and a recession ahead.
"The housing bubble has burst," said Peter Schiff, president of Euro Pacific Capital in Darien, Conn. "Prices are going to collapse and sales are going to fall through the floor."
Sunday, September 23, 2007
August Foreclosures
According to figures released by RealtyTrac, a marketer of foreclosed properties, there were 243,947 foreclures in the month of August. That's up from 115,292 in August 2006 and 36% higher than July's numbers.
"The jump in foreclosure filings this month might be the beginning of the next wave of increased foreclosure activity, as a large number of subprime adjustable rate loans are beginning to reset now," James Saccacio, chief executive of RealtyTrac, said in a statement.
The hardest hit was Nevada which had 1 foreclosure for every 165 households. Overall the Midwest and the South were the hardest hit, but every state is feeling the pinch. Real estate prices that went unchecked for so many years, funded largely by sub-prime loans, have been the doomsayer for investors, brokers, agents and home owners alike for the past two years. Surely our greed will be our undoing.
Where does that leave a new investor like me?
Often times scratching my head, trying to figure out how I'm going to make this thing work.
But check this out...
1. A real estate agent friend of mine told me that he has pre-foreclousre homes in northern Virginia that I can buy, priced at up to 80% below their tax appraisal.
2. I spend a lot of time researching the history of individual homes sales. Houses these days are frequently appraised well below their numbers from a few years ago. I saw a house just outside the Beltway that sold for $2.2 million in 2004. Today, the same house is appraised at $465K.
The bottom line is this, the opportunities are out there for those savvy investors who know, or can learn, how to make the market work for them.
"The jump in foreclosure filings this month might be the beginning of the next wave of increased foreclosure activity, as a large number of subprime adjustable rate loans are beginning to reset now," James Saccacio, chief executive of RealtyTrac, said in a statement.
The hardest hit was Nevada which had 1 foreclosure for every 165 households. Overall the Midwest and the South were the hardest hit, but every state is feeling the pinch. Real estate prices that went unchecked for so many years, funded largely by sub-prime loans, have been the doomsayer for investors, brokers, agents and home owners alike for the past two years. Surely our greed will be our undoing.
Where does that leave a new investor like me?
Often times scratching my head, trying to figure out how I'm going to make this thing work.
But check this out...
1. A real estate agent friend of mine told me that he has pre-foreclousre homes in northern Virginia that I can buy, priced at up to 80% below their tax appraisal.
2. I spend a lot of time researching the history of individual homes sales. Houses these days are frequently appraised well below their numbers from a few years ago. I saw a house just outside the Beltway that sold for $2.2 million in 2004. Today, the same house is appraised at $465K.
The bottom line is this, the opportunities are out there for those savvy investors who know, or can learn, how to make the market work for them.
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