Sharp Drop in Home Equity Loans
Borrowers with credit scores under 650 are finding it nearly impossible to get a second mortgage without a huge amount of equity. As a result, there has been a big drop in the number of home equity loans being issued by banks.
There may be hope however, as the Wall Street Journal writes:
A recent improvement in beleaguered home-equity loans has been a rare sign of encouragement for banks. But bullish investors need to remove their rose-colored glasses.
Banks have about $700 billion of home-equity loans — in which a bank lends money to a homeowner against the equity in his house. That includes both fixed-rate loans and floating-rate debt drawn from credit lines. Lenders usually can’t collect on a defaulted home-equity loan by seizing a house unless the borrower has no mortgage, since mortgage lenders have first claim.
This increase may help the many consumers looking to reduce debt by consolidating to an equity line.
NYC Housing market could stall in 2008 - Second Mortgage Rates to Increase?
A Reuter’s publication states New York’s real estate market may slow down in late 2008 if the economy along with Wallstreet doesn’t pick up. Negative press has also talked buyers into re-considering their purchase of real estate in the area due to the slowing of the economy, job-security, and the outcome of the election. Nervous buyers are “skittish” when considering dropping large money on property in NYC. Not to mention some buyers hold unrealistic prices in their minds when considering purchasing a worthwhile property.
Pamela Liebman, chief executive of the Corcoran Group, said Tuesday at the Reuters Housing Summit that a lack of supply and a surfeit of foreign buyers taking advantage of a weak U.S. dollar has meant the city has “absolutely stood alone” in skirting the nation’s decline in housing prices.
While bidding wars are less common than a year ago, Liebman said demand remains very healthy, especially for the largest, multimillion dollar apartments — but that could change.
“If Wall Street has a terrible year, and the press is really talking negative about the economy and the election, I think things could really slow down at the end of the year,” she said.
“I don’t see New York City crashing or coming to any kind of a standstill, because the product is too good and there’s too much belief in the city,” Liebman continued. “What will stall this market is a negative economy, nervousness and skittishness about job security, consumer spending, layoffs, and sellers with unrealistic prices.”
Earlier Tuesday, Jonathan Miller, director of research at Radar Logic, said at the Summit that Manhattan’s housing market was “definitely going to see weakness” within a year or two. Radar Logic tracks home price changes in 25 U.S. metropolitan areas.
News of NYC’s real estate market doesn’t come as a surprise as the entire country has seen a slow down in market over the past 2 years. Properties all over the nation have dropped in value as sellers have no choice in selling their property at a lower price to meet buyer demand. Hopefully, within the next five years, real estate market will spring back up along with the new economy brought on by the new presidential cabinet. Should the NYC market collapse however, rates for loans such as the second mortgage will certainly rise. Banks rates tend to jump as banks fail.
Commercial Real Estate Prices decline in December
An independent mortgage financing blog, Housing Wire, reports that “residential mortgage market woes have extended into commercial real estate.” Moody’s investor services reported Tuesday that the “commercial real estate price index used by the agency registered a second consecutive monthly decline, and the third in the past four months.” Information regarding the price drops according to Moody can be read below.
Moody’s/REAL Commercial Property Price Indices fell by 1.5 percent in December — the fourth-largest monthly drop in the 84-month history covered by the price index.
“The last few months of the index have represented a bit of a plateau, but one with more ‘down months’ than ‘up months,’” said senior vice president Sally Gordon, coauthor of the report. “The asymmetry of the number of months when prices increased or decreased is striking and clearly indicative of where we are in the real estate cycle–the beginnings of a downturn after a long run-up in prices.”
One surprise in December, according to Moody’s, was that the volume of the repeat sales transactions remained robust during the month — usually a sign of market strength. In December, the Moody’s/REAL CPPI captured 352 transactions totaling $7.1 billion.
“Although December is often a more active month for transactions as some borrowers and/or lenders are eager to close before the year-end for one or another financial reason, the jump in volume in December might turn out to be atypical before a softer pace sets in,” said Gordon.
Pricing for the market has been steadily dropping and decreasing the value of many properties up for sale. Investors will be less likely to pump in money for lenders who are receiving broken mortgage promises as they are forced to increase rates to make up for their losses. The mortgage problem these days are becoming more frequent as can be seen by many foreclosures and quitting of mortgages.
Such a decrease in commercial real estate will likely result in an increase on second mortgage rates.
Facing Foreclosure? New Hampshire wants to give you money
Yet another state has opened its coffers up for those in over their heads with mortgage debt.
AllAmericanPatriots reports:
New Hampshire Governor John Lynch today alerted New Hampshire homeowners who may be at risk of foreclosure to about a new program created by the Federal Reserve Bank of Boston and five New England Banks.
The initiative, called the Mortgage Relief Fund, is intended for homeowners with adjustable rate mortgages due to reset to higher levels in the coming months. The five banks have committed $125 million to the program to allow consumers with adjustable rate mortgages to refinance their loans.
Those unable to get a second mortgage may find this a helpful solution to mortgage debt. One must wonder however what led to a state issuing such a relaxed form of relief for those who least deserve it.
Indy Mac Alive But Not Kicking
Indy Mac is offering a feeble excuse for the large decline in mortgage loans being originated.
From Reuters:
IndyMac last year shifted its business to loans eligible for purchase by the two government-sponsored enterprises from the riskier, “Alt-A” type, characterized by loans to borrowers that fall short of income documentation or down payments. The move was made as investors in Alt-A and subprime loans pulled their support as defaults soared.
The GSEs, which posted larger-than-expected losses in the third quarter, have raised fees on loans they guarantee and added a surcharge on loans for higher-risk borrowers.
This means that taking out a normal loan is often harder than acquiring a second mortgage for many folks. Since lenders don’t want to issue loans with any degree of risk, many are being declined when they attempt to purchase a home.
Insider Reveals Mortgage Mess’ Dirty Secrets
Marketwatch points out an excellent revelation from a mortgage insider. Here’s a choice piece:
How will they explain foreclosures in wealthy cities across the nation involving borrowers with 750 scores when their loan adjusts higher or terms change overnight because they reached their maximum negative potential on a neg-am Pay Option ARM for instance?
Sub-prime aren’t the only kind of loans imploding. Second mortgages, hybrid intermediate-term ARMS, and the soon-to-be infamous Pay Option ARM are also feeling substantial pressure. The latter three loan types mostly were considered ‘prime’ so they are being overlooked, but will haunt the financial markets for years to come. Versions of these loans were made available to sub-prime borrowers of course, but the vast majority were considered ‘prime’ or Alt-A. The caveat is that the differentiation between Prime and ALT-A got smaller and smaller over the years until finally in late 2005/2006 there was virtually no difference in program type or rate.
Really this mess is little surprise, considering how easily lenders were dishing out loans to anyone who asked for one.
Fieldstone Mortgage Files For Bankruptcy!
An article published by the Baltimore Sun talks about the Columbia subprime lender Fieldstone Mortgage’s file for bankruptcy. According to the article:
- The company, which has whittled its work force from 1,000 employees to a skeleton crew of 25, reported it had more than $100 million in liabilities and less than that in assets, according to its Chapter 11 filing Friday with the U.S. Bankruptcy Court in Baltimore.
- Fieldstone’s reversal of fortune was abrupt. Founded in 1995, the company originated $5.5 billion in mortgage loans and operated in 50 states and the District of Columbia last year. But by August, the company had stopped originating loans.
- Company officials blamed a sharp increase in delinquent mortgage payments and loan defaults, coupled with margin calls from Wall Street banks and a credit market downturn that limited access to capital.
- Sher said that company officials have not decided whether Fieldstone would be reorganized once the bankruptcy case is resolved.
It is sad to see another lending company fall under the mortgage crisis. And it’s not just the banking giants making the news, it’s the smaller companies. Any company exposed to the second mortgage market is at risk. This just adds to the speculation that the subprime crisis is far from over.
Countrywide Denies Speculation of Bankruptcy
An article published by CNN takes a look at Countrywide’s claims that it has ample capital and liquidity to stay in business. According to the article:
- “Countrywide Bank, the Company’s primary operating entity, has sufficient liquidity available to meet its projected operating and growth needs and has accumulated significant contingent liquidity in response to evolving market conditions,” the firm said in a statement.
- Earlier Tuesday a Countrywide representative told The Wall Street Journal that speculation the company may file for bankruptcy is “absolutely false.”
- Countrywide said it has $35.4 billion in reliable liquidity available at Oct. 31, up from $33.6 billion available in September.
- A securities analyst suggested that problems at Freddie Mac (FRE) and Fannie Mae (FNM) could cut off liquidity for Countrywide and downgraded the shares.
- “Countrywide’s survival strategy has depended on access to the secondary markets through GSE purchase and re-securitization. That strategy is less viable in an atmosphere where the GSEs themselves are capital constrained and may need to shrink,” Fox-Pitt, Kelton analyst Howard Shapiro wrote on Tuesday.
If the stability of the company is dependent on a market that may prove as volatile as the current mortgage industry, that doesn’t offer much reason for investors to be confident. Countrywide may very well be able to keep its head above water so long as the second mortgage markets don’t crash. But it’s still a risk that many investors may not be willing to take.
E-Trade Suffers Plunging Losses
An article published by Market Watch takes a look at the losses felt by E-Trade Financial Corp. as it’s shares fell more than half their value. This is a huge loss for the First and Second Mortgage lender. According to the article:
Monday’s declines added to losses that the shares sustained in late trading Friday, after the company warned about further write-downs in the fourth quarter. E-Trade also backed away from an earnings forecast issued less than a month ago, because the value of its asset-backed securities portfolio dropped further.
“Bankruptcy risk cannot be ruled out,” Citi analysts wrote in a note Sunday. They also lowered E-Trade’s rating to sell.
“The continued negative news flow about charges resulting from its mortgage and CDO exposure, an SEC inquiry and continued deterioration in its financial condition all increase the likelihood of significant client attrition,” the Citi analysts said.
E-Trade is just the next name on the long list of companies that have suffered serious losses as a result of the current financial crisis. What is alarming about this ever-increasing list is that as share values drop, so does consumer confidence, which is the fuel of the financial system. Too much bad news could scare consumers enough to bring on an economic standstill, which would prove very detrimental to the nation.
An Overwhelming Risk of Systematic Shock
An article published on Bloomberg takes a look at the risk of systematic shock that second mortgage loan losses are posing. According to the article:
There’s a greater than 50 percent probability that the financial system “will come to a grinding halt” because of losses from mortgages, Gregory Peters, head of credit strategy at Morgan Stanley, said.
The risk of systemic shock from the current subprime meltdown is quite large in the near term, Peters said. “It’s an overarching concern that we have,” he said.
Losses stemming from the subprime mortgages have caused a seizure of a lot of other markets, especially the securitization market, Peters said.
“While the near-term concern is the systemic shock of the subprime-related losses, the medium- and long-term concern is the impact on the average consumer,” Peters said. “The ultimate irony here is that the U.S. consumer now needs readily available capital more easily than ever, but they’re going to have the most difficult time getting it.”
The statistics are frightening; we are more likely to have a financial freeze-up than we are to get through this crisis without such a disaster. At this point, people need to stop ignoring the facts and prepare themselves for what may turn into the next economic disaster.