California Mortgage News

Monday, June 19, 2006

This is a pretty good article which comes the AP via Yahoo. The article is surprisingly good and highlights what loose credit standards combined with ARMS leads to. All the examples cited in the article are on the margins, ie lower value homes, sub prime loans and in markets not nearly as hot as California. Overall according to the Mortgage Bankers Association, foreclosures fell in all categories except sub prime loans. My gut tells me that the numbers will be way up for sub prime loans as these are people who cannot get credit elsewhere and very often cannot re-finance into a fixed loan because of poor credit.

""ARMs are a ticking time bomb," said Brad Geisen, president and chief executive of property tracker Foreclosure.com. "Through 2006 and 2007, I'm pretty sure we'll see a high volume of foreclosures."

Last year, foreclosures hit a historical low nationwide at about 50,000. But that number has more than doubled since then, according to Foreclosure.com.

Let's keep in mind something. The number has doubled it's only JUNE! That means we are on pace to having four times the number of foreclosures in 2006 than we did in 2005. That's a huge spike and pretty frightening.

This won't have as much of an effect on California just yet,

"Gaines pointed out that although California's default notices are rising by the thousands, actual foreclosure sales remain in the hundreds. Because of California's still-active housing market, homeowners there can sell their properties before going into foreclosure.

On the flip side, in less active markets like Texas and Georgia, homeowners can't find a buyer in time and are forced into foreclosure."

A bit of statistics manipulation and things don't seem as bad as things really are in the Golden State

California, where the median home price reached $468,000 in April, leads the nation in the percentage of homes purchased with adjustable rate mortgages. Nationwide, ARMs account for 24 percent of all home loans.

"In our zeal to make mortgage lending more available to a greater number of people, it's normal to expect the foreclosure rate to go up," Gaines said.

The problem with this number is that it takes all mortgages and lumps together. So my father in law who purchased his home in 1977 for $77,000 (now worth well over $750,00 0) is lumped in. This hides and understates the real problems that ARMs are going to be in California. As I covered in a recent post 61% of new mortgages in 2005 are interest only! So people buying at the very top of the market with financial instruments set to reset in 2007 and 2008. 2008 is going to be a very tough year for anyone who bought with an ARM.

Labels: ARMS, californiaforeclosures, forclosure, forclosures, Foreclosure

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Saturday, January 14, 2006

Freddie Macs ARM Survey Notes Increased Lender Discounts

Freddie Macs ARM Survey Notes Increased Lender Discounts
While the flattening of the yield curve has not noticeably hurt the popularity of ARMS, it is largely lender discounts that have kept the products in the game. Not entirely surprising since lenders have large incentives to keep them in the game. Given the way that revenues are booked by lenders, they are heavily incentivized to push ARMS

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Labels: ARMS, ARMSurvey, FreddieMac, revenuebooking

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Regulators Begin to feel uncomfortable

Apparently bank regulators have issued new guidance to banks about home equity loans, warning them about homeowners borrow too much against their homes. Of course the impact on these practices is almost non existant.

"It's as easy to get these loans now as it was two months ago," said Michael Menatian, president of Sanborn Mortgage, a mortgage broker in West Hartford, Conn. "If anything, people are offering them even more than before."

Apparently guide lines have only been issued without concrete action. Why?

"We don't want to stifle financial innovation," said Steve Fritts, associate director for risk management policy at the Federal Deposit Insurance Corporation. "We have the most vibrant housing and housing-finance market in the world, and there is a lot of innovation. Normally, we think that if consumers have a lot of choice, that's a good thing."

In many ways this is a good thing as it allows competition for a borrowers business. This means a financial windfall for the consumer by tapping the equity in their home.

Led by the comptroller's office, which oversees nationally chartered banks, federal banking regulators published guidance in May that gave lenders more detailed instructions on how to evaluate the risks in home-equity loans.

The move was a warning shot to lenders. The value of home-equity loans shot up 40 percent in 2004, to $398 billion. Almost all of those loans are at adjustable interest rates, which could rise sharply, and many were extended to people who had just borrowed money to buy a house.

If you have a hybird ARM or an ARM it's time to think about refinance.

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Labels: ARMS, Loosecreditstandards, Subprime, subprimemortgagelending

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