Archive for the 'Subprime Meltdown' Category
As if tumbling real estate values, toxic loans, and rising foreclosures weren’t bad news enough, banks have begun freezing Home Equity Lines of Credit (Heloc), depriving homeowners the ability to draw on their remaining home equity when many need it most.
In recent years, the banks promoted Helocs by offering them like a free Happy Meal to consumers when they purchased or refinanced a home. Buying into the idea that a heloc could provide a safety net during difficult times, consumers often accepted.
ARE WE LAZY, OR IS THERE TOO MUCH FINE PRINT?
In its primer entitled What You Should Know About Home Equity Lines of Credit, the Federal Reserve Board notes:
Plans generally permit the lender to freeze or reduce your credit line under certain circumstances. For example, some variable-rate plans may not allow you to draw additional funds during a period in which the interest rate reaches the cap.
But if anyone bothered to read the fine print or noticed the Fed’s warning, few anticipated the perfect credit storm in which we now find ourselves.
read comments (0)How About a SubPrime Lender Survey?
In case you’re wondering about the Test Survey below, I am working on setting up a subprime lender report card.
I’d like to give trouble homeowners a chance to report on how hard lenders are really working to help consumers keep their homes. From what I can tell, most of the lenders’ efforts are going into press releases. Lenders and legislators alike are talking a lot but doing little. They pat each other on the backs in the news while struggling homeowners continue packing the U-Haul.
The Bush administration announced FHA Secure back in late August, and by early December HUD claimed to have already helped 33,000 homeowners avoid foreclosure, with another 20k or so to come by year end. Sounds good, yet Patrick Rucker of Reuters reported on December 17th that according to government data just released, only 266 FHA Secure loans had actually been completed. Uh, that’s a pretty big difference.
Jim Wasserman of the Sacramento Bee reported on Tuesday that a group of eight lenders and two CA foundations were contributing $4.6 mil to beef up counseling centers across the state. This money will be used to pay two years salary and benefits for 46 new counselors who expect to help 70,000 CA homeowners. Help them do what? Find roommates and second jobs? A counselor can’t modify loans terms or freeze a resetting subprime rate. And 46 new counselors to help 70,000 people? But hey, it sounds good on the surface.
On Wednesday, Countrywide claimed to have helped more than 81,000 people save their homes in 2007, with only 1,000 of its customers losing their homes to short sale. But at CW’s own site for REO properties, I did a search and found 43 pages (100 properties per page) of properties foreclosed and owned by CW in the California alone.
And what about the so called “rate freeze”? Because of a few short sale posts here at Lending Clarity, homeowners from across the country contact me every day asking for advice because they can’t get their lenders to help them. These efforts on the part of lenders so far are voluntary, so they can easily add their names to the media’s good-guy list without actually doing a thing to help anyone. And that seems to be the reality so far.
So okay, this has turned into a bit of a rant. I didn’t start with that intention. And I don’t want this to be about whether troubled homeowners deserve help. But since everyone’s boasting about what they’re doing, let’s find out of it’s working. Let’s get past the posturing and determine which lenders are helping and which are not. And let’s give the consumer a voice.
What do you think?
Hank Paulson’s plan to freeze sub prime rates for trouble homeowners was the mortgage topic of the week. Since the discussion–like elevator music–seems to come from everywhere and nowhere at once, I thought I’d link to a menu of sites where you can get more on any particular piece of this issue.
In case you’ve been on vacation or just boycotting the news (for which I couldn’t blame you), the Bush administration announced a plan to freeze the interest rates for homeowners whose sub-prime loans are about to increase. The intent is good: stabilize the real estate market to stop the cycle of declining values, more foreclosures, further declining values, and so on.
First of all, view US Treasury Secretary Hank Paulson’s interview with Maria Bartiromo to hear it from the horse’s mouth.
Here are further Remarks by Secretary Paulson on Actions Taken and Actions Needed in U.S. Mortgage Markets at the Office of Thrift Supervision National Housing Forum.
Here is an article by Felix Salmon discussing the twin risks of litigation and investor perception associated with forcing a revision of mortgage terms on the investors who bought these securities.
The administration claims the plan could help as many as one million homeowners could be saved, though others (myself included) suspect that the real number is a fraction of that.
The questions are many, and the administration is still vague about the details. Here are some of the issues:
Very quietly, Countrywide has once again proven the claim: “No one can do what Countrywide can.”
After pushing the worst mortgage junk ever created, pushing their originators to sell that crap, pushing their stock in insider trading schemes before the meltdown, they have pushed this garbage on the Atlanta Fed as collateral for a quiet loan of $51 billion of your money.
A few days ago, New York Senator Charles Schumer was concerned enough about Countrywide to write this letter to the Atlanta Federal Home Loan Bank. In it he says:
I write to express my serious concern over the lending practices of the Federal Home Loan Bank of Atlanta, specifically in regard to the significant volume of advances made to Countrywide Bank. I am concerned that the loans being pledged by Countrywide to secure these advances may pose a risk to the safety and soundness of the FHLB system as a whole.
In exchange for the $51.1 billion in advances, Countrywide pledged $62.4 billion in loans, nearly 80% of its entire investment portfolio, as collateral. Of that, almost half consisted of pay option ARMs, most of them underwritten without any income verification. Delinquencies on the company’s pay option ARMs leaped 78% in the last quarter.
Schumer continues…
As if on cue for Thanksgiving, the Sacramento Bee today announced that governor Arnold Schwarzenegger had obtained agreement from four lenders to freeze rates on California subprime loans that are about to reset. Hey, one more reason to celebrate!
The initial list of lenders include Countrywide, GMAC, Litton, and HomeEq—hopefully more will follow their lead—and the agreement applies to borrowers who a) have not yet defaulted on their payments, b) live in the home, and c) can prove that they will be unable to make their new payments. Rates could be frozen for 5 years or more, depending on the borrower’s situation.
Borrowers should not expect this concession to come without some sacrifice. The article mentions that,
“Lenders have complained at State Senate hearings that some borrowers are loath to give up cell phones and cable TV to help them reach a deal.”
The implication is that lenders will be scrutinizing the home owner’s budget and agreeing to forego the interest rate increase only if the borrower is willing to make concessions as well. That seems fair and reasonable.
I’d like to keep tabs on these lenders to make sure this isn’t just happy talk. If any of you do contact one of these lenders, please come back here and let us know how that conversation went.
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I ran across this article from Kiplinger Forecasts this morning. It does a fair job of addressing the question on every troubled home owner’s mind: Is there a bail out coming?
So far, the answer appears to be no. Despite high level legislative chatter, the recent Bush proposal for FHASecure—the details of which remain vague, and the inevitable debate about the “moral hazard” of keeping the dirty bath water to save the baby, no broad plan has emerged. That may be understandable in light of the fact that 70% of the foreclosure problem exists in 7 states. If your state didn’t contribute to the problem, do you want to pay for its solution?
And yet there is something bigger at stake.
The foreclosures in those 7 states will have a broad negative impact on consumer spending. That hurts retail sales and profits, and ultimately jobs. The negative wealth effect and spending pull-back on the part of foreclosure victims is actually the smaller part of the problem. Think about the much larger group who won’t lose their homes. They’re feeling the pinch too. And they’ll spend less as a result. It’s like the scare-movies they show you in driver’s training. Even though that wasn’t your blood on asphalt, you’ll drive a little more carefully after seeing what happened to the other guy.
More Lenders Falter
Lehman Brothers announced today the closure of its sub-prime subsidiary BNC Mortgage. Lehman Brothers will continue to originate prime mortgages through its Aurora Loan Services platform but is discontinuing all sub-prime originations.
More sad news from my rep at Accredited Mortgage yesterday afternoon:
I’m sure you’ve all heard the news that we’ve ceased accepting new loan applications. As you can surely guess, this means I am no longer employed. I wanted to thank all of you for your business and wish you the best of luck in the future. My email account will be shut off shortly. If you’d like to stay in touch, here’s an alternate email.
HSBC, Europe’s largest bank, restructured its U.S. mortgage operations and announced plans to close an Indiana office.
Finally, this mysterious communication from Homecomings Financial.