Monday, June 11, 2007

Foreclosures Could Reach 2 Million - As the Debate Rages On

This is an interesting article from Yahoo concerning the debate about where the real estate market is headed. You may want to go to the original to catch all the links.

A second study forecasting millions of foreclosures sweeping the nation in the next few years, says it won't matter what the Feds do to fix the problem.

"Foreclosures Will Affect 2 Million Homeowners," by upstart housing market researcher says subprime mortgages are the culprit.

Among the independent researcher's findings:
· More than 2 million homeowners will face foreclosure in next two and a half years, due largely to loans written that shouldn't have been.
· Most, 76 percent of recent foreclosures resulted from high-interest rate subprime loans made to borrowers who could not otherwise qualify for a loan.
· Another 15 percent of the failed loans were made with conventional mortgages, but many contained risky low- or no-down payment terms.
· The remaining 9 percent of foreclosed loans studied included no- and low-documentation loans that get approved with little if any verification of income.
· More than 50 percent of all home mortgages made in 2006 were written with 5 percent or less down.

. . . . Colpitts says the study is based on a survey of 100 real estate market's public records and interviews conducted by researchers.

Similar results were found with a study by the Center for Responsible Lending in a report entitled
"Losing Ground: Foreclosures in the Subprime Market and Their Cost to Homeowners" .

Rebutting the Losing Ground study,
"U.S. Mortgage Borrowing: Providing Americans with Opportunity, or Imposing Excessive Risk?" a study by the four-year old Center for Statistical Research (CSR) says stiffer rules could push from 580,000 to 1.1 million borrowers out of the market and leave as much as $188 billion in mortgage money in the bank. . . .

I love "dueling" statistical reports, because it boils down to the quality of the data and analysis.

. . . . "There is some evidence that if the Fed doesn't drop rates by the end of the year, we'll be in a crisis," Colpitts said.

The die is already cast on this issue.

The Fed is busy with regulatory matters.

· The Federal Reserve Board has set June 14 for fifth public hearing on the Home Ownership and Equity Protection Act (HOEPA) frequently called upon to curb abusive lending practices.
· The hearings come after months of related testimony before Congress from industry and government officials, as well as consumer advocates.
· Also making the rounds, is the
"Proposed Statement on Subprime Mortgage Lending" by the same group of federal monetary regulators that rewrote the rules on nontraditional home loans and equity loans.
· Those rules,
"Interagency Guidance on Nontraditional Mortgage Products" and "Credit Risk Management Guidance For Home Equity Lending" were years in the making and some lenders not federally regulated slipped under the radar.

Less regulated state level lenders are, in part, why there's more regulatory action to attempt to manage the mortgage morass.

Colpitts says it won't matter if stiffer rules are written or if no rules are written.

I agree with Colpitts on this one. No need to close the barn door now the horses are already gone.

"The consensus among economists is that the Feds just haven't acted fast enough to do anything. If they do anything, it will be too little too late," he says, comparing the current home loan landscape with the savings and loan scandal of the late 1980s and early 1990s.

. . . . Today, by and large, the soaring rate of foreclosures is more directly associated with poorly underwritten loans.

According to
"An Examination of the Banking Crises of the 1980s and Early 1990s" by the Federal Deposit Insurance Corporation, which was spawned of another era of bank failures, during the bailout, layers upon layers of bad investing and poor banking habits were exacerbated by true real estate depressions in the Southwest, California, Florida and the Northeast.

And, with the current administration and U.S. Congress preoccupied with a national election, immigration and a war potentially costing the economy
more than $2 trillion, failing lenders will be hard fought to find anotherhalf trillion dollar bailout cache -- the estimated cost of the bailout.

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