Thursday, May 13, 2010
Way to Lock Up
For California Mortgage Delinquencies, Location Matters
In sunny California, mortgage delinquencies vary widely by county, as evidenced by a Fitch Ratings study.
Fitch took a look at all securitized, non-agency mortgage loans in the state and discovered that “delinquencies are highly correlated with the level of negative equity.”
And while mortgage performance in California is not substantially different than that of the remainder of the country, certain parts of the state are underperforming or outperforming the rest of the nation.
In the hard-hit Riverside-San Bernardino-Ontario MSA, 23 percent of prime loans are 60+ days delinquent, making it the worst performing region in the nation.
Meanwhile, the San Francisco-San Mateo-Redwood City MSA is the best performing region in the country, with just four percent of prime loans 60+ days delinquent.
Additionally, high-risk option arms and subprime loans in San Francisco outperform less risky Alt-A mortgages in Riverside.
“From 2000-2006, nominal home prices in San Francisco increased by 81% and have since declined 22% from their peak. Over the same period, prices in Riverside have declined 55% from their peak after jumping 193%,” Fitch said in a release.
As a result, 90 percent of Riverside mortgages are now underwater, with nearly 60 percent of mortgage holders owing more than 150 percent of the value of their home.
“Fitch estimates the weighed average current loan-to-value ratio (LTV) in Riverside to be 164%. By comparison, less than 1% of San Francisco mortgages are more than 50% underwater, with a weighted average current LTV of 81%.”
Over the past year, San Francisco home prices have increased by 12 percent, while residences in Riverside have appreciated by just one percent.
Senate Bill Bans Mortgage Kickbacks, Liar Loans
An amendment introduced by Oregon Senator Jeff Merkley and Minnesota Senator Amy Klobuchar aimed at protecting homeowners from deceptive lending practices passed the Senate by a vote of 63-36 today.
As a result, mortgage lenders and loan originators will be banned from accepting payments based on the interest rate and other terms of the loan, which effectively wipes out loan steering.
The legislation also seemingly kills off yield spread premium, which was one of the main ways mortgage brokers were compensated (how mortgage brokers make money).
“Deceptive mortgage practices like hidden steering payments directly led to the Wall Street meltdown and resulted in millions of families losing their homes,” said Senator Merkley in a release.
“We took a huge stride forward today in the fight to restore fairness for homeowners and strengthen the financial foundations of our families. I look forward to seeing this amendment become law so that never again will hidden steering payments put millions of homeowners on the fast track to foreclosure.”
Current rules allow loan originators and mortgage lenders to place borrowers into higher-cost and riskier loans, even when they qualify for more affordable loans.
Merkley cited a WSJ study, which found that 61 percent of subprime loans originated in 2006 went to borrowers who qualified for prime loans.
The bill will also require lenders to document income and “other underwriting standards” to ensure borrowers can actually repay their loans, putting an end to no doc loans and so-called “liar loans,” otherwise known as stated income loans.
These are huge changes and the implications may be great for the mortgage industry.
The amendment was also co-sponsored by Senators Chuck Schumer (D-NY), Olympia Snowe (R-ME), Scott Brown (R-MA), Mark Begich (D-AK), Barbara Boxer (D-CA), Chris Dodd (D-CT), Carl Levin (D-MI), Al Franken (D-MN) and John Kerry (D-MA).
Refis Jump as Rates Slide, Purchases Slow as Tax Credit Ends
Refinance demand surged last week as mortgage rates benefited from economic uncertainty, but purchase activity cooled following the expiration of the homebuyer tax credit, according to data from the Mortgage Bankers Association.
“The recent plunge in rates on US Treasury securities, due to a flight to quality as investors worldwide sought shelter from the Greek debt crisis, benefitted US mortgage borrowers last week,” said Michael Fratantoni, MBA Vice President of Research and Economics.
“Rates on 30-year mortgages dropped to their lowest level since mid-March. As a result, refinance applications for conventional loans jumped, hitting their highest level in six weeks.”
The refinance index increased 14.8 percent during the week ending May 7, pushing its share of mortgage activity to 57.7 percent of total applications from 51.9 percent the previous week.
“In contrast, purchase applications fell almost 10 percent in the first week following the expiration of the homebuyer tax credit, as the tax credit likely pulled some sales into April that would otherwise have occurred in May or later.”
The seasonally adjusted purchase index fell 9.5 percent week-to-week; the unadjusted purchase index was off 8.9 percent from the previous week and 0.6 percent lower than the same week a year ago.
Meanwhile, the average contract rate for a 30-year fixed-rate mortgage fell to 4.96 percent from 5.02 percent, and the 15-year fixed slipped to 4.32 percent from 4.34 percent.
The one-year adjustable-rate mortgage averaged 6.86 percent, down from 7.03 percent – the ARM share of activity remained unchanged at 6.3 percent of total applications.
The rates above are good for mortgages at 80 percent loan-to-value.
The MBA’s weekly survey covers more than half of all retail, residential loan applications, but does not factor out duplicate or rejected apps, which have surely risen since the mortgage crisis began.
Black Eyed Pea Takes Foreclosure Crisis into Own Hands
Black Eyed Peas frontman will.i.am has taken on the foreclosure crisis, creating the i.am home fund to help those in jeopardy of losing their homes as a result of the economic downturn.
Yesterday, he unveiled the program on Oprah, surprising two struggling families facing foreclosure by paying off their mortgages.
Sure beats the other freebies Oprah has been known to throw out to guests on the show…
One family with eight children owed $250,000 on their mortgage and had already exhausted their 401k and savings account after the breadwinner lost his job.
The other lucky victim was a single mom who had been laid off after her company downsized, leaving her eight months behind on the mortgage and owing about $100,000.
Both families are now free-and-clear, let’s just hope they don’t try to pull cash-out anytime soon.
“Growing up I dreamt that one day I’d be able to buy my mom a house and take care of my family,” said will.i.am on his website. “I realized that dream and experienced the positive effect giving back had on my family.”
“Now I am compelled to help others who are in jeopardy of losing their homes and inspire others to join the movement.”
The i.am home fund is collecting donations to help other families in similar situations, though it’s unclear how the money will be allocated.
A number of struggling homeowners have already written in on the website in hopes of receiving assistance.
Mortgage Rates vs Stock Market
With all the recent stock market volatility, you may be wondering what effect such events have on mortgage rates.
Well, when economic fears rise, as they did last week, investors flee the stock market and head toward safer U.S. Treasury bonds, like the benchmark 10-year bond.
As a result, yields for those bonds plummet because demand is strong and a higher yield isn’t necessary to lure investors.
And because the 30-year fixed tends to follow the direction of the 10-year bond yield, mortgage rates fell.
Last week, the stock market plummeted thanks to fears of major default in Europe, but after a bailout package was announced today, stocks surged higher.
Mortgage rates will also climb higher on the news, though they may stay lower longer thanks to the general uncertainty in the air.
This is good news for prospective homeowners, as mortgage rates were expected to keep climbing throughout the year while the economy improved.
As a rule of thumb, bad economic news pushes mortgage rates lower, while good economic news pushes mortgage rates higher.
Stocks move in much the same way, except of course higher stock prices are seen as a positive and higher mortgage rates are viewed quite unfavorably.
Keep in mind, however, that this is just one of many factors that determine mortgage rates, and a change in stock prices may not always indicate a similar change in rates.
Foreclosure Protest Ends with Seven Arrests
A man who holed up inside his home to avoid a foreclosure-driven eviction was removed today after a week-long protest.
The homeowner, Keith Sadler, along with several protesters from the “Toledo Foreclosure Defense League,” had bound themselves together using chains.
State Bank and Trust Co. foreclosed on the Stony Ridge, Ohio home last year and later purchased it at a sheriff’s sale in March for $33,333.
Court records reveal that Sadler was supposed to vacate the property by midnight Monday, but it was clear he had no intentions of leaving voluntarily.
The disgruntled homeowner said he had made mortgage payments for 12 years since buying the property from his father, and only fell behind after being laid off from his job (and for medical reasons).
He lived in the home for some 20 years before police knocked down the front door at 6:30 AM local time and carried him out by his arms and legs.
Sadler, along with six others, Connie Smithengale, 20; Bryer Baumgartner, 19; Nicholas Botek, 23; Jessica Angelov, 20; Daniel Orange, 25; and Johnathan Kutsch, 22, were arrested and charged with misdemeanor obstructing justice and trespassing.
The Toledo Foreclosure Defense League has called for a moratorium on both foreclosures and evictions, arguing that banks have been bailed out while homeowners get kicked to the curb.
Back in February, there was word of a so-called “foreclosure ban,” which essentially would prohibit foreclosure action until a borrower was evaluated and found to ineligible for HAMP (or a reasonable attempt to contact the borrower was made).
This isn’t the first dramatic tale of foreclosure and probably won’t be the last…back in September, a San Diego man robbed a bank in order to make his mortgage payments.
A month earlier, a family lost their home to foreclosure thanks to a 7-cent underpayment.
Any questions or concerns don’t hesitate to contact me, Gene Neal your Mortgage Expert.
Tel (631) 687-3510 Ext. 101
eFax Attn Gene Neal
Fax (631) 687-3513