FHA Book

Sub-Prime Not Giving Up…For Now

According to a televised report on MSNBC and an accompanying article on MSNBC.com, the sub-prime mortgage industry isn’t ready to give up yet. Even with the collapsing market, there are still advertisements for sub-prime loans that offer the so-called teaser rates. The legaltily and ethics of the situation are both questionable.

“There’s nothing necessarily wrong about lending money to people with bad credit,” said David Nahmias, U.S. attorney for the northern district of Georgia, who has worked on mortgage fraud cases. “Our concern is more the independent mortgage brokers who will try either to trick people into purchasing properties they really can’t afford, solicit those people to lie, let them use their identity or credit so they can perpetrate mortgage fraud.”

Missing from the report is how FHA is an honest option for those with poor credit. Unfortunate.

7% Good News.

Bloomberg is reporting on figures from RealtyTrac that foreclosures in July are up 93% from last year! Although this sounds devestating, it turns out over half of these are from 5 states. So, it is pretty devestating for California, Florida, Michigan, Ohio, and Georgia and only moderately crappy for the rest of us.

Before the Bust

New York Magazine presents a detailed history of how the subrpime boom got us to where we are today. It’s an almost poetic, information-packed read. And that’s just the first page! A snippet:

Where did the money come from? Banks lent it, mortgage brokers lent it, and even home builders themselves got into the act. The housing markets were so hot the lenders barely had time to check if their buyers were deadbeats, cheats, speculators, or actual honest-to-Betsy hardworking people who wanted nothing more than what Tom Joad wanted 70 years ago. Oh, and the buyers didn’t have time to check out the terms, either; the value of the houses was going up too fast. Gotta close now! Nor did the regulators tap the brakes—whoops, there were no regulators. If something went wrong, who cares? The buyers could always sell their ever-appreciating home to the next guy on the reservation list or the ten after him. The builders, brokers, and bankers then shipped these mortgages east to the big Wall Street firms, which bundled them together and merchandised them as high-yielding bonds often backed up by nothing more than the full faith and credit of, well, no one.

The article goes on to look at the nationwide implications of the bust by explaining that this crisis goes way beyond home foreclosures and into the over pricing of bonds on the market. The author, James J. Cramer, does a great job pulling apart all of the complexities and laying them about one by one, and the picture isn’t pretty.

At the end of the day it’s recklessness abound. Although no one will accept it, everyone’s to blame.

Quick Hits

These are both kind of “Tell-Me-Something-I-Don’t-Know” stories for those of us who keep up on lending/FHA news. But, just so you can see who is reporting what:

CNN Money has a piece on lenders working with borrowers to avoid foreclosure

Homes101 has a story on the effect of FHA legislation - if it passes.

Reading is Fun - and FUNdamental.

To fully understand the importance of an FHA resurgence in today’s market, one must understand the Subprime Boom and subsequent Bust (which is still happening today). Enter this new book by Edward Gramlich, a former member of the Board of Governors of the Federal Reserve. The book, Subprime Mortgages: America’s Latest Boom and Bust, is a worthy read for anyone wanting to understand today’s market. A decade ago subprime crushed FHA lending and the current subprime troubles are proof that we need the trustworthy FHA to be a force in the market once again.

The book, which is published by the Urban Institute, was the subject of a recent panel discussion on Book TV. Panel members included:

Dr. Edward Gramlich

Kurt Pfotenhauer, Senior VP of the Mortgage Bankers Association

Michael Calhoun, President of the Center for Responsible Lending

Sandra Braunstein, a director on the Federal Reserve Board

The panel discusses the problems associated with subprime, subprime’s place in the future, and solutions to the daunting issues facing the subprime lending market.

Meanwhile, Out West…

Along with everywhere else, California is experiencing housing problems. This article from Yahoo News is pretty much like every other “home foreclosure rates are skyrocketing” article, with the notable exception that it alludes to not only predatory lending but lying to little old ladies:

…Dorothy Hicks, 74, a retired federal employee in Oakland, California, is seeing her American dream of owning a home teetering on the edge of collapse. After refinancing into an adjustable-rate mortgage last year, she faces possible foreclosure on her home of nearly 40 years.

Hicks says she was told the mortgage was a fixed-rate loan, but was soon overwhelmed by soaring payments when its interest rates rose. “By the time you pay (utility) PG&E, the telephone and the mortgage, you don’t have any money,” she said.

If you didn’t think subprime ARMs were bad when they were getting people with the truth, surely you must think they are bad when lying to a nice old woman named Dororthy.

Minnesota Says Farewell to Predatory Lending

For now, at least. I’m sure there will be some new swindle in a decade or so, but it’s great to know that states are working hard to protect their hardworking citizens. Here’s an excerpt from the article on TwinCities.com:

“It’s going to slow the industry down,” said Louis Olsen, president of River City Mortgage and Financial, a mid-sized lender in Eagan that has stopped making stated-income loans. “I think everybody has pretty much succumbed to the fact that everybody has to do business the way we did 10 years ago.”

Going back to honest business practices? Doesn’t sound like such a bad thing, now does it?

More Bad News for the Housing Market

According to the New York Times, mortgage giant Countrywide Financial is predicting that the housing slump may continue until 2009.

The news from Countrywide, widely seen as a bellwether for the mortgage market, initiated a sell-off in the stock market, which is at its most volatile in more than a year. The Standard & Poor’s 500-stock index fell 30.53 points, or 2 percent, to 1,511.04, its biggest one-day drop in nearly five months. The dollar dropped to a new low against the euro, edging closer to $1.40 to 1 euro. Stocks opened sharply lower in Japan this morning.

Not good. Not good at all.

FED Expects Rates to Stay Steady for Rest of ‘07

The Chairman of the Federal Reserve plans for rates to hover around 5.25, but fears the possibility of the housing slump worsening, MSNBC.com reports.

Another risk is that the housing slump could turn out worse than expected, sapping consumer spending and possibly causing overall economic growth to be weaker, Bernanke said.

Housing starts rose slightly last month, the government reported Wednesday, but building permit activity, a sign of future construction plans, sank to its lowest rate in 10 years, signaling further weakness in the listless sector.

Soooo, if you are looking to be a first time homeowner….Take out an FHA loan, buy a house, have low interest rates, live happily ever after.

Rates Rising Across the Pond

Rising interest rates are more than just an American problem, as shown by an article that made the homepage of the UK’s Daily Mail website. The Mail, one of London’s top paper’s, reports that many homeowners could face trouble as their monthly payments rise.

If rates do go up next month, borrowers with a £200,000 loan still exposed to a lender’s standard variable rate will have seen monthly repayments increase by £187.69 from £1,242.48 to £1,430.17 in a year.

For the record, 1 British pound is currently worth $2.05. Good for Brits coming to America. Bad for Americans going to Britain.