Thursday, February 02, 2006

Fed Governor Bies concerned about risky mortgages

Fed's Bies says concerned on some loan practices

Federal Reserve Board Governor Susan Bies said on Thursday that while most U.S. banks were well-managed, regulators were concerned about heavy commercial real estate exposures and risky mortgage lending practices.

Speaking to a financial services industry conference, Bies outlined guidance U.S. bank regulators have issued on commercial real estate and so-called nontraditional mortgage lending practices.


In discussing draft guidance U.S. bank regulators have issued on exotic mortgage products such as interest-only loans, Bies repeated that supervisors were concerned risk-management practices had not kept pace with the risks that these widely available loan products could present.

She also cautioned those risks could be "heightened by a downturn in the housing market."

Bies said that in the past such products were normally offered to higher-income borrowers only, but that they now were being extended to low-income borrowers in the subprime market.

"These borrowers are more likely to experience an unmanageable payment shock at some point during the life of the loan, which means they may be more likely to default on the loan," she warned.

Bies also expressed worry that banks could face difficulties if abnormally low risk-spreads in capital markets increased. "When risk spreads return to more 'normal' levels, banks need to be prepared for the resulting impact on liquidity and pricing," she said.

In summary, the easy money is running out. Unfortunately, the concern and any resultant regulation is much too late. The damage is already done, the risk is out in the marketplace. A perfect example of closing the barn door long after the horses have run out. The proliferation of risky mortages in the marketplace now poses systemic risk to the entire real estate market.

Caveat Emptor,


Anonymous Anonymous said...

This will impact the entire market.

First, lets face it there are people that moved from the $550K range to the $800K + range by using these loan types. Therefore, there will be pressure on the top end.

Second, there will be pressure on the low end because that is where folks try to enter.

Third, hitting both ends will impact the middle because of the increased inventory and the ability to get to a bigger house at a lower price.

If the increase in interest rates continues and we see any downturn in the economy of NJ it could mean that prices will need to come down. Now factor in other world events and we have a very high probability that prices will drop.

Again, it would be interesting to see , in my area, Morris Cty, what the percentage of investor owned properties are in the area. I have been looking at it is common that to see the homes sitting empty are POS and have brand new kitchens. If it is above 15% and we have a hiccup grim will be right.

As a move up buyer I am hoping for that.

As always----GO GRIM!!!!


2/02/2006 10:15:00 AM  
Anonymous Anonymous said...

Concerned about risky loans?

Where has this imbecile been for 3 years?
Just trying to cover their @$$E$.

2/02/2006 10:28:00 AM  
Anonymous Anonymous said...

Quicken loans is busy advertising.

Did you know a quicken loan could help you fund your retirement?


Amazing how this corrupt industry gets away with it.

2/02/2006 10:33:00 AM  
Anonymous Anonymous said...

Funny thing, most places are just brokers of the loans. Many banks have turned away from these fly by night types. But it remains to be seen what will happen.

The investor types, that set up LLCs will just default if they have too. There was a place in Mt Lakes that was a builder default and the bank still wants top dollar.

With Inflation going up now the FED will tend to increase interest rates, which will impact ARMS. They come due next year. Which means the people will start shopping their deals this spring.

So kids lets review.

NJ jobs leaving

People leaving NJ

Interest rates going up

Taxes in NJ going up

At least 15% of properties owned by investors or flippers

Number of homes for sale on the market increasing

Time on market of homes for sale increasing.

FORECLOSURES increasing nation-wide

Lending practices warning

BUY NOW BEFORE YOU MISS OUT ON A WRITE OFF!!!! And get a good lender that will assume 30% salary increases each year.

It would be funny if it was not true.

PLEASE PLEASE post anything where folks say property values will increase in NNJ.


2/02/2006 10:46:00 AM  
Blogger NJGal said...

Anon at 10:46, there is a board in Hoboken where they are convinced prices there are going to rise 10% in the next year. I just read it and laugh. It's at

Grim, I FINALLY saw a price reduced in Maplewood. I can't remember where but it made me laugh. I know you can't understand my focus on that town but as hot as it was, any price reduction is good.

2/02/2006 11:34:00 AM  
Blogger Richard said...

njgal, too much of maplewood borders the ghetto of irvington and turning into the ghetto south orange. the middle and high schools are going south. i don't know why anyone would want to buy in a clearly declining town (even though now it's still ok) with very high taxes, high property costs and the ghetto outside your door. the nyc commuters are clearly in denial.

2/02/2006 11:53:00 AM  
Blogger chicagofinance said...


"A perfect example of closing the barn door long after the horses have run out."

In a similar vein, most of the people jumping off the bandwagon now are the equivalent of Jeffrey Skilling resigning from Enron in August 2001. There are attempting to wash their hands profusely before all the blood starts spilling. With their twisted logic, they are hoping to walk away now, and disavow any knowledge of impropriety.


2/02/2006 12:18:00 PM  
Blogger NJGal said...

Oh, I know it's completely on the border of the ghetto. I don't want to buy there anymore, but had been obsessed with it because the prices when I started looking were pretty low. Then I became obsessed with the idea that people were bidding up to 100K over the asking price for some of these places, which is just insane. I find it an interesting town to follow for those reasons - it's terrible schools, terrible location but insanely bubblicious bidding wars

2/02/2006 12:21:00 PM  
Anonymous Anonymous said...

This comment is to Richard and NJGal: I can't agree with you more that Irvington is not an ideal place to live for the most part. But not everyone can afford to live in the "better towns or better part of New Jersey" if there is a such of a thing. It seems like high property taxes for the most part are common in certain parts of Jersey. I guess what it will boil down to is what are you getting for your tax dollars??

2/02/2006 01:26:00 PM  
Blogger chicagofinance said...

I could live in a place knowing that Sharpe James had access to my wallet.

2/02/2006 01:55:00 PM  
Blogger NJGal said...

Anon at 1:26, you're absolutely right. Not everyone can afford the better areas. And NJ has atrocious taxes. But the Maplewood taxes are particularly bad considering the absolutely awful nature of the schools - I very much consider what I'm getting for my tax money and if I'm paying 13K a year (as many homes in Maplewood do now) I sure as hell am not paying for private school. So you have a good point. I would rather rent or buy a crappy house in a better school distric than pay for private school.

2/02/2006 02:34:00 PM  
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4/18/2006 11:29:00 PM  

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