Friday, September 08, 2006

Jump in Non-Prime Mortgages

From Reuters:

Fed study shows 2005 jump in non-prime mortgages

U.S. mortgage lending data show sharp growth in the use of higher-priced "non-prime" mortgages for home purchases in 2005 over 2004, and even steeper gains in the incidence of such loans among blacks and Hispanics, a Federal Reserve study showed on Friday.

The mortgage data, gathered from lenders under the Home Mortgage Disclosure Act, shows more buyers were pushed out of the most favorable loan categories as they stretched to buy homes at the height of the U.S. housing boom. Home prices in many markets peaked in the third quarter of 2005.

The Fed study showed higher-priced first-lien mortgages, which it described as three percentage points over Treasury yields of comparable maturities, made up 24.6 percent of conventional home purchase loans on owner-occupied homes, compared with 11.5 percent in 2004.
The study said the jump in higher-priced lending was driven partly by a flattening of the Treasury yield which pushed up home mortgage rates, particularly for adjustable rate loans.

Consequently, loans with the same risk characteristics would have had higher interest rates in 2005 and more of them would have been categorized as non-prime under the Home Mortgage Disclosure Act.

It also said borrower-specific risks generally increased, pushing more buyers into non-prime categories.

"Evidence indicates that changes in risk characteristics varied across geographic regions, largely because of substantial house-price appreciation in some locals, and likely caused more borrowers to stretch financially to obtain loans," the Fed said.

Piggy-back lending -- the use of second-lien mortgages to allow buyers to buy homes with down payments less than 20 percent, also grew substantially in 2005 and accounted for more than half the increase in the number of higher-priced loans.

The above mentioned Federal Reserve study can be found here:

Higher-Priced Home Lending and the 2005 HMDA Data (PDF)


Anonymous Anonymous said...

First, lets discuss Consumer Credit.

Revolving debt has grown by a staggering amount this year. And no this isn't because of the middle class 'struggling to make ends meet', but because people must find some way to spend $2,000 a month or more on clothing and another few thousand every month on electronic 'toys'.

I would have thought that there would be less emphasis on material s***t and people would be less shallow and judgemental about what someone is driving or wearing. Nowhere is it as apparant as in the NYC region where you are judged by everyone based on the above.

Home Equity isn't as attractive as it was a few years, so it is back to using revolving credit cards.

Did you know that your typical renter in NYC makes in the six figures but has a net worth of ZERO?? They may have a few more dollars in their checking account but there most prized asset is their closet filled with designer clothes and their leased BMW which costs a minimum of $400 a month to park..

9/08/2006 08:20:00 PM  
Blogger Richie said...

It took them 8 months to discover this?

No wonder the government is so far behind.

9/08/2006 09:00:00 PM  
Anonymous Anonymous said...

We'll see more and more of this:

State takes action against mortgage firms, citing alleged abuses
By Mark Jewell, AP Business Writer | September 8, 2006

BOSTON --State regulators ordered 11 firms to stop doing mortgage business after investigators found evidence that brokers steered prospective home buyers into mortgages they couldn't afford, and lenders looked the other way.

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Sign up for: Globe Headlines e-mail | Breaking News Alerts The Division of Banking on Friday also made emergency amendments to state regulations governing the industry, and sent a letter to brokers, lenders and financial institutions statewide threatening further action should more evidence of wrongdoing emerge.

The division said recent surprise investigations of lenders and brokers turned up evidence that some firms intentionally steered customers into home loans they couldn't afford, typically by inflating borrowers' actual income in application documents.

Also, some lenders who bundle mortgage loans and sell them as securities on so-called "secondary markets" failed to correct the income discrepancies before selling the bundled mortgages, Commissioner of Banks Steven Antonakes said.

"Some of the lenders have perhaps not been doing the level of due diligence they should be doing, and underwriting the loan," he said.

Many of the abuses involved customers with low- to moderate-incomes, often with limited ability to speak English, he said.

The division established a mortgage fraud hotline for consumers to call if they believe they have been victims of unfair mortgage practices: 800-495-2265, ext. 1501.

The 11 firms that were sent "cease-and-desist" letters included mortgage companies that were properly licensed, and parties acting as brokers even though they weren't licensed, the division said. The letters require the businesses to stop soliciting or accepting mortgage loan applications, and place any pending applications with a qualified broker or lender. Fees collected from consumers must be placed in escrow.

Two industry organizations, the Massachusetts Mortgage Association and Massachusetts Bankers Association, issued statements welcoming the enforcement actions and pledging to join state regulators at a statewide mortgage industry summit in the fall to discuss the issues.

Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, said in an interview that his group "applauds the division for taking a proactive approach.

"We have sort of come upon a perfect storm in the industry, where interest rates have cooled and real estate prices are high," Cuff said. "In a competitive atmosphere, everyone is fighting for business, and it's appropriate to regulate the industry."

Below is a list of firms that were sent cease-and-desist letters:

-- ARBC Financial Mortgage Corp., Woburn

-- Achieva Home Loans Inc., Worcester

-- Diamond Mortgage, Lawrence

-- Equity Solutions Inc., Worcester

-- Fintera Capital Corp., Natick

-- National Lenders Inc., Lynn

-- National Lending Corp., Houston

-- R & R Financial, Lawrence

-- Reyes Mortgage, Lawrence

-- Synergy Mortgage Group, Lawrence

-- The New York Mortgage Co., New York

9/08/2006 10:16:00 PM  

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