A report released says adjustable-rate hybrid loans will likely exacerbate the foreclosure epidemic as home prices fall, but the products themselves are not the cause of the problem.
Despite a recent rise in foreclosures, subprime lending actually increased homeownership, the group claimed.
The study examined first-time homebuyer data from 2000-2006, finding a net ownership gain of 434,683 units for that period.
Milken researchers said that though foreclosure rates differed among 29 mortgage products studied, all could lead to foreclosure.
According to the data, about 84 percent of prime originations in the past eight years were 30-year fixed-rate mortgages, compared to just 44 percent of subprime originations.
But the Milken Institute noted that while hybrid mortgages accounted for 36 percent of subprime foreclosures, fixed-rate loans weren’t far behind with a 31 percent share.
And of all prime foreclosures, a staggering 74 percent were tied to 30-year fixed mortgages, with hybrids and ARMs accounting for less than 21 percent.
To further justify that research, the group found that over 50% of the subprime 2/28 adjustable-rate mortgages in foreclosure during July were less than two years old, and had not yet reset to a higher interest rate.
Perhaps irresponsible lending (not subprime lending) is to blame for the mortgage mess.
U.S. mortgage applications fell last week to the lowest level in almost a year despite lower interest rates and fewer associated borrower costs, according to the Mortgage Bankers Association’s weekly survey.
The group’s seasonally adjusted mortgage application index fell 7.6 percent during the week ended December 21 to 603.8, the lowest point since falling to 575.6 in the week ended December 29, 2006.
The index plunged 19.5 percent the prior week, creating the largest back-to-back decline since April 2004.
Purchase applications dipped 6.6 percent, while applications to refinance a loan fell 8.5 percent to the lowest point since September.
The refinance share of mortgage activity decreased to 53 percent of total applications from 53.2 percent the previous week, while the share of adjustable-rate mortgages increased to 10.4 from 9.9 percent of total applications from the previous week.
Fixed-rate 30-year mortgages averaged 6.10 percent last week, down from 6.18 percent the prior week.
The average 15-year fixed mortgage fell to 5.66 from 5.78 the week before and the average rate for one-year ARMs decreased to 6.03 percent from 6.48 percent.
The MBA’s weekly survey, compiled every week since 1990, covers about half of all U.S. retail residential mortgage applications.
A survey released today by Online Resources Corp. found that the mortgage crisis is spilling over into the broader economy, impacting companies across a variety of industries and their ability to collect payments.
The study of more than 1,000 nationally representative U.S. households found that American consumers are increasingly being forced to prioritize their bills by creating a “delinquency budget” to decide which bills get paid first.
And if forced to choose between which bills to pay, 98 percent of households said they would likely pay their mortgage first, while credit cards, utility and healthcare bills are among the least likely to be paid.
The survey found that one out of four households reported being delinquent on at least one bill by 30 days or more.
Online Resources also studied a cross-section of billing clients from banks, credit unions, utilities, healthcare companies, card issuers, receivables management and mortgage companies, finding that only two percent expect it to be easier to collect payments in 2008, while 84 percent expect to spend more on collections in 2008.
U.S. home prices fell for the tenth consecutive month in October, declining by a record 6.7 percent from the same period a year ago, according to the S&P/Case-Shiller 10-City Home Price Index released today.
It was the largest drop in more than 16 years and marked the 23rd straight month of deceleration, when prices either rise more slowly or decline.
The previous record was a 6.3 percent fall recorded in April of 1991, just after the 1990-91 recession officially came to a close.
“No matter how you look at these data, it is obvious that the current state of the single-family housing market remains grim,” said Robert Shiller, in a statement.
The group’s 20-city index fell 6.1 percent from a year ago, with 11 of the markets in the index posting a record-low annual growth rate in October, and all 20 declining from the prior month.
Miami led the year-over-year decline with a 12.4 percent fall, followed by Tampa with an 11.8 percent tumble, and Detroit with an 11.2 percent drop.
San Diego stumbled 11.1 percent over the past year, Las Vegas lost 10.7 percent, Phoenix shed 10.6 percent, and home prices in Los Angeles have fallen a whopping 8.8 percent.
Only Charlotte (4.3 percent), Seattle (3.3 percent), and Portland (1.1 percent) experienced positive annual growth rates in home prices.
The S&P/Case-Shiller home price indices track price changes on the same properties over time instead of calculating the median price of homes sold during the month.
Both the 10-city and 20-city composites declined 1.4% from September, their largest monthly decline on record.
Impac Mortgage posted a $1.2 billion third-quarter loss as a result of a $789.4 million provision for loan losses, driven by a higher delinquency rate and the deteriorating credit markets. The Irvine, CA-based mortgage lender lost $15.66 per share, compared with $1.68 a share a year ago and failed to pay a dividend during the quarter.
Fannie Mae’s gross mortgage portfolio shrank an annualized 15.6 percent in November to $722 billion from $732.3 billion in October, the lowest since May. However, Fannie said its mortgage-backed securities business increased at a 21.1 percent compounded growth rate in November with $62.6 billion issued.
Freddie Mac said Thursday that its retained loan portfolio shrank to its lowest level in two years after falling for a third straight month in November. Freddie’s portfolio thinned by $1.8 billion, at a 3.1 percent annualized rate, to $701.3 billion from $703.1 billion in October.
The Mortgage Bankers Association’s annual survey revealed that subprime loans fell to a 10 percent market share measured by the total value of loans made in the first half of 2007, compared to 19 percent in the first half of 2006, and 18 percent in the second half of 2007. The percentage of subprime loans originated in the first half of 2007 that were fixed rate rose to 31 percent from 25 percent in the second half of 2006.
The SEC has begun its inquiry into Washington Mutual’s mortgage lending practices, namely whether the company pressured appraisers to inflate property values to justify making home loans. “After spending a month and a half investigating these allegations, we can say with confidence that there has been no systematic effort by WaMu to inflate home appraisals,” WaMu said in a statement.
Standard & Poor’s cut the ratings on 793 classes of U.S. residential mortgage-backed securities backed by closed-end second-lien mortgage loans originated between 2004 through 2006. The action affects roughly $22.92 billion, or 31.78 percent of the approximately $72.12 billion U.S. market for such securities, and comes as losses are expected to significantly exceed historical precedent.
Moody’s Investors Service cut its rating on GMAC deeper into junk territory, saying it expects the finance company to use its capital to support its ailing home-lending unit Residential Capital. Moody’s cut GMAC’s rating one notch to “Ba3,” three steps below investment grade, from “Ba2.”
Merrill Lynch could face at least $8 billion in write-downs for mortgage-related securities in the fourth quarter, according to research by two analysts cited in published reports. But its shares rose Friday on a report that the nation’s largest brokerage is seeking a $5 billion investment from Singapore’s state-owned investment agency Temasek Holdings.
First Horizon expects to set aside an additional $150 million for loan losses in the fourth quarter tied to its residential construction portfolios, exceeding the $116.2 million combined provision for the first three quarters of the year. The bank expects to write off $50 million in loans at the end of the fourth quarter and record a $70 million ‘goodwill adjustment’ to its mortgage business.
French bank Credit Agricole said late Thursday that it would take an additional write down of 1.6 billion euros tied to bad mortgage debt. The company noted that the write down is related to its super-senior CDOs, and doesn’t reflect actual loss on the related assets but a conservative appreciation of the current worsening market conditions.
Michael Commaroto, Managing Director and Head of U.S. Home Equity Whole Loan Trading for Deutsche Bank, is expected to leave the firm effective January 1, according to industry sources.
Delta Financial Corp., the subprime lender that filed for bankruptcy Monday, said today that the Nasdaq plans to delist it next Friday. The company, which faces other legal problems, does not expect to appeal the decision.
And finally, the mortgage crisis was voted the top business story of the year by U.S. newspaper and broadcast editors surveyed by The Associated Press for the second year running. Record crude oil prices were voted a distant second.
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