Housing market update

At least one US government official has spoken out regarding mortgage practices in no uncertain terms; unfortunately he probably had little leverage over lenders generally and still doesn't:

‘Sound underwriting and, for that matter, simple common sense suggests that a mortgage lender would almost always want to verify the income of a riskier subprime borrower,’ Comptroller of the Currency John C. Dugan said in a speech. ‘But the norm appears to be just the opposite,’ said Dugan, whose agency regulates nationally chartered banks. ‘Nearly 50 percent of all subprime loans last year accepted stated income,’ meaning the underwriters did not verify the information provided by borrowers on loan applications.’ Dugan cited a Mortgage Asset Research Institute study that found 90 percent of borrowers reported incomes higher than those found on file with the Internal Revenue Service and almost 60 percent of the stated incomes were exaggerated by more than 50 percent. Another survey of more than 2,100 mortgage brokers, reported by Inside Mortgage Finance, found that 43 percent of mortgage brokers who use low-documentation loan products know their borrowers cannot qualify under standard debt-to-income ratios.

However, the loose practices seem to be disappearing due to the fact that no one wants mortgage-backed securities anymore without solid investigation of borrowers being done:

"David Lowman, CEO of JPMorgan Chase & Co.’s global mortgage business, said, ‘35 percent of what once could be done, can no longer be done,’ referring to mortgage loan products that have effectively been taken off the shelves...Duane LeGate, president of House Buyer Network, a specialist in short sales and foreclosure prevention, said one of the real estate agents he works with had six deals blow up within four days because, ‘The loan originator told him, ‘We’re not offering [these products] anymore.’ According to LeGate, this kind of thing just started to happen in the past month or so. ‘Anything that smacks of no-income and no-documentation is history,’ said Allen Hardester, director of business development for mortgage broker Guaranteed Rate. ‘Anything above 85 percent to 90 percent loan-to-value, anything non-owner occupied, anything ludicrous as to value, like someone stepping up from a $1,000 a month payment to a $6,000 a month, is history.’"

Tidbits from the Housing Bubble blog:

-The Boston Globe reports from Massachusetts. “The housing slump isn’t over yet after all. After getting off to a strong start in 2007, home sales in Massachusetts fell 1.7 percent in April compared to the same period last year, and the median home price declined 2.3 percent, to $345,000, according to the Massachusetts Association of Realtors"...one thing to note is that according to US Census figures the Boston metro area population grew by only 1.21% total during the six years between July 1, 2000 and July 1, 2006...home price increases certainly weren't being driven by population growth...

-The Boston Herald... "median house-sale prices dropped to $319,314 last month, down 4.7 percent from April 2006 and 12.3 percent from June 2005’s $364,000 peak...blamed the condo and house declines in part on the state’s foreclosure crisis, which has seen record numbers of properties face seizure for mortgage nonpayment. He said lenders advertised 4,833 foreclosure auctions in 2007’s first four months, ‘and that’s got to have an impact on the real estate market’s recovery.’”

-The Lompoc Record reports from California....“According to county officials, April 2007 made the top 10 list of highest-volume months since 1989 for notices of default and trustees’ deeds - when a lender forecloses and takes ownership"...

-The Journal Sentinel from Wisconsin...“‘Two years ago, buyers were willing to buy without making their own home sale a contingency. Now there’s fear it won’t get sold and the buyer will be stuck with two mortgages,’ Stefaniak said. ‘We’re doing contingencies these days even on the market’s lower end. And on a lot of the upper end, the seller has offers, but some unrealistic buyers won’t come down on their own house’s price"...that last bit is bizarre; if you can't get your existing house to sell, forget about moving up...

-The News Press(Florida)...“Let’s first look at the entry level market, which includes price points below $200,000. It is now possible to purchase a new home in Lehigh or Cape Coral for well below $200,000. Some have sold in the $160,000 range! That is roughly 50 percent less than a similar home would have sold for at the peak of the market"...“These attractive prices are a result of lot prices falling more than 80 percent in the past 20 months, construction costs becoming more competitive, heavy inventory, and in some cases short sales offered by sellers trying to avoid the foreclosure process"...

Tidbits from Calculated Risk:

-Tanta talks about a "U.S. RMBS Servicer Workshop"; apparently convened so that these entities can figure out how the workout of the housing crash will be handled. The post quotes a report on the workshop and includes a summary of the discussion topics as follows:

Servicers also discussed the factors contributing to increased defaults, including flat or decreasing home price appreciation; higher risk products where borrowers were qualified at teaser rates; affordability products; payment shock at ARM resets; high loan-to-value ratio (LTV) or piggyback loans; stated income; lower FICO scores and significant risk layering. Servicers indicated that as little as one year ago, refinances resulting in full payoffs were used most frequently for ARM resets and as a loss mitigation tool for defaulted loans. Today, refinance is not an option for many subprime borrowers due to tightened guidelines and flat or declining home appreciation. Further, third party and short sales, which resulted in some losses, although minimal due to some home price appreciation, are now less effective due to concerns on ultimate value in many markets, and while still less costly than real estate owned (REO) liquidation, are seeing dramatically higher losses.

Tanta's key point, related to the use of refinances to mitigate losses on defaulted loans, is that a borrower may have had a whole string of loans on a property and only the most recent loan shows up in currently available data, which disguises the true risk of default by the borrower.

-Credit Suisse’s ARM Reset Schedule, shows that over $1 trillion dollars worth of adjustable rate mortgages will reset over the next 5 years....a majority of those mortgage debtors will likely wait until the last possible moment to do something about their oncoming train wreck...