A Dim Forecast for Risky Mortgages

From the Washington Post

About 2.2 million homeowners with high-interest mortgages have lost their homes to foreclosure or could do so within the next several years, according to a report from a nonprofit group that opposes predatory lending.

The Washington region is likely to be especially hard hit, according to the report released yesterday by the Center for Responsible Lending in Durham, N.C. That's because as prices here soared in recent years, many people took out high-cost loans, also called subprime loans.

Neighborhoods with many black and Hispanic homeowners and new developments with many first-time buyers will be most affected, said Keith Ernst, senior policy counsel at the center. Those groups were most likely to pay high interest rates because of weak credit and minimal down payments.

The top officer of the trade group for real estate agents joined center officials at a news conference yesterday to discuss the study. "We fully share the concerns of the Center for Responsible Lending," said Pat Vredevoogd Combs, president of the National Association of Realtors. "Far too many families are at risk of losing their homes to foreclosure."

In early December, a bipartisan Senate group wrote to federal banking regulators asking them to warn lenders that they should make subprime loans only if they are sure the borrowers can repay. The four Democrats and two Republicans asked banking regulators to "move quickly" to add these subprime loans to a warning they issued to lenders recently on other kinds of popular nontraditional mortgages.

Kevin Mukri, a spokesman for the Office of the Comptroller of the Currency, said the agency is reviewing the letter.

High-rate lending has grown rapidly in recent years and has been credited with helping boost homeownership to near-record levels. In 1999, about 5 percent of mortgage loans were high-interest, but now about 20 percent of mortgages originated are subprime.

To avoid down payments, some borrowers have taken out "piggyback" mortgages, which are second mortgages at higher rates, while others get subprime loans for the entire mortgage amount. Some of these loans have low teaser rates for two years before rising significantly. Many borrowers can afford the initial payments but could find it impossible to keep up when the payments increase. Many such loans also contain prepayment penalties that can require borrowers to pay tens of thousands of dollars if they refinance.

The Center for Responsible Lending analyzed about 6 million subprime mortgages made from 1998 to 2004 to determine which have gone bad and to project how many more could be expected to enter foreclosure. Based on those numbers, it also projected what could happen to loans made in 2005 and 2006. The study said that if the real estate resale market remains weak, the proportion of subprime borrowers in foreclosure in the District could rise to 22.8 percent from 6.8 percent, and the foreclosure rates for these kinds of loans could more than double in Maryland and Virginia for loans made in 2006.

Those projected foreclosure rates are much higher than those for prime mortgages. There are about 50 million outstanding mortgages of all types nationally.

The study follows a quarterly report released last week by the Mortgage Bankers Association, which found that about 948,000 households with high-cost loans were behind on their payments or were at some point in the foreclosure process. But officials at the lending trade group said the center's report was overly negative because many people will be able to refinance or sell their homes before they fall hopelessly behind.

The report is "wildly pessimistic" because most homeowners have prime loans and are not at financial risk, said Mike Fratantoni, a senior economist at the MBA. He said the subprime market is a small part of the overall market. Lending industry officials have said that regulatory action could injure the subprime market.

"Ninety out of 100 borrowers make their payments on time every month," Fratantoni said. "We don't want to jeopardize the availability of mortgage credit because not everybody is a success."

Foreclosure activity surges in Mass

From The Boston Globe

Massachusetts experienced the second-biggest increase in foreclosure activity in the country last month, according to a report yesterday from a firm that tracks the housing market.

The Bay State came in second only to Alabama in the rise in total properties that entered some stage of foreclosure, including lenders' initial notices that homeowners were in default, foreclosed property sales and auctions, and lenders' sales of repossessed property, said RealtyTrac , an Irvine, Calif., company that researches and provides information about US properties for sale.

In November, 2,100 Massachusetts properties were in or facing foreclosure, up 299 percent from 526 in November 2005, the firm said. Alabama's increased 466 percent during the same period.

By the end of the year, Massachusetts could surpass its 1991 record for the number of initial foreclosure notices by lenders against homeowners, according to a separate report yesterday by ForeclosuresMass.com, which culls the data from filings in state Land Court. There were 15,133 filings statewide between January and October, compared with 17,000 in all of 1991.

"Some of the states that had the biggest booms over the past few years are now experiencing the highest number of new foreclosure filings," including Massachusetts, said Rick Sharga, RealtyTrac's vice president of marketing.

However, Sharga said that because the housing market has not collapsed and mortgage rates remain low, only about one in five properties is currently repossessed by a bank or mortgage company. In most cases, the homeowner is able to sell the house or work out a refinancing plan with the lender.

RealtyTrac's November data confirm its second-quarter findings, when there were 4,270 Massachusetts properties in various stages of foreclosure, up 481 percent from the second quarter of 2005. That was the second highest after Rhode Island's increase.

Jeremy Shapiro, president of ForeclosuresMass , blamed the foreclosure crisis on exotic loan products that often offer low introductory rates and low monthly payments, which later rise as the rate adjusts upward.

Massachusetts now has among the highest house prices in the country, which lenders and housing experts say put pressure on buyers to finance their homes with adjustable rate mortgages rather than the traditional 30-year, fixed-rate mortgage.

"When you have homeowners who have a home they were able to pay for but aren't going to be able to pay for" when payments go up, Shapiro said, "that leaves them with very few options. One is foreclosure."

ForeclosuresMass tracks only filings, because it is extremely difficult to collect accurate auction and other data about properties in the stages of foreclosure, he said.

Mortgage rates remain unchanged

By Reuters

NEW YORK, Dec 18 - The average rate on a 30-year U.S. mortgage with no upfront points was unchanged on Monday at 6-1/4 percent, according to BestInfo Inc.

If the mortgage market on Tuesday continues in its current direction, rates may remain the same.

The 30-year mortgage rate with one upfront point was unchanged at 6 percent.

The 30-year mortgage rate with two upfront points was unchanged 5-3/4 percent.

The Mortgage Point Monitor is provided exclusively to Reuters by BestInfo, Inc., a Dover, Vermont-based provider of mortgage market analysis

Banks continue to see rise in delinquent payments

From The New York Times

The number of people paying their mortgages late — or not paying them at all — picked up in recent months, a trend that is expected to continue well into next year.

The rise was sharpest among borrowers with troubled credit histories, and in particular, subprime borrowers who took out mortgages with interest rates that increase over the life of the loan.

The Mortgage Bankers Association said yesterday that a survey of more than 42 million mortgages found the rate of delinquencies rose to 4.7 percent from July through September, up from 4.4 percent in the second quarter, when the numbers were adjusted for seasonable variations.

The rate had fallen for two consecutive quarters.

Among subprime homeowners, designated as such because their questionable credit would otherwise disqualify them from obtaining a mortgage, delinquency rates were much higher. Subprime borrowers who had past-due payments rose to 12.6 percent, from 11.7 percent in the second quarter.

Subprime borrowers who took out adjustable-rate mortgages, which typically start at artificially low rates that increase over the life of the loan, were the most likely of all those surveyed to be in default. Among subprime adjustable mortgages, 13.2 percent were delinquent in the third quarter, compared with 12.2 percent in the second quarter.

Subprime loans, which carry interest rates that run roughly three percentage points or more above the rates available to people with strong credit, have become the fastest-growing segment of the mortgage industry. And among subprime loans, adjustable mortgages have proliferated with the boom in the housing market.

Looking ahead to next year, the mortgage association said it expected delinquencies and foreclosures to continue to rise. Doug Duncan, the association’s chief economist, said he saw a “modest increase” over the next several quarters “as the housing market bottoms.”

As more adjustable mortgages reset next year at higher rates, the number of defaults is expected to climb. Mr. Duncan said that $1.1 trillion to $1.5 trillion worth of residential debt was eligible to reset next year, which could put pressure on mortgage holders who did not refinance.

Delinquencies were most common in the Upper Midwest, where the manufacturing slowdown has pushed unemployment up, and in the South, where the spillover effects from Hurricane Katrina continue. Mississippi had the highest overall delinquency rate, at 11.1 percent of all mortgages, more than twice the national average. It was followed by Louisiana at 9.5 percent and Michigan at 7.4 percent.