Mortgage Defaults & ARM Rates
Mortgage defaults up 67% in California - MarketWatch
By Nick Godt, MarketWatch
Last Update: 3:05 PM ET Aug 3, 2006
NEW YORK (MarketWatch) -- The number of defaults on mortgage payments rose to a three-year high in the second quarter in California, a 67% increase from the year earlier period, according to DataQuick, a real estate data-compiling firm."
Painful ARM twisting. Resets of adjustable mortgages will leave costly stretch marks
By Chuck Jaffe, MarketWatch
Last Update: 7:08 PM ET Aug 2, 2006
BOSTON (MarketWatch) -- It is becoming increasingly obvious that financial advisers, real estate experts and parents will someday point to what is happening in the mortgage market today and use it as a cautionary tale of what can go wrong when a buyer stretches to get too much house during a market that seems invincible.
Real estate has been booming in most markets over the last five years or longer, fueled by interest rates that reached four-decade lows and by consumers who used new mortgage products to extend their buying power. Many home buyers stopped worrying about buying a home and instead worried about their ability to pay for one; rather than shopping for a deal that allowed for a lifetime purchase, they looked for a mortgage that allowed them to buy the most home for the lowest current payment.
So long as rates stayed low and housing prices continued to move up strongly, that strategy was a good one. And those things kept happening, so that homebuyers ignored the warnings issued by many mortgage experts about what would happen when times changed.
Well, times have changed.
The popularity of adjustable-rate mortgages means that nearly 25% of all outstanding U.S. mortgage debt is due for an interest-rate reset within the next two years, according to Economy.com, a Web site run by Moody's Corp. Some $400 billion in loans will get a new rate this year, and another $2 trillion are set to move in 2007. Those moves won't be pretty. Just two years ago, the prime rate stood around 4%; today, it is more than twice that. As a result, payments on some ARMs will double too. The current forecasts from a number of experts have defaults on those loans increasing by 10%.
Property Values are Falling! Here's What's Next
(By Mike Larson)
7/28/2006 8:00:00 AM
A drop in property values is no longer some distant worry you should shrug off. It’s not some theoretical, over-the-horizon, possible threat. It’s happening — right here, right now.
Just as I’ve been saying for months on end: First, sales fall. Then, supplies build. Lastly, prices fall. And sure enough, now this 1-2-3 sequence of events is unfolding right before our eyes.
Look at what happened in June, according to the National Association of Realtors:
* Sales dropped almost 9% year-over-year.
* Inventory for sale skyrocketed 39% to a record 3.73 million units. At the current sales price, that’s 6.8 months worth of supply — the worst since 1997.
* The real kicker: Median condo and co-op prices dropped 2.1% from June 2005. This isn’t just a regional decline. It’s not simply concentrated in a few cities. It’s a bona fide, nationwide, year-over-year decline in values.
True, single family home prices rose ever so slightly. But remember, these are nominal price changes, not real, inflation-adjusted changes.
The Consumer Price Index climbed 4.3% in June. So when you factor in inflation, the average home has actually lost 3.4% of its value. This is all summed up in the chart. Look at that huge drop-off in just the last year!
And don’t forget: Selling a home isn’t free. If you bought in the past year and you need to sell now, you’re generally looking at another 6% haircut in commissions.
Total real loss: Almost 10%! That’s not including any upkeep money spent in the interim ... any mortgage interest paid ... any homeowners’ insurance or taxes ... or any of the other costs associated with ownership.
The new home market isn’t much better. Sales were down 11.1% year-over-year in June and inventories surged to a fresh all-time record of 566,000 units.
Nominal median prices haven’t gone negative on a year-over-year basis yet. But the 2.3% rise was the worst reading since December 2003, and prices have dropped more than $20,000 in just the past two months.
Mortgage giants avert potential disaster
Associated Press
21 July, 2006
By MARCY GORDON, AP Business Writer Tue Jul 11, 8:35 AM ET
WASHINGTON - A potential financial disaster that could have shaken the housing market was averted because regulators discovered accounting failures at Fannie Mae and Freddie Mac, the new head of the agency that oversees the mortgage giants said Monday.
"The housing market is so important to this country," said Lockhart, who has headed the Office of Federal Housing Enterprise Oversight for about two months. "And to have it built on what turned out to be a shaky foundation could have caused significant financial problems."
"The good news is that it was caught in time and the remedies are starting to be in place, so that there was no major problem for the average American," Lockhart said.
Lockhart, 60, was executive director of the Pension Benefit Guaranty Corp., the federal agency that backs private defined-benefit pensions, in the administration of the first President Bush President Bush. He has worked in the private financial sector and was deputy commissioner of Social Security Social Security before taking his current job.
Fannie Mae, the second-largest U.S. financial institution after Citigroup Inc. and the second-biggest borrower after the federal government, is restating its earnings back to 2001 — a correction expected to reach at least $11 billion. The company was fined $400 million in a settlement in May with OFHEO and the Securities and Exchange Commission Securities and Exchange Commission, one of the largest civil penalties ever in an accounting fraud case. It also agreed to make top-to-bottom changes in its corporate culture, accounting procedures and ways of managing risk.
If either company should fail, there could be less money for consumers to borrow to get a mortgage, and interest rates on home loans could be forced higher.
"The risk has certainly been reduced by the remedial actions that the two management teams have put in place at our direction," Lockhart said. But it will take a number of years — two, three or more — for the two companies to get their financial houses fully in order, he cautioned.
OFHEO‘s review found that current and former executives of Fannie Mae reaped hundreds of millions of dollars in bonuses in a deceptive accounting scheme from 1998 to 2004. Employees are said to have manipulated accounting to hit quarterly earnings targets so senior executives could pocket the bonus money.
posted by Richard at
Thursday, August 03, 2006
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