Thursday, March 22, 2007

 

Subprime Loans Going Under

"Implosion hitting would-be homeowners, desperate sellers hard, but some see a reflection of safe practices."

"It's essentially eliminating 15 (percent) to 20 percent of the market," said Ed Leamer, director of the UCLA Anderson Forecast. "What drove the California marketplace wasn't foreign borrowers but entry-level buyers helped into the market by exotic loans." as quoted in an article By Barbara E. Hernandez of the CONTRA COSTA TIMES. Read the entire article HERE.

"Problems in mortgage lending go "well beyond subprime," and the tightening of loan underwriting standards now underway is likely to push demand for homes down 15 percent and depress prices by 5 percent this year. Quoted from Inman's Matt Carter, Here for the rest of the article."

That's the rather gloomy forecast by analysts who follow the stocks of major home builders for Banc of America Securities LLC.

"In a report issued Tuesday, "Dissecting the Mortgage Distress," BAS analysts said there's already an excess supply of 800,000 existing homes on the market, and another 300,000 will soon be added to inventories through foreclosure."

But the biggest problem facing housing markets may be the tightening of credit that's taking place as lenders put the brakes on risky loans including low-documentation and zero-down-payment mortgages, the report said.

"We expect loans with a combination of low FICO scores and high (loan-to-value ratios) will end or tighten with many buyers choosing to remain as renters," wrote BAS analyst Daniel Oppenheim. BAS is a subsidiary of Bank of America Corp.

"BAS expects home prices to fall by 5 percent in 2007. Coming on the heels of a 2 percent price decline in 2006, the 7 percent cumulative price drop would be the largest decline in home prices since the early 1980s."

"Falling prices are likely to cause even more defaults and foreclosures, BAS analysts said."

"We do not anticipate that the mortgage credit issues are solely a result of the loan underwriting from '06," the report noted. "Rather, our view is that a primary driver of the problem is the decline in home prices, which leaves some households owing more on their mortgage than their home is worth."

"A First American CoreLogic Inc. study released Monday contained a similar finding, predicting that each 1 percent reduction in home prices will result in an additional 70,000 foreclosures." - Subprime lending meltdown seen as threat to economy

"The meltdown in subprime lending could have broader impacts on the economy, as mortgage lenders tighten restrictions on a broad spectrum of loans including those made to small businesses, said Christian E. Weller, senior economist at the Center for American Progress."

"With subprime lenders pulling back, it means fewer people can enter the market, because people looking to sell their homes have a harder time doing so, or must lower their price," Weller said. "Prices stagnate, there are fewer home sales, home construction and home equity cash outs."

Top subprime lenders: Where are they now?

2006 subprime loan performance will be worst in a decade

"Traps of Easy Credit" Reckless lending to blame for mortgage woes - James Grant

Exotic loans become commonplace

"Lenders began offering nontraditional loans that allowed borrowers to purchase homes they might not otherwise have been able to afford, especially in markets where home prices had seen annual increases at double-digit rates."

"These nontraditional or "exotic" loan types, such as payment-option ARM and interest-only loans, allowed borrowers to start out making monthly payments that in some cases didn't even cover all of the interest owed on a loan, let alone the payback on any of a loan's principal."

"If the loans that fueled the boom become unavailable, first-time home buyers who are ready to make the plunge may be unable to obtain loans that suit their needs. Even homeowners with sensible loans could get hurt in the fallout, because of the ripple effect that would take place if sellers who are ready to move up to pricier digs aren't able to sell their starter homes to first-time buyers."

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