Mortgage Industry News

Ruth Lee

Frankly while not the most conservative amongst my friends in the mortgage world, I could not help but cringe when I saw the proposed legislation for FHA to purchase and refinance “underwater” mortgage loans. This legislation would essentially make FHA the largest scratch and dent lender in the market.

Articles I have been reading note that lenders would have to mark down the principal balance to a 90% CLTV under this program. Writing down this loss is actually considerably better than most can get in scratch and dent market at 40-60 cents on the dollar. What a deal!

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Ruth Lee

Here is another great article outlining the extending effects of the subprime crash. (As my colleague put it, “Ripple effects that will end up hitting responsible borrowers in their pocketbooks and their lifestyle.”)

From the National League of Cities:

“In addition to the after-effects of foreclosure on families, NLC is educating federal lawmakers about the unexpected consequences the current mortgage crisis is having on local governments. Foreclosed houses, which often sit vacant for long stretches of time, are contributing to the blight long-associated with abandoned properties. Local governments must bear at least the short-term costs of maintaining these vacant properties until they can track down the owner. This can be difficult since mortgages are resold among lenders and investors.

Additionally, since vacant properties all too often become havens for crime, local governments are bearing increased costs for greater police presence in those areas where foreclosed vacant properties are concentrated. At the same time, cities are forecasting that there will be decreased property tax revenues due to declining assessed valuations.”

To read the full article, click here. 

Ruth Lee

“The subprime crisis is just the tip of the iceberg. Fundamental changes in American life may turn today’s McMansions into tomorrow’s tenements.”

Christopher B. Leinberger, The Atlantic Monthly, March 2008

Talk about a fascinating article. How far will the effects of foreclosures and the subprime crash really go? Stories about the suburban foreclosure epidemic are rampant, like this one and this one and this one - and that’s just a start.

I guess building and building and building on land reserve is not the best move after all for communities. It makes you wonder how much tax incentives and building subsidies many of these builders were offered for rampant housing production cost the taxpayer.

Click here to read the full article.

Ruth Lee

Over the last few months, it is hard not to notice all of the gleeful hand-rubbing and “I-told-you-so-ing,” as disgruntled ex-employees, ex-insiders and ex-originators Monday morning quarterback the potential demise of one of the country’s largest lenders. The Implode-o-meter forums froth with idle comments from bored survivors, with a few fantastic exceptions. The fact is that no one hit the meter because Countrywide’s mean old underwriters didn’t accept your trumped up appraisal… the industry hasn’t lost its potency over extended underwriting or closing turntimes… (In fact, many would argue that the push for volume over quality was instrumental in the collapse.) Even the more egregious slights, like the ones they are going to court over, well, they just weren’t the fulcrum either. The reason that we are in trouble is simple: there are many homeowners that cannot pay their mortgage and foreclosure is BAD for business.

There are a thousand reasons why homeowners can’t pay their mortgage: some chose poor loan products, others were coerced into them, many bought houses they couldn’t afford, real income is declining, productivity is increasing causing manufacturing jobs to evaporate, the value of the dollar is falling, Katrina, rising health care costs, Wall Street made some bad calls on the whole underwriting thing. One of the main reasons I would argue: we have not been compelled or incented to save; we are incented to spend. In our consumer climate, if you can’t become an millionaire in America; being a “Visa”nairre is almost as good.

Investors relied on the stability of the American mortgage; real property as collateral, a track record of strong repayment and a well-established rule of law. But, as that same collateral depreciates, the track record erodes into a Cliff’s Notes of bad assumptions and worse performance, and regulators scramble to respond with ham-fisted alacrity, those enticements are gone…leaving a sudden desire to invest in anything that doesn’t have the word mortgage in the title. Without investors, we have less liquidity. Without liquidity, loans must compete for those dollars…and guess which ones are winning…definitely not the wage-earner stated, pay option ARM on a non warrantable igloo in downtown Miami.

I am not an apologist for Countrywide; frankly, I am just a practical, steely-eyed capitalist. There is a true link between the demise of an institution the scope and size of Countrywide and investor confidence in the industry as a whole. Since investor confidence is a key factor in how we are going to rebound, and many of us still in the industry need the rebound sooner than later, I am hoping that they are able to recover and flourish. I finally understand the impulse for bailouts and intervention. Whatever the response, we need action. We need resolve to adapt and respond to our investors. Neither their family nor mine can eat “I told you so.”