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Sep 23, 2009 | No Comments | Sean Mills
F.D.I.C. May Borrow Funds From Banks
WASHINGTON — Tired of the government bailing out banks? Get ready for this: officials may soon ask banks to bail out the government.
Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. [...]
F.D.I.C. May Borrow Funds From Banks
WASHINGTON — Tired of the government bailing out banks? Get ready for this: officials may soon ask banks to bail out the government.
Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. That would enable the fund, which is rapidly running out of money because of a wave of bank failures, to continue to rescue the sickest banks.
The plan, strongly supported by bankers and their lobbyists, would be a major reversal of fortune.
A hallmark of the financial crisis has been the decision by successive administrations over the last year to lend hundreds of billions of taxpayer dollars to large and small banks.
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Sep 23, 2009 | No Comments | Sean Mills
(Media-Newswire.com) – Los Angeles — A steep decline in California housing prices is undermining the effectiveness of the state’s property tax system that was created through Proposition 13 three decades ago, according to a study by University of Southern California professor Dowell Myers.
The study, which is based on comparative data from opinion surveys and housing [...]
(Media-Newswire.com) – Los Angeles — A steep decline in California housing prices is undermining the effectiveness of the state’s property tax system that was created through Proposition 13 three decades ago, according to a study by University of Southern California professor Dowell Myers.
The study, which is based on comparative data from opinion surveys and housing trends, finds a system under stress that is creating “severe generational inequity” magnified by recent dramatic losses in housing values.
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Sep 23, 2009 | No Comments | Sean Mills
Article from Calculated Risk. Buy Levitra Online Without Prescription Remember people the distinction between “reset” and “recast” as they are not interchangeable.-Sean
The impact of Option ARM recasts is a huge question mark.
Diana Olick at CNBC writes: ARM Payment Shock a Myth?
We’ve been talking a lot recently about the “next wave” of foreclosures that would [...]
Article from Calculated Risk. Buy Levitra Online Without Prescription Remember people the distinction between “reset” and “recast” as they are not interchangeable.-Sean
The impact of Option ARM recasts is a huge question mark.
Diana Olick at CNBC writes: ARM Payment Shock a Myth?
We’ve been talking a lot recently about the “next wave” of foreclosures that would be driven by adjustable rate mortgage resets. In a research note today, FBR’s Paul miller is taking an interesting tack: “While we remain very concerned about the impact of continued job losses on default rates, our analysis suggests that payment shock from ARM resets should not be a problem, as long as the Federal Reserve can keep short-term rates at record lows.”"Reset” refers to a rate change. “Recast” refers to a payment change. … “Recast” is really just a shorter word for “reamortize”: you take the new interest rate, the current balance, and the remaining term of the loan, and recalculate a new payment that will fully amortize the loan over the remaining term.
San Francisco: $30 billion home loan time bomb set for 2010
Bloomberg: Option ARMs Threaten U.S. Housing Rebound as 2011 Resets Peak
Reuters: “Option” mortgages to explode, officials warn
LA Times: Another wave of foreclosures is poised to strike
NY Times: Adjustable Mortgages Loom as Threat to Housing RecoveryBut I think the exact impact is uncertain. Many Option ARM borrowers are defaulting before the loan recasts, see: $134B of U.S. Option ARM RMBS To Recast by 2011 (note: Fitch is just looking at securitized Option ARMs, not loans in bank portfolios):
Of the $189 billion securitized Option ARM loans outstanding, 88% have yet to experience a recast event … Of these loans that have not yet recast, 94% have utilized the minimum monthly payment to allow their loans to negatively amortize.
…
Further evidence of option ARM underperformance in the last year lies in the number of outstanding securitized Option ARMs either 90 days or more delinquent, in foreclosure or real estate-owned proceedings, which has increased from 16% to 37%. Total 30+ day delinquencies are now 46%, despite the fact that only 12% have recast and experienced an associated payment shock. Instead, negative and declining equity has presented a larger problem: due to high concentrations in California, Florida, and other states with rapidly declining home prices, average loan-to-value ratios have increased from 79% at origination to 126% today. ‘Negative equity and payment shocks will continue as Option ARM loans recast in large numbers in the coming years,’ said Somerville.
emphasis added
For more on defaulting before recast, see: Option ARM Defaults Shrink Recast Wave, Barclays Says .
And it is important to remember that most of the Option ARM loans in the Wells Fargo portfolio (via Wachovia) recast in ten years, as noted by the Healdsburg Housing Bubble: Reset Chart from Credit Suisse has a Major Error From the Wells Fargo Q2 Conference Call:
[W]hile many other option ARM loans have recast periods as short as five years, our Pick-a-Pay loans generally have ten-year contractual recasts. As a result, we have virtually no loans where the terms recast over the next three years, allowing us more time to work with borrowers as they weather the current economic downturn.
It is a little confusing. You can’t just look at a chart of coming recasts and know when borrowers will default. The real problem for Option ARMs is negative equity, and the surge in defaults is happening before the loans recast.
But the recasts will matter too, since many of these borrowers used these mortgages as “affordability products”, and bought the most expensive homes they could “afford” (based on monthly payments only). When the recasts arrive, these borrowers will have few options.
Stop right there. Resets are not a problem with low interest rates. The potential problems are from loan recasts.
From Tanta on resets and recasts: Since a large percentage of ARM borrowers chose the negatively amortizing option, their payments will jump when the loan is reamortized or recast. Of course the interest rate will still be low, and the recast will be at the low rate.
So it is really hard to tell what will happen.
We see cautionary articles all the time:
Sep 23, 2009 | No Comments | Sean Mills
Before the housing bubble, a quaint notion held sway that homeowners should be able to afford the houses they live in.
One measure of affordability is to compare property prices with per capita personal income. Karl Case, co-creator of the Case-Shiller Home Price indexes, has tracked this for 20 major metropolitan areas. During the 1990s, most [...]
Before the housing bubble, a quaint notion held sway that homeowners should be able to afford the houses they live in.
One measure of affordability is to compare property prices with per capita personal income. Karl Case, co-creator of the Case-Shiller Home Price indexes, has tracked this for 20 major metropolitan areas. During the 1990s, most held steady in a range of four to six times income. But lax monetary policy and credit standards after that helped throw the notion medicine without prescription of affordability out the window.
Cities like Miami and Phoenix are particularly noteworthy. After a long period of stable midsingle-digit price-to-income ratios, these exploded.
Most cities now have returned to “normal” ranges. Even so, don’t bank on this portending a house-price rebound.
Sanity hasn’t returned everywhere: Los Angeles still boasts a ratio of nearly 10 times. Moreover, the collapse of the bubble should recalibrate expectations. The relative stability of price-to-income ratios prior to the bubble, together with stagnant incomes and rising unemployment, suggests prices in many areas are about where they should be.
Against this stands Uncle Sam. Some four-fifths of new residential mortgages this year have benefited from government support, said trade journal Inside Mortgage Finance.
Government interventions remain a wild card. But it is worth noting that efforts to date have helped stabilize price-to-income ratios in their normal range. Without this, prices likely would have plunged further. In Detroit, the ratio has dropped below the historic range of four to five times. Banking on a big housing bounce-back on the back of Washington’s grand fiscal experiment looks highly questionable. Quaint, even.
Source Article
Sep 23, 2009 | No Comments | Sean Mills
Anyone who knows me personally has heard me speak about the shadow inventory of defaulted but NOT foreclosed homes awaiting some type of action from the bank. Just last week I posted numbers for homes going to auction in Orange County which detailed a relatively high number, 91% plus postponed, yet to be absorbed by [...]
Anyone who knows me personally has heard me speak about the shadow inventory of defaulted but NOT foreclosed homes awaiting some type of action from the bank. Just last week I posted numbers for homes going to auction in Orange County which detailed a relatively high number, 91% plus postponed, yet to be absorbed by the market either via purchased at auction or sold as an REO by the bank once foreclosed. I know of a few people who have seen their home go to foreclosure only to sit out in the twilight zone or sold immediately with no rhyme or reason on either to the average Joe. This article does a pretty good job of summarizing my conerns with this inventory. -Sean
Debra and Arthur Scriven were served notice in June 2008 that their mortgage lender, a unit of Citigroup Inc., was preparing to foreclose on their home. Fifteen months later, the Scrivens are still in their home near Columbia, S.C., and battling to stay there, even though a dispute with the lender over how much they owe prompted them to stop making regular payments last year.
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