Wednesday, May 10, 2006

Boston May Be A 'Different Scenario'

The Boston Globe reports on rising defaults in the state. "Foreclosure filings against Massachusetts homeowners increased 30 percent in the first three months of 2006 and have doubled in the past three years, as homeowners in one of the nation's most expensive real estate markets struggle to cope with high prices and rising interest rates."

"Rising interest rates and a softening real estate market have put a squeeze on homeowners who sometimes can't make the higher payments on adjustable-rate mortgages or refinance their loans to lower their payments."

"'These are numbers everybody should be paying attention to,' said Thomas Callahan, executive director of the Massachusetts Affordable Housing Alliance. 'There are things that could happen like further increases in interest rates and or more serious decreases in [house] values that can make this a lot worse than it is now, and it's pretty bad right now.'"

"In the first three months of the year, lenders filed notices against 3,762 Massachusetts borrowers who were at least 30 days delinquent on their mortgage payments. That is more than double the 1,858 filings in the first quarter of 2003, when the housing market was booming."

"'We have seen a real increase in numbers of foreclosures in Boston,' Mayor Thomas M. Menino said yesterday, noting that the city has recorded 58 foreclosures so far this year, almost as many as the 60 filed for all of 2005. 'The sky isn’t falling yet, but it’s really a cause for concern.'"

"'We've got to stop having these mortgage companies give these loans out for people who shouldn't get loans,' Menino said."

The Fannie Mae chief is worried, too. "Fannie Mae's chief executive said on Wednesday the U.S. housing market will face significant resetting of adjustable rate mortgages over the next two years and he worries about this sparking foreclosures in some locations."

"Daniel Mudd told Reuters in an interview that Fannie Mae models suggest a couple of reset 'spike periods' in the next two years, based on past originations of mortgages with adjustable rates and other features such as low initial 'teaser rate' periods."

"'If jobs are pretty stable, if home prices have come up underneath the mortgages to support them and if there's not any incidence of appraisal fraud, it could be just fine,' Mudd said. 'If in certain geographies, some of those factors are different, there's some appraisal fraud, or there's an economic downturn or home prices have declined, it could be a very different scenario.'"

"He said underwriting standards still vary widely among lenders, with some maintaining their share of a shrinking mortgage market as they tighten standards while others are still applying 'exuberance' to credit risk. Products such as interest-only adjustable rate mortgages, payment-option mortgages and loans that require no property appraisals create multiple layers of risk that are difficult to model and predict, he said."


At 3:16 PM, Blogger Ben Jones said...

Mudd knows full well that appraisal fraud is rampant. I guess this kind of CYA is what high-paid guys do.

At 7:40 PM, Blogger Tulkinghorn said...

Just anecdotal info here, but Mass appraisals I have seen since 8/05 have been pretty conservative.

I have directed clients to long-standing locally savvy banks, staffed with survivors of the last bust, so perhaps I have selected an unrepresentative sample.

At 7:58 PM, Blogger Chip said...

Around 8/05, Ben's housing bubble bloggers were talking about phony appraisals and, if I remember correctly, last summer was when some appraiser started a petition or some mass call to appraisers to alert the industry and regulators to the unfair pressure on appraisers to cook the appraisals. Seems logical, then, that last summer was the turning point for a lot of appraisers who had previously "played along" with the lenders.

Who knows - it could be that the heaviest fraud will be discovered in loans that were issued from 2003 to summer 2005.

At 11:41 AM, Blogger John Mc said...

"'If jobs are pretty stable, if home prices have come up underneath the mortgages to support them and if there's not any incidence of appraisal fraud, it could be just fine,' Mudd said

There's a lot of "Ifs" in these assumptions isn't there??


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