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Lenders, Feds Finally Paying Attention to Mortgage Crunch
Looks like
people are finally starting to take the
mortgage situation seriously, and by people
we mean the federal government and major
industry players.
'Bout time!
There were several major and minor
developments in the subprime arena this week
that indicates that the people who can
actually do something are now paying
attention.
Maybe the most significant is the
announcement that a group consisting of
banks and major lenders has been formed
under the name "Hope Now" to head off what
is expected to be a tsunami of foreclosures
by expanding and improving assistance to
troubled mortgagors.
The new group was announced by the federal
government and participating lenders on
Wednesday. 11 lenders are involved in the
project including Citigroup, Option One
Mortgage (a subsidiary of H&R Block), and
First Horizon National Corp,
Treasury Secretary Henry Paulson, who, along
with HUD Secretary Alphonso Jackson
represented the government in the
announcement, said that the Hope Now
participants were all major mortgage
servicers which among them handle 60 percent
of the mortgages in the U.S. Also
contributing to the alliance are several
approved credit counseling organizations.
The group has established a website (www.hopenow.com)
which, at present, is not particularly
helpful. It informs debtors how to ID their
servicers (i.e., look on your mortgage
statement), and recommends several approved
credit counselors and provides links to
other foreclosure information. However,
according to Secretary Paulson,
participating lenders will be sending out
direct mail to borrowers to help them
understand the available services and the
companies have been asked to establish a
model which includes a toll-free phone
number, email address, and fax number.
The second indication that the situation is
being taken seriously came in a speech by
Eric S. Rosengren, the newly minted
President of the Federal Reserve of Boston
before the Portland (Maine) Chamber of
Commerce.
President Rosengren gave the Chamber a
mini-tutorial about the background and
mechanics of the current subprime mortgage
situation but then provided some interesting
new insights into the market, at least as it
exists in New England.
The Federal Reserve of Boston, he said, has
been studying available public information
from the Registries of Deeds in the six New
England states and has found that
multi-family housing is disproportionately
represented in the subprime mortgage market.
For example, in Middlesex County,
Massachusetts which encompasses Cambridge,
Somerville, and several other dense urban
areas but also some extremely wealthy
suburbs, multi-family housing comprises
about 10 percent of the housing stock but 27
percent of the subprime mortgages. This,
Rosengren said, may reveal a potentially
serious problem for tenants "who may not
have known that the owner might be in a
precarious financial position."
The study also showed that people do not
keep their subprime mortgages over a long
term. Of those used to purchase a home
between 1999 and 2004, two-thirds were
prepaid within two years and almost 90
percent within three years. Thus, it is
possible that many borrowers who used
subprime mortgages to purchase their homes
did benefit from the appreciation of home
prices over the last decade.
While home prices in the area are declining,
Rosengren said, there are three hopeful
factors that may mitigate any upcoming
damage. First, the Fed researchers found
that many of the subprime borrowers have
respectable credit histories. Data, again
from Middlesex County, shows that 64 percent
of subprime borrowers had FICO credit scores
of 620 or higher and 18 percent had scores
over 700. They may have chosen a subprime
product in order to more greatly leverage a
purchase or may have been steered there by
an aggressive loan agent. In either case,
these borrowers may be able to transition
into a prime product if their interest rates
start to spiral upwards.
Second, many borrowers have owned long
enough that their home has appreciated and
they may have sufficient equity to refinance
into a prime product.
Third, many so-called "teaser" mortgages
carried a much higher rate than found on
prime loans; if these borrowers could
qualify for a prime product, they might
actually see a significant reduction in
their interest rate.
Rosengren said that he had been meeting with
bankers from all over New England to explore
opportunities for commercial banks to get
back into the mortgage market. Since they
were not involved in originating subprime
products and are well capitalized, they may
have profitable opportunities in the current
market and, "They have shown some interest
in the opportunities and have agreed to
examine how we can encourage borrowers to
pursue opportunities with banks before they
get behind in their mortgage. To the extent
that some subprime borrowers have improved
their FICO score with regular payments,
already had a high FICO score, or have
appreciated wealth in their house, now is
the time for these borrowers to seek lower
cost financing opportunities."
The Fed President said that "The Federal
Reserve Bank of Boston has created several
brochures that are intended to help
borrowers consider all their options, and we
are creating a web site to help borrowers in
subprime products to get information and
help looking for refinance opportunities."
Finally, The Mortgage Bankers Association
(MBA) has established a Foreclosure
Prevention Resource Center on its consumer
education site, HomeLoanLearningCenter.com.
The site is part of MBA's effort to advise
those who may face trouble making their loan
payment to contact their loan servicer as
soon as possible to determine if an
alternative to foreclosure may be possible
based on the borrower's financial and
employment status.
The site is bi-lingual and includes a
listing of major loan servicers and their
contact information as well as a guide to
the "Things to Know When You Contact Your
Lender" so that borrowers having difficulty
making mortgage payments can begin an
informed dialogue with their servicer about
potential solutions.
Conclusion
Are you one
of the many that suffer from insurmountable
debt and wonder if bankruptcy is an option?
Give us a call at (203) 924-6700 or
contact us.
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