Mortgage Rate News

A lot has been said about subprime lending and the crash that resulted from shoddy lending practices to those with poor credit. But what about the next expected wave of mortgage loan defaults? The next mortgage market crash is expected to come thanks to Alt-A loans — loans that were made to people with good credit.

The New York Times offers some insight into how the next mortgage market crash may come about:

Defaults are likely to accelerate because many homeowners’ monthly payments are rising rapidly. The higher bills come as home prices continue to decline and banks tighten their lending standards, making it harder for people to refinance loans or sell their homes. Of particular concern are “alt-A” loans, many of which were made to people with good credit scores without proof of their income or assets.

“Subprime was the tip of the iceberg,” said Thomas H. Atteberry, president of First Pacific Advisors, a investment firm in Los Angeles that trades mortgage securities. “Prime will be far bigger in its impact.”

Indeed, it does appear that the confluence of economic slowdown and falling home values is likely to cause a real problem. As real wages fall, and prices rise due to inflation, more pressure is being put on household budgets. Add climbing unemployment numbers to the mix, and things could get ugly for those who could formerly afford their home mortgage loans. Where does the mortgage payment fit? After you pay the transportation costs to get you to your job? After you have bought food for your family? Or do you make sure your mortgage is paid and cut back everywhere else?

And, without the ability to refinance…well, you can see where things are headed on that front.

So, even though we appear to be recovering from the subprime lending crash, it may come just in time to feel the effects of the next mortgage market crash.

Tags: subprime lending crash, mortgage market crash, home mortgage loans, Alt-A loans,
unemployment numbers, refinance

Two more national banks have failed. The Federal Deposit Insurance Corp. (FDIC) shut down First National Bank of Nevada and First Heritage Bank. Since these banks were FDIC insured, the money they contained was safe, and will be accessible to most account holders. The FDIC sold the accounts to the Bank of Omaha.

But this probably isn’t the end for bank failures. Bank failures are starting to come faster (but it is worth noting that none are as large as IndyMac). There are also some estimates that 100 banks will fail in the next year. However, reports BloggingStocks, 100 banks may be a rather optimistic number:

But, those estimates may be low. Bill Gross, an extremely prominent investor and head of Pimco, recently wrote that total losses related to the housing market will hit $1 trillion. About $450 billion of those write-downs have made it through the system. That leaves a potentially massive burden on the banking system going forward.

It is true that there is a massive burden on banks right now, but a lot of has to do with the downright speculative practices they have been involved in. Many of the banks failing at this time were involved in making questionable mortgages to people who might not have been able to really afford them.

But, on a whole, our banking system has a looooong way to go until it hits a place of complete failure, and we aren’t likely to get there. After all, even the wildest estimates don’t put this crisis as worse than the savings and loan disasters of the 1980s.

The key is to avoid panic. Double check to make sure your bank is FDIC insured. Then look at your accounts. The FDIC will guarantee your money up to $100,000 per deposit account ($200,000 if there are two depositors) and $250,000 per retirement account. If you have more than the insured amount in an account, consider moving some of that money to another bank. But withdrawing it all as part of a “run on the bank” policy will only make matters worse.

Tags: banks fail, FDIC, home mortgage loan, mortgage lenders,
mortgage loan blog, IndyMac, bank accounts

It’s been a busy weekend for the Federal Government. It’s been taking over IndyMac and working out how to save Fannie Mae and Freddie Mac from complete insolvency.

Fannie Mae and Freddie Mac to receive bailout

One of the pieces of news that its helping the stock market, the US dollar and even Treasuries all rebound from dismal performances on Friday is the announcement, over the weekend, that Fannie Mae and Freddie Mac can count on the Federal Government. The government gave itself the power to do the following for the two embattled mortgage lenders:

• Purchase equity in the companies.
• Increase lines of credit offered to the companies.
• Make emergency loans (via the Federal Reserve) to the companies.

At the same time, though, government officials made it abundantly clear that their largess is only directed at the two government chartered mortgage lenders; no one else should expect such a bailout at taxpayer expense. (Although, you never know when this administration’s government agencies will intervene to keep big business going.)

The moves should ensure that Fannie Mae and Freddie Mac both have capital enough to keep things liquid and functioning, helping them avoid the fate of IndyMac.

IndyMac reopens today as IndyMac Federal FSB

On Friday, the government announced that it was closing down IndyMac, one of the largest mortgage lenders in the country, and taking it over. The bank is reopening today, if the firm charge of the FDIC, which hopes to find a buyer for the distressed bank. The Financial Post reports on the reason that IndyMac folded:

“IndyMac is a company that was pretty much 100% invested in mortgage assets, and we’re in a bad mortgage market, and it had no capital. It’s not complicated,” said Adam Compton, co-head of global financial stock research at RCM in San Francisco, which manages about US$150-billion.

Too bad IndyMac didn’t have the same government charter that Fannie and Freddie do.

Tags: IndyMac, Fannie Mae, home mortgage loan, Freddi Mac,
mortgage lenders, mortgage loan blog, FDIC