Mortgage Rate News

It’s been an interesting day for mortgage market news. As we are all aware things are getting worse in terms of Alt-A loans and also for subprime mortgage loans. But just knowing this information doesn’t really put a human face on the issues that are afflicting the mortgage market. Consider two items that appeared in my news reader this morning: a HELOC bankruptcy and military foreclosures.

HELOC bankruptcy

When it comes to home equity lines of credit, rules (especially with regard to bankruptcy) are a little different from what you have with a first home mortgage loan. So when National City tried to foreclose on a HELOC, and the borrower filed for Chapter 7 bankruptcy, the lender thought that it would recover most of its money. Not so much.

The judge decided that even though the borrower lied about income (this was for a stated income HELOC), the guidelines National City had didn’t provide for due diligence in making sure that the borrower really did have adequate income. Hmmm…You mean mortgage lenders have to be responsible, too? Well played!

Military foreclosures

This next bit of info just really annoyed me. Some of the highest rates of foreclosure in the country can be found in communities with a lot of military service men and women. This is not right. The constant tours and crappy pay make it difficult for military personnel to keep up on their home mortgage loan payments.

Sure, their homes can’t be foreclosed on while they are on active duty, and sure they have 90 days when they get back. But it doesn’t seem sufficient. You get back from your second (or third) tour of duty in Iraq, only to discover that you have to fix your financial situation in three months. Most of us can’t do that and we haven’t see the hell of war.

Seems to me like our brave military men and women deserve something a little more substantial.

Whose fault is all this blood and gore in the financial markets? According to Warren Buffett, mortgage lenders are to blame. They made risky investments and got a little too greedy with the money they could make off of subprime borrowers. Reuters reports on remarks made by Warren Buffett:

Blame for the sub-prime crisis lies at the feet of banks who took too many risks in mortgage lending, U.S. billionaire investor Warren Buffett told newspaper El Pais in an interview published on Sunday.

“The banks exposed themselves too much, they took on too much risk …. It’s their fault. There’s no need to blame anyone else,” he said.

Warren Buffett does have a point. Mortgage lenders began looking for ways to get just about anyone into a home. They pushed home mortgage loan options that were beyond the means of some using such devices as interest only loans, ARMs with ridiculously low teaser rates and other offerings. Some mortgage lenders were less than forthcoming about the loan terms, and what repayment would entail.

But what about personal responsibility? Some would say that no matter how much prevaricating mortgage lenders do, it is up to the consumer to research the home mortgage loan and its terms. To a certain extent, this is true. And some borrowers — who knew they couldn’t really afford a McMansion but got the loan “creatively” — are certainly to blame. However, not everyone who got a subprime mortgage falls into this category. Some were genuinely tricked into their home mortgage loan options. Not everyone has the means or the resources, or the knowledge, to cut through all of the double talk that some mortgage lenders employ.

In any case, what with losses mounting, Buffett may be right when he says that we may end up with a recession that is deeper and longer than many are willing to admit.

Tags: credit crisis, Warren Buffett, home mortgage loan, mortgage lenders,
mortgage loan blog, credit crisis banks, ARMs

As one would expect, delinquencies on subprime mortgages are rising. Additionally, Alt-A mortgages are seeing an increase in delinquencies as well. Reuters reports on the rise in failing home mortgage loans:

Delinquencies for Alt-A mortgages rated between 2005 and 2007 are climbing, with total delinquencies rising as high as 17 percent in some cases, more than 6 percentage points higher than previous estimates, the ratings agency said in a report.

Lower-quality subprime mortgage delinquencies soared as high as 37 percent for mortgages originated in 2006, 4 percentage points higher than previous estimates, S&P said.

What are Alt-A mortgages?

Alt-A mortgages are considered to be lower risk than subprime mortgages. These are mortgages that have more relaxed lending standards than prime mortgages. Alt-A mortgages feature less strenuous income documentation, as well as some higher loan-to-value ratio allowances. These mortgages fall between subprime mortgages and prime mortgages in terms of risk categorization.

Alt-A mortgages were considered good investments — especially in mortgage backed securities — because they have higher interest rates than prime mortgages and less risk than subprime mortgages. Mortgage backed securities include Alt-A mortgages in order to offset some of the risks of subprime mortgages in the security while still prompting a desirable return. Now, though, with the increase in delinquencies, it is reasonable to assume that mortgage backed securities are likely to head even lower.

The fact that home mortgage loans are seeing delinquencies rise in this category of loan is proof that the housing market crisis is moving up the food chain. Indeed, with the economy slowing down and inflation on the rise, it might not be long before we see a signification jump in delinquencies on prime mortgages.

Indeed, loan delinquencies are on the rise in nearly every loan category.

Tags: mortgage loan blog, subprime mortgages, home mortgage loans, Alt-A mortgages,
prime mortgages, mortgage back securities, loan delinquencies