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WASHINGTON -- The government is monitoring the distress in the subprime mortgage industry and believes the current situation is manageable, a Treasury Department official said Monday.
The comments by Robert Steel, the Treasury undersecretary for domestic finance, came as concern mounted on Wall Street and elsewhere that a blowup of companies that make higher-risk home loans to consumers with poor credit or low incomes could spill over into other industries.
"We monitor the markets all the time, and are hopefully pretty aware of market conditions," Steel told reporters in response to a question. "It seems to us that the situation is a manageable one, that we're watching."
Federal bank regulators, concerned about a spike in delinquencies and defaults on subprime home mortgages, earlier this month called on lenders to exercise caution in making the loans and to strictly evaluate borrowers' ability to repay them. The regulators said the guidelines, if formally adopted by the agencies and followed by lending institutions, could result in fewer borrowers qualifying for subprime loans.
Stocks rose on Wall Street on Monday as investors looked past widening cracks in the subprime lending sector. A warning from New Century Financial Corp. about its financial woes initially overshadowed positive merger news in the trading session.
The prospect of bankruptcy loomed over New Century, the nation's second-largest subprime mortgage maker, which scrambled to stay afloat after all its bank lenders cut off funding or informed the company of their intent to do so because of its failure to make payments. Irvine, Calif.-based New Century, which already has stopped accepting all new loan applications, said there is no guarantee it will receive additional financing.
Like other subprime lenders, New Century uses short-term borrowings to finance mortgage loans it makes and buys. Also like others, the company has been having difficulty obtaining the short-term lending needed to finance the mortgages.
The subprime sector has seen a sharp decline in banks' demand for potentially troublesome loans as the housing market has slowed since late 2005, grounding the high-flying real estate boom of earlier in the decade. As long as home prices were going up, borrowers who got into trouble could just refinance or sell their homes, sparing banks from being stuck with sour loans.
The fallout from the housing downturn has spurred several subprime lenders, including ResMae Mortgage Corp., Ownit Mortgage Solutions and Mortgage Lenders Network Inc., to file bankruptcy in recent months.
On Capitol Hill, some mortgage industry executives told lawmakers that the subprime turmoil is a cause for concern but does not warrant government intervention, because the financial market can weed out the problem companies.
"There's absolutely no question that there were lenders with this product that got aggressive," John Robbins, chairman of the Mortgage Bankers Association, testified at a hearing of a House Financial Services panel. Those lenders are now being punished by the market as investors abandon them, he said.
Another witness, Karen Shaw Petrou, managing partner of Federal Financial Analytics, noted that subprime mortgages account for an estimated $1 trillion of the $8 trillion U.S. home-mortgage market.
"It is a very distressing picture at this point," she said. "People forgot that subprime means higher risk, higher risk means more losses."
A liberal think tank said Monday that the federal government should take new steps to protect low-income homeowners at risk of foreclosure.
The Center for American Progress said the government should consider grants to expand mortgage aid and foreclosure prevention programs for families falling behind on their monthly payments. As many as 2.2 million families around the country could lose their homes to foreclosure in the coming years, according to a 2006 report by the Durham, N.C.-based Center for Responsible Lending.
"Congress can't wait for that many families to foreclose," said Almas Sayeed, who wrote the report for the Center for American Progress. "The economic impacts for communities and for the country could be devastating."
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The government is monitoring the distress in the subprime mortgage industry and believes the current situation is manageable, a Treasury Department official said Monday.
Oh, so NOW you trust the gov't's judgement? Is this manageable in the same way that we were greeted as liberators in Iraq?
WASHINGTON -- The government is monitoring the distress in the subprime mortgage industry and believes the current situation is manageable, a Treasury Department official said Monday.
The comments by Robert Steel, the Treasury undersecretary for domestic finance, came as concern mounted on Wall Street and elsewhere that a blowup of companies that make higher-risk home loans to consumers with poor credit or low incomes could spill over into other industries.
"We monitor the markets all the time, and are hopefully pretty aware of market conditions," Steel told reporters in response to a question. "It seems to us that the situation is a manageable one, that we're watching."
Federal bank regulators, concerned about a spike in delinquencies and defaults on subprime home mortgages, earlier this month called on lenders to exercise caution in making the loans and to strictly evaluate borrowers' ability to repay them. The regulators said the guidelines, if formally adopted by the agencies and followed by lending institutions, could result in fewer borrowers qualifying for subprime loans.
Stocks rose on Wall Street on Monday as investors looked past widening cracks in the subprime lending sector. A warning from New Century Financial Corp. about its financial woes initially overshadowed positive merger news in the trading session.
The prospect of bankruptcy loomed over New Century, the nation's second-largest subprime mortgage maker, which scrambled to stay afloat after all its bank lenders cut off funding or informed the company of their intent to do so because of its failure to make payments. Irvine, Calif.-based New Century, which already has stopped accepting all new loan applications, said there is no guarantee it will receive additional financing.
Like other subprime lenders, New Century uses short-term borrowings to finance mortgage loans it makes and buys. Also like others, the company has been having difficulty obtaining the short-term lending needed to finance the mortgages.
The subprime sector has seen a sharp decline in banks' demand for potentially troublesome loans as the housing market has slowed since late 2005, grounding the high-flying real estate boom of earlier in the decade. As long as home prices were going up, borrowers who got into trouble could just refinance or sell their homes, sparing banks from being stuck with sour loans.
The fallout from the housing downturn has spurred several subprime lenders, including ResMae Mortgage Corp., Ownit Mortgage Solutions and Mortgage Lenders Network Inc., to file bankruptcy in recent months.
On Capitol Hill, some mortgage industry executives told lawmakers that the subprime turmoil is a cause for concern but does not warrant government intervention, because the financial market can weed out the problem companies.
"There's absolutely no question that there were lenders with this product that got aggressive," John Robbins, chairman of the Mortgage Bankers Association, testified at a hearing of a House Financial Services panel. Those lenders are now being punished by the market as investors abandon them, he said.
Another witness, Karen Shaw Petrou, managing partner of Federal Financial Analytics, noted that subprime mortgages account for an estimated $1 trillion of the $8 trillion U.S. home-mortgage market.
"It is a very distressing picture at this point," she said. "People forgot that subprime means higher risk, higher risk means more losses."
A liberal think tank said Monday that the federal government should take new steps to protect low-income homeowners at risk of foreclosure.
The Center for American Progress said the government should consider grants to expand mortgage aid and foreclosure prevention programs for families falling behind on their monthly payments. As many as 2.2 million families around the country could lose their homes to foreclosure in the coming years, according to a 2006 report by the Durham, N.C.-based Center for Responsible Lending.
"Congress can't wait for that many families to foreclose," said Almas Sayeed, who wrote the report for the Center for American Progress. "The economic impacts for communities and for the country could be devastating."
C'mon 40... The Doom & Gloom, World is Over posts are much more engaging than this boring, objective reasoning you post here!!!
C'mon 40... The Doom & Gloom, World is Over posts are much more engaging than this boring, objective reasoning you post here!!!
You gotta read the whole article, dude....
Quote:
The Center for American Progress said the government should consider grants to expand mortgage aid and foreclosure prevention programs for families falling behind on their monthly payments. As many as 2.2 million families around the country could lose their homes to foreclosure in the coming years, according to a 2006 report by the Durham, N.C.-based Center for Responsible Lending.
"Congress can't wait for that many families to foreclose," said Almas Sayeed, who wrote the report for the Center for American Progress. "The economic impacts for communities and for the country could be devastating."
DEI, is it just that you can't stand an opposing point of view? Is it so imperative that this economy fails so that you can blame it on Bush?
I mostly making the point on your disconnected logic. You claim to not trust politicians/gov't yet you post an article based on the gov't observation and opinion of a current potential problem....
I worry about the people in OH and MI. The economy there is already horrible and a seemingly vast majority of people have subprime credit and the ownership contingency there cannot handle or sustain an even worse downturn in the market there. Talk about a mini-depression. Then you look down south in MO, AL and such and it's the same thing. There's some tough places to be right now....
As Russ stated, I'm not too worried about the Silicon Valleys, the Aspens and all the other affluent areas, but the people living in these mini-depressed economies is what affects me....
I actually AM worried about the valley I suspect there are a lot more of these mortgages out here than people realize and that a big part of the economy here was built on all these people using equity from their house as an ATM machine. I think if this hits here, the economy here will slow down
and a lot of people will default on their mortgages.
I mostly making the point on your disconnected logic. You claim to not trust politicians/gov't yet you post an article based on the gov't observation and opinion of a current potential problem....
DEI, it's just like global warming. You guys don't want to hear any contrary opinions as you've made up your mind and have closed it completely.
DEI - I can't say this again any more clearly... I AGREE that the issue surrounding the sub-prime market will be just that, an issue. I AGREE that many people will be hurt, some terribly. However, I don't agree that the issue will be nearly as catostraphic as you and others seem to want to make it... 9 months from now, I suspect this issue will not be a front-page item on a national level. Yes, in certain markets where the micro economy and tangential real estate market might be spiraling, an issue such as this will be hyper-intensified. But NOT on a national level and thus, this will not be nearly as broad of a catastrophy as you guys are painting it...
But please, carry on... I actually get a kick our of your collective paranoia!!!
DEI, it's just like global warming. You guys don't want to hear any contrary opinions as you've made up your mind and have closed it completely.
What if you're wrong?
Then it's awesome and nothing bad happens, what's your point?
I don't want bad things to happen even if it proves me right, I'd rather be wrong, but I'm not looking at this in terms of being right or wrong, simply observing things, reading things and paying attention, then I draw my own conclusions on what's likely to happen.
It's not something I just decided to worry about 40, it's that nagging feeling I've had over the years that man, loans like this are just stupid and getting worse, all along I was like what's keeping this from just imploding the industry? and for a long long long time nothing imploded it.
At the time these were rampant people sneered at me for not doing them, looked at me like some sort of idiot for not rushing in and grabbing the bags of money laying there. I didn't because I thought someday they'd bite the whole industry in the butt and I don't like doing loans for people I wouldn't do myself. I would do a subprime loan myself if it was my only option in certain situations but not anything like what these crooks did to people.
That's what IMO is bad is the confluence of events that lead to this industry never really blowing off steam and correcting, at approximately the time it should have due to 911 and other events they pumped money into the economy to avoid a disaster, I think they grew the size of the problem to biblical proportions, in other words it's not that markets don't work efficiently over time they do but every time you get people thinking nothing bad can ever happen then the hammer usually comes down, the longer the hammer stays away the bigger it gets.
A bubble like this is nothing more than cheap money fueling mistakes chasing the money. I wouldn't have been gloomy on the economy 5 years ago, I wasn't 10 years ago, I wasn't 15 years ago. Now I most certainly am.
__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.
$1,300...$2,000...there goes your mortgage
When they bought their home in 2004, the Sanons had a feeling they were getting in over their heads - they were right.
By Ellen Florian Kratz, Fortune writer
March 14 2007: 11:56 AM EDT
NEW YORK (Fortune) -- Jemima and Ricardo Sanon, 30 and 29, saw the possibility of trouble before they ever signed their mortgage documents in 2004.
The Sanons had diligently saved $5,000 in preparation to buy their first home, but the sum was just enough to cover the closing costs. So to finance the $290,000 purchase price of a Waltham, Mass home, they took one loan for $232,000 and also a piggyback loan for $58,000, both from New Century Financial, a subprime lender.
The smaller of the two mortgages didn't worry them. The terms were fixed for 30 years at 10.7 percent, and the monthly payment of $538 was something they felt they could handle.
But the larger loan was fixed for just two years. After that, the rate would adjust every six months, which is typical for subprime borrowers.
"I worried about how we would make payments when they increased," said Jemima, a medical assistant. "The mortgage broker [at New Century] told us we could refinance." A spokeswoman for New Century declined to comment on the specifics of the Sanon's case citing privacy issues, but she did issue this statement: "New Century is offering special programs that are designed exclusively for current New Century borrowers who are most susceptible to payment shock at the reset of their loans."
Fast forward a couple of years, and the Sanons, like so many other subprime borrowers today, are struggling to keep their heads above water. As the housing market boomed, refinancing or selling your home was a simple solution for borrowers who had trouble making the mortgage payment. Now that the housing market has stalled, subprime borrowers are stuck with loans they really couldn't afford in the first place.
Defaults and foreclosures are rising, and the industry is roiling as lenders face the consequences after years of handing out money irresponsibly. Says Bruce Marks, CEO of Neighborhood Assistance Corporation of America, a non-profit that is trying to help the Sanons and other subprime borrowers refinance into sensible mortgages: "Lenders knew these loans were structured to fail."
For the Sanons, the initial monthly payment on the larger loan was some $1,300. Two years later, that payment jumped to over $1,800.
As a result of the sticker shock, the couple fell behind on their credit cards and student loans.
In November, Jemima had to leave her job for several months because of a difficult pregnancy, which put them even further behind on the bills. She recently returned to work. But not in time to stay current with the mortgage; in February, the Sanons paid late. Now the March payments are due, and the latest adjustment has pushed the sum on the larger loan to over $2,000.
After the first adjustment, Ricardo called Litton Loan Servicing (the company currently servicing the mortgage) to try to work something out. "They threatened us," he says. "They said, 'If you don't make your payment, we'll foreclose.'"
Says Larry Litton Jr., CEO of Litton: "Tell them to call my office. If they can show us through their financial statements that they're going to have problems affording the escalated payment, we will be more than happy to modify that loan that day because the last thing we want is that house back."
Ricardo says, No thanks. He's working with Marks' organization to try to get into a loan that makes sense.
In the meantime, he has been logging seven days a week at the drug store where he is employed as an assistant manager to keep up with the house payment. With their newly blemished credit record, the couple hasn't yet been able to refinance out.
"We want to keep our house," says Jemima. "But we can't do it with the mortgage we have right now."
What just galls me is this whole thing with the stock market going up an down is simply because some people think we are heading for trouble and based on their speculations, the market drops.
Stocks are not overpriced right now. If we can get away from the doom and gloom naysayers and just let it operate, it will be just fine.
There used to be all professional people buying stocks who had been trained to do so and they weren't so quick to react to every little economic bubble. Now every time a retired fed chairman opens his mouth, people panic and start selling. What a way to try and run a business.
In South Florida, huge numbers of illegal immigrants obtained phony mortgages to buy homes no one else wanted. What happens to them when the foreclosures take effect?
Hypothetically speaking. The rental rates are higher than the bogus mortgage monthly payment was.
__________________
In politics, nothing happens by accident. If it happens, you can bet it was planned that way.
Franklin D. Roosevelt
"Those who can make you believe absurdities can make you commit atrocities." --Voltaire
