NJ DOBI issues statement on Subprime

From the New Jersey Department of Banking and Insurance:


On July 17, 2007 the Conference of State Bank Supervisors (CSBS), the American Association of Residential Mortgage Regulators (AARMR), and the National Association of Consumer Credit Administrators (NACCA) issued their Statement on Subprime Lending. In substance, this statement parallels the Statement issued on June 29, 2007 by the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS) and the National Credit Union Administration (NCUA) but it applies to entities not under the supervisory authority of the Federal agencies.

The New Jersey Department of Banking and Insurance endorses the July 17, 2007 Statement on Subprime Lending and now issues its own Statement, which is attached hereto and is also posted on the Department’s website at www.njdobi.org. All New Jersey licensed mortgage bankers, correspondent mortgage bankers, mortgage brokers, secondary lenders, their officers, directors and employees, and their registered mortgage solicitors are strongly
encouraged to review this Statement.

The Statement expresses concerns about adjustable rate mortgages with low initial payments followed by a rate reset that can result in payment shock, particularly when the borrower originally qualified for the loan based only on the low introductory payment rate. The Statement addresses additional concerns relating to prepayment penalties, the absence of escrow accounts that provide for insurance and tax payments, and the need to improve borrowers’ understanding of these products through enhanced disclosures.

The full statement can be found here:


This entry was posted in New Jersey Real Estate, Risky Lending. Bookmark the permalink.

10 Responses to NJ DOBI issues statement on Subprime

  1. njpatient says:


  2. James Bednar says:

    From Reuters:

    Moody cuts 22 CSFB home equity tranches

    Moody’s Investors Service cut 22 CSFB Home Equity Asset Trust securities on Monday while placing 32 other classes under review for downgrade, citing an increasing rate of delinquent loans.

    Moody’s said the recent pace of losses has triggered credit support to erode below targeted levels. The timing of losses coupled with passing of performance triggers has caused the protection available to the subordinate bonds to be diminished, it said.

    The loan collateral backing each deal placed on review consists primarily of first-lien, subprime fixed and adjustable rate mortgage loans, Moody’s said.

  3. James Bednar says:

    From CNN/Money:

    Wells Fargo yanks popular subprime loan

    Wells Fargo & Co., the fifth-largest U.S. bank, said Monday it stopped offering a popular subprime mortgage product in response to market and regulatory pressure.

    The company in an e-mail said it ended Friday retail offerings of so-called 2/28 loans, which at 65 percent of all subprime mortgages last year are the staple of the industry. Payments on 2/28 adjustable-rate mortgages (ARM) are based on rates that are fixed for two years and then are adjusted twice a year for the remaining 28, if the loan is not refinanced.

    “These changes are being made to align our practices with industry guidance, as well as appropriately respond to recent downgrades by key ratings agencies regarding subprime bonds,” the San Francisco-based bank said in a statement. Wells Fargo Home Mortgage is in Des Moines, Iowa.

    The demise of 2/28s at lenders also follows “guidance” from the Federal Reserve and four other regulators that urges banks to qualify borrowers based on the highest rate the loan could incur after it resets, instead of the lower, initial rate. By using only the lower rate, it was easier for home buyers to qualify.

    Wells Fargo’s retail or third-party lenders have also discontinued one-year ARMs and some 40/30 ARMs.

  4. James Bednar says:

    From Reuters:

    S&P may cut $1.76 bln in ABS CDOs backed by subprime

    Standard & Poor’s on Monday said it may cut $1.76 billion in collateralized debt obligations backed by asset backed debt, citing exposure to residential mortgages that have undergone downgrades.

    S&P said it may cut 33 CDO pieces, taken from eight deals that package asset-backed securities, or a combination of ABS and ABS derivatives. Seven of the eight deals were created in 2006, and one was originated in 2007, the rating agency said.

    All of the affected CDO transactions have exposure to U.S. residential mortgage-backed securities (RMBS) backed by first-lien subprime mortgages.

  5. James Bednar says:

    From Inman:

    Foreclosure data provider addresses criticism over numbers

    Responding to critics who say its reports overstate the magnitude of the housing downturn, RealtyTrac next week plans to begin providing quarterly, state-by-state breakouts of the number of unique households that are in some stage of the foreclosure process, while continuing to provide its monthly reports on total foreclosure filings.

    RealtyTrac’s reports have been criticized by groups such as the Mortgage Bankers Association and the Colorado Division of Housing as misleading, because some properties may be counted more than once as they move through the foreclosure process.

    In many states where the foreclosure process occurs in stages, legal notices are filed when a lender issues a notice of default, and again before a property is put up for sale. If the property does not sell at auction, another foreclosure filing is also made when it is repossessed by the lender.

    Although RealtyTrac says it’s unlikely for a property moving through the foreclosure process to generate two filings in a month, the company will begin providing counts of unique households in its quarterly reports to provide a clearer picture of the actual number of homes in the foreclosure process.

    “For anybody who understands how the foreclosure process works — it’s a process, not an event,” and RealtyTrac’s reports of total foreclosure filings were not misleading, said Rick Sharga, the company’s vice president of marketing. “But for people who would like more pure assessments of how many households affected, this should give them the number they are looking for.”

  6. James Bednar says:

    From the AP via Forbes:

    Sen. Touts Anti-Predatory Lending Bill

    U.S. Sen. Bob Casey was in town Monday to tout a federal bill that would regulate mortgage brokers and loan originators.

    “We’ve got to crack down harder on these players,” said Casey, D-Pa., who was at a community center in North Philadelphia to meet with neighborhood leaders and beleaguered homeowners.

    Called the Borrower’s Protection Act of 2007, the bill would make it a fiduciary duty to treat consumers fairly. It would also outline standards for assessing a borrower’s ability to repay and holding lenders responsible for overseeing associated brokers and appraisers.

    The bill was introduced in May and co-sponsored by Casey, Sen. Charles Schumer, D-N.Y., and Sen. Sherrod Brown, D-Ohio.

  7. James Bednar says:

    From Schumer’s Senate.gov site:

    Schumer, Others Propose First Major Legislation…

    The Borrower’s Protection Act of 2007:

    1) Establishes a fiduciary duty for mortgage brokers and other non-bank mortgage originators;

    2) Creates a faith and fair dealing standard for all originators

    3) Requires originators to underwrite loans at the fully indexed rate;

    4) Requires originators to create escrow accounts to pay taxes and hazard insurance on subprime loans;

    5) Prohibits steering (i.e. brokers may not direct or counsel a consumer to rates, charges and principal amount or prepayment terms that are not appropriate or suitable for the them); and

    6) Holds lenders responsible for policing their associated appraisers and brokers.

    7) Prohibits originators from influencing appraisal process

  8. Pooch123 says:

    Donald I have a similar confession to make. As a renter, I look up people’s addresses I know who recently bought to find out what their property taxes are.

  9. James Bednar says:

    From Forbes:

    US Treasury’s Paulson says strong dollar in nation’s interest

    Treasury Secretary Henry Paulson expressed confidence Monday in the dollar’s prospects despite new highs notched up by the euro against the US currency.

    In an interview with the CNBC financial news network, Paulson also predicted that problems afflicting the lower end of the US mortgage market would not infect the broader economy.

    He said he felt ‘very strongly that a strong dollar’s in our nation’s interest and the dollar’s value should be determined in a competitive marketplace based upon underlying economic fundamentals.’

  10. James Bednar says:

    From Bloomberg:

    Dollar Falls to Two-Month Low Against Yen on Mortgage Concerns

    The dollar fell to the lowest in more than two months against the yen and weakened against the 10 most-active currencies on speculation subprime mortgage losses will deepen and reduce demand for U.S. assets.

    The slide accelerated after the dollar reached levels that triggered automatic orders to sell the currency. The dollar also slumped to a 26-year low against the British pound and the weakest since March 1985 against New Zealand’s currency. It declined for a 13th day versus the Australian dollar.

    “The housing market has yet to hit bottom,” said Antje Praefcke, a currency strategist at Commerzbank AG in Frankfurt. “The dollar is likely to remain under pressure.”

Comments are closed.