New Jersey Real Estate Report

From the Wall Street Journal:

Earlier Subprime Rescue Falters
December Plan Has Done Little to Help Borrowers In Dire Circumstances
By RUTH SIMON and TOM MCGINTY
February 13, 2008; Page A3

As the Bush administration announced a fresh plan to aid homeowners overburdened by their mortgages, initial figures suggest much-touted earlier efforts have done little to help most troubled borrowers.

An earlier plan, brokered in December by the Treasury Department, called for the mortgage industry to freeze interest rates or expedite refinancing for potentially hundreds of thousands of subprime borrowers, so long as they were current on their payments. In a companion move, the administration announced a toll-free number for homeowners, but the hotline has provided counseling to just 36,000 borrowers in the past two months, and representatives have suggested loan workouts for fewer than 10,000 of them — a small fraction of borrowers in need.

Other callers were looking for money, which the hotline doesn’t have available, or had only general questions, executives running the project say. It’s not clear how many borrowers were able to stay in their homes because of the hotline’s help.

The preliminary numbers throw into sharp relief the difficulty of finding a workable solution to the housing crisis, with hundreds of billions of dollars in potentially troubled loans flowing through the financial system and foreclosures hitting recent highs. Adjustable rates on some two million subprime mortgages are expected to rise in the next two years, raising the specter of further delinquencies and more financial turmoil.

Continuing concerns about the impact on the U.S. economy and society prompted six major mortgage companies and the Bush administration yesterday to renew their efforts. They announced “Project Lifeline,” a new program to help deeply troubled borrowers who are more than 90 days behind in their mortgage payments and face the imminent loss of their homes.
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Some mortgage executives are skeptical whether the new program will make a difference. “What they are proposing is nothing new,” says William Ashmore, president of Impac Mortgage Holdings Inc., a real-estate investment trust that owns about $18 billion of mortgage loans. He added that his firm began offering to postpone foreclosures by as much as 90 days last year. Mr. Ashmore says his biggest problem is reaching borrowers who are behind on their payments.

The Massachusetts Division of Banks has had a similar plan in place since April. Roughly 600 foreclosure actions have been paused since the program started, the division says.

“Let’s be clear and honest: One action alone will not solve every problem in the housing market,” Housing and Urban Development Secretary Alphonso Jackson said at the industry announcement in Washington. “Rather, a series of incremental steps provides the best chance.”

But even the initial steps dating from December appear to be having a limited impact on the growing mortgage crisis.

From Reuters:

Urban home foreclosures surge in ’07: RealtyTrac

Home foreclosure filings surged in the largest metropolitan areas in the United States during 2007, with cities in California, Ohio, Florida and Michigan reporting among the highest rates in the country, real estate data firm RealtyTrac said on Wednesday.

The U.S. foreclosure rate of households in the top 100 metropolitan areas was 1.38 percent and the total number of foreclosure filings rose 78.2 percent last year to 1.775 million, said RealtyTrac, an online market of foreclosure of properties, in its Year-End 2007 Metropolitan Foreclosure Market Report.

Fifteen of the metro areas with the top 20 metro foreclosure rates were located in four states: California with six; Ohio with four; Florida with three and Michigan with two, the report said.

“As expected, the number of properties entering some stage of foreclosure in 2007 was up in the vast majority of the nation’s 100 largest metro areas, with 86 metros reporting increases from 2006,” James Saccacio, chief executive officer of RealtyTrac, said in a statement.
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Foreclosures have soared as falling U.S. home prices have exposed underwriting standards weakened during the housing boom to boost volume. Billions of dollars in losses at financial firms and Wall Street banks have resulted in lenders putting borrowing rates out of reach for many homeowners who had planned on getting new loans or refinancing an adjustable mortgage before higher monthly payments kicked in.

Lower appraisals on homes have also prevented borrowers from refinancing into loans with easier terms.

From the New York Times:

Mortgage Crisis Spreads Past Subprime Loans

The credit crisis is no longer just a subprime mortgage problem.

As home prices fall and banks tighten lending standards, people with good, or prime, credit histories are falling behind on their payments for home loans, auto loans and credit cards at a quickening pace, according to industry data and economists.

The rise in prime delinquencies, while less severe than the one in the subprime market, nonetheless poses a threat to the battered housing market and weakening economy, which some specialists say is in a recession or headed for one.

Until recently, people with good credit, who tend to pay their bills on time and manage their finances well, were viewed as a bulwark against the economic strains posed by rising defaults among borrowers with blemished, or subprime, credit.

“This collapse in housing value is sucking in all borrowers,” said Mark Zandi, chief economist at Moody’s Economy.com.

Like subprime mortgages, many prime loans made in recent years allowed borrowers to pay less initially and face higher adjustable payments a few years later. As long as home prices were rising, these borrowers could refinance their loans or sell their properties to pay off their mortgages. But now, with prices falling and lenders clamping down, homeowners with solid credit are starting to come under the same financial stress as those with subprime credit.

“Subprime was a symptom of the problem,” said James F. Keegan, a bond portfolio manager at American Century Investments, a mutual fund company. “The problem was we had a debt or credit bubble.”
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The running turmoil is also stirring fears that some hedge funds may run into trouble. At the end of September, nearly 4 percent of prime mortgages were past due or in foreclosure, according to the Mortgage Bankers Association.

That was the highest rate since the group started tracking prime and subprime mortgages separately in 1998. The delinquency and foreclosure rate for all mortgages, 7.3 percent, is higher than at any time since the group started tracking that data in 1979, largely as a result of the surge in subprime lending during the last few years.

From the Washington Post:

Don’t Blame Subprimes

I am sick of everyone blaming the breakdown in the credit and housing markets on subprime loans. Subprime loans were certainly part of the problem, but they are a symptom of a deeper issue. What’s happening in the market today is not the bursting of a five-year bubble but the bursting of a 40-year bubble and the failure of the mortgage loan system to meet the needs of the marketplace.

The truth is that subprime lenders, by responding to demand, were the finger in the dike for the whole housing market. The real problem is affordability and the incongruity between incomes and home pricing.

Forty years ago, the median national price of a house was about twice the median household income. In some parts of the country, this ratio was closer to 1 to 1. Twenty years ago, the median home price was about three times income. In the past 10 years, it jumped to four times income.

But in most major economic centers, typical families haven’t been able to buy a home for anything near the national median price for decades. Try to find a single-family home in the D.C. area for the national median of $221,900. In the major markets, there is tremendous dependency on alternatives to the standard 30-year fixed-rate mortgage, which in turn has created a dependency on the least scrupulous mortgage companies and lenders.
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Consider Silicon Valley, home to much of the driving force for our economy in the ’90s. Today the median price of an existing home in Silicon Valley is $775,000, but the median household income there is only $62,020. A home in the area costs almost 13 times annual income. Home prices in that market would have to drop nearly 70 percent or income would have to triple, and interest rates would have to stay low for the price-to-income ratio to reach a more affordable level. Here in the Washington metropolitan area, the median home price is about eight times the median household income. Income-affordability ratios are similarly out of balance in Boston, New York, San Diego and the other areas hit hardest by the current crisis.