Loans

News story forwarded to me from the Tennessean newspaper talks about how mortgage defaults, meaning people are losing their houses and equity from them, at records rates right now. The housing market, variable rate interest rates, an economy with higher prices and more lost jobs around has caused a surge in mortgage loan defaults.

This is a many part problem. Certainly people should be aware that a variable rate can cause unexpected strain, but the job losses in Detroit and other places are another factor. Higher prices from the gas pump to milk have caused strains on many American budgets recently. Higher taxes on cigarettes and other services are adding to that strain.

Here is the article from the Tennessean:

Life woes help feed mortgage defaults
Adjustable rates may cause next lending problem

By ALEX VEIGA
Associated Press

LOS ANGELES — Here’s a scary thought about the latest bad news on housing: A surprising increase in late loan payments and defaults among homeowners with good credit is coming from traditional woes, such as divorces, job losses and unexpected medical bills.

The next and biggest wave of problem loans could come as monthly payments soar for prime and subprime borrowers who took out adjustable-rate loans with little or no documentation, or who used so-called piggyback loans on top of their first mortgages to make up for small down payments, analysts said.

These exotic loans were the only way many borrowers — even those with good incomes and sterling credit histories — could afford to get into the housing market as home prices soared in the past decade. But now those decisions are looking suspect.

That was one of the messages that sent a jolt through the mortgage industry and the stock market Tuesday after Countrywide Financial Corp. reported its second-quarter profit shrank by nearly a third as softening home prices led to rising delinquencies and mortgage defaults.

Countrywide, whose shares have lost 11.7 percent of their value in the past two days, laid part of the blame for the uptick in delinquencies on borrowers with good credit who had taken out prime home equity loans.

Trend could continue

Analysts said the trend could continue, particularly in areas of the country that have been hardest hit by job losses in general or seen a decline in speculation-driven construction, such as South Florida, parts of California and Las Vegas.

“As housing values weaken broadly and the job market slows in these areas that we’re focused on, all borrowers will be touched,” said Mark Zandi, chief economist at Moody’s Economy.com.

He said subprime borrowers, those with spotty credit records, probably will show the greatest number of defaults. “But even prime, fixed-rate first mortgage borrowers will experience more credit problems,” Zandi said.

The problems are expected even though the U.S. unemployment rate is at
4.5 percent, still low by historical standards.

In reporting its earnings, Calabasas, Calif.-based Countrywide, the top U.S. mortgage lender, said it was forced to take impairment charges as it braced for the possibility of more people failing to make their mortgage payments on time. The firm said borrowers becoming unemployed or divorcing were the leading reasons why many borrowers with prime loans were falling behind on payments. And company officials told analysts on a conference call that the uptick in missed payments was not caused primarily to borrowers seeing their loans’ interest rate reset, triggering higher payments.

Still, the mortgage industry anticipates that it could face more defaults in coming months as many adjustable mortgages originated in 2005 and 2006 during the height of the housing market frenzy begin to reset to higher interest rates.

The loans, initially attractive options for buyers because of their cheaper “teaser” interest rates, can adjust higher after as little as two years. Even a small percentage increase can translate into a payment shock.

“The losses are just beginning,” said Christopher Brend ler, an analyst with Stifel Nicolaus & Co. Inc.

“Housing is increasingly a problem, prices are likely to go down, and so these loans underwritten in the best of times will now season in the worst of times,” he said.

The mortgage industry already has tightened lending standards in response to the jump in defaults by subprime borrowers.

“The same problems you saw in the subprime sector that caused the big meltdown in March is now a broader industry problem that’s hitting the prime sector,” Brendler said.

There is a lot of loans news from around the world lately. I have seen stories locally and from around the country that are talking about the high interest rate loans that are being offered with ease for things likes that title loans for the slip to your car, to payday loans that offer to cash a personal check and hold that check until “payday”. There are also tax refund advance anticipation loans that are being done at many locations, often quick and easily, but I wonder how many of those people who are getting these loans are reading the newspaper.

There are stories coming out everywhere about these quick loan places hurting the poor of our country, and in some places there are governments that are stepping in to regulate title loans, payday advance loans and more. I have even read that many of the quick check cashing places are being investigated by feds who believe that a lot of illegal immigrants are using the check cashing facilities to cash checks with little identification credentials.

NPR ran a story about how payday loans are hurting New Mexico’s poorest people, I believe the reasoning applies to more than just the people of New Mexico.

Yahoo Finance has a story in association with the California Reinvestment group, that explores how tax anticipation loans are hurting the poor in our country.

“RALs are completely unnecessary,” said Rhea Serna, California Reinvestment Coalition policy advocate. “Just waiting a couple of days for a tax refund can save someone hundreds of dollars! This is money that can be used for bills, groceries or other needed household expenses.”

Tax filers should be warned that RALs are not instant refunds; they are predatory short-term loan products. If tax filers paying to get their taxes prepared receive a refund immediately (or even within a week), they are probably receiving a RAL rather than their actual refund. These loans come with an average interest rate of 178 percent, but can be as high as 700 percent depending on the size of the loan. And they mostly hurt low-income tax filers.

More loans news reviews coming in future posts! Stay tuned with our loans rss feed!