Home Equity Risk May Escalate in the Next Few Years Over the next several years a significant volume of home equity products will reach the end of their draw periods. When these products were originated, most of the contracts required that at the end of the draw period the outstanding balance would require a full amortization over a pre-determined period of time. Generally, the term of the home... [more]
Home Equity Risk May Escalate in the Next Few Years
Over the next several years a significant volume of home equity products will reach the end of their draw periods. When these products were originated, most of the contracts required that at the end of the draw period the outstanding balance would require a full amortization over a pre-determined period of time. Generally, the term of the home equity contract including both the draw period and full amortization is 30 years although numerous other types of structures are prevalent including those with a draw period and a balloon payment. The end-of-draw volumes significantly increase beginning in 2014 (see figure 19). Approximately 58 percent of all HELOC balances are due to start amortizing between 2014 and 2017. Home equity borrowers face three potential issues: (1) risk from rising interest rates because most HELOCs are adjustable rate and interest rates have been very low (see figure 20); (2) payment shock because loans will move from an interest only period to fully amortizing; and (3) refinancing issues because collateral values have declined significantly since these loans were originated.
http://www.occ.gov/publications/publications-by-type/other-publications-reports/semiannual-risk-perspective/semiannual-risk-perspective-spring-2012.pdf[less]
Response by Riversider
over 13 years ago
Posts: 13572
Member since: Apr 2009
1)Ending Fannie & Freddie makes sense, as it removes the incentive to have industry lobby to make the old GSE'S dumping grounds.
2)Assuming the securitization market comes back add a requirement that Moody's , S&P, Fitch be required to audit loans to make sure they are as advertised.
3) Hold mortgage brokers to a "know your customer rule" requiring them to make reccomendations for loans commensurate with the stated risk profile of the borrower, similar to what happens when John & Jane Doe open up a brokerage account at Merrill Lynch
4) Require mortgage insurers treat the business like real insurers by forcing them to reserve against losses and forbidding them from walking after the loan goes south. The time to make sure the loan was properly underwritten is not five years after the fact
5) Require Full doc loans, even if the loan is granted based on other than full doc criteria. No hiding of income or lying about it
6) End the preferential capital requirements the gov't places on mortgage debt over other types of debt
7) End the mortgage deduction
Ignored comment.
Unhide
Response by str33teasier
over 13 years ago
Posts: 374
Member since: Feb 2010
RS,
Agree w/all except 2 and 7. They should "destroy" the securitization machine, period! Without a conduit, there is no need to feed the machine with mortgages. Without this need, there is no incentives to write up any and all mortgages, i.e., if you breath, you get a loan. Like today, lending standard automagically tightens. No demand for mortgages to feed the machine, no need to fire up the "robo-signing!"
End the mortgage deduction for 2nd homes and only allow mortgage deduction on 1st homes and fixed-rate mortgages. By "definition" the various flavors of ARMS already is reducing the owner's burden of the monthly payment, why is the owner getting an extra "kick" for interest deduction ? ARMs are favorite of the "speculators" Home owners, for the most part, takes out fixed-rate mortgages, and especially in today's environment where the differential between front and long-end of the curve is not huge, it makes even more sense than an ARM.
Ignored comment.
Unhide
Response by Riversider
over 13 years ago
Posts: 13572
Member since: Apr 2009
str33teasier,
If one properly there's nothing wrong with securitization.
Ignored comment.
Unhide
Response by str33teasier
over 13 years ago
Posts: 374
Member since: Feb 2010
> If one properly there's nothing wrong with securitization.
securitization, the mechanism, by itself is fine as you said and I completely agree. However, like a computer program, garbage-in (NINJA loans, Neg-ARMs, Op-ARMs, etc), garbage-out (current crisis) Therefore, best to just let it rot and die of naturally death. it will surely, like day follows night, come back when folks "rediscover" the beauty of pooling and tranching and credit risk.
Ignored comment.
Unhide
Response by str33teasier
over 13 years ago
Posts: 374
Member since: Feb 2010
> he doesn't have a clue what he's talking about. That's why,
I think u nailed it brooks2
Ignored comment.
Unhide
Response by Brooks2
over 13 years ago
Posts: 2970
Member since: Aug 2011
Home Sales Held Hostage by Junior Lien Holders: Mortgages
Homeowners are “the ones being stubborn. They’re the ones who got their money and bought their boat, and now they want their boat for free.
By Prashant Gopal and John Gittelsohn - Jul 23, 2012 12:00 AM ET .Facebook Share LinkedIn Google +1 3 Comments
Tom Axon’s mortgage-collection firm gets about 25 calls a day from delinquent homeowners’ brokers seeking approval to sell their houses for a loss and avoid foreclosure. We’ll help, his staff tells them, as long as we get paid enough.
Axon, working with co-investors, buys distressed U.S. home- equity loans and other junior real estate liens, often for pennies on the dollar. Investors like Axon have to be dealt with whenever a home is sold in a short sale, a transaction in which the lenders agree to accept less than what’s owed on the property.
Enlarge image
Home Sales in U.S. Hostage to Holders of Junior Liens Jacob Kepler/Bloomberg
Banks, facing an onslaught of pending foreclosures, are turning to short sales because their losses are about 15 percent lower than on repossessions, which can take years to complete while taxes along with legal, maintenance and other costs accumulate, according to Moody’s Investors Service Inc. in New York.
Banks, facing an onslaught of pending foreclosures, are turning to short sales because their losses are about 15 percent lower than on repossessions, which can take years to complete while taxes along with legal, maintenance and other costs accumulate, according to Moody’s Investors Service Inc. in New York. Photographer: Jacob Kepler/Bloomberg
.“The short-sale brokers know us -- they know we’re not cupcakes,” Axon, 60, chairman of Jersey City, New Jersey-based mortgage-servicer Franklin Credit Management Corp., said in an interview. “At the end of the day, my friend, you signed a contract. You owe money and we’re willing to reach an accommodation that is commensurate with your ability to pay.”
Tough bargaining by second-lien holders is delaying deals and killing some short sales, even as banks embrace the practice to avoid costly foreclosures and help clear the market of homes that are worth less than the loans on them, said Vicki Been, a New York University law professor who has studied mortgages.
“It’s an opportunity for the second-lien holder to charge a price for their cooperation, because it’s needed for a short sale,” Been, a director at NYU’s Furman Center for Real Estate & Urban Policy, said in a telephone interview. “If they’re too greedy, it may squelch the whole deal.”
Roadblocks involving second liens are standing in the way of more short sales, which reached the highest number in three years in the first quarter -- 133,192 total transactions -- said Daren Blomquist, vice president at RealtyTrac Inc., a real estate information service in Irvine, California.
Second Mortgages
While about 39 percent of homes that have entered the foreclosure process have more than one lien, just 4.2 percent of short sales -- 5,658 transactions -- completed in the first quarter were on homes with second mortgages, according to an analysis RealtyTrac performed for Bloomberg.
“It appears that short sales with multiple liens aren’t happening as frequently and are taking longer to complete,” Blomquist said in a telephone interview. Short sales that fail tend to end up as foreclosures instead, he said
Risks associated with home-equity loans “may escalate” as borrowers face rising obligations to pay down principal on lines of credit, according to a July 5 report by the Office of the Comptroller of the Currency. Borrowers, who were allowed to make nominal or interest-only payments on the credit lines for as long as 10 years, will be obligated to pay down $15 billion in principal in 2013, $29 billion in 2014 and $53 billion in 2015, according to the report.
We are making our decisions based on characteristics of the borrower,” he said. Homeowners are “the ones being stubborn. They’re the ones who got their money and bought their boat, and now they want their boat for free. The fact is we’re willing to discount the obligation, get this behind them, and have them fulfill their obligations. If everybody gave everybody what they got for free, we wouldn’t have a banking system.”
Ignored comment.
Unhide
Response by Truth
over 13 years ago
Posts: 5641
Member since: Dec 2009
Riversider: that DR. Doom guy is forcasting the U.S. is going over a cliff.
I just saw it on Yahoo but didn't read the article.
I'm waiting for you to post it and break it down for me. Gently, please.
Ignored comment.
Unhide
Response by Riversider
over 13 years ago
Posts: 13572
Member since: Apr 2009
Sell everything and load up on Guns & Spaghettios!
But seriously,,.
He's arguing that stock market is not based in reality with growth slowing.
Ignored comment.
Unhide
Response by Truth
over 13 years ago
Posts: 5641
Member since: Dec 2009
That's the Dr.Doom prognosis.
and he predicts that the U.S.A. economy is going over a cliff.
'/%3e%3c/g%3e%3c/svg%3e)
1)Ending Fannie & Freddie makes sense, as it removes the incentive to have industry lobby to make the old GSE'S dumping grounds.
2)Assuming the securitization market comes back add a requirement that Moody's , S&P, Fitch be required to audit loans to make sure they are as advertised.
3) Hold mortgage brokers to a "know your customer rule" requiring them to make reccomendations for loans commensurate with the stated risk profile of the borrower, similar to what happens when John & Jane Doe open up a brokerage account at Merrill Lynch
4) Require mortgage insurers treat the business like real insurers by forcing them to reserve against losses and forbidding them from walking after the loan goes south. The time to make sure the loan was properly underwritten is not five years after the fact
5) Require Full doc loans, even if the loan is granted based on other than full doc criteria. No hiding of income or lying about it
6) End the preferential capital requirements the gov't places on mortgage debt over other types of debt
7) End the mortgage deduction
RS,
Agree w/all except 2 and 7. They should "destroy" the securitization machine, period! Without a conduit, there is no need to feed the machine with mortgages. Without this need, there is no incentives to write up any and all mortgages, i.e., if you breath, you get a loan. Like today, lending standard automagically tightens. No demand for mortgages to feed the machine, no need to fire up the "robo-signing!"
End the mortgage deduction for 2nd homes and only allow mortgage deduction on 1st homes and fixed-rate mortgages. By "definition" the various flavors of ARMS already is reducing the owner's burden of the monthly payment, why is the owner getting an extra "kick" for interest deduction ? ARMs are favorite of the "speculators" Home owners, for the most part, takes out fixed-rate mortgages, and especially in today's environment where the differential between front and long-end of the curve is not huge, it makes even more sense than an ARM.
str33teasier,
If one properly there's nothing wrong with securitization.
> If one properly there's nothing wrong with securitization.
securitization, the mechanism, by itself is fine as you said and I completely agree. However, like a computer program, garbage-in (NINJA loans, Neg-ARMs, Op-ARMs, etc), garbage-out (current crisis) Therefore, best to just let it rot and die of naturally death. it will surely, like day follows night, come back when folks "rediscover" the beauty of pooling and tranching and credit risk.
> he doesn't have a clue what he's talking about. That's why,
I think u nailed it brooks2
Home Sales Held Hostage by Junior Lien Holders: Mortgages
Homeowners are “the ones being stubborn. They’re the ones who got their money and bought their boat, and now they want their boat for free.
http://www.bloomberg.com/news/2012-07-23/home-sales-held-hostage-by-junior-lien-holders-mortgages.html
By Prashant Gopal and John Gittelsohn - Jul 23, 2012 12:00 AM ET .Facebook Share LinkedIn Google +1 3 Comments
Tom Axon’s mortgage-collection firm gets about 25 calls a day from delinquent homeowners’ brokers seeking approval to sell their houses for a loss and avoid foreclosure. We’ll help, his staff tells them, as long as we get paid enough.
Axon, working with co-investors, buys distressed U.S. home- equity loans and other junior real estate liens, often for pennies on the dollar. Investors like Axon have to be dealt with whenever a home is sold in a short sale, a transaction in which the lenders agree to accept less than what’s owed on the property.
Enlarge image
Home Sales in U.S. Hostage to Holders of Junior Liens Jacob Kepler/Bloomberg
Banks, facing an onslaught of pending foreclosures, are turning to short sales because their losses are about 15 percent lower than on repossessions, which can take years to complete while taxes along with legal, maintenance and other costs accumulate, according to Moody’s Investors Service Inc. in New York.
Banks, facing an onslaught of pending foreclosures, are turning to short sales because their losses are about 15 percent lower than on repossessions, which can take years to complete while taxes along with legal, maintenance and other costs accumulate, according to Moody’s Investors Service Inc. in New York. Photographer: Jacob Kepler/Bloomberg
.“The short-sale brokers know us -- they know we’re not cupcakes,” Axon, 60, chairman of Jersey City, New Jersey-based mortgage-servicer Franklin Credit Management Corp., said in an interview. “At the end of the day, my friend, you signed a contract. You owe money and we’re willing to reach an accommodation that is commensurate with your ability to pay.”
Tough bargaining by second-lien holders is delaying deals and killing some short sales, even as banks embrace the practice to avoid costly foreclosures and help clear the market of homes that are worth less than the loans on them, said Vicki Been, a New York University law professor who has studied mortgages.
“It’s an opportunity for the second-lien holder to charge a price for their cooperation, because it’s needed for a short sale,” Been, a director at NYU’s Furman Center for Real Estate & Urban Policy, said in a telephone interview. “If they’re too greedy, it may squelch the whole deal.”
Roadblocks involving second liens are standing in the way of more short sales, which reached the highest number in three years in the first quarter -- 133,192 total transactions -- said Daren Blomquist, vice president at RealtyTrac Inc., a real estate information service in Irvine, California.
Second Mortgages
While about 39 percent of homes that have entered the foreclosure process have more than one lien, just 4.2 percent of short sales -- 5,658 transactions -- completed in the first quarter were on homes with second mortgages, according to an analysis RealtyTrac performed for Bloomberg.
“It appears that short sales with multiple liens aren’t happening as frequently and are taking longer to complete,” Blomquist said in a telephone interview. Short sales that fail tend to end up as foreclosures instead, he said
Risks associated with home-equity loans “may escalate” as borrowers face rising obligations to pay down principal on lines of credit, according to a July 5 report by the Office of the Comptroller of the Currency. Borrowers, who were allowed to make nominal or interest-only payments on the credit lines for as long as 10 years, will be obligated to pay down $15 billion in principal in 2013, $29 billion in 2014 and $53 billion in 2015, according to the report.
We are making our decisions based on characteristics of the borrower,” he said. Homeowners are “the ones being stubborn. They’re the ones who got their money and bought their boat, and now they want their boat for free. The fact is we’re willing to discount the obligation, get this behind them, and have them fulfill their obligations. If everybody gave everybody what they got for free, we wouldn’t have a banking system.”
Riversider: that DR. Doom guy is forcasting the U.S. is going over a cliff.
I just saw it on Yahoo but didn't read the article.
I'm waiting for you to post it and break it down for me. Gently, please.
Sell everything and load up on Guns & Spaghettios!
But seriously,,.
He's arguing that stock market is not based in reality with growth slowing.
That's the Dr.Doom prognosis.
and he predicts that the U.S.A. economy is going over a cliff.
Thank you, Riversider
In slow motion of course...
dr. dooooooooooooommmmmmmmmmmmm.....
http://www.cnbc.com/id/44481286/Dow_Could_Crash_to_3_000_in_2013_Author
watch out, Riversider gonna become next Holmes
Not funny, caonima. Let's stick to the cream cheese.
eeew
brooks2, u r scaring natives ... LOL