Wednesday, February 10, 2010

FHA Defaults Soar, HAMP Fails on Option-ARM Loans, and 1 in 5 Homes Are Underwater? Questions Abound!

It's mid February 2010 and the housing market finds us here and now:


Story #1:

FHA backed loan defaults have increased 34% year over year from 2009-2010. Mind you, the FHA does not actually originate real estate loans, it sells insurance. The FHA is a federally funded entity that simply pledges to make a home loan good if it goes bad for the banks holding the mortgage note.

From DSNews:

"The FHA currently backs about 30 percent of all new loans for home purchases and 20 percent of refinanced loans. Those figures represent an increase of nearly 1,000 percent since 2006, when private lenders began to pull back and the credit crunch set in."

"Foreclosures on loans guaranteed through FHA soared 41 percent in the fourth quarter from year-ago levels"


Story #2:

BofAML (aka Bank of America Merrill Lynch nowadays) found that Option-ARM loans don't fare so well under HAMP (Home Affordable Modification Program) and that the taxpayer funded bailout will do little to prevent the inevitable.

From Housingwire:

"Researchers found that, in general, collateral with higher delinquencies see higher modification rates. But despite the wave of option ARMs set to recast monthly payments over the next several years, these types of loans fall in “the least modifiable sector” under the Home Affordable Modification Program (HAMP) because of their failure to measure up to eligibility requirements and net present value (NPV) test requirements."


Story #3:

There's really not much to say about this story, except that mathematically if you take into account the dwelling on the left, the right, the front, and the rear of where you live (your dwelling included) -one of those deeds is held by an entity that owes more to the bank than the property would sell for on the open market today.

From Bloomberg:


"More than a fifth of U.S. homeowners owed more than their properties were worth in the fourth quarter as the number of houses and condominiums lost to foreclosure climbed to a record"

"Almost 29 percent of homes sold in the U.S. went for less than their sellers originally paid for them"

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Now for the fun part!


Question #1:

If the FHA hadn't increased their guarantees of mortgages by 1000% since 2006, and if the Federal Reserve hadn't purchased $1.2 trillion in MBS (mortgage backed securities) from March 2009 - present, what would 30 year mortgage rates be for buyers today? What would that new interest rate mean for Oregon's housing prices based upon a constant/fixed monthly payment?


Question #2:


How many Option-ARM / Alt-A loans were originated in Oregon from 2005-2007 in the heat of the housing bubble? What percentage of homes sold in Oregon during that time frame were using these types of mortgages? Which is more dangerous/risky with respect to monthly payment shock on Alt-A/Opt-ARM loans: The 5yr reset or the 5yr recast? (the interest rate or the LTV/NPV calculation)


Question #3:

Do you know someone underwater? A relative? A friend? A neighbor? What are they saying about it? The news from Bloomberg seems to point out that one of your immediate neighbors and/or you (1 out of 5) are underwater. Better yet, what are those folks actually doing about it?


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