-Caveat Lector-
Begin forwarded message:
From: [EMAIL PROTECTED]
Date: April 17, 2007 1:00:32 PM PDT
To: [EMAIL PROTECTED]
Cc: [EMAIL PROTECTED], [EMAIL PROTECTED], [EMAIL PROTECTED]
Subject: Slo-Mo Bursting of Housing Bubble / Congress Worried /
Supreme Court Takes Sides
{NORTHERN CALIFORNIA} BAY AREA HOME DEFAULTS
WORST IN 10 YEARS; NUMBER OF OWNERS WARNED FOR FALLING BEHIND ON
PAYMENTS SOARS
By Sue McAllister
San Jose Mercury News, 04/17/2007 01:31:43 AM PDT
http://www.mercurynews.com/news/ci_5684801
The number of Bay Area homeowners who failed to pay their mortgages
on time more than doubled in the first quarter compared with the
same time last year, as home values flattened and fewer homeowners
could sell or refinance to escape mortgages they can't afford.
But mortgage defaults are not yet poised to deflate home prices, as
is the case in some other parts of the state, a real estate
information firm reported Monday. Statewide, the number of default
notices sent to homeowners hit its highest level in almost 10 years.
In the nine Bay Area counties, 6,730 homeowners received "notices
of default" from their lenders in the January-to-March period,
according to DataQuick Information Systems. That's 160 percent more
than during the same time last year. But it is slightly less than
the peak level, which was reached in first quarter 1996, when 6,830
owners received such notices.
And when would the numbers indicate that the Bay Area is in trouble?
"If the economy weakens or there are labor market problems, then
look at this to be a disconcerting number as it's rising," said
Mark Schniepp, director of the California Economic Forecast, in
Goleta.
The other risk factor is whether more and more borrowers who
qualified for loans with subprime credit will default. "We don't
know to what extent the subprime problem is really going to blow
up," he said. "We don't think the economy is going to hell in a
hand basket, so that's going to help save us."
DataQuick analyst John Karevoll also said the rising numbers are
"not a factor yet" in tugging down overall Bay Area home prices,
though prices in neighborhoods with numerous foreclosures may be
affected. "Nothing like it is, and will continue to be, say, out in
the Central Valley."
A total of 11,054 homeowners in the 16-county Central Valley region
- spanning from Kern to Yuba counties - received notices of default
last quarter, up 166 percent from a year earlier.
The statewide rise in default notices is "the result of flat
appreciation, slow sales, and post-teaser-rate mortgage resets,"
the DataQuick report said. Some borrowers are finding themselves
unable to afford their monthly payments once their initial, low
interest rate begins to adjust upward.
Lenders filed 46,760 notices of default statewide last quarter, up
23 percent from the previous quarter and up 148 percent from a year
earlier. Last quarter's total was the highest since 47,912 such
notices were filed in the second quarter of 1997.
The notices are the first step in the foreclosure process and are
typically sent to homeowners a few months after they stop making
payments. About 40 percent of those who received default notices
last year in the Bay Area were foreclosed upon. The previous year,
only about 8 percent were foreclosed upon.
Defaults and foreclosures were at record lows a couple of years ago
largely because when prices were rising, most homeowners who found
themselves unable to keep up with their mortgage payments could
sell their homes for more than they owed on their loans, pay off
their lenders, and avoid the foreclosure.
But now that home values have flattened in most places and fallen
in some, it's more difficult to do that - especially for owners who
bought their homes fairly recently and have experienced scant
equity gains.
Homeowners are most likely to go into default in the first year to
18 months after purchasing their homes. Most of the loans that
defaulted in first quarter 2007 were originated between April 2005
and May 2006, Karevoll said.
In Santa Clara County, 1,058 homeowners received default notices in
the first quarter, slightly more than double the 527 who got them
in first quarter 2006. Default activity peaked in the county in the
third quarter of 1992, when 1,510 homeowners received notices from
their lenders.
Karevoll said the level of defaults and foreclosures in the Bay
Area is still too low to be a factor in driving down housing prices
regionwide. In the Central Valley and in Southern California's
Inland Empire, however, there are enough foreclosures that any sign
of recession could pose a big problem for housing prices there, he
said.
"Santa Clara is in very good shape. It's got about half the problem
as in the state," he said. "It's a problem if you're the person
involved - you know, that's terrible. But as a market problem, a
problem that will start to put downward pressure on prices, we're
nowhere near that level in the Bay Area."
On a loan-by-loan basis, mortgages statewide were least likely to
go into default in Marin, San Francisco, San Mateo and Santa Clara
counties, the DataQuick data showed.
In Contra Costa County, however, defaults rose to a record 1,969 in
the quarter, up 226 percent from a year earlier. Sacramento and San
Diego also hit new quarterly records, at 3,234 and 3,931 defaulting
homeowners, respectively.
The counties in which loans were most likely to be in default were
Sacramento, Riverside and San Joaquin counties.
Homeowners who received default notices were a median five months
behind in their payments when the lender began the foreclosure. The
borrowers were behind by a median $10,784 on a median mortgage of
$331,200.
Separately on Monday, Foreclosures.com, a company based near
Sacramento that teaches clients how to buy properties in
foreclosure, said that 253,803 notices of default and notices of
pending foreclosure auction filings were sent to homeowners
nationwide, up 23 percent from the final quarter of 2006.
--------------
MSNBC.com
Supreme Court steps into US subprime crisis
By Patti Waldmeir in Washington
Financial Times, April 17, 2007
The US Supreme Court on Tuesday stepped into the subprime lending
crisis in America with a potentially far-reaching ruling that
limits the power of individual states to regulate mortgage lending.
The 5-3 ruling that banks regulated by the federal Office of the
Comptroller of the Currency have a broad shield from additional
state regulation could have a big impact on the ability of states
to act independently on predatory lending, legal experts said on
Tuesday.
Several influential Congressman are trying to craft a national
legislative solution to the burgeoning crisis in subprime mortgage
lending, the sector of the industry catering to borrowers with
patchy credit histories.
Many consumer advocates had hoped that individual states would be
able to step in more quickly than federal legislators or
regulators, however.
"This is really disappointing news," said Allen Fishbein, director
of housing for the Consumer Federation of America, who has
testified before Congress on the subprime crisis.
"States will be reluctant to act in the absence of very clear
federal direction - but up to now federal regulators have acted
very cautiously. This could work to the detriment of consumers."
The case, which tested whether Michigan could regulate the mortgage
lending subsidiaries of Wachovia, a national bank, split the court
in an unusual way, with its most liberal member, John Paul Stevens,
joining conservatives Chief Justice John Roberts and Antonin Scalia
to dissent in defence of the right of states to regulate in this area.
Eliot Spitzer, then attorney general of New York, had argued that
filed a brief in the case arguing that states cannot protect their
citizens from predatory mortgage practices if they are pre-empted
by federal regulators. "States are more familiar with local
conditions and practices than is the federal government and can
more quickly recognise and respond to new predatory practices as
they arise," he wrote.
The national banks and the business community usually favour
federal pre-emption of state regulation, because it is easier and
cheaper to comply with one set of national rules than scores of
different state regimes.
© The Financial Times Ltd 2007. "FT" and "Financial Times" are
trademarks of the Financial Times.Copyright The Financial Times
Ltd. All rights reserved.
URL: http://www.msnbc.msn.com/id/18157927/
-------------------
House, Senate Taking Different Approaches to Fannie, Freddie Reform
By ALAN ZIBEL (AP Business Writer)
http://accounting.smartpros.com/x57278.xml
April 16, 2007 (Associated Press) — WASHINGTON - Amid a worsening
housing slump, Senate and House lawmakers are pushing different
approaches to strengthen oversight of the two government-backed
mortgage giants, Fannie Mae and Freddie Mac.
The housing downturn and accounting scandals at the publicly traded
companies in recent years have renewed demands that lawmakers and
regulators rein in Fannie Mae and Freddie Mac, which hold a
combined $1.5 trillion worth of mortgages.
A key Democratic-led House committee two weeks ago approved a bill
requiring the two biggest buyers of home mortgages to finance a
five-year affordable housing fund, estimated to provide $300
million to $500 million annually.
In the first year, the money would go to states hardest hit by the
Gulf Coast hurricanes in 2005 and would be divided among all 50
states in subsequent years. Lawmakers want to direct money
initially to Louisiana and Mississippi because the need for
affordable housing there is still urgent, said Steve Adamske,
spokesman for Rep. Barney Frank, D-Mass., the House Financial
Services Committee's chairman.
Senate Republicans late this week introduced legislation that does
not require creation of a fund or initially focus on Hurricane
Katrina victims, but requires the companies' portfolios to focus on
affordable housing "to the maximum extent possible."
The bill by Republican Sens. Chuck Hagel of Nebraska, John Sununu
of New Hampshire, Elizabeth Dole of North Carolina and Mel Martinez
of Florida is similar to bills the Senate Banking Committee has
passed twice in the past, when the GOP was in charge.
For now, lawmakers are downplaying the differences. Marvin Fast, a
spokesman for Sen. Christopher Dodd, D-Conn., chairman of the
Senate Banking Committee, said in an e-mail Friday that there is
broad agreement on the need for a "stronger, more independent
regulator" to oversee Fannie and Freddie.
Dodd believes reform is a priority, but has not given a timetable
for introducing a bill, Fast said.
A spokeswoman for Freddie Mac declined to comment on specific
legislation. A spokesman for Fannie Mae declined to comment.
Federal Reserve Chairman Ben Bernanke last month suggested limiting
Fannie Mae and Freddie Mac's holdings to guard against any danger
their debt poses to the health of the overall economy.
In a statement, Dole, a sponsor of the GOP bill in the Senate,
said, "Fannie Mae and Freddie Mac must be run properly and with
adequate transparency and oversight ... We will not tolerate an
intentionally weak regulator, especially when the stakes are so
high for American taxpayers, the housing sector and the economy as
a whole."
The Office of Federal Housing Enterprise Oversight Tuesday said in
a report that Fannie Mae, the biggest buyers of mortgages, and No.
2 rival Freddie Mac "remain a significant supervisory concern"
despite progress in fixing financial control problems that resulted
in multibillion-dollar earnings restatements the past few years.
Washington-based Fannie Mae in December restated earnings for 2001
through mid-2004 that erased $6.3 billion in profit. Freddie Mac
disclosed in mid-2003 that it had misstated earnings by at least $5
billion for 2000 through 2002. The agency paid a then-record $125
million fine in a civil settlement with regulators.
Various efforts over the past several years to tighten the
government's reins on Fannie Mae and Freddie Mac have languished.
Shares of McLean, Va.-based Freddie Mac closed down 1 cent to
$60.01 on the New York Stock Exchange and fell another penny in
aftermarket trading. Fannie Mae ended the day 3 cents lower to
$53.94, also on the NYSE.
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