DOJ and CountryWide/BOA Reach $335 Million Settlement of Minority Loan Steering Case.

DOJ press release is HERE. 

Complaint is HERE; Proposed Consent Order is HERE.

Originally created and posted on the Oregon Housing Blog.

Arkansas Study Says Borrower Overreaching Bigger Factor than Predatory Lending as Cause for Foreclosure Crisis.

Likely to draw a strong reaction, the study from the Department of Finance, Sam M. Walton College of Business, University of Arkansas is HERE.

Study correlates RealtyTrac default data with  Acxiom’s PersonicX classification scheme, which segments U.S. households into 21 Life Stage Groups.

Originally created and posted on the Oregon Housing Blog.

Number Skills Linked to Subprime Defaults?

[Study focuses on borrowers not those who securitized the loans , advance math skills of those folks clearly added to problems].

Courtesy of BeSpacific:

Financial Literacy and Subprime Mortgage Delinquency: Evidence from a Survey Matched to Administrative Data Federal Reserve Bank of Atlanta - Financial Literacy and Subprime Mortgage Delinquency: Evidence from a Survey Matched to Administrative Data, Kristopher Gerardi, Lorenz Goette, and Stephan Meier, Working Paper 2010-10, April 2010

"The exact cause of the massive defaults and foreclosures in the U.S. subprime mortgage market is still unclear. This paper investigates whether a particular aspect of borrowers' financial literacy—their numerical ability—may have played a role. We measure several aspects of financial literacy and cognitive ability in a survey of subprime mortgage borrowers who took out mortgages in 2006 or 2007 and match these measures to objective data on mortgage characteristics and repayment performance. We find a large and statistically significant negative correlation between numerical ability and various measures of delinquency and default. Foreclosure starts are approximately two-thirds lower in the group with the highest measured level of numerical ability compared with the group with the lowest measured level. The result is robust to controlling for a broad set of sociodemographic variables and not driven by other aspects of cognitive ability or the characteristics of the mortgage contracts. Our results raise the possibility that limitations in certain aspects of financial literacy played an important role in the subprime mortgage crisis."

Originally created and posted on the Oregon Housing Blog.

Memphis Lawsuit Alleges Wells Fargo Steered Minorities to Subprime Loans.

Housing Wire has story HERE reports on Memphis city and county government lawsuit against Wells Fargo, alleging that minorities were steered into sub prime loans. (Story calls this "reverse redlining"). Lawsuit alleges that minorities were steered into these high profit, high cost loans even though borrowers may have qualified for FHA or prime loans.

Story also includes references to other studies on minority home loan discrimination.

Federal Reserve Bank/Columbia Business school study HERE says (with some caveats) that for adjustable rate loans there was no evidence of adverse pricing for minorities and in fact pricing may have been better for minorities. Center for American Progress study HERE highlights minority/white disparities in receipt of high cost loans at different banks.

Originally created and posted on the Oregon Housing Blog.

New GAO Report on Nonprime Loan Performance.

Courtesy of highly recommended BeSpacific.

(Report link below will open to page 14 table showing Portland non prime loans with negative equity in Portland metro was one of lowest , at 12.7%; Seattle non prime negative equity was 25%, Los Ageles 63%, Minneapolis 80%, and Las Vegas 94%.

Several OREGON tables are also found within the report)

Loan Performance and Negative Home Equity in the Nonprime Mortgage Market, GAO-10-146R, December 16, 2009: "This report (1) provides information on the performance of these nonprime loans as of June 30, 2009, and describes forecasts made by others of future loan performance; and (2) examines the extent of negative home equity among nonprime borrowers in selected metropolitan areas and nationwide. In addition, enclosure VI describes the preliminary results of our analysis of the demographic characteristics of nonprime borrowers—including race and ethnicity—whose loans originated in 2005.2 We identified these characteristics by merging loan-level records from two data sources. This report also provides supplemental information on the performance of nonprime mortgages by annual loan cohort, product type, Census division, state, and congressional district. This supplemental information is presented in enclosures I through IV." Originally created and posted on the Oregon Housing Blog.

Top 25 Subprime Lenders and Their Bankers.

Interesting story HERE , from Center for Public Integrity. Findings:

• At least 21 of the top 25 subprime lenders were financed by banks that received bailout money — through direct ownership, credit agreements, or huge purchases of loans for securitization.
• Nine of the top 10 lenders were based in California, including all of the top 5 — Countrywide Financial Corp., Ameriquest Mortgage Co., New Century Financial Corp., First Franklin Corp. and, Long Beach Mortgage Co.
• Twenty of the top 25 subprime lenders have closed, stopped lending, or been sold to avoid bankruptcy. Most were non-bank lenders.
• Eleven of the lenders on the list, including four recipients of bank bailout funds, have made payments to settle claims of widespread lending abuses

More about this organization HERE.
Appears to be part of a series, titled Who's Behind the Economic Meltdown, HERE.

Oregon 4th Qtr 2008 Foreclosures: Starts are Up 111% and Seriously Delinquent Loans Up 140% from a Year Ago.

I have updated the Excel Current Oregon Foreclosure Tool in the right pane (and HERE) to include 4th quarter MBA data. (My prior 3rd quarter post, with explanation of what the tool does is HERE). Key feature of the tool is ability to compare for loans and problem loan rates between loan categories (all loans, prime loans, and subprime loans) and over time.

Four Items to Note

1. For all loans, foreclosure starts increased by 111% from 26 a DAY to 55 a DAY from 4th quarter 2007 to 2008. Prime loan foreclosure starts increased even higher, by 182% (see item 3 below).
   
2. Seriously delinquent loans (foreclosure inventory + 90 day delinquencies) increased by 140% from 8,578 to 20,331. Prime loan seriously delinquent loans grew even faster at 214% (see item 3 below).
   
3. Subprime loans continue to have higher rates of problems than prime loans, but the rate of increase in PRIME problem loans is much higher than for subprime loans. Suprime loans account for 9% of all loans but 40%+ of problem loans; prime loan problem loans however grew by 180%-240% in several problem loan categories.(The PDF HERE provide the data to demonstrate this conclusion).
4. Total loans serviced as reported by MBA declined by 8,454 loans. As the all loan total includes all loan categories, either reporting changes were made, loans switched to servicers not reporting in the MBA survey, OR we had 8,454 fewer homeowners with loans than a the same quarter a year ago. (or some mix of all three reasons). The national survey also saw a decrease of 592,000 loans but no explanation was offered for the change. This kind of change in loans surveyed may be a regular occurrence that slips public attention; I will look at future reports and call out changes for Oregon in future quarterly updates.

OHCS Single Family Bond Program: 1. Only FHA and RD Credit Enhancements Permitted; 2.Submitting Data to Moody's for Bond Rating Review.

I attended the State Housing Council meeting today (The agenda for meeting is HERE).

During the meeting staff announced three significant developments related to the single family Oregon bond program.

1. Future loans must have either FHA or Rural Development mortgage insurance--private mortgage insurance will no longer be permitted.
2. OHCS staff are assembling information to submit to Moody's as part of a credit rating review process. Staff indicated it is possible that the rating for agency bonds could be downgraded.
(One of my posts from last week HERE, has more background about the problems with HFA's and private mortgage insurance].
3. The outlines of a subprime refinance mortgage program are in place. A couple of key points from my notes. A. Loans must be either FHA or RD insured, and B. loans will be limited to borrowers with incomes below 80% median family income. The program will be available on a pilot basis but ONLY when and IF the bond market improves.

New Analysis of Oregon Owner Occupied Subprime and ALT A ARM Loan Data, Including Upcoming Initial Resets.

Attached as a PDF file HERE is my new analysis of Subprime and ALT A Owner Occupied ARM Loans as of December 2008, including projected future initial resets.(Data I used was from the New York Federal Reserve; look at the notes at the bottom of the data table for additional information about my data methods).

I think you will find that this is the most comprehensive analysis of Oregon subprime and ALT A loans available, anyplace.

The analysis has a very specific focus.
1. Owner Occupied loans that are
2. Either Subprime or ALT A AND
3. That are ARMS.

The first two pages of the analysis summarize the monthly number of subprime and ALT A loans for different months during 2008 and initial resets over several different time horizons. (Data for some of these months is missing from the Federal Reserve website, and therefore missing from my tables).

Page 3 is a graph showing owner occupied ARM initial resets for three different time horizons, with breakouts for both subprime and ALT A owner occupied ARM loans.

Pages 4-5 provide a side by side comparison of Oregon December 2008 ALT A and ARM loan data for 57 different data elements. Data fields include FICO scores, initial and current interest and a lot more.

Some observations from the tables and graph:

1. Very few (819) of ALT A loans will reach their initial reset during the 12 months from December 2008, but a wave of ALT A loans will reset in subsequent periods (6,400 out of 11,500).
2. In contrast there will be more than 10,000 suprime ARM resets in the 12 months from Dec. 2008.
   
3. As a result of past and 2009 initial resets for subprime ARM loans their will be very few of these loans remaining (4,000 out of 36,000) that will have NOT reached their initial reset by December 2009.
   
4. The number of subprime owner occupied ARM loans has declined by 24%/11,275 from Jan-December 2008. It is likely these loans either were refinanced or they went into foreclosure and/or REO.
5. The number of ALT A owner occupied ARM loans has declined by much less 13%/1,780 from Feb-December 2008.This likely reflects that initial resets for these borrowers come later than for subprime owner occupied ARM borrowers.
   

Quick CY 2008 FHA Oregon Snapshot: 14,450+ FHA Home Purchase and Conventional to FHA Refinance Loans

This one page draft HERE includes two graphs showing a monthly CY 2008 summary of Oregon FHA home purchase and Conventional to FHA refinance loans.

I will likely do a update to my FHA snapshot reports in a week or so , but in interim this draft provides a quick summary for these two loan types.

Private Activity Bond Committee Notes: Oregon Awash with Unused Bond Cap, No Program Yet for Subprime Refinance Bonds.

I attended the Friday January 23rd. meeting of the Oregon Private Activity Bond Committee in Salem. A new Chair was introduced,Kate Cooper Richardson from the State Treasurer's Office. One of the three PAB members, Jack Kenny, was not in attendance.

The purpose of the meeting was to approve carryover allocations of unused 2008 bond cap, including the $117 million in special housing bond cap made in the summer '08 federal housing legislation.

A summary of some of the bond allocation numbers: OHCS didn't use any of the $120 million in 2008 PAB cap that had been allocated to them, nor any of the $117+ million in the special summer federal housing legislation cap. They requested that they receive $250 million, plus the $117 Million, and they also received $19 million that would have been lost, so their total carryforward allocation was $387 million. HAP's $25 million request, which was approved, was for a scaled down version of their downtown service center.

A table I prepared with a summary of these calculations is HERE.

Note also that Oregon has $341 million in private activity bond cap for 2009. Adding that to the $412 million in 2008 cap carried forward, my calculations are that in 2009 there will be at LEAST $753 million in private activity bond cap available for use.

During the OHCS discussion, several items from my notes:

OHCS 2008 single family loan volume was 1,598 loans, for $281 million.

In 2009 OHCS expects that volume to drop significantly to 800 loans, $132 million for the year. OHCS expects to have $100 million in PAB MF bonds.

The total of $232 million for 2009 is $155 million below the 2008 carryforward allocation already made to OHCS, without any additional allocation from the currently unallocated $340 million for 2009).

Following the OHCS staff discussion with the PAB, I made a short presentation to the PAB about the need for Oregon to adopt a sub prime refinancing program as permitted by the summer federal housing legislation. My presentation is HERE.

In particular, I attempted to provide information about the number of subprime ARM borrowers in Oregon (36,000); the potential savings to individual families, $5,870 using current bond rates; and the ability to use existing high volume refinance loan programs like FHA mortgage insurance in conjunction with an Oregon bond refinance program; [There were 738 loans/$159 million conventional loans that refinanced into FHA loans in November alone; this is close to the total ANNUAL 800 loan volume projected for the Oregon bond program for all of 2009].

As part of that presentation I recommended a set aside of $50 million for such a program.

(Angela Martin, from Our Oregon testified in support of Oregon adoption of a sub prime mortgage refinancing program and I very much appreciated her support).

Follow up testimony from OHCS was:

1. That they had a program ready to go,
2. That the existing allocation for Single Family from the PAB did not require any suballocation.
   
3. But since the current SF bonds were issued prior to the August adoption of the federal legislation, they could not use existing bonds for such a program,
4. OHCS would have to issue new bonds before such a program could be put into place.
5. A difficult marketplace made the timing of a new issue uncertain, and it seemed likely that rates in the new issue would be higher than the current bond rate of 4.5%.

My first response was that there had been noticeable recent improvements in the municipal bond market. (PAB staff said that this was true of the GO bond market, but not so in the mortgage revenue bond market). I also noted that a blog post I had just done that morning indicated that Chair Barney Frank's view was that TARP II funds could be used to purchase HFA mortgage revenue bonds.

Following the additional OHCS testimony, the PAB chose to not make such a suballocation for subprime refinance loans.

Although I have some misgivings about the potential for shenanigans in the FHA loan program, I am pleased that FHA is providing one way of reducing loan payments for subprime ARM borrowers, and an opportunity for families to stay in their homes at a lower monthly cost.

While I am happy to see FHA step up, it saddens me that the State of Oregon has not yet done likewise, by providing a loan product that would not cost the state anything, and could offer an even lower cost loan alternative for families with subprime ARM loans. February 1st will mark 6 months since the effective date of the legislation and there is yet no program in place.

One additional item from the meeting: Dates for the PAB meetings have been listed as April 15 (ironic,no?), July 15th, and October 15th.

Updated Oregon Mortgage Bond Subprime ARM Refinance Savings Estimator Posted: Annual Savings Now $5,870 Per Family.

I have updated a previously posted estimate of the savings that a family would realize if Oregon begins a program to allow families with subprime ARM loans to refinance into an Oregon bond loan, as authorized by the summer 2008 federal housing legislation.

The update uses the current Oregon bond rate (4.5%), the November 2008 average subprime ARM rate for Oregon from Federal Reserve data (8.25%), and the November 2008 Oregon conventional to FHA average refinance loan rate (6.2%).

Using those rates, an Oregon family refinancing a $200,000 loan with an Oregon bond loan would save $5,870 annually compared to the average subprime ARM annual principal and interest payment. The same subprime refinancing using an FHA loan instead of the Oregon bond loan would save the family $3,331 a year.

Extrapolated to 1,000 families over a 30 year period, the savings would be $176.1 Million comparing the average ARM rate with the Oregon bond rate and $99.9 Million comparing the average ARM rate with the average FHA refinancing rate.

[In November 2008 in Oregon, 738 conventional mortgage loans were refinanced into FHA loans, these new lower rate loans totalled $159 million].

The PDF HERE shows these calculations AND includes alternative savings with the Oregon bond and FHA rates increased by 1/2% and 1%. comparing the average FHA refinance rate with the Oregon bond rate. Savings are shown on a monthly, annual, and 30 year basis.

The Excel workbook I created HERE was used to produce these updated estimates.

NY Times Story About Mortgage Crisis.

HERE.

Includes some of the political background within administration. FHA Commissioner Montgomerys reaction to defeat in Republic Senate of one FHA effort to serve as alternative to subprime:

"The White House pursued a narrower plan offered by Mr. Montgomery that would have allowed the F.H.A. to loosen standards so it could lure back subprime borrowers by insuring similar, but safer, loans. It passed the House but died in the Senate, where Republican senators feared that the agency would merely be mimicking the private sector’s risky practices — a view Mr. Rove said he shared.

Looking back at the episode, Mr. Montgomery broke down in tears. While he acknowledged that the bill did not get to the root of the problem, he said he would “go to my grave believing” that at least some homeowners might have been spared foreclosure.

How Much Can Oregon Families Save By Refinancing Out of a Subprime ARM Loan?

Typo Correction: Changed to read "Oregon has not adopted a bond refinancing program."

I have developed a new Excel workbook that illustrates potential savings for families that refinance from a current Oregon subprime ARM loan. Each worksheet shows an example of savings for one family and then for a select number of total families by month, year, and 30 year term of mortgage. IMPORTANT notes are included at the bottom of each worksheet.

There are two worksheets in the workbook:

• 1st compares savings using Oregon bond rate vs current average subprime ARM rate for Oregon.[Oregon currently has not adopted a bond refinance program using the special $117 million in housing bonds allocated to Oregon by the summer 20O8 federal housing legislation, but is considering adopting such a program].
  
• 2nd worksheet compares savings using current FHA Secure refinance rate for Oregon vs. current average subprime ARM rate for Oregon.

Using Current Interest Rate Differentials, Savings from Refinancing out of an Oregon Subprime ARM are Potentially Very Large :

• Savings using FHA Secure are $3,158 a year, $3.158 Million a year for 1,000 families
• Savings using Oregon Bond [if program was already available] would be $5,203 a year, $5.203 Million a year for 1,000 families.

[My earlier post with estimates of future Oregon subprime and ALT-A ARM loan resets is HERE.]

PDF of workbook with examples I used is HERE.
Excel workbook is HERE. I have not copy protected any cells, so you can change selections I made (I suggest you save the original someplace so you can get back to original if necessary; I.E.--if you screw it up!).

Additional notes:
1. I used actual average Oregon FHA Secure rates and Oregon Subprime average ARM interest rates as of October 2008.
2. I use the actual current Oregon bond rate as of today.
3. I do not play around with future ARM rates, just assume that current average subprime ARM rate would continue for life of loan.
4. Lead example in each spreadsheet uses the current interest rate difference. Each worksheet includes two other scenarios with rate differential reduced by 1/2% in each scenario

News Story: HUD Secretary Nominee Forsaw Subprime Loan Problems Early.

Short but interesting Politico story HERE.

New Monthly FHFA Report on Fannie and Freddie Loan Modification Activity.

Report is from the Federal Housing Finance Agency, formerly known as OFHEO, Office of Federal Housing Enterprise Oversight .

First report for August is HERE; contains only national level data. ( I guess they didn't yet get the "all politics is local " memo).

Former FHA Commissioner: Affordable Housing Goals NOT the Reason for GSE Subprime Problems and Failure.

Writing in the National Review, conservative John Weicher provides the details HERE:

"The GSEs began buying subprime mortgage-backed securities (MBS) heavily in 2002. Their purchases of sub-prime MBS doubled between 2002 and 2003, and doubled again in 2004 — from $38 billion to $81 billion to $176 billion. All this happened before the housing goals were changed in 2005.

After the new goals went into effect, their subprime MBS purchases actually declined. Their share of the subprime MBS market followed the same pattern: It went up before the goals were changed, and dropped afterward. The GSEs were buying half of all subprime MBS in 2003, and only 20 percent by 2006. Essentially, what happened is that the market for subprime MBS took off in the early years of the decade, and the GSEs went with the market for a few years, then began pulling back."

Ohio Revenue Bond Official Statement Signals Expected Use for Subprime ARM Refinancing.

A recent housing revenue bond offical statement (Series J) from Ohio signals the expected use of mortgage revenue bonds for refinancing of ARM/sub prime loans, as permitted by this summer's housing legislation and extra bond allocation to states.

I have posted the full official statement HERE. The relevant language is found on page 39:

"In April, 2007, OHFA began a program to assist homebuyers who do not qualify under the First-Time Homebuyer Program to refinance existing mortgages (the "Refinancing Program"). To date, OHFA has not financed the purchase of mortgage loans originated under the Refinancing Program with bonds issued on a parity with the Residential Mortgage Revenue Bonds issued under the Trust Indenture, but instead has financed the Refinancing Program from other sources. HERA recently enacted by Congress and signed by the President on July 30, 2008. HERA permits the use of proceeds of tax-exempt bonds, such as the Bonds, to finance the purchase of certain qualifying mortgage loans originated to refinance existing mortgages. OHFA expects to implement a program to enable it, as permitted by HERA, to finance the purchase of qualifying refinance mortgage loans under the Refinancing Program or other programs of OHFA with Residential Mortgage Revenue Bonds issued under the Trust Indenture. This program, if implemented, may apply to the use of the proceeds of the Bonds."

National FHA Refinancing Activity In Last 6 Months Tops $50 Billion.

I have posted an update to the U.S Current FHA Refinancing Report in the right pane of the blog; it includes state totals, as well as the U.S total. Highlights for the six months from April-Sept 2008:

1. All FHA Refinance Loans: More than 283,000 families refinanced using FHA mortgage insurance--FHA refinances were more than $50 Billion.
2. FHA Secure Refinance Loans: FHA Secure loans are refinances from conventional to FHA loans [Many of these were likely subprime ARM loans].

• More than 226,000 families refinanced using FHA Secure Loans; total loan volume was more than $41 Billion.
  
• Of those 226,000 loans less than 1% had delinquent borrowers (2,284 loans).
  
• FHA Secure loans represented 82% of all FHA refinances.
  

Salem Statesman Journal Story on Sub Prime, Including ARMS.

PDF of story from last week is HERE.