Wednesday, August 26, 2009

Misc: ARMs, Mortgage Fraud, End of Tax Credits, and more

by Calculated Risk on 8/26/2009 03:59:00 PM

From the NY Times: Adjustable Mortgages Loom as Threat to Housing Recovery
(ht Shnaps, Ann)

When Harvey Clavon took out an exotic mortgage to refinance his home in Santa Clarita, Calif., three years ago, he thought he knew what he was doing.

Mr. Clavon, 63, was planning to sell the home in a few years and retire to Palm Springs. So he got a loan called an option adjustable rate mortgage, or option ARM, which allowed him the option of paying less than the interest for the first five years.

On his annual salary of $100,000 as a television camera operator, he could afford the $2,200 initial mortgage payments. And he would sell the home before the mortgage reset.
...
Mr. Clavon made only minimum payments on his mortgage, his balance has risen to $680,000 from $618,000, on a house worth closer to $400,000.
What a surprise!

And the article also has a quote from the Shnapster's friend Ted Jadlos on Option ARMs!
“Everyone’s been focused on subprime, but we’re more concerned about this,” said Todd Jadlos, managing director of LPS Applied Analytics ... “By the time subprime defaults had increased 200 percent, in June and July of 2007, option ARMs had gone up 400 percent. People just didn’t notice because the overall numbers weren’t as high.”
And some more mortgage fraud news: Task Force Cracks Mortgage Fraud Case Involving 453 Homes
Ohio Attorney General Richard Cordray and Cuyahoga County Prosecutor Bill Mason today announced details of an 18-month investigation that led to indictments against 41 people and four companies. The defendants are alleged to have engaged in real estate transactions to purchase 453 homes with fraudulent loans totaling $44 million. ...

The scheme involved using straw buyers to purchase homes, falsely claiming home improvements were performed on houses in order to refinance them, and then selling houses to unqualified buyers with the assistance of real estate agents, mortgage brokers and title companies.

Lenders were tricked into believing that the buyers were making at least a 10% down payment when they were not, that the buyers had assets when they did not, and that the properties were worth more than they actually were. [Defendants] defrauded lenders through loan application fraud, down payment fraud and loan distribution fraud. The defendants siphoned off more than $31 million in profits from their criminal enterprise. Eventually, 358 of the homes fell into foreclosure.
Hey, almost 100 homes in this scheme are not in foreclosure!

As tax breaks expire, home sales decline ... from Reuters: California tax credit expires, home permits sink
Homebuilding permits filed in California in July fell significantly from June as a state tax credit for buyers of new homes expired ...

The tax credit offered earlier this year pulled homebuyers from the sidelines back into the state's beleaguered market for new homes but they have retreated since the incentive lapsed last month.

"Our homebuilders reported a significant drop in traffic last month, largely due to the state closing the window on the homebuyer tax credit," said Robert Rivinius, president and chief executive of the California Building Industry Association.

He noted the state government stopped taking applications for the $10,000 new-home credit at the beginning of July.

"Activity stopped as quickly as it started, which is bad news for housing and the broader economy," Rivinius said.
emphasis added
Just imagine what will happen when the $8K first-time home buyer tax credit expires.

And a preview for BFF: Sioux City Bank at Risk of Failing
Vantus Bank, based in Sioux City, is at risk of failing because of the recession and rising bad loans.

Federal regulators have told the bank, which has 13 locations in Iowa, that its plan to increase its capital was unacceptable. According to a filing with the U.S. Securities and Exchange Commission, it must be sold or liquidated by Sept. 30.