by Calculated Risk on 10/02/2007 11:08:00 AM

From the NAR: Mortgage Problems Continue to Hamper Pending Home Sales

The Pending Home Sales Index*, a forward-looking indicator, fell 6.5 percent to a reading of 85.5 from an upwardly revised 91.4 in July, based on contracts signed in August. It was 21.5 percent below the August 2006 index of 108.9.

This follows the 12% decline in the index for July.

by Anonymous on 10/02/2007 11:06:00 AM

No longer stunned and surpised, we are now overwhelmed with ennui:

The September remittance reports revealed that conditions in the mortgage market are worsening, although the rate of credit performance dislocation is mostly slowing, according to a UBS report.

Delinquency rates in the buckets - 30, 60+, FC+REO - have increased, according to UBS's data. However, while the delinquency increases for FC+REO continued unabated, the rate of delinquency increases for all 30DQ and three out of four 60+DQ indices have eased. UBS reported a "somewhat surprising" 1.83% increase in FC+REO rates among ABX07-1 deals.

Meanwhile, ABX06-1 deals saw an increase of 1.43%, which UBS analysts credited to the impact of resets and reduction in pool factors. Cumulative losses jumped to 13 basis points from 10 basis points on all indices except ABX07-02.

The September data, with their increased delinquencies and foreclosures, do not come as a surprise, as the subprime market remains unstable.

"Our whole stance on this entire debacle right now is that it's so perfectly predictable that it's boring," said Michael Bykhovsky, CEO of Applied Financial Technology. "If we feed current [Home Price Indices] and projected HPIs into the model, the resulting delinquency output is very much consistent with what we are observing."

So, um, the models really work after all? Now that is boring.

by Anonymous on 10/02/2007 10:53:00 AM

Forgive me. I slept until nearly 8:00 am today, and then my PC got abducted by aliens. I am a drive-by victim of this "anti-virus software" scam foisted on me by software developers who will not allow me to take enough risk. You know.

Anyway, USA Today is always good for a laugh:

David Brannan, 44, of Monroe, N.C., is co-founder of a software company that's been in business since 1989. He and his wife have owned their home for 18 years and are in the process of buying a new, custom-built home. Brannan has an excellent credit score.
So he was stunned last week when CitiMortgage (C), which just a week earlier had said everything was in good shape, sent a letter saying his mortgage application had been rejected. It suggested he consider credit counseling.

Brannan called Citi, which told him his income for the past two years wasn't enough for the size of the loan. He says Citi refused to include profit distributions from his company that account for more than half his income. (CitiMortgage declined to discuss Brannan's application. But spokesman Mark Rodgers says the company will restructure or decline a preapproved loan if it can't sufficiently verify information from a borrower.)

Brannan belongs to a group that's become a kind of drive-by victim of the mortgage industry crisis: the millions of Americans who are self-employed.

Yes, those people who custom-build homes and don't have permanent financing lined up yet. We see a lot of that.

This part is nice, though:

McNamee says lenders that are still catering to the self-employed have been flooded with business, which means it might take longer to process a loan. That can be difficult for some successful self-employed borrowers to accept. "When you're talking about CEOs of companies, they want an answer, and they want it now," McNamee says.

But hurrying the process, he says, could increase the cost of the loan. Even for well-off business owners, qualifying for a mortgage is "not that smooth, easy no-brainer like it used to be. If you want it to be quick, you're paying a higher price."

Anyway, feel free to discuss pending home sales until we hear what happened to CR this morning.

by Anonymous on 10/01/2007 05:06:00 PM

So there I was, minding my own business, when a press release with the title "MBA Study Examines Fraud Committed Against Mortgage Lenders" shows up in my inbox. How very interesting, right?

Well, the MBA is lucky that the terms "study" and "examine" aren't defined in any law I know of, or I'd be tempted to sue. It's no less than a 20-page lobbying effort that could have been a three-pager, given the redundancies, repetitions, white space and giant margins. Its burden of wisdom is that mortgage fraud is on the rise, mortgage lenders are victims, not perpetrators, of mortgage fraud (insider fraud being a case of "a lending institution [being] deliberately deceived by . . . one of its own employees"), that fraud is clearly conceptually and practically distinct from predatory lending, and that no new legislation battling mortgage fraud is necessary, as current laws are more than sufficient. Its recommendation for action: to increase enforcement and information-sharing, all at the taxpayer's expense.

There is no "examination" of fraud--how it happens, how it goes undetected, what industry practices might enable it. There is, therefore, no examination of what the industry could do, on its own dime, to prevent fraud. Even better, the "study" keeps hammering the point that fraud and predatory lending are separate, for the purpose of making sure that no new anti-fraud legislation that also includes anti-predation components gets passed. That's the whole agenda in this little piece of special pleading, which uses the term "so-called predatory lending" several times:

[S. 1222] inappropriately conflates mortgage fraud with predatory lending. Indeed, several of the provisions have little, if anything, to do with mortgage fraud as that term is understood by law enforcement officials and the mortgage industry. For example, S. 1222 would:

• Impose heightened foreclosure requirements on subprime loans containing a variety of terms;
• Create assignee liability in vague and undefined cases of “deceptive practices” — a term that, in context, appears to mean something different than “fraud”; and
• Require the provision of housing counseling services to borrowers regarding “any other activities or practices that… are likely to increase the risk of foreclosure by such individuals” without providing any guidance as to what such “other activities or practices” may be.54

Whether one believes such provisions have merit as a matter of public policy, they are not directly related to mortgage fraud. Instead, these provisions clearly are intended to address concerns related to “predatory” lending.

Mortgage fraud and predatory lending differ in many important respects in terms of the actions, methods and targets involved. As discussed above, mortgage fraud, as the term is understood by federal law enforcement officials and the mortgage industry, is the intentional enticement of a financial entity to make, buy or insure a mortgage loan when it would not otherwise have done so, had it possessed correct information. In contrast, predatory lending is an undefined term that generally describes negative practices that are harmful to consumers. Clear definitional boundaries around the term predatory lending have yet to be drawn. Because the actions and targets of mortgage fraud and predatory lending differ, actions taken to remedy one rarely, if ever, will remedy the other. Conflating the two creates the danger that solutions appropriate only to one will be applied to both. While there are actions federal law makers can take to address each, the numerous and essential differences between them make their conflation, as well as their simultaneous treatment, inappropriate.

In other words, the MBA wants you to believe that fraud is only a matter of the industry being defrauded, that mortgage fraud is conceptually, practically, and legally distinguishable from predation, and that no bill that tries to clamp down on both things at the same time is acceptable. You get the impression that the industry is so frightened by anti-predation laws that it simply will not accept them even if they provide for more penalties or easier enforcement of fraud against lenders.

There's a lot of hand-wringing over "unintended consequences" of legislation in here--which you may or may not find compelling. There is no attempt to address the opposite problem, of refusing to regulate at all because regulation might not be perfect. What's truly amazing is that the MBA argues that mortgage fraud is actually on the rise--not just reports of fraud, and not, apparently, just proportionally to the increase in mortgages originated in recent years--but then argues that existing laws are sufficient, requiring only more taxpayer dollars poured into the Justice Department for task forces and databases. There isn't even a perfunctory recognition that industry practices, like "no docs," third-party originations, appraisal ordering practices, stripped-down internal controls, could have anything to do with any of this.

That might have something to do with the fact that the "study" keeps insisting that there is no widely-agreed definition of predatory lending, and that predation has nothing to do with fraud. I have argued before that during the bubble, lenders were happy to accept fraud as the "cost of doing business" with practices that were reckless but that threw off tons of money, like no-doc no-down loans, brokered and outsourced processes, skimpy due diligence, and incestuous and conflict-riddled "affiliated business arrangements." In fact, I gather from this MBA effort that the industry is still happy to pay the fraud toll; what has it worried is that anti-predation legislation will chip away at those money-spinners.

The MBA quotes the FBI as estimating that industry-wide fraud costs for 2006 ranged from $946 million to $4.2 billion. That's quite a range, and I frankly am deeply suspcious of those numbers. For one thing, they are based on Suspicious Activity Reports (SARS), which have the problem of multiple-counting (several categories of suspicious activity can be reported for a single loan application) and also that the dollar amount reported is generally the transaction amount, not an actual, after-the-investigation-trial-and-conviction assessment of the actual fraud loss. But even taking that $4.2 billion number seriously means that fraud costs for 2006 were a whopping 18 bps on 2006 gross mortgage production (~2.37 trillion). Could it be that the MBA doesn't want to define predatory lending because it doesn't want to address how revenues on grossly overpriced mortgage loans and reliance on fly-by-night brokers might function to offset fraud costs?

Shorter MBA: We're willing to invite fraudulent behavior and pay for it as long as you let us continue to prey. But we'll help out by asking the taxpayers to fund some "task forces" if you need us to appear to be doing something about it.

by Calculated Risk on 10/01/2007 03:56:00 PM

From Mathew Padilla at the O.C. Register: O.C. office rents, vacancies spike

A surge in office construction combined with sweeping layoffs at mortgage companies lead to both higher office vacancy and higher rents in O.C. in the third quarter ...

The county's office vacancy rate hit 10.53 percent at the end of last month, the highest in nearly three years ... its previous peak was 17.2 percent in March 2002, amid the last construction wave.

In all, developers have finished work on 3.5 million square feet of offices so far this year with another 1 million coming in Q4 ...
...
As for mortgage companies, they occupy about 4 million square feet of office space in the county, or roughly 4 percent of larger buildings. The total is down 30 percent from 6 million in mid 2005 ...

Orange County is home to many of the mortgage companies that have closed (like New Century). So the rising vacancy rate is no surprise. However I also expect to see rising vacancy rates nationwide, especially for office and retail space.