Foreclosure Plan Will Be Greeted With Questions
Treasury Secretary Henry Paulson will unveil a plan on Thursday to forestall foreclosures and ease the housing recession.
The release of plan’s details will coincide with the release of data from the Mortgage Bankers Association that show that homes in foreclosure hit record levels in April through June, and that nearly 17 percent of subprime borrowers missed at least one payment in the first quarter of the year. An additional 2 million home owners will face their first interest-rate reset by the end of 2008.
“This is the most serious housing recession since the Great Depression,” says Mark Zandi, chief economist for Moody’s Economy.com. Zandi predicts that home prices, on average, will fall 7 percent more through next year.
Paulson says he wants state and local governments to be allowed to issue tax-exempt bonds to “temporarily” raise money to help some struggling subprime borrowers refinance.
Questions remain about how many investors, who bought bonds backed by these mortgages and are spread out around the globe, will agree to change the terms of the loans.
Source: USA Today, Noelle Knox (12/4/2007)
Private-Money Mortgages Get More Popular
Hard-money or private-money mortgages, which are funded by individual investors or investor groups, are gaining popularity now that subprime financing has dried up and prime lenders have tightened their credit standards.
Miami-based Yale Mortgage Co., for instance, reports a 30-percent increase in applications from last year; while a 50-percent gain has been recorded by Aliso Viego, Calif.-based Alliance Portfolio.
Scotsman Guide mortgage-industry analyst Daniel Yeh notes that “hard-money lenders are pretty much the only source of capital for many people,” primarily borrowers with poor credit but plenty of equity, those in need of construction loans, and those wishing to buy a home or refinance quickly.
While they do not place much emphasis on income or credit, hard-money lenders generally require 30 percent to 40 percent equity in the borrower’s collateral, charge fees as high as 5 percent, and impose interest rates slightly above 10 percent.
However, Yale Mortgage principle Woody Kahn notes that the delinquency rate for such mortgages hovers between 35 percent and 40 percent, while foreclosures typically range between 10 percent and 15 percent of such loans.
Source: The Wall Street Journal, Jeff D. Opdyke (12/05/07)
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