Mortgage Rate News

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There are concerns that things may not be improving as much as hoped for the housing market. Sure, home prices seem to be stabilizing and the first time home buyer tax credit resulted in the sale of hundreds of thousands of homes. But another real estate collapse may be on the way — and we aren’t even recovered from this one. Here is what CNN Money points out about what could announce the run up to another housing market collapse:

“There is a lack of new debt,” says Michael Haas, a real estate attorney at Jones Day. “There is a hesitancy to extend credit when there is a real possibility that the real estate may be worth less than it was a few years ago.”

Now, in a situation eerily similar to the subprime crisis, the result is likely to be a wave of foreclosures and loan defaults that could, in turn, trigger a collapse in the market of the structured bonds backed by commercial real estate and construction debt.

There could be some indicators that another real estate collapse — and the accompanying mortgage crisis — could be imminent. Here are some signs to be on the watch for:

1. Big Projects: Look out for what is happening with big commercial and residential projects that are starting to default. These projects may have gotten financing during the last bubble, but they may be struggling now. And if big projects default, that means that securities based on these loans will plunge.
2. Special Servicers: These are mortgage lender firms and special servicers that take over loans that are heading for trouble in an effort to salvage the situation. When more loans are heading to special servicers, that means that it is likely that things are troubled in the mortgage market in general. That could be a sign that more defaults are coming.
3. Regional Banks: So far, many local and regional banks have been fairly well shielded from the effects of the subprime mortgage crisis. Many of them did not take on risky loans and other debt. However, as the economy continues to remain sluggish, the regional projects financed by local banks may begin to falter, and that could cause another, more severe credit squeeze.

We’re not out of the woods yet, and it is important to be on the look out for signs that things may head into another wave of foreclosures. Although, if things do start improving markedly, none of these problems may surface.

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California is ready to enact tough laws aimed at restricting predatory lending practices. While over-reaching consumers certainly deserve some of the blame for the foreclosure crisis, some of the things mortgage lenders and brokers did in order to close deals were not above board. Many took advantage of their positions of trust to encourage borrowers to agree to mortgages that were not in their best interest. And while due diligence should be expected from borrowers, the fact of the matter is that there is a lot of paperwork, fine print and legalese to wade through. Even the best efforts can come up short.

In order to provide a little more protection to consumers, California Governor Arnold Schwarzenegger signed eight different laws. The Modesto Bee reports on some of the provisions in the laws:

• Loan modification firms cannot collect fees up front.
• Mortgage lenders must adhere to standardized licensing requirements.
• Reverse mortgages will have new consumer protections built in.
• Fraud in connection with a home mortgage loan application will be considered a felony.
• Mortgage documents must be available in other languages besides English.
• Buyers who purchase foreclosed homes will be able to choose their escrow and title companies.

Hopefully, the laws will discourage some of the deceptive practices that helped contribute to the foreclosure crisis. The new regulations should also hopefully cut down on scams perpetrated by loan modification and foreclosure prevention companies that take upfront fees and then do nothing. Additionally, it should give buyers a little more freedom and help as they choose companies of their choosing.

In the end, there needs to be a good balance between consumer protection and consumer responsibility. At first glance, it appears these laws should do that, providing consumer protections while at the same time not putting everything on mortgage lenders and brokers. It will be interesting to see if other states follow suit, adopting harsher laws aimed at curbing predatory lending practices.

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Just a couple of days ago, JP Morgan reported significant profits in the third quarter of 2009. This news was greeted with enthusiasm from investors, and sent the Dow above 10,000. The thought was that the financial system was improving, and that things were on the verge of improving. Yesterday, though, Citi announced that it is still struggling with bad debts and mortgages, and that put a damper on the party. Today, the stock market is in rout mode as Bank of America announces its third quarter was a rather dismal one. MarketWatch reports the bad news about Bank of America:

Bank of America said on Friday that it lost more than $2 billion in the third quarter as its provision for credit losses almost doubled, reflecting stressed consumers.

Bank of America said its net loss applicable to common shareholders was $2.24 billion, or 26 cents a share, in the third quarter, compared to a profit of $704 million, or 15 cents a share, a year ago.

The loss applicable to common shareholders includes preferred stock dividends of $1.24 billion in the latest quarter, compared to $704 million a year ago.

Before the accounting for preferred dividends, the company reported a loss of $1.00 billion in the third quarter, versus a $1.78 billion profit a year ago

It is clear that the financial sector may not really be ready to come roaring back. The news has sent the Dow back below 10,000 today as bears react to the sentiment. In the end, the financial sector is still trying to recover from the losses inflicted by the subprime mortgage market implosion and the financial crisis. These mortgage lenders are in tough shape, still. Even JP Morgan, which saw great profits, had to qualify its earnings report with the fact that non-performing assets are still on the balance sheet. Until the foreclosures stop, it is unlikely that the financial sector will be able to lead the economy to recovery.