Predicting the next wave of mortgage financial woes

Some interesting consumer news trickled out of the Mortgage Brokers Assn.'s annual regulatory conference last week in Washington, D.C.

Jason Connolly, senior vice president of sales and marketing for Irvine-based Mavent, which markets automated compliance software to check mortgage loan applications, was among the attendees and identified three trends that soon may be the topic of water-cooler conversation.

Loan modifications: More lenders are contacting homeowners to entice them to modify their mortgage terms. Although lower interest rates may look great in the short run, loans that reset after a few years could just be postponing a problem. Before opting for a reset, consumers should check out alternatives, such as programs offered by the Federal Housing Authority and other groups.

Foreclosures rise on fixed-rate mortgage loans: It's not just a problem for subprime or exotic loan borrowers anymore. More consumers with fixed-rate mortgages are filing for foreclosure, reports Jay Brinkmann, chief economist and senior vice president of research and economics for the MBA.

HELOC ice jam: A number of lenders are freezing home equity lines of credit as the financial system attempts to rebound. Consumers who have been using their HELOCs as ATMs may find that that source of ready cash has dried up.

-- Lauren Beale

Thoughts? Comments?

Photo: Glenn Koenig / Los Angeles Times

Comments

[Nelcisco]

I first said it back in '03 when I stated in the mortgage industry that HELOCs where never a good idea to offer borrowers because of the ATM syndrome.

I have a friend in the pharmaceutical industry, makes great $ like most drug reps, bought a house in the central coast before the peak of the market, he told me that his biggest contributor to his divorce was the fact that they ran out of money due to his wife's wreckless spending and desires from his HELOC, new 3 series BMW for her instead of Toyota or Saturn like he suggested, travel to Europe, etc. of course he's very much to blame as well, but when the cash ran out and found themselves having to pay the piper there was problems in the marriage. I hope HELOCs are done away with all together, its a trap, but one may argue its fine if home owners are responsible, but they're not, they need to be saved from themselves.

[annoyed]

that marriage wasn't based on much--how pathetic. So now the Feds are going to bail out this spending wife and wimpy husband. That's great.

[E]

It's cheaper (more profitable) to foreclose on someone with house that they paid 1MM for in 2004 with a 400k down (equity from previous sale) and a 600k option ARM who is *now* trying to sell the house (unsuccessfully) for $1.5MM-$2MM.

They can only afford a 300k loan.

Why modify a loan down to 300k for the misfits when you can foreclose, sell the home for 700k with 200k down and a realistic 500k loan on the books instead of a giveaway to the option_ARM owner which leaves you with only a 300k loan on the books?

[Laker]

E,
1) Because there are no people that put 40% down and never pulled it back as 2nd or HELOC. If you find one, show it to me.
2) Because the Democrats are trying to Christmas tree the bailout buy ensuring Czar Paulson will not evict the loan owners that the government just seized their mortgage, but rather modify it down to whatever the loan owner can afford...(as FDIC sheila Bair said). All this to prevent a foreclosure.

How about this crazy solution that a true Democrat should support:
Reward all the prudent people that stayed away from the market, the renter, the savers, the ones that work and pay taxes but do not own a house by giving them a 1-3% 30 year fixed rate loan and/or huge down payment assistance in a form of a 50 year 0% loan. This way you would at least reward the deserving and no reward the undeserving scum and vermin.
or....just let the market set its course.