So much mortgage news, so little time
*Citi is reportedly going to lay off $12 billion in leveraged loans and bonds to some private equity buyers. Like other banks, Citi is trying to shrink its balance sheet and raise capital to offset rising losses on a variety of instruments.
* The New York Times notes that while everyone wants the Federal Housing Administration to save the mortgage day, it's got its own budget problems. The agency is losing big bucks on mortgages made with the help of down payment assistance programs. Those programs allow borrowers to skirt the down payment requirement built into the FHA program. Personally, I think these programs make zero sense because they're too risky and they allow people who can't really afford homes to buy them. I agree with those who believe they should be banned.
A key excerpt from the Times story:
"Housing officials say the agency will face a deficit for the first time in its 74-year history, starting in the fiscal year that begins in October. And they blame a rapidly growing and increasingly troubled sector of the F.H.A.’s mortgage portfolio, known as the seller-financed down payment loan program, which has suffered from high delinquency and foreclosure rates in recent years.
"Under the program, a home seller arranges to cover the buyer’s down payment — using financial help from a nonprofit company — but typically adds that sum or more to the total cost of the house. The arrangement has been particularly attractive to financially struggling buyers and to owners in depressed housing markets, according to Congressional officials.
"In 2000, such mortgages made up less than 2 percent of F.H.A.-insured loans, officials say. By 2007, statistics show, they accounted for 35 percent of F.H.A. loans.
"Housing officials say these mortgages have foreclosure rates two to three times those of others, leaving the agency reeling from the losses.
"If the program continues without any changes, Congressional officials say, the F.H.A. would face a $1.4 billion shortfall in fiscal 2009. This would mean that Congress — and American taxpayers — would have to subsidize the F.H.A. for the first time."
* Speaking of FHA, the Wall Street Journal notes that the Bush administration wants to expand the FHASecure program. The idea is to head off the more aggressive Dodd/Frank principal-writedown-then-refi-into-FHA-mortgage plan (some more details are available in this post from a few days ago). Here's an excerpt:
"Though more modest than the proposals pushed by Democrats, the expansion would be funded by premiums paid by borrowers whose loans are backed by the Federal Housing Administration, the government's mortgage insurer, instead of by taxpayer funds, officials said. By contrast, efforts advanced by the Democratic-controlled Congress could have an upfront cost of between $10 billion and $20 billion.
"The expansion would allow the FHA to insure a new mortgage if a lender voluntarily writes down the mortgage principal to a maximum of either 90% or 97% of the new value, depending on the borrower's risk profile. If a loan and home was originally valued at $110,000, for example, and fell to $100,000, lenders could reduce the principal to either $97,000 or $90,000 to qualify for FHA insurance.
"Borrowers can qualify if they had some late payments over the previous year, but are otherwise reliably creditworthy and want to remain in their homes. Existing FHA underwriting standards still apply, and the home must be owner-occupied, so speculators, high-risk borrowers and owners of vacation homes wouldn't be allowed."
As a reminder, a hearing in the House Committee on Financial Services about possible FHA reform will be getting underway momentarily. You can see the list of speakers and/or watch the hearing live by following this link.