Wednesday, July 15, 2009
Monday, July 13, 2009
Mortgage defaults spread as even 'safe' borrowers falter
Mortgage defaults spread as even 'safe' borrowers falter
By Jim Wasserman and Dale Kasler jwasserman@sacbee.com
http://www.sacbee.com/business/story/2017811.html
The mortgage default crisis has an ominous new face. It's your neighbor with a traditional fixed-rate loan.
No longer is the real estate bust simply the result of exotic, subprime loans that doubled payments and blew up in homeowners' faces. As the Sacramento economy buckles, even the safest mortgages have become part of a new wave of loan defaults, experts say.
With capital-area job losses reaching 45,000 in the past year and unemployment at 11.1 percent, lenders, bankruptcy attorneys and debt counselors all say they're seeing rising delinquencies among prime borrowers with fixed-rate loans and good credit. Many of those slipping into trouble are state workers, the mainstay of Sacramento's economy.
"The tide has definitely shifted," said Pam Canada, executive director of the Neighborworks Homeownership Center of Sacramento, a nonprofit loan counseling firm. "We're seeing more people with a loss of income."
Prime fixed-rate mortgages, with the most favorable interest rates and 15-, 20- or 30-year terms that guarantee the same monthly payment for the life of the loan, have long been the bulwark of American homeownership.
There are 3.3 million of them in California – 56 percent of all mortgages. But nearly 4 percent were delinquent in the first quarter, according to the Mortgage Bankers Association. That number was less than 1 percent two years ago, when the default crisis was dominated by subprime loans.
The MBA says layoffs are now hitting more educated borrowers.
"There tends to be a higher correlation there with having a fixed-rate mortgage," said Jay Brinkmann, chief economist of the lender trade group.
It's not just the layoffs creating trouble for traditionally safe loans. Many area workers have had to absorb wage cuts. Others who lost jobs have found new jobs that pay less. Or they have found only part-time work. Many workers who depend on overtime pay have also seen it disappear or dwindle.
Finally, in a capital region defined by a massive state government work force, furloughs have grown to three days monthly, approximating a 14 percent salary cut. Gov. Arnold Schwarzenegger is proposing still more pay cuts for an educated population that's increasingly showing up at nonprofit mortgage counseling centers.
This upheaval has had a ripple effect on small-business owners like Michael and Winnie Kyalwazi, owners of Cafe Le Monde at McClellan Business Park. They've fallen behind on their fixed-rate house payments because business is down 25 to 30 percent, said Michael Kyalwazi.
"This is a short setback, the way I look at it," he said. "We're viable. We just need some breathing room."
It's a familiar sentiment.
"Most want to pay, but they can't because they're underemployed and have cuts in income and cuts in commissions," said Paul Rigdon, vice president for lending at Sacramento's SAFE Credit Union. "We're seeing all kinds of income-related problems."
As the newest turn in a housing crisis that has seen 40,000 area foreclosures and heartbreak in thousands of other homes, trouble for prime borrowers is one more obstacle to a housing recovery any time soon.
Lending-industry officials say it's harder to restructure loans for jobless people who can barely afford any payment. Worse, economists say rising defaults and the foreclosures to come among these borrowers are likely to persist long after unemployment peaks sometime next year.
"Foreclosures and delinquencies have a long tail, and we will see that continue for several quarters after a turnaround in unemployment," said the MBA's Brinkmann.
Forecasters at Stockton's University of the Pacific predict unemployment in the capital region will peak late next year at 12.3 percent – and remain in double digits through 2011. If so, problems with prime loans are likely to linger in a region having a hard time catching a break.
Already in the foreclosure process is Ron McClure of Roseville. He bought a $600,000 house at Sun City Roseville in 2003, using a prime, fixed-rate loan that cost him $3,200 a month.
By Jim Wasserman and Dale Kasler jwasserman@sacbee.com
http://www.sacbee.com/business/story/2017811.html
The mortgage default crisis has an ominous new face. It's your neighbor with a traditional fixed-rate loan.
No longer is the real estate bust simply the result of exotic, subprime loans that doubled payments and blew up in homeowners' faces. As the Sacramento economy buckles, even the safest mortgages have become part of a new wave of loan defaults, experts say.
With capital-area job losses reaching 45,000 in the past year and unemployment at 11.1 percent, lenders, bankruptcy attorneys and debt counselors all say they're seeing rising delinquencies among prime borrowers with fixed-rate loans and good credit. Many of those slipping into trouble are state workers, the mainstay of Sacramento's economy.
"The tide has definitely shifted," said Pam Canada, executive director of the Neighborworks Homeownership Center of Sacramento, a nonprofit loan counseling firm. "We're seeing more people with a loss of income."
Prime fixed-rate mortgages, with the most favorable interest rates and 15-, 20- or 30-year terms that guarantee the same monthly payment for the life of the loan, have long been the bulwark of American homeownership.
There are 3.3 million of them in California – 56 percent of all mortgages. But nearly 4 percent were delinquent in the first quarter, according to the Mortgage Bankers Association. That number was less than 1 percent two years ago, when the default crisis was dominated by subprime loans.
The MBA says layoffs are now hitting more educated borrowers.
"There tends to be a higher correlation there with having a fixed-rate mortgage," said Jay Brinkmann, chief economist of the lender trade group.
It's not just the layoffs creating trouble for traditionally safe loans. Many area workers have had to absorb wage cuts. Others who lost jobs have found new jobs that pay less. Or they have found only part-time work. Many workers who depend on overtime pay have also seen it disappear or dwindle.
Finally, in a capital region defined by a massive state government work force, furloughs have grown to three days monthly, approximating a 14 percent salary cut. Gov. Arnold Schwarzenegger is proposing still more pay cuts for an educated population that's increasingly showing up at nonprofit mortgage counseling centers.
This upheaval has had a ripple effect on small-business owners like Michael and Winnie Kyalwazi, owners of Cafe Le Monde at McClellan Business Park. They've fallen behind on their fixed-rate house payments because business is down 25 to 30 percent, said Michael Kyalwazi.
"This is a short setback, the way I look at it," he said. "We're viable. We just need some breathing room."
It's a familiar sentiment.
"Most want to pay, but they can't because they're underemployed and have cuts in income and cuts in commissions," said Paul Rigdon, vice president for lending at Sacramento's SAFE Credit Union. "We're seeing all kinds of income-related problems."
As the newest turn in a housing crisis that has seen 40,000 area foreclosures and heartbreak in thousands of other homes, trouble for prime borrowers is one more obstacle to a housing recovery any time soon.
Lending-industry officials say it's harder to restructure loans for jobless people who can barely afford any payment. Worse, economists say rising defaults and the foreclosures to come among these borrowers are likely to persist long after unemployment peaks sometime next year.
"Foreclosures and delinquencies have a long tail, and we will see that continue for several quarters after a turnaround in unemployment," said the MBA's Brinkmann.
Forecasters at Stockton's University of the Pacific predict unemployment in the capital region will peak late next year at 12.3 percent – and remain in double digits through 2011. If so, problems with prime loans are likely to linger in a region having a hard time catching a break.
Already in the foreclosure process is Ron McClure of Roseville. He bought a $600,000 house at Sun City Roseville in 2003, using a prime, fixed-rate loan that cost him $3,200 a month.
Friday, July 10, 2009
How Assessor slashes property values
Home Front: How assessor slashes property values
By Jim Wasserman jwasserman@sacbee.com
http://www.sacbee.com/business/story/2014910.html
This week the Sacramento County Assessor's Office – and more like it across the great foreclosure belts of California – chopped property values again on nearly everything built in the housing boom.
The value slashing in Sacramento County that started in 2007 with 50,000 properties and 90,000 last year, reached 170,000 in 2009. That's nearly every lot carved from a pasture and turned into a new house since 2002 – or even earlier depending on where you live.
The good news: Your property taxes go down. The bad news: Well, don't even look.
Home Front caught up Thursday with Assistant Sacramento County Assessor Kathleen Kelleher for a few questions about the new values.
Your office reduced values for tax purposes on 170,000 properties. How many of those are houses?
Basically all of them. There are about 500 commercial properties. The rest are residential.
How's this actually done?
We use what we call sales-ratio trend analysis. It's a development of time-adjusted facts based on market sales. It is largely a computer analysis. We have a staff of 60 or 70 appraisers right now. We wouldn't be able to value 170,000 properties (personally) plus do our other work.
People often go to Zillow.com or Cyberhomes.com to look up their home values. Where does the county's assessed value fit into the question of, "What is my house worth?" Would real estate agents use your number to assign the house a value when listing it?
I really can't answer for them, but I doubt it. They'll probably go to their own analysis of what the market is doing.
Do people appeal these low values, arguing their house can't be worth so little?
I don't think anyone has gone to an appeal hearing on that.
This is the first time since 1978 that assessed values have gone negative from one year to the next. You've been in the office 22 years. Did you ever expect to see anything like this?
No.
Is this year the worst of it?
I really don't have a great answer for you on that one.
Banks try loan alternative
Fresh news on loan modifications: Nonprofit loan counselors say they're seeing more banks try an alternative to writing down principal. That's the industry term for permanently reducing what homeowners owe. Borrowers love it; banks don't.
Pam Canada, executive director of Neighborworks Homeownership Center of Sacramento, said this week some banks are agreeing to temporarily cut the amount owed.
Here's how it works: If a borrower paid $300,000 for a house that's now worth $200,000, that borrower can get the loan modified temporarily to make payments based on the $200,000 value. Then the other $100,000 is deferred – added back onto the loan five years from now, or when housing values rebound. A borrower might pay off that $100,000 after refinancing or selling. Canada said it's an emerging short-term fix that keeps people in homes and keeps banks from having to forgive so much of what's owed them.
Poll: Own home still dream
Survey of the week: 67 percent of Americans believe owning a house is still the "aspirational symbol" of the American dream.
So says a Harris Interactive survey of 2,122 adults – 71 percent of them homeowners. The May national online survey conducted for Delaware-based savings bank ING DIRECT also found:
• 42 percent of Americans think bigger down payments in recent years could have prevented some of the current economic downturn.
• 37 percent would consider making mortgage payments twice a month to pay off their homes faster.
Rates back at six-week lows
Finally, benchmark 30-year fixed mortgage rates have returned to six-week lows. Average rates early this week fell to 5.20 percent (before points), said federal mortgage giant Freddie Mac in its weekly Thursday survey. That's down from 5.32 percent last week.
The firm said rates haven't been this low since the week of May 28, when they averaged 4.91 percent across the U.S. Freddie Mac economists attributed the continuing decline to "market concerns over a weakening labor market."
Personal finance Web site Bankrate.com reported overnight averages Thursday of 5.33 percent for 30-year loans.
By Jim Wasserman jwasserman@sacbee.com
http://www.sacbee.com/business/story/2014910.html
This week the Sacramento County Assessor's Office – and more like it across the great foreclosure belts of California – chopped property values again on nearly everything built in the housing boom.
The value slashing in Sacramento County that started in 2007 with 50,000 properties and 90,000 last year, reached 170,000 in 2009. That's nearly every lot carved from a pasture and turned into a new house since 2002 – or even earlier depending on where you live.
The good news: Your property taxes go down. The bad news: Well, don't even look.
Home Front caught up Thursday with Assistant Sacramento County Assessor Kathleen Kelleher for a few questions about the new values.
Your office reduced values for tax purposes on 170,000 properties. How many of those are houses?
Basically all of them. There are about 500 commercial properties. The rest are residential.
How's this actually done?
We use what we call sales-ratio trend analysis. It's a development of time-adjusted facts based on market sales. It is largely a computer analysis. We have a staff of 60 or 70 appraisers right now. We wouldn't be able to value 170,000 properties (personally) plus do our other work.
People often go to Zillow.com or Cyberhomes.com to look up their home values. Where does the county's assessed value fit into the question of, "What is my house worth?" Would real estate agents use your number to assign the house a value when listing it?
I really can't answer for them, but I doubt it. They'll probably go to their own analysis of what the market is doing.
Do people appeal these low values, arguing their house can't be worth so little?
I don't think anyone has gone to an appeal hearing on that.
This is the first time since 1978 that assessed values have gone negative from one year to the next. You've been in the office 22 years. Did you ever expect to see anything like this?
No.
Is this year the worst of it?
I really don't have a great answer for you on that one.
Banks try loan alternative
Fresh news on loan modifications: Nonprofit loan counselors say they're seeing more banks try an alternative to writing down principal. That's the industry term for permanently reducing what homeowners owe. Borrowers love it; banks don't.
Pam Canada, executive director of Neighborworks Homeownership Center of Sacramento, said this week some banks are agreeing to temporarily cut the amount owed.
Here's how it works: If a borrower paid $300,000 for a house that's now worth $200,000, that borrower can get the loan modified temporarily to make payments based on the $200,000 value. Then the other $100,000 is deferred – added back onto the loan five years from now, or when housing values rebound. A borrower might pay off that $100,000 after refinancing or selling. Canada said it's an emerging short-term fix that keeps people in homes and keeps banks from having to forgive so much of what's owed them.
Poll: Own home still dream
Survey of the week: 67 percent of Americans believe owning a house is still the "aspirational symbol" of the American dream.
So says a Harris Interactive survey of 2,122 adults – 71 percent of them homeowners. The May national online survey conducted for Delaware-based savings bank ING DIRECT also found:
• 42 percent of Americans think bigger down payments in recent years could have prevented some of the current economic downturn.
• 37 percent would consider making mortgage payments twice a month to pay off their homes faster.
Rates back at six-week lows
Finally, benchmark 30-year fixed mortgage rates have returned to six-week lows. Average rates early this week fell to 5.20 percent (before points), said federal mortgage giant Freddie Mac in its weekly Thursday survey. That's down from 5.32 percent last week.
The firm said rates haven't been this low since the week of May 28, when they averaged 4.91 percent across the U.S. Freddie Mac economists attributed the continuing decline to "market concerns over a weakening labor market."
Personal finance Web site Bankrate.com reported overnight averages Thursday of 5.33 percent for 30-year loans.
Wednesday, July 8, 2009
Monday, July 6, 2009
Repo business soars as Sacramento area home sales slump
Repo business soars as Sacramento area home sales slump
By Jim Wasserman jwasserman@sacbee.com
http://www.sacbee.com/topstories/story/2002300.html
At the beginning, Alejandro Maybuena lost the Sacramento house he bought in April 2005 for $350,000. At the end, in early 2009, Kim Gish bought it for $109,000.
Stories like this have happened more than 40,000 times in the Sacramento area. Still, the tale in particular of one house in California's capital region shows the sweeping change in a real estate industry that once involved mainly a mom-and-pop seller, a buyer and two real estate agents.
Today, an alternate universe – the repo business – dominates. And business is very good.
As the U.S. foreclosure crisis grinds on, the detailed work of processing, repairing and selling thousands of homes repossessed by banks is real estate's new gold. In the past year, repo-related business has rapidly grown to national scale, fueling job growth in Colorado, Texas, Ohio and elsewhere to service the meltdown in markets like Sacramento and the Central Valley along with Phoenix, Las Vegas and Florida.
The nation's housing collapse also has upended the pecking order of local real estate agents. Former top earners are on the sidelines, unable to move expensive homes. The new royalty is making good money in a real estate economy where things fall apart, where trackers can count almost a half-million repos on the U.S. market.
"From an industry standpoint, everybody who participates has seen an uptick in their business," said Paul Carlson, senior vice president of human resources at Austin-based Field Asset Services.
Carlson's firm, which repairs, cleans and maintains repos right down to mowing the lawns weekly, has almost tripled its hiring in the past 18 months. Austin business publications gush over the firm's "hiring spree," its 550 employees and third expansion into larger offices in a year.
Clearly, the housing distress that has overwhelmed states like California has become big business. Yet, it always starts small, one house at a time.
For Alejandro Maybuena, 60, and his wife, a three-bedroom house near Sacramento's southern edge in 2005 represented a long-delayed accomplishment – their first house.
It wasn't easy buying then, not in that last roaring spring of the housing boom. Maybuena, a custodian for the city of Davis, said the house was the eighth they bid on as frantic buyers competed to get in before prices rose higher.
"My agent said I should offer another $10,000. All I could think of was how many more months I'd have to work to pay that off," he said.
But he made the $350,000 offer with the assumption, then so widespread, that prices would keep rising.
Instead, values crashed. The rest is the same old story: inability to refinance, get a loan modification or rationalize making $2,500 interest-only monthly payments on a house no longer worth the price paid.
"It was a dream for us," Maybuena said recently, standing in the doorway of an Elk Grove house he rents for $800 a month. "But, unfortunately, our dream was ruined."
After foreclosing, Texas-based American Home Servicing Inc. – which services 575,000 loans nationally – started the repo clock ticking. It assigned the house to Bruce Slaton, a Keller Williams real estate agent in Elk Grove. Slaton specializes in REO sales, shorthand for "real estate owned," the industry term for bank repos.
In a normal real estate market, Slaton might get listings from open houses or word of mouth. Now he gets them directly from banks or asset management companies hired by banks to sell their houses.
In this case, he got an e-mail from American Home Servicing, which has an in-house asset management division. There, he's a known commodity.
"I got into bank stuff about 2000," said Slaton. "When the market changed (toward distress), I was in the system."
Also in that system are the national corporate giants and smaller regional players that have long helped lenders manage and sell repos that come in good markets and bad. Business has soared. Slaton said banks outsource up to 80 percent of foreclosed properties to third parties to handle.
By Jim Wasserman jwasserman@sacbee.com
http://www.sacbee.com/topstories/story/2002300.html
At the beginning, Alejandro Maybuena lost the Sacramento house he bought in April 2005 for $350,000. At the end, in early 2009, Kim Gish bought it for $109,000.
Stories like this have happened more than 40,000 times in the Sacramento area. Still, the tale in particular of one house in California's capital region shows the sweeping change in a real estate industry that once involved mainly a mom-and-pop seller, a buyer and two real estate agents.
Today, an alternate universe – the repo business – dominates. And business is very good.
As the U.S. foreclosure crisis grinds on, the detailed work of processing, repairing and selling thousands of homes repossessed by banks is real estate's new gold. In the past year, repo-related business has rapidly grown to national scale, fueling job growth in Colorado, Texas, Ohio and elsewhere to service the meltdown in markets like Sacramento and the Central Valley along with Phoenix, Las Vegas and Florida.
The nation's housing collapse also has upended the pecking order of local real estate agents. Former top earners are on the sidelines, unable to move expensive homes. The new royalty is making good money in a real estate economy where things fall apart, where trackers can count almost a half-million repos on the U.S. market.
"From an industry standpoint, everybody who participates has seen an uptick in their business," said Paul Carlson, senior vice president of human resources at Austin-based Field Asset Services.
Carlson's firm, which repairs, cleans and maintains repos right down to mowing the lawns weekly, has almost tripled its hiring in the past 18 months. Austin business publications gush over the firm's "hiring spree," its 550 employees and third expansion into larger offices in a year.
Clearly, the housing distress that has overwhelmed states like California has become big business. Yet, it always starts small, one house at a time.
For Alejandro Maybuena, 60, and his wife, a three-bedroom house near Sacramento's southern edge in 2005 represented a long-delayed accomplishment – their first house.
It wasn't easy buying then, not in that last roaring spring of the housing boom. Maybuena, a custodian for the city of Davis, said the house was the eighth they bid on as frantic buyers competed to get in before prices rose higher.
"My agent said I should offer another $10,000. All I could think of was how many more months I'd have to work to pay that off," he said.
But he made the $350,000 offer with the assumption, then so widespread, that prices would keep rising.
Instead, values crashed. The rest is the same old story: inability to refinance, get a loan modification or rationalize making $2,500 interest-only monthly payments on a house no longer worth the price paid.
"It was a dream for us," Maybuena said recently, standing in the doorway of an Elk Grove house he rents for $800 a month. "But, unfortunately, our dream was ruined."
After foreclosing, Texas-based American Home Servicing Inc. – which services 575,000 loans nationally – started the repo clock ticking. It assigned the house to Bruce Slaton, a Keller Williams real estate agent in Elk Grove. Slaton specializes in REO sales, shorthand for "real estate owned," the industry term for bank repos.
In a normal real estate market, Slaton might get listings from open houses or word of mouth. Now he gets them directly from banks or asset management companies hired by banks to sell their houses.
In this case, he got an e-mail from American Home Servicing, which has an in-house asset management division. There, he's a known commodity.
"I got into bank stuff about 2000," said Slaton. "When the market changed (toward distress), I was in the system."
Also in that system are the national corporate giants and smaller regional players that have long helped lenders manage and sell repos that come in good markets and bad. Business has soared. Slaton said banks outsource up to 80 percent of foreclosed properties to third parties to handle.
Sunday, July 5, 2009
Small banks start feeling financial stress
Small banks start feeling financial stress
By Charles Piller cpiller@sacbee.com
http://www.sacbee.com/topstories/story/2000836.html
At first, the Sacramento region's small, business-oriented community banks appeared to have sidestepped the plight of banking titans that staggered under the burden of home mortgage defaults. Now some are showing signs of stress.
Gold Country Bank in Marysville has become the weakest bank of its size in California – below 98 percent of similar banks nationwide, according to Bankrate.com, a leading independent evaluator. It took the place of MetroPacific on June 26, when that Irvine Bank was seized by regulators.
Granite Community Bank in Granite Bay has similar problems, according to data from analysts and the Federal Deposit Insurance Corp.
Nationally, one in five banks lost money in the first quarter of this year. But among this region's 15 small community banks, two of every five lost money, including Gold Country and Granite Community.
Those and many other small banks rely more heavily on a combination of construction, industrial and commercial real estate loans than on home mortgages and securities. Initially, most coped with the economic collapse.
Not long after the residential mortgage meltdown, construction lending followed the same downward slope. Experts believe commercial mortgages and industrial loans – sensitive to high unemployment and low consumer confidence – are following a similar path.
The impact on banks holding many of those loans could be dire. When banks fail, federal insurance protects deposits up to $250,000 in most cases, but not shareholders' investments. Local businesses reliant on community banks for credit also could suffer.
Representatives of Gold Country and Granite Community said that despite the challenging economy, they are prepared for any eventuality.
"Everyone in this region is experiencing the same things," including falling demand for loans and sharply declining property values, said David R. Kaiser, president of Granite Community. "I don't think I have any more concerns than my counterparts."
But commercial real estate loans – on which many local banks deeply depend – were recently described by Rep. Carolyn Maloney, D-N.Y., chairwoman of the congressional Joint Economic Committee, as "a ticking time bomb" for massive default problems later this year.
Local challenges
In Yuba County, home of Gold Country Bank, the process already is unfolding.
"There's a ton of empty commercial space; somebody has got to be making payments on those," said Steve Brammer, chief operating officer of the Yuba-Sutter Economic Development Corp., a public lending agency. "It's hard to do that without tenants."
Lease rates for prime commercial space in Yuba County recently have fallen as much as 40 percent, Brammer said.
"We are starting to see some commercial loans going south," said Brent Bosanek, owner of the Coldwell Banker Commercial property brokerage in Yuba City, and a former area commercial banker.
"For commercial lending, it's all about the cash flow," which declines as leases are renegotiated downward, he said. Lenders from outside the region have contacted his firm to appraise commercial properties, anticipating steep declines in value.
Bosanek added: "Banks are worried."
Tarra Victorino, Gold Country's chief financial officer, said the commercial property threat was on her bank's radar, but that she was "not comfortable" quantifying the possible impact on its business.
"All banks are concerned if the commercial real estate sector suffers the problems that are predicted," she said.
Several local banks also had far higher rates of commercial and industrial lending than similar banks. Such loans often go bad quickly in a recession, said Foresight Analytics partner Matthew Anderson. "They are even riskier than real estate lending."
Like some of the other banks, Gold Country also has relatively high levels of restructured loans. This means terms have been changed before the loan comes due.
Troubled banks tend to use the practice, which is legal, to avoid designating loans as delinquent or to forestall foreclosures – delaying bad news from reaching their balance sheets.
By Charles Piller cpiller@sacbee.com
http://www.sacbee.com/topstories/story/2000836.html
At first, the Sacramento region's small, business-oriented community banks appeared to have sidestepped the plight of banking titans that staggered under the burden of home mortgage defaults. Now some are showing signs of stress.
Gold Country Bank in Marysville has become the weakest bank of its size in California – below 98 percent of similar banks nationwide, according to Bankrate.com, a leading independent evaluator. It took the place of MetroPacific on June 26, when that Irvine Bank was seized by regulators.
Granite Community Bank in Granite Bay has similar problems, according to data from analysts and the Federal Deposit Insurance Corp.
Nationally, one in five banks lost money in the first quarter of this year. But among this region's 15 small community banks, two of every five lost money, including Gold Country and Granite Community.
Those and many other small banks rely more heavily on a combination of construction, industrial and commercial real estate loans than on home mortgages and securities. Initially, most coped with the economic collapse.
Not long after the residential mortgage meltdown, construction lending followed the same downward slope. Experts believe commercial mortgages and industrial loans – sensitive to high unemployment and low consumer confidence – are following a similar path.
The impact on banks holding many of those loans could be dire. When banks fail, federal insurance protects deposits up to $250,000 in most cases, but not shareholders' investments. Local businesses reliant on community banks for credit also could suffer.
Representatives of Gold Country and Granite Community said that despite the challenging economy, they are prepared for any eventuality.
"Everyone in this region is experiencing the same things," including falling demand for loans and sharply declining property values, said David R. Kaiser, president of Granite Community. "I don't think I have any more concerns than my counterparts."
But commercial real estate loans – on which many local banks deeply depend – were recently described by Rep. Carolyn Maloney, D-N.Y., chairwoman of the congressional Joint Economic Committee, as "a ticking time bomb" for massive default problems later this year.
Local challenges
In Yuba County, home of Gold Country Bank, the process already is unfolding.
"There's a ton of empty commercial space; somebody has got to be making payments on those," said Steve Brammer, chief operating officer of the Yuba-Sutter Economic Development Corp., a public lending agency. "It's hard to do that without tenants."
Lease rates for prime commercial space in Yuba County recently have fallen as much as 40 percent, Brammer said.
"We are starting to see some commercial loans going south," said Brent Bosanek, owner of the Coldwell Banker Commercial property brokerage in Yuba City, and a former area commercial banker.
"For commercial lending, it's all about the cash flow," which declines as leases are renegotiated downward, he said. Lenders from outside the region have contacted his firm to appraise commercial properties, anticipating steep declines in value.
Bosanek added: "Banks are worried."
Tarra Victorino, Gold Country's chief financial officer, said the commercial property threat was on her bank's radar, but that she was "not comfortable" quantifying the possible impact on its business.
"All banks are concerned if the commercial real estate sector suffers the problems that are predicted," she said.
Several local banks also had far higher rates of commercial and industrial lending than similar banks. Such loans often go bad quickly in a recession, said Foresight Analytics partner Matthew Anderson. "They are even riskier than real estate lending."
Like some of the other banks, Gold Country also has relatively high levels of restructured loans. This means terms have been changed before the loan comes due.
Troubled banks tend to use the practice, which is legal, to avoid designating loans as delinquent or to forestall foreclosures – delaying bad news from reaching their balance sheets.
Wednesday, July 1, 2009
Home Affordable refi program expanded
Home Affordable refi program expanded
Loan-to-value ceiling raised from 105% to 125%By Inman News, Wednesday, July 1, 2009.
http://www.inman.com/news/2009/07/1/home-affordable-refi-program-expanded
Inman News
Homeowners who are up to 125 percent underwater will be allowed to refinance under the Obama administration's Home Affordable Refinance Program if they are current on their payments and their loan is owned or guaranteed by Fannie Mae or Freddie Mac.
The federal regulator overseeing Fannie and Freddie has boosted the program's loan-to-value (LTV) ceiling from 105 percent to 125 percent to allow more homeowners to take advantage of lower mortgage rates.
Fannie and Freddie will also offer pricing incentives to encourage borrowers with LTVs above 105 percent to refinance into 20- or 25-year loans to pay down principal more quickly and reduce lifetime interest payments, the Federal Housing Finance Agency said.
When the Home Affordable Refinance Program was announced in February, the Obama administration said it hoped that as many as 4 million homeowners will be able to refinance under the program.
But some critics said the program wouldn't help borrowers whose loans aren't backed by Fannie and Freddie, and that the 105 percent LTV ceiling would exclude many who are deeper underwater because of steep home-price declines (see story).
The Mortgage Bankers Association last month revised downward its forecast for 2009 loan originations by $700 billion, citing rising interest rates and the slow pace of Home Affordable refinancings -- about 13,000, the group said (see story).
In announcing the increased 125 percent LTV ceiling today in Las Vegas, Housing Secretary Shaun Donovan said nearly seven in 10 of homeowners with mortgages in the city owe more than their homes are worth.
Donovan said "tens of thousands" of refinancings and trial loan modifications are under way. Under the parallel Home Affordable Loan Modification Program, 200,000 borrowers have received offers for trial loan modifications, Donovan said. That program, which provides incentives to loan servicers and borrowers for loan modifications, is intended to help up to 4 million borrowers.
In broadening the Home Affordable Refinance Program, the Obama administration could end up going beyond its original stated goal of helping "responsible" homeowners -- those who purchased a home with a down payment, only to see their equity shrink or disappear as home values fell.
A 20 percent down payment equates to an original LTV of about 80 percent; a home purchased with no down payment would have an LTV of about 100 percent.
A homeowner who made a 20 percent down payment on a $200,000 home would have had a $160,000 mortgage. Excluding any reduction in principal since purchase, the value of their home would have had to decline by 36 percent, to $128,000, for their LTV to grow to 125 percent.
Loan-to-value ceiling raised from 105% to 125%By Inman News, Wednesday, July 1, 2009.
http://www.inman.com/news/2009/07/1/home-affordable-refi-program-expanded
Inman News
Homeowners who are up to 125 percent underwater will be allowed to refinance under the Obama administration's Home Affordable Refinance Program if they are current on their payments and their loan is owned or guaranteed by Fannie Mae or Freddie Mac.
The federal regulator overseeing Fannie and Freddie has boosted the program's loan-to-value (LTV) ceiling from 105 percent to 125 percent to allow more homeowners to take advantage of lower mortgage rates.
Fannie and Freddie will also offer pricing incentives to encourage borrowers with LTVs above 105 percent to refinance into 20- or 25-year loans to pay down principal more quickly and reduce lifetime interest payments, the Federal Housing Finance Agency said.
When the Home Affordable Refinance Program was announced in February, the Obama administration said it hoped that as many as 4 million homeowners will be able to refinance under the program.
But some critics said the program wouldn't help borrowers whose loans aren't backed by Fannie and Freddie, and that the 105 percent LTV ceiling would exclude many who are deeper underwater because of steep home-price declines (see story).
The Mortgage Bankers Association last month revised downward its forecast for 2009 loan originations by $700 billion, citing rising interest rates and the slow pace of Home Affordable refinancings -- about 13,000, the group said (see story).
In announcing the increased 125 percent LTV ceiling today in Las Vegas, Housing Secretary Shaun Donovan said nearly seven in 10 of homeowners with mortgages in the city owe more than their homes are worth.
Donovan said "tens of thousands" of refinancings and trial loan modifications are under way. Under the parallel Home Affordable Loan Modification Program, 200,000 borrowers have received offers for trial loan modifications, Donovan said. That program, which provides incentives to loan servicers and borrowers for loan modifications, is intended to help up to 4 million borrowers.
In broadening the Home Affordable Refinance Program, the Obama administration could end up going beyond its original stated goal of helping "responsible" homeowners -- those who purchased a home with a down payment, only to see their equity shrink or disappear as home values fell.
A 20 percent down payment equates to an original LTV of about 80 percent; a home purchased with no down payment would have an LTV of about 100 percent.
A homeowner who made a 20 percent down payment on a $200,000 home would have had a $160,000 mortgage. Excluding any reduction in principal since purchase, the value of their home would have had to decline by 36 percent, to $128,000, for their LTV to grow to 125 percent.
Subscribe to:
Posts (Atom)
