Two words: Black Monday?

September 22, 2006

Two words: Black Monday?

29 comments:

Anonymous said...: Tighter standards for new mortgages coming soon
Regulators say borrowers need more disclosures in new complex loans
Friday, September 22, 2006

By Matt Carter
Inman News

New guidelines that would require banks to tighten underwriting standards and track portfolio risks on nontraditional mortgages while providing more comprehensive disclosures to borrowers will be finalized this fall, a federal regulator told members of the Senate Banking Committee Wednesday.

Kathryn E. Dick, deputy comptroller of the Office of the Comptroller of the Currency, said that interest-only and payment-option adjustable-rate mortgages (ARMs) are complex products that are often marketed to people who don't understand their risks. Guidelines instructing banks to do a better job informing consumers of those risks will be finalized in "weeks, not months," she said.

"Our ... fundamental concern is: Do borrowers who use these products understand the very real possibility of dramatically increased payments in the future?" Dick said in written testimony at a Senate Banking Committee hearing this week. To answer that question, the OCC looked at marketing materials used by lenders to market payment options.

"In many cases we found that such materials focused primarily on the initial low monthly payment and gave relatively little attention to the likelihood of much higher payments later. This exercise led us to conclude, at least initially, that nontraditional mortgages are relatively complex, and borrowers unfamiliar with them -- which means most borrowers -- would benefit greatly from improvements in both the content and timing of disclosures."

Banks "should spell out exactly what the consequences of the borrower's decisions will be -- both the benefits and the risks. There should be no equivocation about the risks of negative amortization and payment shock, if that's what the product entails," Dick said.

George Hanzimanolis, president-elect of the National Association of Mortgage Brokers, said nontraditional mortgages are a response to a lack of affordable housing, "affording consumers the flexibility to invest, manage their wealth, manage uneven income flows, and lower their monthly payments if necessary."

The banking industry has expressed its reservations about the proposed guidelines, saying they are too restrictive or unclear. Because the OCC's proposed guidelines would only apply to federally insured banks and their affiliates and subsidiaries, bankers say they would give unregulated institutions a competitive advantage -- even though those lenders are largely to blame for the perception that underwriting standards have been relaxed.

Bankers want any new disclosure requirements incorporated into rules that apply to all lenders, such as the Truth-in-Lending Act or the Real Estate Settlement Procedures Act. Hanzimanolis called for establishing minimum education requirements for all loan originators and improving financial literacy among consumers.

"No law or regulation should ever require any mortgage originator to supplant the consumer's ability to decide for him or herself what is or is not an appropriate loan product," Hanzimanolis said. "As the decision-maker, the role of the consumer is to acquire the financial acumen necessary and take advantage of the competitive marketplace, shop, compare, ask questions and expect answers."

Dick said state agencies that regulate mortgage brokers and lenders are expected to adopt similar guidelines, citing a recent announcement by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. If guidelines similar to those proposed by the OCC are adopted at the state level, that should help address the issue of "a level regulatory playing field," Dick said.

In a separate report and in testimony before the Committee, the Government Accountability Office also recommended more comprehensive disclosure to borrowers.

Orice M. Williams, the GAO's director for financial markets and community investment, said mortgage statistics show that lenders offered non-traditional mortgages to less creditworthy and less wealthy borrowers than in the past.

"Some of these recent borrowers may have more difficulty refinancing or selling their homes to avoid higher monthly payments, particularly in an interest-rate environment where interest rates have risen or if the equity in their homes fell because they were making only minimum monthly payments or home values did not increase," Williams said. "As a result, delinquencies and defaults could rise."

Although federal banking regulators think most banks appear to be managing their credit risk well by diversifying their portfolios or through loan sales or securitizations, Williams said, the monthly payments for most non-traditional mortgages originated between 2003 and 2005 have not reset to cover both interest and principal. It's too soon to tell to what extent payment shocks would result in increased delinquencies or foreclosures for borrowers and in losses for banks, Williams said.

The new guidelines proposed by the OCC would tighten underwriting standards, requiring lenders to analyze a borrower's ability to repay not only the initial loan amount, but any additional principal that may accrue in the case of a payment-option loan with negative amortization.

Dick said a payment-option loan that allows negative amortization is essentially the same thing as a traditional mortgage loan coupled with a separate home equity line of credit (HELOC). Instead of getting a check to put in the bank, the payment-option borrower is allowed to make smaller monthly payments that are too small to even cover all of the interest due on the loan. Instead of building up equity in the home, the borrower's debt increases.

When lenders underwrite separate HELOC loans, the borrower must demonstrate they have enough income to pay off all the additional debt they would take on if they drew on their entire line of credit. But lenders don't require borrowers who take payment-option loans to prove that they can handle the debt they will accrue beyond the initial loan amount if they choose to make the minimum payments.

The OCC believes that "underwriting standards that do not include a credible analysis of a borrower's capacity to repay their entire debt violate a fundamental principle of sound lending and elevate risks to both the lender and the borrower," Dick said.

The new guidelines will require that lenders base their underwriting analysis on the initial loan amount, plus any balance increase that may accrue over time if borrowers repeatedly choose the minimum monthly payment.

The new guidelines will also address the practice of issuing nontraditional loans with reduced documentation, especially unverified income. Banks will be directed not to approve loans with reduced documentation unless there are "other mitigating factors such as lower loan-to-value limits and other more conservative underwriting standards," Dick said.

The OCC also expects banks offering non-traditional mortgages to adopt "robust risk management practices, including policies and internal controls that address product attributes, portfolio and concentration limits, third-party originations, and secondary market activities." The proposed guidelines call for institutions to maintain performance measures that would provide early warning of potential or increasing risks.; September 22, 2006 4:16 PM
Anonymous said...: A little late one would think.; September 22, 2006 4:31 PM
Anonymous said...: How about “black decade” or “the dark ages”; September 22, 2006 4:33 PM
Anonymous said...: "Tighter standards for new mortgages coming soon. Regulators say borrowers need more disclosures"

LOL! Yes it's the lender's fault that borrowers are signing up for these deals. And how will Uncle Sam fix the ouchy? Why they will insist that borrowers be given more leeway to screw themselves. Typical government doubletalk. Borrowing standards are going to become even more lenient, and lenders will be spanked for asking too many questions.; September 22, 2006 4:47 PM
Anonymous said...: Inverted yield curve at about record .65 basis points!!. . .for over 3 months = 100% recession based on history. . .as one analyst said this morning (see Marketwatch). ."the bond market is Screaming recession." What I don't understand (maybe I do) is why the market has been going up the past few months. . .obviously smart money has been selling stocks and buying bonds. . .if a major recession, then even getting 4.5% (in a deflation situtation) will look good!; September 22, 2006 5:05 PM
Anonymous said...: Need some kind of impetus. We've had a hedge fund meltdown (Amarantha) and coup in Thailand this week and that didn't do much. Maybe Bush will launch a strike on Iran, that might do it. He does have his best buddy Pervez in town right now, probably to discuss the details.; September 22, 2006 5:06 PM
Anonymous said...: First it was the real estate agents fault, now it's the mean old lender's fault. How about some personal responsibility for being a democrat (oops, I mean stupid).
Black Monday might not happen with Paulson pulling the plunge protection team into action. The invisible hand is with the markets. It's much easier to devalue the USD. The sheeple have no idea the dollar is becoming worth-less.; September 22, 2006 5:06 PM
Bill said...: Great Led Zeppelin Tune..

Nobody's Fault But Mine!

Nobody's fault but mine
Trying to save my soul tonight
It's nobody's fault but mine

Devil he told me to roll
How to roll the log tonight
Nobody's fault but mine

Brother he showed me the gong?
Brother he showed me the ding dong ding dong
How to roll, the log tonight
Oh, it's nobody's fault but mine

Got a monkey on my back.
Gonna change my ways tonight
Nobody's fault but mine

I will get down rollin' tonight
Nobody's fault But Mine!

Nuff said!; September 22, 2006 5:27 PM
Miss Goldbug said...: "A little late one would think".

That is so true. Back in 1995 when I bought my condo, all my financial information was checked out completely before I qualified for the loan, and I had a 20% downpayment.

Banks are sapose to check out all information before they approve a loan. I guess these days, since they dont keep any of their loans, they dont care WHO they approve.
Banks should never have gotten away with disregarding BASIC LENDING STANDARDS to begin with.

Now its time to pay the price.; September 22, 2006 5:30 PM
Anonymous said...: "People need to stop and think of where they will be in five years." In the shithole.

They don'y have the foresight like you, because they were driven by greed and the "keep up with Joneses" challenge.; September 22, 2006 5:46 PM
Anonymous said...: "Back in 1995 when I bought my condo, all my financial information was checked out completely before I qualified for the loan, and I had a 20% downpayment. Banks are sapose to check out all information before they approve a loan. I guess these days, since they dont keep any of their loans, they dont care WHO they approve. Banks should never have gotten away with disregarding BASIC LENDING STANDARDS to begin with. Now its time to pay the price."
++++++++++++++++++++

I agree completely. I bought my co-op apartment back in '96 with a 20% down payment. Banks should NEVER have been allowed by the government to throw away basic lending standards over the years. Now we're ALL going to pay through the nose for such greed....; September 22, 2006 5:56 PM
Bill said...: Foreign central banks were net sellers of Treasury bonds last week, leading to a reduction in their overall holdings of U.S. securities, Federal Reserve data showed on Thursday.

Seems a lot of foreign banks are quietly moving out of US securities.

http://tinyurl.com/lkomw

&

http://tinyurl.com/fohhe; September 22, 2006 6:01 PM
blogger said...: classic bubble, classic mania.

read "manias, panics and crashes"

excesses,financed in large part by margin account loans and easy bank credit,leads to a pattern where the debt load of many market participants is overleveraged

"easy bank credit" is one thing. What's happened the past few years is a new invention in human history - never before have we seen this kind of easy credit on such a large scale.

Oh, the downfall and cleanup will not be pretty; September 22, 2006 6:17 PM
Metroplexual said...: I agree Kieth. I fear it will be ugly.; September 22, 2006 6:27 PM
Bill said...: Hey Keith did you see this?

http://tinyurl.com/ge4lw

Woman has balls no doubt..I dont like the fact that the paper printed her name as well as location and address..wheres the privacy?????????; September 22, 2006 6:29 PM
Anonymous said...: It's a new paradigm, guys!

I've just got an idea that we aren't living in capitalistic society anymore. Why?

Because USA quietly changed its economic system to socializm.

Consider this. Everybody now gets a mortgage. Banks sell it immideately to GSE ( government sponsored enterprize). Think about it. Can GSE get banckrupt? NOOOOOOO,
because US government backs it.

Everybody who bought MBS (mortgage backed security ) from GSEs are screwed!!! Say buy, buy to your 401k, portfolios, mutuals, etc. You'll get hyperinflated money back (because of socialistic government), but will need to work until you die.; September 22, 2006 6:56 PM
Anonymous said...: "How about some personal responsibility for being a democrat"

Anon, plain and simple you've got to be the biggest jackass living.

Do you actually think that the only dipshits that created this mess are Libs or Dems?

And, before your great retort,please know that I am not affiliated with any party because not a one stands for each and every thing I believe in.

Quick, look, there's Hillary- go bash her.; September 22, 2006 6:59 PM
blogger said...: I moved back into all cash, except for my COP 2012 options...

there is no asset class I like at this point; September 22, 2006 7:41 PM
Anonymous said...: keith.. you sold your gold?

gold is not an investment.; September 22, 2006 8:27 PM
Anonymous said...: Yes, gold is not an investment, because it's not someone's liability. It's money, pure and simple.

This just shows who hates gold when they say it's a lousy investment. Since when do they attack any fiat currency as a lousy investment? The price of gold is not controlled by the government, so that's why it's a hated asset class.; September 22, 2006 8:54 PM
blogger said...: yup in and out, made a few $ again, but not liking anything right now, especially as I think through the inflation / deflation issue

I like cash, but even cash needs to get into more than US$; September 22, 2006 9:40 PM
Anonymous said...: Housing: ARMed and Dangerous
Risks to the economy, stocks and your net worth
By Liz Ann Sonders

“over the last decade there has been a remarkably tight connection between the Housing Market Index, a measure of confidence among homebuilders, and the S&P 500® one year later. Before 1994, the two measures were much less correlated. However, if the recent pattern continues, the graph suggests a potentially significant downside for equity investors.” Click Here; September 22, 2006 10:14 PM
Anonymous said...: Out again, Keith? You are an ancy little bugger, ain't ya. If commodities are feelin a little too squirrely for ya, take a peek at these symbols:

EWJ, EWC, EWA

Last 2 are momentum plays that benefit from strong commodities markets, and act as a good US$ hedge but without the volatility.

1st one is pretty contrarian, not too many people hyping up Japan these days.

Good luck.; September 22, 2006 10:52 PM
Anonymous said...: The republicans need to retain control of the country so that when they NASCAR freaks are moving the christian wife and the brats into the SUV after losing the house Daddy will be out hunting republicans.

I can't wait to see this country punished for turning to republicans. Hope there's lots of pain and suffering again this time. That way conservatism will go back into its spider hole for another 40 years.; September 23, 2006 12:55 AM
Anonymous said...: To understand who he was, you have to go back to another time when the world was powered by the black fuel and the deserts sprouted great cities of pipe and steel. Gone now swept away. For reasons long forgotten, two mighty warrior tribes went to war and touched off a blaze which engulfed them all.

Without fuel they were nothing. They built a house of straw. The thundering machines sputtered and stopped. Their leaders talked and talked and talked. But nothing could stem the avalanche. Their world crumbled. The cities exploded. A whirlwind of looting, a firestorm of fear. Men began to feed on men.

On the roads it was a white line nightmare. Only those mobile enough to scavenge, brutal enough to pillage would survive. The gangs took over the highways, ready to wage war for a tank of juice. And in this maelstrom of decay, ordinary men were battered and smashed.

Except for one man armed with an AK-47, and a Honda full of silver. In the roar of an engine, he lost everything and became a shell of a man, a burnt out, desolate man, a man haunted by the demons of his past. A man who wandered out into the wasteland. And it was here in this blighted place that he learned to live again.; September 23, 2006 3:36 AM
Anonymous said...: "People need to stop and think of where they will be in five years."

Ummm, the problem is that they're probably optimistic. People look at the problems in other countries and believe that America is immune. We've been lucky to have a diversified economy based on a large landmass. But the European union should be able to match that diversity. And then of course there is India and China with all the "entry level jobs" that will turn into "next generation highly skilled jobs." The apprentice system has died in America, i think... too bad for the next generation... This generation wanted profits diverted to pensions and paychecks rather than investing in preserving the company.; September 23, 2006 4:28 AM
Anonymous said...: "A man who wandered out into the wasteland. And it was here in this blighted place that he learned to live again."

The second greatest action film of all time.

The first being "Raiders of the Lost Ark".; September 23, 2006 5:22 AM
Anonymous said...: BLACK MONDAY

HISPANIC TUESDAY

CATHOLIC WEDNESDAY

IRISH THURSDAY

MEATLESS FRIDAY; September 23, 2006 5:32 AM
Anonymous said...: Your Home

house loans Tips for building or remodeling your dream home.; October 08, 2006 3:20 AM

HousingPANIC - The Housing Bubble Blog with an Attitude Problem, 2005 - 2008

September 22, 2006

Two words: Black Monday?

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