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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Ramsey Su who wrote (46152)	11/27/2005 1:32:07 PM
From: russwinter	Read Replies (1) \| Respond to of 110194

Even the real estate lobby wants exotics curtailed. Lereah sort of connects the dots on trouble ahead.: Sunday, November 27, 2005 Economist Lobbies For Fewer 'Exotic' Loans thehousingbubble2.blogspot.com One economist is pushing the government to tighten up regulations on high-risk loans. "NARs' chief economist David Lereah is concerned enough about the proliferation of so-called 'exotic' mortgages that he has gotten the government to consider a limit on them. In the first six months of the year..the share of first-mortgage originations that were interest-only loans rose to 23 percent from 17 percent during the same period last year, and the Alt-A share increased to 11 percent from 8 percent." "Those are national numbers, however. The problem Lereah has is with the highest-priced markets, such as California, where the percentages of interest-only and Alt-As are much higher and people in need of affordable housing 'are stretching their credit to the limit.'" "Lereah went to the Office of the Comptroller of the Currency, which oversees the nation's banks, 'to talk about the behavior of lenders who are offering these exotic mortgages.' 'I'd like to see more guidelines on the percentage of these loans that can be issued, even if it slows home sales, to ensure a soft landing for the market,' he said." "He found that he and the comptroller, John C. Dugan, were on the same page. New guidelines on nontraditional loans are due Jan. 1, Lereah said." "From the lenders' side, they sustain loan volume as higher interest rates have ended the refinancing boom. From the borrowers' side, they have made expensive houses more affordable. But there's a drawback, Dugan said. 'There's now a concern that the very availability of this new type of financing has done its share to help drive up house prices, which in turn stimulates demand for even more nontraditional financing.'" "Here is an example of what worries Dugan and Lereah: A buyer with an option ARM borrows $360,000 at an initial interest rate of 6 percent. The borrower makes only the minimum monthly payment (initially $1,200, rising to $1,600 incrementally) for the first five years. In year six, if there is no change in interest rates, the payment is up to $2,500. If the interest rate has climbed to 8 percent from the current 6 percent, the monthly payment jumps to $3,166." "If half the homeowners in a region have those mortgages, and if interest rates won't accommodate refinancing, and if house prices have fallen below the value of the loan, what happens? 'It wouldn't be a soft landing,' Lereah said."

To: Ramsey Su who wrote (46152)	11/27/2005 3:27:20 PM
From: George K.	Read Replies (1) \| Respond to of 110194

Yes, Summer 2003 was the refi top. I'm not sure what to think about 2005 being the purchase top for premium revenues. Agents are more inclined to push the lucrative owner policies (they keep 60-70% of the premiums) which are based on those juiced sales prices because it is profitable and makes sense from a risk management angle. There's a whole world out there of cash sales in the high end real sector unaffected by interest rates, bubble prices, and a host of other issues that would dissuade the borrowing public. Remember also, the companies don't know what their agents are sitting on for premiums that have been collected but not remitted because the final policies have not been issued for one reason or another. I'm just getting to the 3Q stuff myself and will not receive the premiums or remit a lot of the 4Q until early next year. So it might be like a battleship or oil tanker slowing down. An angle I haven't gamed yet is whether a mini refi boom starts when ARMs adjust and that crowd goes into fixed, if indeed they do. The lender policies only last as long as the loan. Geo.