Winter’s Mortgage Crisis Looms Amid Bubbling Market

It’s going to be a long winter — but not because of the weather. A precipitous bubbling in the housing market will lead to a mortgage crisis by winter, banking analyst Dick Bove told CNBC

Now that the Federal Reserve is nearly done with its monthly bond-buying program, which includes mortgage-backed securities, and Congress continues on its quest to unwind Fannie Mae and Freddie Mac, conditions could get dicey in the home loan market. 

As a result, a scenario in which long-term financing — including the ubiquitous 30-year, fixed-rate mortgage — is endangered as mortgage buyers dry up.

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“This means there will be less money available to fund housing, and the terms of the available funds will be considerably more onerous than what was available under 30-year, fixed-rate loans,” Bove said in a report he sent to clients Tuesday. “This means higher monthly payments and lower housing prices. It means a crisis in the mortgage markets — and the economy.”

In December 2013, the Federal Reserve announced a $10 billion taper to its quantitative easing program, which has been purchasing as much as $40 billion a month of mortgage-backed securities. 

At the same time, legislators are looking to eliminate Fannie Mae and Freddie Mac to stabilize and create greater competition in the housing finance market.

Part of the plan would see private capital take the first 10% of losses in case of default, a provision that has drawn critics who say the level is too high and will discourage investors, CNBC writes. 

Although banks have stepped up their mortgage buying this year, those institutions are unwilling to take on the risk of 30-year, fixed-rate mortgages, Bove said.

“While these banks are not willing to make public statements similar to those of the industry’s leaders, they all agree that the risk in making loans to low-income households is too high,” he said. “The fines, lawsuits and put-backs associated with those loans make them unprofitable.”

And until that vacuum is filled, the prospects for housing remain troublesome.

“One or the other of these institutions must step up to provide the funds since there is no entity that can take their place in the near or even intermediate term,” Bove said. “Thus, the source of my fear is clear. If the government is adamant that the [government-sponsored enterprises] must go, housing prices will fall. This will be a crisis.”

Read the full CNBC article here

Written by Emily Study

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  • hecmvet,

    Canada, really?

    When you do focus on the US you misstate the facts about California nonrecourse law. You state: “In the U.S. that’s not permitted in 11 states, including California, and foreclosure proceedings are complicated even in the other states.” Recourse note owners where the collateral is an owner occupied residential home in California most certainly can seek a judgment deficiency on uncured defaulted mortgages in the California courts. Where do you get the idea that deficiency judgments are “not permitted” here?

    Most mortgage refinances in this state are in fact recourse. It is the method of foreclosure selected by the note owner which makes almost all recourse mortgages on residential owner occupied homes in California nonrecourse. The following is a summary of the key issues related to why so few recourse mortgage note owners seek judgment deficiencies when the collateral is in California.

    Gaining the rights to the home and a judgment deficiency in California through the courts is a long, involved, and costly process. However, the note owner has a much quicker and less costly means to gain ownership of the home by electing the right of the trustee to sell the property. The right is found in the trust deed filed by lenders on California mortgages. When the lender follows the mandated actions within the required timeline and the right of the trustee to sell the property is properly exercised, the note owner must forego all judgment deficiencies that the note owner might otherwise have the right to seek in regard to the defaulted mortgage.

    Due to the ease, less cost, and much shorter foreclosure process time of a trustee sale, few foreclosures in California end up with any kind of deficiency judgment to the note owner. Most mortgage note owners realize that the effort of trying to get a deficiency judgment paid off can be a worthless exercise and at great cost, since most homeowners who are foreclosed upon have few assets or sufficient income to pay the judgment. So while many lawyers classify California as a nonrecourse property state for residential foreclosure purposes, it is not.

    BUT if you feel you have a California legal citation showing that recourse mortgages are not permitted, please provide that citation; however, there is no such law.

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