LoanCentral's Real Estate Lending Blog

NAHB Study Sheds New Light on Life Expectancy of Home Components

By any reckoning, a home is expected to last many years and serve several successive generations.

But what about the individual components that comprise the house?

How many years of service can a home owner reasonably expect from a roof or a door, a window or a whirlpool tub?

A new NAHB study takes some of the mystery out of the subject with the caveat that numerous factors, including use, maintenance, climate, advances in technology and simple consumer preferences can have a dramatic effect on product longevity. Go to the study (pdf format).

FORECLOSURES Climb in latest report...

The Top Ten Foreclosure Rates:

1. Nevada
2. Colorado
3. Florida
4. Georgia
5. Michigan
6. Tennessee
7. Ohio
8. Texas
9. Arizona
10. Indiana.

The number of national foreclosure filings was up 4% in February as Nevada reported the highest state foreclosure rate for the second month in a row with a 24% monthly increase from January.


A total of 130,786 foreclosure filings were reported during the month of February, down 4% from January’s revised total but still up 12% from February 2006.

The national foreclosure rate stood at one foreclosure filing for every 884 U.S. households in February, according to the foreclosure tracking company.

RealtyTrac considers default notices, auction sale notices and bank repossessions as foreclosure filings.

"Based on our numbers for the first two months of 2007, foreclosure activity is running at a rate that would project to a 33 percent increase over 2006," said RealtyTrac.

"It appears that as subprime and FHA loans default at higher than anticipated rates, and lenders tighten their underwriting standards, we're going to continue to see a spike in the number of homeowners facing foreclosure."

A 24% increase in monthly foreclosure activity kept Nevada in place as the nation's highest state foreclosure rate with for the second month in a row with foreclosure rate of one foreclosure filing for every 278 households

In February, Nevada reported 3,124 foreclosure filings, up 77% from February 2006.. Colorado followed with one foreclosure filing for every 345 households in February, a 9% month-to-month increase with 5,310 total foreclosure filings.

Florida foreclosures skyrocketed more than 63% with 19,144 foreclosure filings – the most of any state - reporting one foreclosure filing for every 382 households.

Did You Get Your Tax Deduction???

You don't know what you don't know", a saying popularized by Douglas Andrew of Missed Fortune fame says a lot. It is especially important with the tax professional-client relationship. If the client does not offer the information, the tax professional does not know to include the information in plans and if the tax professional doesn't know what the client's plans are he (or she) cannot help with the planning.

Specifically I am writing about the tax deduction for deferred interest in a paid-off Option ARM mortgage. This happens when the client pays less than the interest-only payment and the difference is added to the balance owed. I have been told by tax experts that this deferred interest is tax deductible when paid off on a refinance or a sale of the home. Obviously every situation is different and you should always speak to your tax professional to its applicability to your situation.

If the client does not tell the tax professional that the home has been sold or refinanced, the financing tool used was an Option ARM - AND the client made less than the interest only payment the tax deduction might be missed. A scenario that I ran recently for a client was that his $300,000 loan at 7.5% for 30 years with a minimum payment of 1.25%. The difference between the interest only payment and the minimum payment over 36 months was $31,508. This makes for a potential healthy lump sum interest deduction for the client if the tax professional only knew. The tax advisor is your friend - give them the tools that they need to help you. For more information on LoanCentral's "Tax Deduction" paper - click here.

Mortgage Fraud: $4 Billion and Rising

The FBI's estimate that mortgage fraud costs lenders $1.2 billion a year is off the market by more than $3 billion. And others say the cost could be even higher. Lew Sichelman takes a look at the numbers and the scams behind them. Full Story: Fraud: $4 Billion and Rising

From my perspective, the article is refreshing in that it does not lay all the blame for the current level of mortgage fraud at the feet of the lending or appraisal industry.

Ronald Frazier, president of LSI, and Arthur Prieston, chairman of the Prieston Group, give their thoughs on the causes of the unprecidented rise in mortgage fraud by title companies, commissioned loan officers, builders, and scammers.

Click here for the full story: Fraud: $4 Billion and Rising

Economists See Possible Subprime Spillover
Wall Street Journal (03/16/07) P. A4 ; Izzo, Phil

A new WSJ.com survey of 60 economists reveals that 32 of the respondents believe that it is "very" or "somewhat" likely that the problems in the subprime-mortgage market will spread to the rest of the home-finance market.

However, by a 4-to-1 margin, the economists agree "that the worst of the housing bust is behind us;" and only 22 percent say the subprime problems have led them to lower their economic forecasts. "The underlying problem is not the subprime market perse, but the reset of large quantities of adjustable-rate debt--some of which is classified as subprime, some as prime--to higher interest rates in an environment of flat or falling house prices in most of the United States," writes Jan Hatzius, chief U.S. economist at Goldman Sachs, in a research note.

About 10 percent of homeowners could have ARM problems, data from the government's 2005 American Housing Survey indicates.

Wall Street Journal (03/19/07) P. A9 ; Hagerty, James R.

Looking at 8.4 million adjustable-rate mortgages written between 2004 and 2006, First American CoreLogic expects about 13 percent of them, or 1.1 million, to enter foreclosure once their interest rates reset.

While lenders stand to lose about $113 billion, analysts do not anticipate any harm to the national economy, as it will take six years to seven years for the scenario to play out. His estimate climbs to 1.9 million foreclosures in the event that the average home price falls 10 percent from its December 2006 level and drops to 489,000 foreclosures if the average home price jumps 10 percent.

The most vulnerable loans had initial "teaser" rates of less than 4 percent, with analysts expecting a 118-percent surge in monthly payments on those loans when interest rates adjust.

The Times stated that Fremont, a subprime mortgage lender has told 2,400 employees that they will lose their jobs in the next two months; and another struggling subprime lender, Ameriquest Mortgage Co., says it has returned baseball stadium naming rights to the Texas Rangers and that the facility will no longer be known as Ameriquest Field.

Subprime lenders continue to scale back their operations, shut down, or announce that they are up for sale; and more layoffs are expected in the near future, with New Century Financial, considered a likely candidate.

The Federal Reserve met and voted to leave the key federal funds rate at 5.25 %.

This important rate has remained unchanged now since last June. (6th time in a row)

Bernanke states the reason is weaker economic performance and higher inflation pressures. As it has at previous meetings, the Fed said it was more worried about the risk of inflation than weak economic growth. But this time it dropped language that talked solely about the possibility that interest rates would be increased in the future.

Crazy times in the lending business – reminiscent of the dot.com crisis a few years ago.

The entire mortgage industry is feeling the pressure from slowing home sales, intensifying competition and rising past-due loans. Higher delinquencies on subprime mortgages have (in recent months) forced a slew of lenders, big and small, to set aside more capital for potential loan losses.

Subprime loans, a term applied to some of the riskiest home mortgages, are made to borrowers with poor credit ratings or high debt burdens, often with adjustable interest rates.

As more subprime loans soured last year, lenders including Fieldstone and New Century Financial Corp. of Irvine, California have been losing money. About a dozen including Saxon Capital Inc. and ResMae Mortgage Corp. have sought buyers since 2005. A dozen more including Mortgage Lenders Network USA Inc. and Ownit Mortgage Solutions Inc. failed in the past three months.

Here’s a list of last years top 25 subprime lenders in the country along with a short status on where they are today…

Top 25 Subprime Lender list (Thanks to Implosion)
(As of 2006; from the Mortgage Banker's Association.)

Red are shutdown and/or bankrupt,

blue are no longer operating independently) –

2006 RANK	Lender	Comments	Status
1	Wells Fargo
2	HSBC Household Finance	HSBC's subprime unit - HSBC, Britain's biggest bank stunned the stock market by warning that misadventures in the US mortgage market have forced to it to write off up to $11billion	So far this year, they have already erased at least half of '06 earnings
3	New Century	New Century is now facing a veritable storm of lawsuits thanks to their (allegedly) misleading statements throughout 2006, which would have served to pump the share price and draw in additional investors.	funding pulled; lending halted, lawsuits, criminal probes, impairments
4	Countrywide	subprime to hurt results; layoffs	It follows New Century Financial Corp., Fremont General Corp. and General Electric Co.'s WMC Mortgage unit among large subprime lenders to announce staffing cuts this month.
5	Fremont General	Troubled subprime lender Fremont General said it will exit subprime residential lending, citing mounting pressure from loan repurchases and likely regulatory action.	prompted primarily by the receipt of a Proposed Cease and Desist Order from the FDIC on February 27 residential subprime activities ceased
6	Option One	H&R Block Inc. said Tuesday it will have to increase its quarterly losses for the third quarter because of the continued meltdown of the subprime market. In a securities filing, the nation's largest tax preparer said an ongoing review of its Option One mortgage arm forced it to write down the subsidiary's assets by $29 million, before taxes.	[H&R Block; mounting losses; up for sale]   H&R Block is looking to sell Option One, which has hemorrhaged money as the number of customers defaulting on their loans has gone up sharply.
7	Ameriquest	[ACC's formerly-major retail subsidiary]
8	WMC	[subsidiary of GE Money]
9	Washington Mutual	[some branch closures starting late 2006]
10	CitiFinancial
11	First Franklin	[acquired by Merrill Lynch from National City for $1.3bln]
12	GMAC	[Major layoffs in ResCap; Looming writedowns subprime loan portfolio and residual]	Residential Capital LLC, a real-estate financing company owned by General Motors Acceptance Corp., said it will eliminate 1,000 positions by October to reduce costs as the mortgage lender grapples with "the continued deterioration" in the subprime mortgage sector.
13	Accredited Home	[in a serious cash crunch]	The Company reported that it has paid approximately $190 million in margin calls on its facilities since January 1, 2007. Approximately two-thirds of those margin calls have been received and paid since February 15, 2007.
14	BNC	[Lehman bros. subsidiary
15	Chase
16	Novastar	[serious impairments; likely no dividends in 2007, no taxable income through 2011; shareholder lawsuits]	NovaStar Financial’s stock plunged 38% a day after the real estate investment trust became the latest casualty of rising problems in the subprime mortgage market. They reported a loss of $14.4 million, compared with a profit of $26.4 million a year earlier.
17	OwnIt	partially-owned by Merrill and BofA
18	MLN	Much of the sales force has gone to Lehman
19	EMC
20	ResMAE	[acquired by Citadel]	Citadel Investment Group LLC agreed to buy ResMae Mortgage Corp. for about $180 million, beating out Credit Suisse Group in a last-minute auction for the bankrupt mortgage lender.
21	Aegis		[recently closed two subprime operations centers]
22	FirstNLC
23	Decision One		[owned by HSBC; rumored to be up for sale]
24	ECC/ Encore		[fire-sale bought out by Bear-Stearns]
25	Fieldstone	bought by C-Bass	Fieldstone's stock had lost more than 40 percent of its value this year and 78 percent in the past 12 months. Shares of mortgage lenders have tumbled since the start of 2006 as late payments and defaults on new subprime loans in the U.S. reached their highest level ever, according to Bear Stearns Cos.