Subprime 2.0?

Edward Pinto, the Chief Credit Officer of Fannie Mae back in the 1980's, has written an Op-Ed for Bloomberg titled "Subprime 2.0 Is Coming Soon to a Suburb Near You" that talks about no-money down and lowered credit score requirements for government-backed loans.  [Fair warning: this op-ed is takes an EXTREMELY negative view of the loosened underwriting standards that became prevelant in the mid-2000's.]

One of the more interesting quotes in the article is where he cites the number of no-money down mortgages (or extremely low-money down) as a percentage of all loans:

In 1990, one in 200 home-purchase loans (all government insured) had a down payment of less than or equal to 3 percent. By 2003, one in seven home buyers had such a low down payment, and by 2006 about one in three put no money down.

Visually... this is what I've come up with:
 

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Now... Pinto believes we will to return to an environment of subprime lending that he refers to as “Subprime 2.0,” as the FHA continues to accept borrowers with low Fico scores and minimal down payments.

For example, the FHA’s average down payment is just 4 percent,” he wrote. “Even this meager amount disappears after adjusting for seller concessions and financed insurance premiums.

Pinto is calling for a return to hefty down payments - - a minimum of 20 percent down, with few exceptions, and believes documentation should be “iron-clad."

NOW, couple of questions for our readers (feel free to voice your opinion in the comments): 

• What would this mean for those of us working on affordable housing issues? 
• Would this cause more problems than it solves?
• Are there other solutions to affordable housing... that don't involve simply lowering lending standards? 

One of the conferences that takes up the issue of affordable housing... and discusses related policy issues is the "Homes For All" Conference.  You can learn more about the conference here. 

Next Wave of Foreclosures Coming to Minnesota

I've come across two recent items that point to what we've all feared... the next wave of foreclosures is rapidly approaching Minnesota. 

While no corner of Minnesota has escaped unscathed from the from the foreclosure crisis, the urban areas of Minneapolis and St. Paul have been especially hard hit.  HOWEVER... the next wave of foreclosures will be felt the most in the outer-ring suburbs of the Twin Cities and the counties that surround the TC metro area.

The first item is a slide from MN Housing, that was presented to the members of the "Foreclosure Partners Council" (Working group of organizations on the front line of the State's response to the foreclosure crisis.  The MN Home Ownership Center is an active member of the Council.)  John Patterson, Director of Research and Evaluation at Minnesota Housing, has taken data about the number of Non-Prime Adjustable Rate Mortgages that have not yet reset (or recast) and 'heat-mapped' the state of Minnesota:

The second item is an audio presentation from Dr. Jeff Crump, Professor of Housing at the University of Minnesota, who has studied the foreclosure issue for years.  He has come to the same conclusion as John Patterson.  You can hear Dr. Crump's presentation here.

Combined with the less-than-stellar employment figures in the 'red zones' of John's "heat-map"... it's obvious that there are parts of Minnesota... like the suburban areas around the twin cities... and parts of Crow-Wing county... that are still in for quite a bit of pain.

If you have an Adjustable Rate Mortgage... and you're not sure what will happen when the rate adjusts, or if you're struggling with payments now... don't delay, contact a Foreclosure Counselor through the Minnesota Home Ownership Center TODAY to learn about your options and steps to take to avoid a possible foreclosure.  Waiting limits your options.  For information on how to contact your local, FREE Foreclosure Counselor, click here.

GAO Report On Non-Prime Mortgages

This summer, The U.S. Government Accountability Office (GAO) issued a report on the “Characteristics and Performance of Nonprime Mortgages”. This report includes the number of seriously delinquent (90+ days) in every state and every congressional district in the country.

In addition, the report has a ton of useful information about the prevalence of non-prime mortgages as well as information about borrower types and loan characteristics of the non-prime loans that were originated between 2000 and 2007. For example, nationally, between 2000 and 2007, 33% of subprime loans, and a staggering 70% of Alt-A loans were “no-doc” loans. Complicating matters for consumers who would like to refinance, 72% of all sub-prime loans, and 37% of Alt-A loans had a prepayment penalty.

The 57-page report can be downloaded free at the GAO website here.

Here are some highlights about Minnesota from the report:

Status of Nonprime Loans Originated from 2000 through 2007
by Congressional District as of March 31, 2009

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Percentage of 2000-2007 Nonprime Loans
in Different Status Categories

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