Study Says Income Not a Factor In Subprime Mortgage Defaults
NEW YORK -- Mortgage defaults stem from loan products not income level, according to a study released last week by the Local Initiatives Support Corp. The study also found that most subprime mortgages were made outside of poverty-stricken areas.
Delinquency and foreclosure rates for subprime borrowers were comparable across all income levels, according to Michael Rubinger, LISC president/CEO.
"This reinforces what years of experience have already told us: low-income residents are not, by definition, poor credit risks. Unsuitable mortgage products are," he said.
LISC studied delinquency and foreclosure rates from March 2007 through March 2008. It found that default rates for all loan types rose significantly over that 12-month period, with subprime foreclosures vastly outstripping prime defaults. But among subprime borrowers, LISC also found that income level had little correlation to foreclosure rates.
LISC said in a written statement that the findings are particularly important as the country considers the value of the Community Reinvestment Act. CRA requires banks to lend and invest in the places where they take deposits. Some say through CRA banks were forced to make risky loans and threatened with fines if they didn't reach government quotas. Republican lawmakers have urged the Justice Department to investigate the GSEs for mortgage fraud and overzealous lending under the act, claiming that such lending is at the center of troubles in the mortgage-related markets.
LISC said its mission is to help community-based organizations revitalize underserved neighborhoods.
Nation's Foreclosure Rate Dips
IRVINE, Calif. -- The nation's default rate dipped in September, according to RealtyTrac.
"Much of the 12% decrease in September can be attributed to changes in state laws that have at least temporarily slowed down the pace at which lenders are moving forward with foreclosures," James J. Saccacio, COO of RealtyTrac, said.
Saccacio said anti-foreclosure measures that recently took effect in California and North Carolina have had a significant impact. California's SB 1137 requires lenders to make contact with borrowers at least 30 days before filing a notice of default. North Carolina now requires lenders to provide homeowners and the state's commissioners of banks 45-day notice prior to filing an NOD.
California NODs dropped 51% in September from the August numbers. California accounts for one-third of the nation's foreclosure activity each month, Saccacio said. NODs in North Carolina dropped 66% in September from the prior month.
Foreclosure filings were reported on 265,968 properties in September.
But, third quarter activity still posted a three percent gain from the second quarter of 2008 and is up 71% from the same time in 2007.
Subprime Borrowers Must Undergo
Homeownership Counseling in Jan.
WASHINGTON -- Beginning in January, first-time homebuyers who obtain a MyCommunityMortgage loan or a loan that relies on nontraditional credit to qualify will also have to undergo mandatory homeownership counseling.
"High-quality counseling provides the first-time homebuyer in particular with reliable information and the resources necessary to make the kind of informed decisions that ultimately lead to sustainable homeownership. In this extraordinary market, we think it is critical to reinstate this requirement and to work with counseling agencies and our lender partners to help homeowners succeed," Fannie Mae President/CEO Herb Allison said.
The counseling curriculum, provided prior to closing by an independent and certified third-party agency or counselor, will cover a variety of topics related to home buying and will include a personalized assessment of the borrower's financial position and readiness for homeownership.
Fannie Mae will continue to encourage face-to-face education and counseling, with some flexibility for telephone counseling, to accommodate borrowers who are unable to attend face-to-face sessions or who do not have an eligible provider in their area.