Why?
Report analyzes what mortgage industry did wrong before crisis
May 26, 2010
By MortgageDaily.com staff
A new study attempts to answer how mortgage bankers could have gotten it so wrong before the bubble burst. Among the biggest culprits were silent second mortgages and bad risk models.Anatomy of Risk Management Practices in the Mortgage Industry was conducted by Professor Cliff Rossi of the University of Maryland. It analyzed risk management processes used by lenders during the period leading up to the housing crisis.The report was released today by the Mortgage Bankers Association, which sponsored the report through its Research Institute for Housing America."Multiple factors including poor data, incomplete performance metrics, and, short-term focus and unrealistic optimism among senior business managers contributed to the collapse in the U.S. housing and mortgage markets," MBA said.Pressured to provide loan programs that enabled borrowers to afford rising home prices, lenders used modeling that proved completely unreliable -- with defaults on 2006 originations eclipsing by four times the level of defaults expected from pre-2004 models.The study found that subprime risk increased between 1999 and 2006 with the expansion of several risk attributes. But of most concern was the increase in subprime loan-to-values as the rate of silent second liens jumped."The resulting increase and expansion of risk layering and change in borrower behavior, left risk managers unable to offer reliable risk estimates," said Rossi -- who reportedly has more than 20 years' experience in mortgage lending and regulation.Also contaminating the mix was corporate culture and cognitive bias, according to the report. Senior mortgage executives became less risk averse because of the long run-up in home prices and consistently low default rates.In addition, investors were unconcerned with the lack of geographic and product diversification at large lenders, while better-than-average economic conditions created a false sense of security for mortgage executives."Moving forward, it will be essential for the industry to develop early warning measures of the level of risk in new originations and less reliance on imprecise historical performance of new loan products," Rossi added.
Friday, May 28, 2010
Mortech-MortgageDaily.com Mortgage Market Index for the Week Ended May 26, 2010
Week Ended May 26, 2010
National Average Loan Amount $220,893
Top 3 States state
$314,057 DC
$303,786 HI
$283,115 MA
Bottom 3 States state
$162,653 OH
$163,785 AR
$166,170 NE
National Average Rate-Term Refinance Amount $239,363
Top 3 States state
$304,031 DC
$289,161 MA
$285,348 ND
Bottom 3 States state
$140,714 AK
$164,386 NE
$173,202 AR
National Average Cashout Refinance Amount $221,549
Top 3 States state
$315,937 DC
$297,500 ND
$285,096 CA
Bottom 3 States state
$143,047 NV
$150,347 IA
$153,126 SD
National Average Jumbo Loan Amount $653,874
Top 3 States state
$1,008,135 SC
$978,166 OK
$907,442 CO
Bottom 3 States state
$477,641 MI
$483,338 OR
$537,000 ME
National Rate-Term Refinance Share 39.370%
National Cashout Refinance Share 12.910%
Total Cashout Refinance Share 52.280%
HOT PRODUCTS
Product state
State Average
Conv30 MA $305,091
Conv30 MO $211,800
Conv30 CA $284,091
Conv30 NJ $293,721
Conv30 IL $344,841
Conv30 TX $219,874
Conv15 MA $275,851
Conv30 KS $203,405
FHA30 MA $289,016
FHA30 MO $158,282
FHA30 TX $162,929
Conv15 MO$198,942
Conv30 NE $179,202
Conv30 AR $186,766
Average rate for each product from All investors
round(avg(rate),3)
Product
4.747% Conv30
4.140% Conv15
3.660% 5-1LiborARM
4.570% FHA30
4.330% FHA15
4.640% VA30
5.600% Jumbo30
Mortgage Market Index 270
Week Ended May 26, 2010
National Average Loan Amount $220,893
Top 3 States state
$314,057 DC
$303,786 HI
$283,115 MA
Bottom 3 States state
$162,653 OH
$163,785 AR
$166,170 NE
National Average Rate-Term Refinance Amount $239,363
Top 3 States state
$304,031 DC
$289,161 MA
$285,348 ND
Bottom 3 States state
$140,714 AK
$164,386 NE
$173,202 AR
National Average Cashout Refinance Amount $221,549
Top 3 States state
$315,937 DC
$297,500 ND
$285,096 CA
Bottom 3 States state
$143,047 NV
$150,347 IA
$153,126 SD
National Average Jumbo Loan Amount $653,874
Top 3 States state
$1,008,135 SC
$978,166 OK
$907,442 CO
Bottom 3 States state
$477,641 MI
$483,338 OR
$537,000 ME
National Rate-Term Refinance Share 39.370%
National Cashout Refinance Share 12.910%
Total Cashout Refinance Share 52.280%
HOT PRODUCTS
Product state
State Average
Conv30 MA $305,091
Conv30 MO $211,800
Conv30 CA $284,091
Conv30 NJ $293,721
Conv30 IL $344,841
Conv30 TX $219,874
Conv15 MA $275,851
Conv30 KS $203,405
FHA30 MA $289,016
FHA30 MO $158,282
FHA30 TX $162,929
Conv15 MO$198,942
Conv30 NE $179,202
Conv30 AR $186,766
Average rate for each product from All investors
round(avg(rate),3)
Product
4.747% Conv30
4.140% Conv15
3.660% 5-1LiborARM
4.570% FHA30
4.330% FHA15
4.640% VA30
5.600% Jumbo30
Mortgage Market Index 270
Wednesday, May 19, 2010
How To Raise Your Credit Score
How to Strengthen Your Credit Score
Secrets to keeping your credit score high
May 17, 2010
By JENNIFER WATERSMarketWatch, (MCT)
CHICAGO -- A happy consequence of this Great Recession is that Americans are widely expected to be better consumers.That means we'll only take on loans that we can afford, pay off credit-card debt at the end of each month and sock money away. It also means our credit scores will reach what the industry calls super prime, the top score achievable.Or will they? Turns out our scores are not just a reflection of our ability, or lack thereof, to pay on time, but they tell a story of how we run our lives. If there's a blip in that story, say a 30-day late payment, the red flags pop up and all those years of paying dutifully can fall flat quickly.Much attention has been focused on credit scores during this recession as consumers have struggled to keep up with their mortgage payments and revolving debt. Many consumers -- even those who have long had outstanding credit ratings -- have complained that their scores have fallen as credit-card companies slashed limits and closed inactive cards.But people shouldn't worry so much about their scores, according to experts. "It's less about the score than it is about the information that's contained in the report," said Steve Katz, senior director of consumer education for TransUnion. "The score is only a reflection of what's in the report."The most important information in your credit report is your bill-paying history. It bears repeating: Pay your bills on time every single month. A whopping 35 percent of your FICO credit score is tied to that payment history.Another 30 percent of your score is based on your outstanding debt. Lenders expect you to use credit cards but to do so prudently. If you have three credit cards with a total of $30,000 in available credit, they will look at how much of that you're using. That's called your utilization rate. Don't max those cards out. In fact, don't even come close to it.Figuring out your utilization rate is easy math. Add up all your outstanding balances and divide by your total credit limit, which should produce a number less than 1. If it hits 1, you're maxed out.Most credit experts, including the credit bureaus, will advise you to keep your credit utilization under 30 percent of the total limit.But here's a secret: Make sure you do it for each card. If you exceed that threshold on one card -- say you use 70 percent of that limit but only 10 percent on another card and nothing on a third card -- you're under 30 percent of the total limit, but you'll still get dinged for using so much of the limit on the first card.How much of your limit you use in any given month can turn the tide on your card. If, for example, you max out your American Express card every month but pay it in full, you can still get slammed for hitting your limit. The credit card companies don't report if you've paid off your card; only how much you spent."Whether you pay in full or not is not relevant," said Maxine Sweet, vice president of public education at Experian. "If I charge $5,000 this month, the credit history is not going to know if that $5,000 is part of a longer-term bill or not."From a scoring standpoint, what's important is: How does my balance of $5,000 compare to my total credit limit?" she said.Also, some 15 percent of your score is based on your credit history, which doesn't bode well for college graduates just getting on the bandwagon. But if you've been managing your credit well for a couple decades or more, chances are your numbers are pretty lofty.But remember this: The higher you climb, the further and faster you fall. If you've been doing a stellar job of managing your credit for 20 or 30 years and one month you miss a payment -- say, you landed in the hospital with a bad leg break -- not only do the red flags go up but the warning sirens go off at full blast. You automatically get put into a much riskier credit category than the neighbor who tends to be a bit late on his monthly payments.Seems unfair, you say? It's because you're exhibiting uncharacteristic behavior. The system reads that as something is wrong, so wrong that you now might not be able to pay your car loan and the department-store credit card on time.Craig Watts, public affairs director at FICO, which produces credit scores, described it metaphorically as this: You're the perfect angel of a child during all of grade school and junior high, but then you get to high school and discover partying is not the bad thing your parents said it was. You become so good at it that your angelic history is now mud."Your reputation is suddenly skewed heavily to the left," Watts said. "It will take time to restore that pristine reputation. The same thing happens with credit risk and credit score."The lesson here: Your credit score is your credit reputation.Here's another thing you probably didn't know: Many banks rely on a proprietary statistic known as the odds-to-score ratio that has more to do with people like you than you alone. It tells lenders what the likelihood is of a 90-day delinquency based on what your score is.For example, a FICO score of 780 tells a lender that for all the consumers in his marketplace with a score of 780, one out of every 400 will become 90 days late in the next two years, meaning your odds-to-score ratio is 400-to-1. The ratios fall in tandem with the scores.Your credit scores are also affected, though less so, by your pursuit of new credit. And they are a catch-all of your history."Everything in your credit history will have an impact," Sweet said. "A credit score will have many factors and considers every element in the credit history."When you actively seek new or more credit, your rating gets what's called a "hard inquiry" that pares a few points off your score. When the banks check your credit -- most of them do it every 30 days -- that's considered a "soft inquiry" and won't affect your rating. Same is true for mailers with pre-approved credit lines."Don't apply for too much credit in a short period of time," Katz said. "You start to look credit-hungry, and each one of those applications triggers an inquiry. Three or four in a short period of time start to add up."The type of history you have also shows up in your scores. Banks typically like to see that you have a good track record with revolving credit and installment loans."A good mix of credit can be useful to your score, but not so useful that you should open a credit card to get it," Watts cautioned.Given all this, it might be hard to swallow that credit scores are actually a good thing for consumers. They're discriminatory for sure, but on risk, not on race, age or gender."It's the kind of tool that the courts and government have favored because by design it doesn't discriminate in an unpalatable manner," Watts said.Finally, should you be checking your credit score regularly? The answer is: It depends. There are services you can sign up for that will track even the tiniest of changes to your score, for a fee.TransUnion's Katz said everyone should know what their score is at all times. "Your accounts are being updated by your creditors every 30 days," he said. "You should know what they contain because it can change."But Experian's Sweet, who has a regular check on her score, doesn't think it's necessary to be obsessive about it."People are chasing their score too much," she said, adding that consumers should spend more time understanding how their credit actions affect their scores. "You have to be educated enough to know what is in your credit report and how it is scored."FICO's Watts said you should simply be financially fit. "Rather than micro-manage your FICO score, it's way easier to adopt careful management habits," he said.
"If you do that and your score is high, like the upper 700s, you don't have to worry about dings if you close an account and open another one. Who cares?" he said. "Don't worry about the little stuff."And don't forget the good news: credit scores are salvageable."The worse the situation, the longer it's going to be to recover," Watts said. "A bankruptcy or foreclosure will take several years to fix. But the nice thing is your score can recover," he said."Bankers have come to respect the fact that people do learn new rules, and that many can go through difficult times and become good borrowers again."
Secrets to keeping your credit score high
May 17, 2010
By JENNIFER WATERSMarketWatch, (MCT)
CHICAGO -- A happy consequence of this Great Recession is that Americans are widely expected to be better consumers.That means we'll only take on loans that we can afford, pay off credit-card debt at the end of each month and sock money away. It also means our credit scores will reach what the industry calls super prime, the top score achievable.Or will they? Turns out our scores are not just a reflection of our ability, or lack thereof, to pay on time, but they tell a story of how we run our lives. If there's a blip in that story, say a 30-day late payment, the red flags pop up and all those years of paying dutifully can fall flat quickly.Much attention has been focused on credit scores during this recession as consumers have struggled to keep up with their mortgage payments and revolving debt. Many consumers -- even those who have long had outstanding credit ratings -- have complained that their scores have fallen as credit-card companies slashed limits and closed inactive cards.But people shouldn't worry so much about their scores, according to experts. "It's less about the score than it is about the information that's contained in the report," said Steve Katz, senior director of consumer education for TransUnion. "The score is only a reflection of what's in the report."The most important information in your credit report is your bill-paying history. It bears repeating: Pay your bills on time every single month. A whopping 35 percent of your FICO credit score is tied to that payment history.Another 30 percent of your score is based on your outstanding debt. Lenders expect you to use credit cards but to do so prudently. If you have three credit cards with a total of $30,000 in available credit, they will look at how much of that you're using. That's called your utilization rate. Don't max those cards out. In fact, don't even come close to it.Figuring out your utilization rate is easy math. Add up all your outstanding balances and divide by your total credit limit, which should produce a number less than 1. If it hits 1, you're maxed out.Most credit experts, including the credit bureaus, will advise you to keep your credit utilization under 30 percent of the total limit.But here's a secret: Make sure you do it for each card. If you exceed that threshold on one card -- say you use 70 percent of that limit but only 10 percent on another card and nothing on a third card -- you're under 30 percent of the total limit, but you'll still get dinged for using so much of the limit on the first card.How much of your limit you use in any given month can turn the tide on your card. If, for example, you max out your American Express card every month but pay it in full, you can still get slammed for hitting your limit. The credit card companies don't report if you've paid off your card; only how much you spent."Whether you pay in full or not is not relevant," said Maxine Sweet, vice president of public education at Experian. "If I charge $5,000 this month, the credit history is not going to know if that $5,000 is part of a longer-term bill or not."From a scoring standpoint, what's important is: How does my balance of $5,000 compare to my total credit limit?" she said.Also, some 15 percent of your score is based on your credit history, which doesn't bode well for college graduates just getting on the bandwagon. But if you've been managing your credit well for a couple decades or more, chances are your numbers are pretty lofty.But remember this: The higher you climb, the further and faster you fall. If you've been doing a stellar job of managing your credit for 20 or 30 years and one month you miss a payment -- say, you landed in the hospital with a bad leg break -- not only do the red flags go up but the warning sirens go off at full blast. You automatically get put into a much riskier credit category than the neighbor who tends to be a bit late on his monthly payments.Seems unfair, you say? It's because you're exhibiting uncharacteristic behavior. The system reads that as something is wrong, so wrong that you now might not be able to pay your car loan and the department-store credit card on time.Craig Watts, public affairs director at FICO, which produces credit scores, described it metaphorically as this: You're the perfect angel of a child during all of grade school and junior high, but then you get to high school and discover partying is not the bad thing your parents said it was. You become so good at it that your angelic history is now mud."Your reputation is suddenly skewed heavily to the left," Watts said. "It will take time to restore that pristine reputation. The same thing happens with credit risk and credit score."The lesson here: Your credit score is your credit reputation.Here's another thing you probably didn't know: Many banks rely on a proprietary statistic known as the odds-to-score ratio that has more to do with people like you than you alone. It tells lenders what the likelihood is of a 90-day delinquency based on what your score is.For example, a FICO score of 780 tells a lender that for all the consumers in his marketplace with a score of 780, one out of every 400 will become 90 days late in the next two years, meaning your odds-to-score ratio is 400-to-1. The ratios fall in tandem with the scores.Your credit scores are also affected, though less so, by your pursuit of new credit. And they are a catch-all of your history."Everything in your credit history will have an impact," Sweet said. "A credit score will have many factors and considers every element in the credit history."When you actively seek new or more credit, your rating gets what's called a "hard inquiry" that pares a few points off your score. When the banks check your credit -- most of them do it every 30 days -- that's considered a "soft inquiry" and won't affect your rating. Same is true for mailers with pre-approved credit lines."Don't apply for too much credit in a short period of time," Katz said. "You start to look credit-hungry, and each one of those applications triggers an inquiry. Three or four in a short period of time start to add up."The type of history you have also shows up in your scores. Banks typically like to see that you have a good track record with revolving credit and installment loans."A good mix of credit can be useful to your score, but not so useful that you should open a credit card to get it," Watts cautioned.Given all this, it might be hard to swallow that credit scores are actually a good thing for consumers. They're discriminatory for sure, but on risk, not on race, age or gender."It's the kind of tool that the courts and government have favored because by design it doesn't discriminate in an unpalatable manner," Watts said.Finally, should you be checking your credit score regularly? The answer is: It depends. There are services you can sign up for that will track even the tiniest of changes to your score, for a fee.TransUnion's Katz said everyone should know what their score is at all times. "Your accounts are being updated by your creditors every 30 days," he said. "You should know what they contain because it can change."But Experian's Sweet, who has a regular check on her score, doesn't think it's necessary to be obsessive about it."People are chasing their score too much," she said, adding that consumers should spend more time understanding how their credit actions affect their scores. "You have to be educated enough to know what is in your credit report and how it is scored."FICO's Watts said you should simply be financially fit. "Rather than micro-manage your FICO score, it's way easier to adopt careful management habits," he said.
"If you do that and your score is high, like the upper 700s, you don't have to worry about dings if you close an account and open another one. Who cares?" he said. "Don't worry about the little stuff."And don't forget the good news: credit scores are salvageable."The worse the situation, the longer it's going to be to recover," Watts said. "A bankruptcy or foreclosure will take several years to fix. But the nice thing is your score can recover," he said."Bankers have come to respect the fact that people do learn new rules, and that many can go through difficult times and become good borrowers again."
Tuesday, May 18, 2010
The Market Has Bottomed Out
May 10, 2010
By MortgageDaily.com staff
Another report suggests loan defaults might have bottomed out. But mortgage originations have tumbled over the past year, with three states seeing production down by more than half.Earlier today, Fitch Ratings reported that delinquency of at least 60 days on securitized subprime loans improved for the second consecutive month, while late payments on Alt-A residential mortgage-backed securities fell for the first time since April 2006.Another report today from CoreLogic indicated that negative equity and unemployment -- "the two most important triggers of default" -- have stabilized during the past six months.A third report, from TransUnion, indicated that 60-day mortgage delinquency during the first quarter fell for the first time in the last 12 quarters to 6.77 percent. The fourth-quarter rate was 6.89 percent, and the first-quarter 2009 rate was 5.22 percent.Delinquency is projected to fall as low as 6.3 percent this year.The Chicago-based credit repository based its statistics on 27 million anonymous, randomly sampled, individual credit files.Nevada's 15.98 percent delinquency rate was higher than any other state, and No. 2 Florida had a 14.65 percent rate. Delinquency was lowest in North Dakota: 1.76 percent.The report indicted that the rate of increase on residential delinquency of at least 90 days slowed."With prices beginning to rise, increasing consumer confidence and positive trends in the equity markets, home owners who are currently upside down on their mortgages may be less inclined to join the ranks of defaulters, which have been growing in number since the summer of 2008," FJ Guarrera, vice president at TransUnion's financial services business unit, said in the statement.The average U.S. mortgage borrower owed $192,774, down from $193,690 three months earlier. Washington, D.C.'s average $369,526 mortgage was highest, and West Virginia's $99,677 was lowest.TransUnion also reported that quarterly mortgage originations fell 38 percent from the first-quarter 2009. The decline was especially pronounced in Alaska, Utah and Idaho -- which experienced respective declines of 56 percent, 56 percent and 55 percent."Part of the first-quarter demand for new homes was fueled by the First-Time Homebuyer Credit, which was extended to April 30, along with the provision allowing some current home owners to also qualify," Guarrera explained. "Once this runs out, we could see some impact on mortgage demand and therefore home prices."
By MortgageDaily.com staff
Another report suggests loan defaults might have bottomed out. But mortgage originations have tumbled over the past year, with three states seeing production down by more than half.Earlier today, Fitch Ratings reported that delinquency of at least 60 days on securitized subprime loans improved for the second consecutive month, while late payments on Alt-A residential mortgage-backed securities fell for the first time since April 2006.Another report today from CoreLogic indicated that negative equity and unemployment -- "the two most important triggers of default" -- have stabilized during the past six months.A third report, from TransUnion, indicated that 60-day mortgage delinquency during the first quarter fell for the first time in the last 12 quarters to 6.77 percent. The fourth-quarter rate was 6.89 percent, and the first-quarter 2009 rate was 5.22 percent.Delinquency is projected to fall as low as 6.3 percent this year.The Chicago-based credit repository based its statistics on 27 million anonymous, randomly sampled, individual credit files.Nevada's 15.98 percent delinquency rate was higher than any other state, and No. 2 Florida had a 14.65 percent rate. Delinquency was lowest in North Dakota: 1.76 percent.The report indicted that the rate of increase on residential delinquency of at least 90 days slowed."With prices beginning to rise, increasing consumer confidence and positive trends in the equity markets, home owners who are currently upside down on their mortgages may be less inclined to join the ranks of defaulters, which have been growing in number since the summer of 2008," FJ Guarrera, vice president at TransUnion's financial services business unit, said in the statement.The average U.S. mortgage borrower owed $192,774, down from $193,690 three months earlier. Washington, D.C.'s average $369,526 mortgage was highest, and West Virginia's $99,677 was lowest.TransUnion also reported that quarterly mortgage originations fell 38 percent from the first-quarter 2009. The decline was especially pronounced in Alaska, Utah and Idaho -- which experienced respective declines of 56 percent, 56 percent and 55 percent."Part of the first-quarter demand for new homes was fueled by the First-Time Homebuyer Credit, which was extended to April 30, along with the provision allowing some current home owners to also qualify," Guarrera explained. "Once this runs out, we could see some impact on mortgage demand and therefore home prices."
Monday, May 17, 2010
Mortgage Rates
As of 05/26/2010 Product
Interest Rate APR
Conforming and FHA Loans
30-Year Fixed 4.875% 5.065%
30-Year Fixed FHA 4.875% 5.63%
15-Year Fixed 4.25% 4.53%
5-Year ARM 3.75% 3.765%
5-Year ARM FHA 3.625% 3.324%
Larger Loan Amounts in Eligible Areas – Conforming and FHA.1
30-Year Fixed 4.875% 5.012%
30-Year Fixed FHA 5.00% 5.705%
5-Year ARM 4.125% 3.852%
Jumbo1 Loans – Amounts that exceed conforming loan limits1
30-Year Fixed 5.50% 5.643%
5-Year ARM 4.625% 4.036%
Rates are subject to change without notice and may vary depending on the purpose of the loan. For a specific quote please call John Corrigan 202-306-1822
Interest Rate APR
Conforming and FHA Loans
30-Year Fixed 4.875% 5.065%
30-Year Fixed FHA 4.875% 5.63%
15-Year Fixed 4.25% 4.53%
5-Year ARM 3.75% 3.765%
5-Year ARM FHA 3.625% 3.324%
Larger Loan Amounts in Eligible Areas – Conforming and FHA.1
30-Year Fixed 4.875% 5.012%
30-Year Fixed FHA 5.00% 5.705%
5-Year ARM 4.125% 3.852%
Jumbo1 Loans – Amounts that exceed conforming loan limits1
30-Year Fixed 5.50% 5.643%
5-Year ARM 4.625% 4.036%
Rates are subject to change without notice and may vary depending on the purpose of the loan. For a specific quote please call John Corrigan 202-306-1822
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