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									N EBRASKA           Mortgage Monitor                                                                          www.NebraskaMortgageAssociation.org

                                                                                                                                       March, 2007
              2006-2007                                     Agencies Propose Hybrid Clampdown
               Officers                                     Mortgage lenders have 60 days to comment on proposed federal guidelines re-
                                                            leased on Friday that would establish new underwriting standards for certain
  President, Jan Meister                                    hybrid mortgage products. Federal regulators want lenders to use fully indexed
  Bank of the West, Omaha                                   rates for mortgage products such as 2/28s and 3/27s to assess the ability of con-
  402/918-2592 Fax 402/493-8777                             sumers to repay loans whose payments increase significantly after the starter
                                                            period. “The proposed statement, if adopted as proposed, may restrict credit to
  Vice President, Mark Johnson
                                                            many consumers in high-cost areas and deny credit to many deserving low-in-
  CBSHome Mortgage, Omaha
                                                            come, minority, and first-time homebuyers,” Mortgage Bankers Association
  402/964-4612 Fax 402/964-4677
                                                            Chairman John Robbins, CMB, warned in a press release. Federal regulators want
  Treasurer, Gina Jerauld                                   to know how the proposal is likely to impact borrowers, whether the underwriting
  Bank of the West, Omaha                                   standards should be limited to the subprime market and what its potential effect
  402-918-2860 Fax 402/918-8859                             could be on refinancing.
                                                                                                  American Banker (03/05/07) P. 1; Adler, Joe
  Secretary, David Olson
  Equitable Mortgage of NE, Blair
  402/426-3562 Fax 402/426-3562                                     Agencies Issue Nontraditional
  Board of Directors
  David Horak     Sherri O’Callaghan                                Mortgage Proposed Statement
  Robert Rutan    Tony Johnson                               As expected, the federal financial regulatory agencies issued <http://
  Jack Hobbie     Sheree Brooks Forgue                       www.mortgagebankers.org/documents/NewsLink/Letters/
  Jacalyn Ayoub E. Dean Neidan                               FedGuidanceNonTraditionalMortgage.pdf> for comment a proposed State-
  Cindy Muhlbach Marlin Hupka                                ment on Subprime Mortgage Lending to address “certain risks and emerging
  Education Committee Chair                                  issues” relating to subprime mortgage lending practices, specifically, particular
  Mary Byrnes                                                adjustable-rate mortgage lending products.
  Reunion Mortgage, Omaha                                         The Mortgage Bankers Association responded in a statement welcoming a
  402/689-7776                                               comment period on the proposed statement, but cautioned that the agencies
                                                             should “avoid an overreaction to an evolving marketplace or current economic
  Legal Counsel, John Boehm                                  conditions.”
  Butler, Galter & O’Brien Law Firm,                              The statement—issued by the Office of the Comptroller of the Currency;
  Lincoln                                                    the Office of Thrift Supervision; the Federal Reserve; the Federal Deposit In-
  402/475-0811 Fax 402/475-6416                              surance Corp. and the National Credit Union Administration—made it clear
  Editor, Mary Byrnes                                        about “concerns that subprime borrowers may not fully understand the risks
  Reunion Mortgage, Omaha                                                                                                Continued Page -3-

 Also in this issue…                                         RD AN No. 4237 (1980-D): Utilizing
 Clinton Bill Would Improve Access to FHA
 Loans (Page 4)
                                                            Credit Scores for Underwriting Single
 Mortgage Woes May Help Revive FHA (Page 4)                  Family Housing Guaranteed Loans
 Housing Bubble: Toil & Trouble Follows Pattern (Page 4)
                                                            Purpose/Intended Outcome:
 Nine of Ten Say Affordable Housing ‘High
 Priority’ (Page 5)                                         The purpose of this Administrative Notice (AN) is to revise the minimum credit
                                                            score required for applicant eligibility to utilize streamlined documentation of
 Foreclosures May Hit 1.5 M in U.S. Housing Bust (Page 6)
                                                            guaranteed loans from the current 660 down to 620. The recently introduced
 28 States & DC to Participate in CSBS-AARMR                VantageScore is still ineligible for Single Family Housing Guaranteed Loan Pro-
 Residential Licensing System (Page 6)
                                                            gram (SFHGLP) underwriting.
 New Fannie, Freddie Regulator May Have                     Comparison With Previous AN:
 Power Of Purse, Too (Page 8)
                                                                This AN replaces AN No. 4171 (1980-D) dated April 13, 2006, which is
  NMA’s 2007 Annual Fall Conference (Page 9)
                                                            hereby retired. This AN differs from the previous one by introducing 620 as the
                                                                                                                           Continued Page -2-
NEBRASKA        Mortgage Monitor                                                                                        March, 2007

  RD AN No. 4237: Utilizing Credit Scores for … Guaranteed Loans … from Page -1-
  new minimum credit score threshold for        Streamlined Documentation when the
                                                                                              credit history issues that will have to be
  streamlined documentation options for         FICO Credit Score is 620 or Higher
                                                                                              addressed in the underwriting analysis. It
  manually underwritten guaranteed loans.            SFHGLP applicants with FICO
                                                                                              does not mean that every applicant with a
  Background:                                   scores of 620 or above may take advan-
                                                                                              FICO score under 620 is a poor credit
       Home mortgage industry statistics,       tage of the streamlined documentation
                                                                                              risk and should be rejected. There are ap-
  as well as a study of SFHGLP loans by         requirements listed below, unless there
                                                                                              plicants with FICO scores under 620 that
  the National Office, indicate that borrow-    are co-applicants with FICO scores under
                                                                                              will pay their loans as agreed.
  ers with Fair Isaacs & Company (FICO)         620, in which case this streamlined pro-
                                                                                                     Applicants with credit scores under
  scores over 620 historically experience       cess will not apply.
                                                                                              620 should be carefully reviewed during
  far less defaults than borrowers with              A lender shall not be required to
                                                                                              the lender’s underwriting analysis. Un-
  FICO scores under 620. Borrowers with         document adverse credit history waivers
                                                                                              derwriters should be especially cautious
  FICO scores under 620 statistically expe-     under RD Instruction 1980-D, section
                                                                                              of layered risks in addition to the lower
  rience rates of defaults high enough to       1980.345(d)(3), except for those involv-
                                                                                              credit score which include but are not
  warrant a thorough evaluation prior to ex-    ing a delinquent Federal debt or previous
                                                                                              limited to:
  tending mortgage credit.                      Agency loan.
                                                                                                     Ratio waivers: These should be
       At this time, VantageScore are not ac-        A lender shall not be required to
                                                                                              avoided unless strong supporting docu-
  cepted for SFHGLP loans. Industry             document applicant rent payment history.
                                                                                              mentation substantiating the waiver exists,
  participants, including the Federal Housing   If the applicant’s FICO score is under 620
                                                                                              (i.e. proposed Principal, Interest, Taxes and
  Administration (FHA), Veteran Affairs         and the applicant has a rent payment his-
                                                                                              Insurance (PITI) is comparable to applicant’s
  (VA), Fannie Mae, and Freddie Mac, do         tory, the lender should obtain a rent
                                                                                              current housing payment, the applicant has
  not accept VantageScore at this time. Once    payment reference either as part of the
                                                                                              demonstrated the ability to accumulate sav-
  Rural Development and the mortgage in-        credit report or through separate verifica-
                                                                                              ings, a low total debt ratio, etc.).
  dustry have had time to evaluate the new      tion. In such cases, the lender should
                                                                                                     Adverse credit history waiver: If the
  score, further guidance will be issued.       obtain verification of the applicant’s rent
                                                                                              underwriter deems the adverse credit ac-
  Implementation Responsibilities               payment history for the 12 month period
                                                                                              ceptable then the underwriter should
       Applicants with FICO scores of 620       prior to the loan application.
                                                                                              document their decision on the Uniform
  or higher qualify for streamline documen-          No action will be necessary for any
                                                                                              Underwriting Transmittal Summary
  tation requirements for manually              derogatory items, such as those listed in
                                                                                              (Fannie Mae Form 1008/Freddie Mac
  underwritten SFHGLP loans. Lenders            RD Instruction 1980-D, section
                                                                                              Form 1077) in the “Underwriter Com-
  should judiciously evaluate and carefully     1980.345(d), contained on the credit his-
                                                                                              ments” section. Adverse credit examples
  screen the credit histories of those appli-   tory except for those involving a
                                                                                              include outstanding collections, recent
  cants with FICO scores under 620.             delinquent Federal debt or previous
                                                                                              late pays in the last 12 months, etc. If the
       If the borrower’s credit report con-     Agency loan. For example, if the credit
                                                                                              underwriter approves an adverse credit
  tains two scores, the lower of the two        report indicates there have been incidents
                                                                                              waiver, the lender must secure documen-
  should be used for purposes of this AN. If    of more than one debt payment being
                                                                                              tation evidencing that the circumstances
  the borrower has three scores, the middle     more than 30 days late within the last 12
                                                                                              surrounding the adverse information were
  score should be used as the representative    months, those incidents will not be inves-
                                                                                              temporary in nature, and were beyond the
  score. If there is more than one applicant,   tigated and considered evidence of an
                                                                                              applicant’s control, and have been re-
  the credit score of the primary               inadequate credit history if the FICO
                                                                                              moved so their reoccurrence is unlikely.
  wageearner should be the one given the        score is at least 620. As another example,
                                                                                              Alternately, the lender must secure docu-
  most emphasis. This does not mean that        if there is a non-Federal collection ac-
                                                                                              mentation evidencing that the
  the FICO credit scores for other appli-       count outstanding, it too need not be
                                                                                              delinquency arose from a justifiable dis-
  cants should be ignored.                      investigated or considered, and there will
                                                                                              pute related to defective goods or
       FICO scores generally range be-          be no requirement that evidence be fur-
  tween 300 and 900. If no score is             nished showing the collection account
                                                                                                     Questionable repayment income or
  available the credit bureau output will be    has been resolved or that arrangements
                                                                                              job stability: The lender’s underwriter is
  zero. Zero in these cases has the literal     for repayment have been made.
                                                                                              responsible for calculating income and
  meaning of null, or indicating there were     Applicants with FICO Credit Scores
                                                                                              approving the loan. Applicants with com-
  not enough information or credit refer-       Under 620
                                                                                              mission only positions, or varying
  ences for the statistical model to compute         A FICO score under 620 means that
                                                                                              amounts of overtime and bonus income
  a credit score value. Non-traditional         the applicant would statistically have a
                                                                                              may not exhibit enough stable monthly
  credit histories are acceptable for appli-    high likelihood of default on their loan,
                                                                                              income to qualify.
  cants exhibiting no FICO score.               and that there are likely to be adverse
                                                                                                                        Continued Page -3-

        N EBRASKA M ORTGAGE A SSOCIATION                                                       www.NebraskaMortgageAssociation.org            2
NEBRASKA      Mortgage Monitor                                                                                       March, 2007

  Agencies Issue Nontraditional Mortgage Proposed Statement…from Page -1-                     RD AN No. 4237: Utilizing
                                                                                              Credit Scores for … Guaran-
  and consequences of obtaining these products, and that the products may pose an             teed Loans … from Page -1-
  elevated credit risk to financial institutions. In particular, the proposed guidance fo-
  cuses on loans that involve repayment terms that exceed the borrower’s ability to                The loan record must contain
  service the debt without refinancing or selling the property.”                              sufficient justification by the under-
       The statement, which calls for a 60-day comment period, specifies that an              writer for approving the loan. Again,
  institution’s analysis of a borrower’s repayment capacity should include an evalua-         the Uniform Underwriting Transmit-
  tion of the borrower’s ability to repay the debt by its final maturity at the fully         tal Summary is a good place to
  indexed rate, assuming a fully amortizing repayment schedule. The statement also            document comments this justifica-
  underscores that communications with consumers should provide clear and balanced            tion. The analysis should include an
  information about the relative benefits and risks of the products. If adopted, this         assessment of any compensating
  statement would complement the 2006 Interagency Guidance on Nontraditional                  factors, or credit history explana-
  Mortgage Product Risks, which did not specifically address the risks of these ARM           tions that establish the applicant’s
  products.                                                                                   ability and willingness to repay the
       MBA Chairman John Robbins, CMB, said that MBA “appreciates the efforts of              proposed loan as agreed.
  the bank regulators and the fact that this statement is proposed for public comment         Rent History Verification
  in order to open a dialogue.” But he cautioned that it is important to “avoid an over-           Some first time homebuyers
  reaction to an evolving marketplace or current economic conditions. Overly                  simply do not have a verifiable
  prescriptive measures run the risk of eliminating valuable financial options that help      housing or rent payment history. In
  consumers and support homeownership.”                                                       such cases, a rent history is not re-
       Robbins expressed concer that the proposed statement, if adopted as proposed,          quired. If the applicant’s FICO
  could restrict credit to many consumers in high-cost areas and deny credit to many          credit score is under 620 and the ap-
  deserving low-income, minority and first-time homebuyers.                                   plicant has a rent payment history,
       “Valuable products, such as 2/28s, 3/27s and other ARMs allow borrowers to             the lender should obtain a rent pay-
  choose a product that fits their household financial situation,” Robbins said. “These and   ment reference either as part of the
  other loan products often help certain consumers repair their credit and provide flexible   credit report, directly from the land-
  options to help more borrowers become homeowners, especially those in high-cost areas.”     lord, or through cancelled checks
       The issue has gained a high profile this year on Capitol Hill as the subprime in-      covering the most recent 12 month
  dustry has experienced a rough patch. The change in party control in Congress has           period prior to the loan application.
  also raised the profile. House Financial Services Committee Chairman Barney                 When a private individual is the
  Frank, D-Mass., and Senate Banking Committee Chairman Christopher Dodd, D-                  borrower’s present landlord, 12
  Conn., have called for tougher consumer protections for subprime borrowers.                 months worth of cancelled checks
       “I applaud the work of the regulators in issuing this important draft guidance         indicating a satisfactory rent pay-
  today, and I look forward to reviewing the proposal,” Frank said in a statement. “As        ment history is preferred. If the
  noted in our February 16 letter <http://www.mortgagebankers.org/documents/                  applicant’s FICO score is over 620,
  NewsLink/Letters/HouseLetterNonTraditional021607.pdf> , also signed by Reps.                there is no need to verify an
  [Maxine] Waters [D-Calif.], [Carolyn] Maloney, [D-N.Y.], [Mel] Watt [D-N.C.] and            applicant’s rent payment history.
  [Brad] Miller, [D-N.C.] we are concerned about risky loans and its impact on con-           Summary:
  sumers and financial institutions. I appreciate the federal regulators working                   FICO credit scores are an indi-
  together and taking this important step.”                                                   cator of default risk, however FICO
       MBA, however, said data suggests that, while indeed the delinquency and fore-          scores should never be used as the
  closure rates on subprime loans have gone up within the past year, it is at a slower        sole basis for a SFHGLP loan under-
  rate than in previous down periods. Nine out of 10 subprime loans are paid on time,         writing decision. SFHGLP loan
  MBA said, and the subprime industry has successfully extended credit to thousands           applications that are rejected by
  of Americans who would otherwise not qualify for a mortgage.                                lenders based on underwriting risk
       “The mortgage lending industry is committed to sound and reasonable under-             should be rejected based on under-
  writing, improved borrower information, and product options to address borrower             writing criteria established in RD
  needs,” Robbins said. “We urge the regulators to rely on sound data in determining          Instruction 1980-D, such as lack of
  the appropriate course of action.”                                                          repayment ability, lack of adequate
       MBA said it would submit comments on the proposed guidelines within the 60-            and dependably available income,
  day public comment period, which is scheduled to begin once the notice is                   inadequate credit history, or collat-
  published in the Federal Register.                                                          eral that does not meet the required
                                                           MBA (3/5/2007) Sorohan, Mike       standards.

      N EBRASKA M ORTGAGE A SSOCIATION                                                        www.NebraskaMortgageAssociation.org      3
NEBRASKA      Mortgage Monitor                                                                                       March, 2007

               Clinton Bill Would Improve                                                     Mortgage Woes
                  Access to FHA Loans                                                         May Help Revive
  Sen. Hillary Clinton, D-N.Y., reintro-       fordable housing and financing,”
                                               Robbins said.
  duced legislation that failed in the 109th
  Congress that would provide home buy-        The Clinton bill would:                      Subprime lenders stole
  ers with alternatives to subprime               • Allow FHA to make investments           market share from
  mortgages.                                          in both personnel and its infor-      the Federal Housing
       The 21st Century Housing Act                   mation technology infrastructure      Administration in
  would modernize the Federal Housing                 to help meet the market demand        recent years with of-
  Administration and allow more                       for affordable mortgage products      fers of zero-down and
  homebuyers to take advantage of the                 and work more efficiently with        interest-only loans and
  FHA mortgage insurance program.                     mortgage lenders and borrowers.       less red tape, but experts believe
       “With the meltdown in the                  • Increase FHA’s loan limits for          rising foreclosures in the niche could
  subprime housing market, it is clear that           housing in high cost areas, which     prompt U.S. lawmakers to turn their at-
  there needs to be a real alternative for            Clinton said would help create        tention to modernizing the agency. Inside
  more working families who want to                   more home buying opportunities        Mortgage Finance reports an increase in
  achieve the dream of home ownership                 in high cost-of-living states such    subprime origination volume to $600 bil-
  without having to jeopardize their finan-           as New York.                          lion in 2006 from $185 billion in 2002,
  cial futures with a risky mortgage              • Allow FHA to develop alternative        while FHA-backed volume slipped to
  product,” Clinton said. “Modernizing                mortgage products such as reduced     $53.7 billion from $145.1 billion over the
  the FHA will be an effective way of                 downpayments and longer-term          same time span. Congress is considering
  providing that alternative and I will               mortgages to meet the demand of       a measure that would get rid of the FHA's
  press in the Senate to take this long               lower and moderate income families.   down-payment requirement of 3 percent
  overdue step for our families.”                   Earlier this week, Clinton said         and boost maximum loan amounts, but
       Clinton’s bill, when originally in-     Congress must enact initiatives “imme-       lawmakers must first determine whether
  troduced last year, received a tepid         diately” to address what she called a        the agency should be allowed to refi-
  response from the lending industry,          “breakdown in homeownership” in the          nance defaulted subprime loans to help
  which supported an alternative bill in-      wake of record delinquencies and fore-       homeowners avoid foreclosure--a move
  troduced by Rep. Paul Kanjorski, D-Pa.,      closures in subprime lending.                that is generating concerns about the gov-
  and former Rep. Bob Ney, R-Ohio. That             “I want to focus on one aspect of       ernment assuming an exorbitant amount
  bill also failed to pass. However, Mort-     the American Dream, of that basic bar-       of risk. However, FHA Commissioner
  gage Bankers Association Chairman            gain, because I am worried about             Brian Montgomery says the agency
  John Robbins, CMB, said MBA sup-             homeownership. And as we have seen           helped 75,000 delinquent borrowers keep
  ports the Clinton bill’s efforts to          in recent days, the basic bargain that       their homes last year, with such workouts
  strengthen FHA.                              may be breaking down is                      accounting for about 60 percent of de-
       “We believe your bill will make the     homeownership,” Clinton said at a Na-        faulted mortgages
  changes necessary to ensure that FHA         tional Community Reinvestment                      Wall Street Journal (03/16/07) P. A4;
  continues its good work in partnership       Coalition conference on March 15 in                                   Dunham, Kemba J.
  with the mortgage lending community          Washington, D.C.
  to achieve our joint goal of providing af-            Palaparty, Vijay; Sorohan, Mike

               Housing Bubble: Toil and Trouble Follows Pattern
  Observers of the housing market be-          cally low interest rates serving this        be in the "revulsion" phase, with ob-
  lieve it is following the same path as       purpose in the housing market. This is       servers citing an increase in subprime
  the stock market, whose bubble burst         followed by a boom characterized by          mortgage defaults, more stringent
  seven years ago, and the pattern set         easy access to cash, which leads to          underwriting standards issued by
  forth in the 1978 book by Charles            what Kindleberger calls "pure specula-       banking regulators and Freddie
  Kindleberger, "Manias, Panics and            tion;" and is followed by "revulsion,"       Mac’s decision to curtail purchases of
  Crashes." Kindleberger says bubbles          in which cash is shut off and panic en-      high-risk loans.
  start with "displacement" that makes         sues. The housing market appears to            Wall Street Journal (03/05/07) P. C1;
  a sector look favorable, with histori-                                                                             Lahart, Justin

      N EBRASKA M ORTGAGE A SSOCIATION                                                       www.NebraskaMortgageAssociation.org          4
NEBRASKA        Mortgage Monitor                                                                                          March, 2007

              Nine of Ten Say Affordable Housing ‘High Priority’
  Nine out of 10 Americans cite affordable      many more families, as a topic that will            important to you, how important are
  housing as a high priority, according to a    be a principal concern for Americans                a candidate’s ideas on how to pro-
  new Zogby America poll. The poll was          when they vote in 2008, at the local, state         vide more affordable housing in this
  commissioned by a coalition of public,        and federal levels.”                                country helping you choose which
  private and non-profit industry groups,            The poll results underscore                    Presidential candidate to vote for in
  including the Mortgage Bankers Associa-       America’s affordable housing crisis. One-           2008?
  tion, in conjunction with commencement        third of respondents cited having a                     Nearly 75 percent of Americans
  of a nationwide affordable housing            decent, affordable place to live as their               polled said that presidential can-
  awareness campaign, “Housing America          number-one priority. The poll also shows                didates’ ideas for providing more
  2007.”                                        that affordable housing will affect the                 affordable housing were impor-
       America is the best-housed nation on     way Americans vote. Seventy-five per-                   tant in determining for whom
  earth, with homeownership at an unprec-       cent said that presidential candidates’                 they would vote.
  edented 69 percent. Yet for a growing and     ideas for providing more affordable hous-      Q: On a list of your own individual/fam-
  more economically-diverse number of           ing were important in determining for               ily priorities, how important is
  families, children, seniors and persons       whom they would vote. Nearly seven in               having a decent affordable place to
  with disabilities, affordable housing in      10 said they would be more likely to vote           live?
  quality communities is becoming more          for a candidate who had articulated a de-               One-third of respondents cited
  difficult to find. Housing America 2007       tailed plan for providing affordable                    having a decent, affordable place
  aims to raise public consciousness of the     housing.                                                to live as their number one priority.
  critical role of housing and community             The groups have united in the Hous-       Joining MBA and NHC in sponsorship
  development initiatives and the funda-        ing America 2007 campaign to address           of the poll:
  mental benefits the nation receives from      the housing needs of a nation in which an         • National Association of Housing
  these activities.                             estimated 754,000 are homeless on any                 and Redevelopment Officials
       Starting yesterday and continuing        given night, and minimum-wage earners             • American Federation of State,
  through April 9, housing providers and        are unable to afford a one-bedroom home               County and Municipal Employees
  affordable-housing advocates across the       anywhere in the country. Housing                  • Housing Assistance Council
  country will participate in the campaign      America 2007 asks that the nation recom-          • Local Initiatives Support Corpora-
  by sponsoring events or activities de-        mit to a goal of meeting the housing                  tion
  signed to highlight the critical affordable   needs of all Americans.                           • National Association of Counties
  housing shortage and the need for pro-        Poll questions included the following:            • National Association of Home
  grams, policies and resources to more         Q: Would you be more or less likely to                Builders
  effectively address local housing needs.           select a Presidential candidate who          • National Association of Realtors
       “Without a doubt, there are opportu-          articulated his or her detailed plan         • National Council of State Housing
  nities available to provide a decent home          for providing affordable housing?                Agencies
  and suitable living for all Americans;                 Nearly 70 percent of Americans           • National League of Cities
  however, these developments face numer-                are more likely to choose a 2008         • National Low Income Housing
  ous challenges and lenders are                         candidate who articulates his or             Coalition
  continuously searching for ways to fill                her detailed plan for providing af-      • U.S. Conference of Mayors
  the gaps and make them economically vi-                fordable housing.                     Housing America 2007 Endorsers:
  able communities,” said MBA President         Q: How important an issue is providing af-        • American Association of Homes
  and CEO Jonathan Kempner. “Raising                 fordable housing in your community?              and Services for the Aging
  awareness on this issue is something that              Nearly nine out of 10 Americans          • Council of Large Public Housing
  MBA can support and we are proud to be                 cite affordable housing as a high            Authorities
  a part of this initiative.”                            priority.                                • National Affordable Housing Man-
       “Addressing affordable housing is an     Q: Do you believe as a nation we are on               agement Association
  urgent need and a priority for families na-        the right rack or the wrong track to-        • National Community Development
  tionwide,” said Conrad Egan, president             wards the achievement of this goal?              Association
  and CEO of the National Housing Con-                   More than half believe housing           • National Housing Trust
  ference, a member of the coalition.                    policy with respect to providing         • Public Housing Authorities Direc-
  “Although affordable housing was often                 affordable housing is on the                 tors Association
  considered a lower level concern, it has               wrong track.                              MBA (3/22/2007) Waugaman, Angela;
  inevitably emerged, given the effect on so    Q: Thinking about the issues that are                                        Sorohan, Mike

        N EBRASKA M ORTGAGE A SSOCIATION                                                        www.NebraskaMortgageAssociation.org             5
NEBRASKA        Mortgage Monitor                                                                                           March, 2007

            Foreclosures May Hit 1.5 Million in U.S. Housing Bust
  Hold on to your assets. The deepest housing decline in 16 years              Subprime lenders Ameriquest Mortgage Co. in Irvine, Cali-
  is about to get worse.                                                  fornia; Ownit Mortgage Solutions LLC and WMC Mortgage
       As many as 1.5 million more Americans may lose their               Corp., a subsidiary of General Electric Co., in Woodland Hills,
  homes, another 100,000 people in housing-related industries             California; Mortgage Lenders Network USA Inc. in Middletown,
  could be fired, and an estimated 100 additional subprime mort-          Connecticut and Fremont General Corp. together have fired
  gage companies that lend money to people with bad or limited            more than 5,600 workers in the past year.
  credit may go under, according to realtors, economists, analysts        New Century
  and a Federal Reserve governor. Financial stocks also could ex-              New Century Financial Corp., the second-largest subprime
  tend their declines over mortgage default worries.                      lender, said today it ran out of cash to pay back creditors who are
       The spring buying season, when more than half of all U.S.          demanding their money now. The Irvine, California-based com-
  home sales are made, has been so disappointing that the National        pany has lost 90 percent of its market value this year and
  Association of Home Builders in Washington now expects pur-             stopped making new subprime loans, prompting speculation it
  chases to fall for the sixth consecutive quarter after it predicted a   will seek bankruptcy protection. New Century already has cut
  gain just last month.                                                   300 jobs and its 7,000 remaining employees are waiting to see if
       “The correction will last another year,” said Mark Zandi,          the company will survive.
  chief economist for Moody’s Economy.com in West Chester,                     Fremont General, the Brea, California-based lender that is
  Pennsylvania. “Fewer people qualifying for mortgages means              trying to sell its residential-mortgage unit, was ordered to stop
  there will be less borrowers, and that will weigh on demand.”           making subprime loans by the U.S. Federal Deposit Insurance
       A five-year housing boom that ended in 2006 expanded               Corp. last week. Fremont was marketing and extending loans “in
  home- ownership to a record number of U.S. households. Now it           a way that substantially increased the likelihood of borrower de-
  has given way to mounting defaults, failing subprime mortgage           fault or other loss to the bank,” the FDIC said last week.
  companies and an increasing number of unsold homes.                          Doug Duncan, chief economist of the Washington-based
  Last Housing Slump                                                      Mortgage Bankers Association, predicted in January that more
       If this slump follows the same pattern as the last one, in         than 100 home lenders may fail this year.
  1991, it will persist for at least another year and may fuel a re-           The subprime crisis “has taken the fuel out of the real estate
  cession. New-home sales declined 45 percent from July 1989 to           market,” said Edward Leamer, director of the UCLA Anderson
  January 1991 and about 1 percent of all U.S. jobs, or 1.1 million,      Forecast in Los Angeles. “The market needs new money in order
  were lost in that recession, said Robert Kleinhenz, deputy chief        to appreciate, and all of that money is gone for a very long time.
  economist of the California Association of Realtors.                    The regulators are not going to allow it to happen again.”
       This time around, new-home sales have declined 28 percent          Higher Rates
  since September 2005, hitting a low in January, the last month               Subprime mortgages are given to people who wouldn’t
  for which data is available. And though the national jobless rate       qualify for standard home loans and typically have rates at least
  is near a five-year low this month, mortgage-related jobs fell by       2 or 3 percentage points above safer prime loans. The portion of
  almost 2,000 in January alone. At least two dozen of the more           subprime loans that financed new mortgages rose to 20 percent
  than 8,000 mortgage lenders have been forced to close or sell op-       last year from 5 percent in 2001, according to the Mortgage
  erations since the start of 2006.                                       Bankers Association.
                                                                                                                          Continued Page -7-

            28 States and the District of Columbia to Participate in
                 CSBS-AARMR Residential Licensing System
    The Conference of State Bank Su-               ing their commitment include: Ala.,           tent (N.C., Ky., Idaho, Iowa, Mass.,
    pervisors (CSBS) and the American              Ariz., Ark., Conn., D.C., Ga., Idaho,         S.D., Wash.) while the eighth state,
    Association of Residential Mortgage            Ind. Department of Financial Institu-         NH, did not. MBA is aware of an ad-
    Regulators (AARMR) announced on                tions, Ind. Secretary of State, Iowa,         ditional six states who signed the
    Tuesday, that to date, 28 state agen-          Ky., La., Md., Mass., Mich., Miss., Mo.,      statement of intent (Neb., Ind., Miss.,
    cies and the District of Columbia              Neb., N.H., N.C., N.D., Okla., Ore., Pa.,     La., Ariz., Mont.) that are or will be
    have indicated their intent to partici-        R.I., S.D., Vt., Wash., and Wyo. Cur-         seeking legislation allowing them to
    pate in the Residential Mortgage               rently, eight states have statutory           participate. Arkansas did not sign
    Licensing System (RMLS) by the                 authority to participate in RMLS of           Tuesday’s statement but is also seek-
    end of 2009. The agencies announc-             which seven signed the statement of in-       ing statutory authority this year.

        N EBRASKA M ORTGAGE A SSOCIATION                                                           www.NebraskaMortgageAssociation.org          6
NEBRASKA        Mortgage Monitor                                                                                         March, 2007

  Foreclosures May Hit 1.5 Million in U.S. Housing Bust … from Page -6-
       Subprime loans contributed to a home-ownership rate that              The number of U.S. foreclosures rose 42 percent to 1.2 mil-
  reached a record 69.3 percent of U.S. households in the second        lion last year from 2005, according to Irvine, California-based
  quarter of 2004, up 5.4 percentage points from the same period        RealtyTrac, while delinquencies in the last three months of 2006
  in 1991, according to the U.S. Census Bureau.                         rose to the highest level in four years, the Federal Reserve said.
       “Probably the gain in home ownership over the last four,              Housing and related industries, which account for about 23
  five years, is almost entirely due to looser lending standards,”      percent of the U.S. economy – including makers of everything
  said James Fielding, a homebuilding credit analyst at Standard &      from copper pipes to kitchen cabinets – fired about 100,000
  Poor’s in New York.                                                   workers last year. The total will be higher this year, according to
  Refinancing Option                                                    Amal Bendimerad of the Joint Center for Housing Studies at
       As home prices steadily gained from 2001 to 2006,                Harvard University in Cambridge, Massachusetts.
  homeowners who fell behind on mortgage payments could sell            Job Cuts
  their homes and pay off their loans or get better refinancing              By the end of this year, job cuts at companies including
  terms based on the higher value of their property. Now that home      Benton Harbor, Michigan-based Whirlpool Corp., Masco Corp.
  values are declining, many borrowers won’t be able to refinance       of Taylor, Michigan, and St. Louis-based Emerson Electric Co.
  because they would have to come up with the difference between        may exceed the fallout from the 1991 housing slump, said Paul
  their new mortgage and what their home is now worth.                  Puryear, managing director at St. Petersburg, Florida-based
       Defaults may dump more than 500,000 homes on a housing           Raymond James & Associates. The Bureau of Labor Statistics
  market already saturated with leftover inventory built during         doesn’t give data for housing-related job losses.
  boom times, New York-based bond research firm CreditSights                 “The fallout in the early 1990s was much worse than what
  Inc. said in a March 1 report.                                        we’ve seen so far, but this downturn is not over,” Puryear said.
       Mortgage defaults may climb to $225 billion over the next two    “The full impact hasn’t hit yet.”
  years, compared with about $40 billion annually in 2005 and 2006,          U.S. House Financial Services Committee Chairman Barney
  according to debt strategists at Lehman Brothers Holdings Inc.        Frank, a Massachusetts Democrat, said he may propose legisla-
  Seven-Year High                                                       tion to reign in “inappropriate” lending, and a House
       The portion of subprime loans more than 60 days delinquent       subcommittee is scheduled to consider subprime lending and
  or in foreclosure rose to 10 percent as of Dec. 31, from 5.4 per-     foreclosures March 27.
  cent in May 2005, the highest in seven years, according to data            “The standards got loosened so much, and there’s always
  compiled by Friedman Billings Ramsey Group Inc. of Arlington,         the pressure to make money that there was pressure to maybe
  Virginia.                                                             make the questionable loans that shouldn’t have been made,”
       Many of the delinquencies came from loans where borrowers        said Ohio Representative Paul Gillmor, the subcommittee’s top
  didn’t have to provide tax returns or other evidence of income, or    Republican, in a March 9 interview. “The major problem has
  where they financed 100 percent or more of the home’s value,          been the overall deterioration in credit standards by lenders
  CreditSights analyst David Hendler wrote in a March 5 report.         that’s exacerbated by those who are unscrupulous.”
  Other defaults came on adjustable-rate mortgages with artificially         Fraud ‘Pervasive and Growing’
  low introductory “teaser” rates, sometimes with “option” payment           The Federal Bureau of Investigation says mortgage fraud is
  plans that allowed borrowers to defer interest.                       “pervasive and growing” and the incidence of such fraud has al-
       Banks ought to be concerned about such loans and are likely      most doubled in the past three years.
  to see more missed payments and foreclosures as consumers with             “There has been an increase in unscrupulous individuals in
  weak credit histories begin to face higher monthly mortgage pay-      the market,” said Arthur Prieston, chairman of the Prieston
  ments, Federal Reserve Governor Susan Bies said last week.            Group, a San Francisco-based company that investigates mort-
       “What we’re seeing in this narrow segment is the beginning of    gage fraud. “There’s an unfair assumption of a connection
  the wave,” Bies said. “This is not the end, this is the beginning.”   between subprime failure and fraud. But there is a connection
       About 1.5 million U.S. homeowners out of a total of 80 mil-      between early default and fraud.”
  lion will lose their homes through foreclosure, University of              Mortgage fraud is committed when a borrower misrepre-
  California-Berkeley economist Ken Rosen said last week.               sents himself or his finances to a lender. Some of that fraud
       “The subprime borrowers paid too much for their homes,           involved speculators. They drove up prices during the boom by
  and all of a sudden, they’ll see their house value drop by 10 to      ordering new homes with the intent of selling them immediately
  15 percent,” Rosen said.                                              after taking possession.
  Borrowers at Risk                                                          That “flipping” inflated demand and put the speculators in
       The Center for Responsible Lending in Durham, North              competition with the homebuilders, propelling the median U.S.
  Carolina, said in a December study that as many as 2.2 million        home price to $276,000 last June from $177,000 in February 2001.
  borrowers are at risk of losing their homes, at a potential cost of   Housing Bubble
  $164 billion, from subprime mortgages originated from 1998                 “A lot of the housing bubble was speculation,” said Mike
  through 2006.                                                                                                         Continued Page -8-

        N EBRASKA M ORTGAGE A SSOCIATION                                                         www.NebraskaMortgageAssociation.org          7
NEBRASKA        Mortgage Monitor                                                                                            March, 2007

  Foreclosures May Hit 1.5 Million in U.S. Housing Bust … from Page -7-
  Inselmann of the Houston-based research firm Metrostudy.              their mortgage-bond trading businesses. They needed loans to
       When home prices got so high that speculators could no           repackage into securities to sell to investors. Demand for higher
  longer turn a profit, they canceled their contracts and walked        yields led them into the subprime market. As that business flour-
  away from their down payments.                                        ished, financial firms either invested in subprime lenders of
       Cancellation rates for new homes have surged to almost 40        bought them.
  percent of home contracts, Margaret Whelan, a New York-based          ‘Too Early to Tell’
  analyst at UBS AG, said in a report on March 2.                             The number of U.S. financial institutions in the mortgage
       That forced the top five U.S. homebuilders – D.R. Horton         business jumped 16 percent to 8,848 in the past four years, ac-
  Inc., Pulte Homes Inc., Lennar Corp., Centex Corp. and Toll           cording to the Federal Financial Institutions Examination
  Brothers Inc. – to write off a combined $1.47 billion on aban-        Council.
  doned land in the fourth quarter of 2006.                                   “It’s a little too early to tell how it shakes out for investment
       On top of that, new home sales plunged 17 percent last year      banks,” said Andrew Davidson, president of New York- based
  from 2005, the biggest decline since 1990, according to the Chi-      Andrew Davidson & Co., which advises fixed-income investors
  cago-based National Association of Home Builders. Existing            on mortgage bonds. “If it turns out that they have large losses,
  home sales fell 8.4 percent in 2006 from a record in 2005, ac-        the investment banks tend not to be very forgiving and usually
  cording to the National Association of Realtors.                      terminate businesses that haven’t worked for them.”
  ‘All 12 Months’                                                             Dale Westhoff, a senior managing director at New York-
       Donald Tomnitz, D.R. Horton’s chief executive officer, said      based Bear Stearns Cos., the largest underwriter of mortgage
  last week that his Fort Worth, Texas-based company would miss         bonds, said last week that failing subprime lenders “are going to
  its projections for this year and that “2007 is going to suck, all    be absorbed very quickly.”
  12 months of the calendar year.”                                            “Hedge funds and private equity are going to play a very
       A Standard and Poor’s index of 16 homebuilders tumbled           important role in buying distressed assets,” Westhoff said.
  4.1 percent today, its biggest decline since August, on concerns      Optimists
  over increasing inventory and subprime defaults. The index has              In contrast to the 1991 housing skid, worker productivity is
  fallen 12 percent since Jan. 1.                                       increasing, consumer confidence is expanding, interest rates re-
       D.R. Horton shares fell 5.1 percent today in New York            main within 1 percentage point of the 40-year low and the
  Stock Exchange composite trading. Bloomfield Hills, Michigan-         jobless rate fell to a five-year low last month. Last month, 7.4
  based Pulte dropped 4.8 percent; Lennar, based in Miami,              million new and existing homes were sold at an annualized pace,
  dropped 4.9 percent; Dallas-based Centex lost 3.7 percent and         more than twice the 1991 bottom.
  Toll, based in Horsham, Pennsylvania, fell 3 percent.                       And real estate people tend to be the world’s most optimis-
       Concern that the housing slump and defaults in the subprime      tic, said Bryce Bowman, director of development for Randolph
  mortgage industry will affect earnings at the largest banks and       Equities LLC in Chicago.
  lenders has hurt financial stocks. They are the worst performers            “There’s a lot of capital chasing real estate and that has not
  in the Standard & Poor’s 500 Index since the benchmark reached        ceased with this bust,” Bowman said. “Developers have stopped
  a six- year high on Feb. 20. The group lost 5.6 percent, outpacing    building crazy speculative housing developments and are burn-
  the broader index’s 3.9 percent drop.                                 ing off their inventory, so we’re excited about the end of ’07, and
       Investment banks including Merrill Lynch & Co., Deutsche         we want to be ready to go when business picks up in ’08.”
  Bank AG and Morgan Stanley have spent more than $4 billion                                                                        By Bob Ivry
  over the past year to buy home-loan companies as add-ons to

      New Fannie, Freddie Regulator May Have Power Of Purse, Too
    Congress has been gridlocked for years       fordable housing fund” to be financed by        it is established first before people start
    over efforts to reform the government-       the GSEs. The estimated $500 million            fighting over how to spend it,” Frank
    sponsored enterprises Fannie Mae and         fund would make block grants to states          said. How it would work, who the
    Freddie Mac.                                 for low-income housing.                         money would go to, can be haggled
         House Financial Services Commit-             Exactly how the fund would work            over later, he says.
    tee Chairman Barney Frank, D-Mass.,          though is a bit of a mystery — even to          Regulate And Spend
    has proposed a bipartisan bill to create     the bill’s author. In an interview with IBD           But as currently written, the GSE
    a tough new overseer. But he wants           last Friday, Frank said few details have        reform bill gives a new independent
    something in return.                         been finalized.                                 agency control of the fund. That agency
         A key part of Frank’s bill is “an af-        “I want to make certain, frankly, that                             Continued Page -9-

        N EBRASKA M ORTGAGE A SSOCIATION                                                          www.NebraskaMortgageAssociation.org             8
NEBRASKA         Mortgage Monitor                                                                                                March, 2007

   New Fannie, Freddie Regulator Mah Have Power of Purse, Too … from Page -8-
                                                                                                        GSEs should have control.
  will replace the Office of Federal Hous-              manipulation, well, that goes with any-
                                                                                                              “I believe you want us to care what
  ing Enterprise Oversight, the current                 thing the government does. Why should
                                                                                                        happens to the grants and investments
  regulator of Fannie and Freddie.                      that stop this? Frank asked.
                                                                                                        made under the program . . . to ensure
        In other words, the new agency to                     “Nothing in a democratic society is
                                                                                                        they are effective community building
  oversee and rein in these GSEs also may               insulated from politics,” he said.
                                                                                                        blocks,” Mudd said.
  be doling out hundreds of millions of                       It’s a rather touchy subject for Frank,
                                                                                                              According to the text of proposed
  new dollars in federal funding for hous-              who has labored for years to create the
                                                                                                        legislation, the GSEs annually will give
  ing. At least for the time being.                     fund and now sees it within his grasp. He
                                                                                                        an amount equal to 1.2 basis points on
        “It’s really odd” for a regulatory agency       has said the fund is needed to boost the
                                                                                                        each of their total outstanding mortgages.
  to have these dual purposes”, said Michael            country’s stock of affordable housing.
                                                                                                              The proposed legislation says that in
  Flynn, director of government affairs for                   At the end of last year, a near-record
                                                                                                        the first year all of the funds will go to
  the free market Reason Foundation.                    68.9% of U.S. households owned a home.
                                                                                                        provide housing in Katrina-hit areas in
        The fund’s ambiguous nature also has            That’s up from 64.2% at the end of 1994
                                                                                                        Louisiana and Mississippi. After that
  raised eyebrows from others on the com-               as many more moderate-income families
                                                                                                        funds will be allocated in block grants to
  mittee, like Rep. Deborah Pryce, R-Ohio.              achieved the American dream.
        “I share the concerns of some of my                   Mortgage finance giants Freddie and
                                                                                                              The director of the new outside GSE
  colleagues that funds distributed through             Fannie have taken a lot of credit for mak-
                                                                                                        regulator agency would manage the fund
  the states under the proposed (fund) could            ing it easier for people to buy a home.
                                                                                                        but the Secretary of the Department of
  still be used to offset political activities by       But in the process, they have grown so
                                                                                                        Housing and Urban Development would
  organizations which do not have affordable            big that many fear a failure could create a
                                                                                                        set the block grant formula.
  housing as their primary purpose,” Pryce              financial crisis. That is behind the calls to
                                                                                                              The formula would involve each
  said during a March 15 hearing.                       rein them in.
                                                                                                        state’s population, the number in poverty,
        Rep. Judy Biggert, R-Ill., expressed                  Also, the surge in ownership helped
                                                                                                        substandard housing and other factors.
  similar concerns to IBD. She wants the                drive soaring home prices. That’s pushed
                                                                                                        The bill doesn’t specify the formula. That
  bill’s language to be more specific and out-          many would-be owners out of the market
                                                                                                        still is to be worked out, Frank says. All
  line which groups can be fund recipients.             or encouraged them to take out subprime
                                                                                                        other aspects are subject to change, too.
        “Block grants can create their own              loans that they can’t afford.
                                                                                                              The fund would run out after five
  problems,” she noted.                                       Frank had proposed a Fannie- and
                                                                                                        years. But Congress would have to report
  Frank Fights For Fund                                 Freddie-managed fund during the prior
                                                                                                        on the program and recommend if it
        Frank dismissed such concerns.                  Congress’ efforts to reform the GSEs, but
                                                                                                        should be extended.
  There’s nothing inherently wrong with an              GOP members balked. They feared GSEs
                                                                                                              In practice, these programs, once
  outside regulator controlling such a fund,            would use it as a slush fund to build po-
                                                                                                        created, tend to live long past the expira-
  he says. Nor is there any evidence they               litical support, undermining efforts to
                                                                                                        tion date. Members of Congress would be
  cannot manage it.                                     rein them in.
                                                                                                        hard-pressed not to extend an affordable
        Besides, it may only be under the                     This year, Frank, now chairman, of-
                                                                                                        housing fund.
  regulator’s control for the first year, when          fered to move the fund to the new
                                                                                                              The House Financial Services Com-
  the fund will be devoted solely to Katrina            regulator instead of the GSEs. That won
                                                                                                        mittee will start debate on the bill
  recovery efforts. After that the fund can             some GOP support.
                                                                                                        Wednesday and is expected to vote on it
  be moved to another manager.                                But Fannie Mae President Daniel
        As far as the concerns of political             Mudd testified earlier this month that the
                                                                                                        By Sean Higgins, Investor’s Business Daily

                                                           NMA’s 2007 Annual Fall Conference
                                                    The dates are set, so mark your calendar!
             Septem                                 Where: Omaha, NE
                                                    Dates: September 11, 12 and 13, 2007
                                                    Location: Omaha Marriott
                                                    Golf: At Players Club
                                                    We will be bringing you a line-up of education and motivation for all. From processing to
                                                    closing, and everyone in between, this upcoming event is certain to be worthwhile!

        N EBRASKA M ORTGAGE A SSOCIATION                                                                 www.NebraskaMortgageAssociation.org          9

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