On Mortgage

GMAC warns on mortgage business

2008-11-23T22:16:00.000-08:00

GMAC's Rescap mortgage arm has now seen two years of losses

GMAC Financial Services has reported an increased loss for the third quarter and warned that its mortgage business, Rescap, may struggle to survive.

The firm reported a loss of $2.52bn (£1.56bn), against a $1.6bn deficit a year ago, with Rescap losing $1.91bn.

"Absent economic support from GMAC, substantial doubt exists regarding ResCap's ability to continue as a going concern," GMAC said.

GMAC was part of General Motors until GM sold a majority stake in 2006.

It sold a 51% stake in GMAC to Cerberus Capital Management, but the carmaker still holds a 49% share.

Rescap was reported to be the seventh-largest mortgage lender in the US at the beginning of this year.

Analysts suggested it could follow lenders Washington Mutual and IndyMac who failed earlier this year.

"If GMAC can't provide the support that Rescap needs, then bankruptcy is an option for Rescap," said analyst Christopher Wolfe from Fitch Ratings.

'Unrelenting environment'

GMAC has been hard hit by the US housing slump and the resulting credit crunch.

The company's chief executive, Alvaro de Molina, said that "economic and market conditions created an unrelenting environment for our business".

"In this climate, our primary objective is to make prudent use of our resources and take the steps needed to address the reduced access to liquidity."

The company's car finance unit lost $294m in the three months to September, stemming from a rise in credit losses in North and Latin America. In the same period a year ago it had made a $554m profit.

GMAC has cut back its lending, and this has had an unwelcome knock-on effect on General Motors.

Earlier this week, GM said that the cutback in GMAC's lending was behind about half of the 45% fall in car sales seen during October.

"It was like someone turned off the lights," GM's North America sales chief Mark LaNeve said on Monday.

By : news.bbc.co.uk

Citi Jumps On Mortgage Modify Bandwagon

2008-11-23T22:06:00.000-08:00

CNBC.com

So here we go with another bank pledging to save us all from the foreclosure crisis. CitiMortgage now jumps on the bandwagon with JP Morgan [JPM Loading... () ]and Bank of America [BAC Loading... () ](as part of a Countrywide settlement, since it bought Countrywide), saying that it will modify loans and save thousands of homeowners from foreclosure.

Of course, it's only doing this for loans it owns, not loans that have been securitized and sold into the broader markets.

I’m all about the help, but I have some issues (I always have some issues). Citi

Quote | Chart | News | Profile

[C Loading... () ]is targeting borrowers who are not yet delinquent but who could become delinquent due to any number of issues, like loan resets, loss of jobs or home price depreciation. So I have to ask about yet another moral hazard, like a whole bunch of borrowers who might not really need to stop paying their bills each month suddenly trying to jam onto the modification train.

Yes, there will be some vetting process, one would hope, but, as Fox, Pitt, Kelton’s Howard Shapiro told me this morning, “I think there will be a lot of people on the borderline and this could encourage them to become delinquent in hopes of a better deal.”

Fannie, Freddie to Streamline Refinancing

Fannie Mae Future Scary

My next issue is why now? Borrowers have been swirling around the housing toilet for more than a year now, and only in the last few weeks have the big banks suddenly said, “Okeedoke, let’s have a looksee at that loan.” Could it be all that TARP money being used to pay for these modifications? I thought that TARP money was supposed to help banks to go forward in lending, not pay for past abuses.

Now Fannie

FNM

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[FNM Loading... () ] and Freddie [FRE Loading... () ]are jumping on the bandwagon, handily enough the day before a big hearing in the House Financial Services committee, entitled, “Private Sector Cooperation with Mortgage Modifications—Ensuring That Investors, Servicers and Lenders Provide Real Help for Troubled Homeowners.” Please define, “Real Help” Mr. and Ms. Member of Congress!

Citigroup Steps Up Efforts to Refinance Mortgages

I just have to wonder, with all these programs to help the borrowers, all these banks pledging to save the homeowners, a) given the sheer number, how are they going to have the manpower to process all these individuals and b) since many of these plans are only temporary modifications, aren’t we just pushing the problem out a few years??

CitiMortgage’s announcement that it could lower the interest rate on loans to 1-2 percent temporarily is essentially offering the same temporary teaser rate that the subprime lenders offered at the height of the housing boom. “It’s sad when the only way to ‘save’ housing and get borrowers out of default is keep them terribly leveraged by cutting their rates to 1-2 percent,” says Mark Hanson, aka Mr. Mortgage. “Exotic loans with teaser rates is what got us here in the first place,” he adds.

By : www.cnbc.com

Understanding the U.S. sub-prime mortgage

2008-10-29T01:06:00.000-07:00

Jakarta - the world's financial markets in recent weeks by the bubble sub-prime mortgage crisis. What is the actual sub-prime mortgage? And how to participate in the RI-follow-up not be a crisis that?

The following analysis by Sid H. Kusuma, who now join in the SMF and deepen the market for residential mortgage in the field security, IT, consulting services and risk management. He also had joined Bear Stearns and Citigroup Inc. in the U.S. and PT Ernst & Young India.

The phenomenon sub-prime mortgage market Meltdown, which occurred since mid-2006 has a negative impact on sentiment in the capital markets, including Indonesia. To understand what can happen, need to understand whether the sub-prime mortgage loans and characteristics.

The definition of sub-prime mortgage loan

Sub-prime mortgage loans in the United States be given to consumers who have the feasibility of credit less than adequate. One way to measure the feasibility of consumer credit is done by looking at credit score. System of KPR in the United States is very dependent on credit score issued by the company credit for what use such a method FiCO. For information, consumers have dapar FiCO score ranging from 300's 850 depending on the results of calculations performed by the company service providers ceridt see the score with 5 main categories as below:

1. Payment history (35%)
2. Amounts owed (30%)
3. Length of credit history (15% 0
4. New credit (10%)
5. Types of credit used (10%).

Although changes periodically, the current average credit score for consumers in the United States ranged from 620. The lower credit score (FiCO <620), the less the feasibility of these consumers get KPR. Sub-prime mortgage borrower pay given to consumers who have FiCO score <620.

In addition to credit score, sub-prime mortgage loans can also be seen from several factors:

1. The high ratio of Loan to Value up to 100%
2. KPR collateral that does not meet the fundamental calculation of its value.
3. Excessive equipment KPR documentation (low-doc) or no verification of income (statutory income), the source of downpayment and work history.
4. The high Debt-to-Income (DTI) and Payment to Income (PTI)

Characteristics directly above the risk of international distributors, KPR. From one side, dikompensasikan Increasing risk with high interest rates and other special features. On the other hand, high interest rates caused a mampuan consumers to get KPR.

In this case, distributors, KPR create products that remain KPR mengkompensasikan high risk but can be perceived by consumers, at least to be able to dioriginasi.

Sub-prime mortgage loan products of the famous is 2 / 28 Arms. This type of KPR developed enough where almost covers 75% of the adjustable sub-prime mortgage loan organizer. Product features the first two years fix rated the Teaser Rate and will be changed at the end of the year adjustable rate into the second and each following year.

The problem is channeling KPR in organizer KPR measuring consumers with the ability to use the Teaser Rate low. At KPR interest rate changes at the end of the second year into adjustable rate, monthly payment consumers can be increased drastically because the margin for consumers with high-risk profile can reach 300-500 basis points. This causes consumers who are less credit worthy cares to pay installments KPR, and then failed to pay.

In addition, the Predatory Lending practices done by the dealer KPR naughty. Lying above the consumer segment with the various tactics such as deliberately give the number of loans with high interest rates high to consumers who clearly can not afford to pay. Be expected if there failed to pay the collateral will be execution and distributor KPR benefit from the sale of his house.

What happens with the sub-prime mortgage loans in the United States?

The growth of sub-prime mortgage market in the United States increased rapidly reaching 22% of the total originasi KPR in the total number of the remaining loan more than $ 650 million at the end of the year 2006 (see graph). Some of the key factors increasing the market. From the demand side, both the housing sector during the years 2002 - 2005, low interest rates KPR & home price appreciation. From the supply side, with the high demand and the opening of business opportunities, distributors, "KPR-berbodong" crowd into the market to offer services ..

With increasing competition, distributors, KPR compete to get consumers by offering products that KPR is varied enough to know in depth without the risk and characteristics relaxation provisions originaly KPR. This has resulted in many KPR with high-risk features that are approved for consumers who are not eligible.

With the declining housing sector growth since the beginning of 2006 marked by increasing the price of a house Accounting and increasing interest rates KPR, KPR many consumers in this market, which experienced difficulties in paying the installments and then failed to pay the stated.

The results of a survey issued by the Mortgage Banker Association (MBA) said that the delinquency rate for sub-prime mortgage loans for Q4-2006 in 13.33%. As a comparison, deliequency rate for prime mortgage loans ranged from 2.57%. Meanwhile, the Foreclosure rate is 2% compared to 0.24% for prime and subprime mortgage loans per Q4-2006. Foreclosure and ratea inventory is 0.5% and 5.1% for prime and subprime mortgage loans per Q4-2006

Lessons for KPR Market in Indonesia

Houses have credit risk characteristics that vary, and can dimitigasi with the pattern originaly up with a good Servicing. In some countries including the United States, standardization documents KPR is one of the efforts to create standardization and reduce risk. Benefit from standardization is proved by the difference of delinquency & Foreclosure rates between conforming (prime) and sub prime mortgage loans.

In Indonesia, standardization documents KPR has been created to be used by distributors, KPR. KPR standardization documents, which cover 5 topics namely Originaly, underwriting, Quality Control, Servicing & MIS. Some examples of the main things such as how to calculate the standardization of LTV and the correct boundary biggest, the type of documentation is required and there verikasi process that must be done before the KPR can be approved, PTI & DTI. Underwriting process, where interviews with consumers to get a feeling about consumers is important.

In addition, to provide education to prospective consumers can know that the process offers KPR and the rights and obligations is necessary. Consumers who can help education not to ly by KPR distribution scheme that is not healthy and harm consumers.

Mortgage

2008-10-29T00:43:00.000-07:00

A mortgage is the pledging of a property to a lender as a security for a mortgage loan. While a mortgage in itself is not a debt, it is evidence of a debt. It is a transfer of an interest in land, from the owner to the mortgage lender, on the condition that this interest will be returned to the owner of the real estate when the terms of the mortgage have been satisfied or performed. In other words, the mortgage is a security for the loan that the lender makes to the borrower.

The term comes from the Old French "dead pledge," apparently meaning that the pledge ends (dies) either when the obligation is fulfilled or the property is taken through foreclosure.

In most jurisdictions mortgages are strongly associated with loans secured on real estate rather than other property (such as ships) and in some jurisdictions only land may be mortgaged. Arranging a mortgage is seen as the standard method by which individuals and businesses can purchase residential and commercial real estate without the need to pay the full value immediately. See mortgage loan for residential mortgage lending, and commercial mortage for lending against commercial property.

The measurement of a mortgage with regards to cost to the borrower can be measured by Annual Percentage Rate (APR) or many other formulas for true cost such as Lender Police Effective Annual Rate (LPEAR).

In many countries it is normal for home purchases to be funded by a mortgage. In countries where the demand for home ownership is highest, strong domestic markets have developed, notably in Spain, the United Kingdom, Australia and the United States.