WASHINGTON (Reuters) - The Obama administration Thursday tweaked its housing rescue plan by increasing incentives for mortgage lenders to slash the payments for homeowners in the worst-hit markets.
The changes announced by the Treasury Department would also encourage so-called short sales to help troubled homeowners escape from unaffordable mortgages. In a short sale, the lender retires the mortgage in return for whatever the homeowner can sell the property for.
"This will give (lenders) payments to mitigate some of the risk that past house price declines might reduce future payments. The way to think about this is an additional incentive for lenders and servicers to participate in these programs," U.S. Treasury Secretary Timothy Geithner told a news conference.
The Treasury will use up to $10 billion from a previously announced $50 billion pool of mortgage modification funds for payments to address lender concerns that home prices will continue falling in high-cost areas.
These incentives will be calculated on recent declines of local home prices and average home prices in these markets, the Treasury said, and may add several thousand dollars to other incentives that servicers can receive for reducing loan payments.
Under the short sale program, lenders can receive a $1,000 payment for allowing the owner to sell the house for less than the amount owed on the mortgage and accepting the proceeds as full repayment. They can also receive $1,000 for accepting a similar deed-in-lieu transaction, in which the deed is simply transferred to the lender instead of going through a costly foreclosure.
INCENTIVES FOR BORROWERS
Borrowers who agree to short sales or deed-in-lieu deals can received up to $1,500 in closing costs. Treasury also said it will pay second lien holders up to $1,000 to relinquish their claims in such transactions.
The new incentives are among a number of recent refinements to the Obama administration's housing rescue programs. A Treasury spokeswoman said these payments will come from the same $50 billion used to encourage other types of loan modifications and extinguishment of second-lien mortgages.
About $15 billion of these funds, from the Treasury's Troubled Assets Relief Program, have already been allocated to incentives for 14 major loan servicers under the program's initial phase.
The $50 billion, combined with $25 billion in costs absorbed by Fannie Mae and Freddie Mac will fund other incentives for lenders to extinguish second-lien mortgages.
"The single most critical step we need to make to stabilize home prices is to stop the bleeding and prevent what could be up to 10 million foreclosures looming on the horizon," said National Community Reinvestment Coalition president John Taylor.
He also said more actions from the Obama administration may be needed to stabilize the housing market.
GOOD START?
Since the program started in March, the Treasury said more than 55,000 loan modification offers have been extended to borrowers from servicers, who also have sent about 300,000 solicitation letters to borrowers who would qualify.
That is far short of the 3 million to 4 million loan modifications that the Obama administration hopes to achieve in the program.
"This is just the beginning. We're at the beginning of progress in these programs," Geithner said.
He also said the new incentives would encourage modifications in areas suffering from steep price declines and lenders and investors have been reluctant to modify over fears that a downward price spiral will push the loan back into default.
"If a modification is not possible, we are also announcing steps to encourage the quick private sale or voluntary transfer of property, which will save homeowners money and protect their financial future," Geithner said.
A U.S. Treasury official later told reporters on a conference call that a separate program that allows Fannie and Freddie refinance mortgages at up to 105 percent loan to value ratio could be examined in the future for possible for changes to raise that cap. The official said such a move was not under active consideration now, but the Treasury was committed to continue to examine the program for its effectiveness.
In some hard-hit markets such as California and Florida, price declines have been steep enough that many loans written during the housing boom exceed 105 percent of the underlying home value, making them ineligible for refinancing under the program.
Thursday, May 14, 2009
NRA Asks Treasury for Jumbo Loan Help
The National Association of Realtors reported today that the housing recovery is being stalled because Jumbo Loans are more costly and more difficult to obtain. In their report titled, “Impact of the Jumbo Mortgage Credit Crunch,” they note that the national share of home sales above $750,000 fell to just 2.3 percent this year from 4.4 percent in 2007.
Meanwhile, the months’ supply of inventory of such homes has risen from 18.7 months to a whopping 41.1 months during the same period. “Lenders are keeping credit standards overly stringent for borrowers at the higher end of the market, and are increasingly reluctant to make jumbo loans,” said NAR Chief Economist Lawrence Yun. He went on to say, “The interest rate spread between 10-year treasuries and jumbo loans has also substantially increased, making jumbo loans much more costly than has previously been the case. Many people believe that the jumbo market is for the very rich, but in many areas of the country, middle-class families need these loans to buy a median-priced home.”
Yun also noted that some lenders are treating jumbo loan borrowers with solid credit scores and substantial down payment as more of a credit risk than conforming loan borrowers with lower credit scores and down payments. “As a result, more buyers of high-priced homes are resorting to cash purchases, while the bulk of potential buyers remain sidelined and unwilling to take out mortgages that carry interest rates much higher than those on conforming mortgages,” Yun added.
NAR has proposed that Congress make the current rules for determining loan limits permanent, use the Term Asset-Backed Securities Loan Facility (TALF) to buy jumbo loans, and increase lender competition by loosening warehouse line of credit.
Meanwhile, the months’ supply of inventory of such homes has risen from 18.7 months to a whopping 41.1 months during the same period. “Lenders are keeping credit standards overly stringent for borrowers at the higher end of the market, and are increasingly reluctant to make jumbo loans,” said NAR Chief Economist Lawrence Yun. He went on to say, “The interest rate spread between 10-year treasuries and jumbo loans has also substantially increased, making jumbo loans much more costly than has previously been the case. Many people believe that the jumbo market is for the very rich, but in many areas of the country, middle-class families need these loans to buy a median-priced home.”
Yun also noted that some lenders are treating jumbo loan borrowers with solid credit scores and substantial down payment as more of a credit risk than conforming loan borrowers with lower credit scores and down payments. “As a result, more buyers of high-priced homes are resorting to cash purchases, while the bulk of potential buyers remain sidelined and unwilling to take out mortgages that carry interest rates much higher than those on conforming mortgages,” Yun added.
NAR has proposed that Congress make the current rules for determining loan limits permanent, use the Term Asset-Backed Securities Loan Facility (TALF) to buy jumbo loans, and increase lender competition by loosening warehouse line of credit.
Wednesday, May 13, 2009
Tax Credit Can Be Used for Down Payment
Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, on Tuesday said that the Federal Housing Administration is going to permit its lenders to allow home buyers to use the $8,000 tax credit as a down payment.
Previously, most buyers wouldn't receive the funds until after they filed their tax return, and that deterred some people from using the credit. The NATIONAL ASSOCIATION OF REALTORS® has been calling for the change.
"We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment," Donovan says. His remarks came in an address to several thousand REALTORS® gathered Tuesday morning at "The Real Estate Summit: Advancing the U.S. Economy," at the 2009 REALTORS® Midyear Legislative Meetings & Trade Expo in Washington, D.C..
He says FHA's approved lenders will be permitted to "monetize" the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.
Previously, most buyers wouldn't receive the funds until after they filed their tax return, and that deterred some people from using the credit. The NATIONAL ASSOCIATION OF REALTORS® has been calling for the change.
"We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment," Donovan says. His remarks came in an address to several thousand REALTORS® gathered Tuesday morning at "The Real Estate Summit: Advancing the U.S. Economy," at the 2009 REALTORS® Midyear Legislative Meetings & Trade Expo in Washington, D.C..
He says FHA's approved lenders will be permitted to "monetize" the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.
Monday, May 4, 2009
House hunting? It's not a buyer's market everywhere
By Chip Jacobs 6:15 PM PDT, May 2, 2009
The Los Angeles Times
The confident smile Sam Rivero wore as he hunted for his first house had a lot to do with the buzz thumping in his ears. Ever since home values began sinking, pundits have touted the juicy opportunities for aspiring buyers priced out of the market before, and the young business-development executive heard that cue like a sonic boom.
Out he ventured into Mount Washington, Glassell Park, Eagle Rock, Montecito Heights and other desirable middle-class communities northeast of downtown Los Angeles, searching for a bargain in the $400,000 range. Candidates came and went, and Rivero, who is getting married, was upbeat. Considering the pulverized housing values, with the median price of a Southland home today -- $250,000 -- at half of its 2007 level, the properties should come gift-wrapped, right?
As the Glendale resident and his fiancee, a makeup artist for the television show "Entourage," discovered, the supposedly wondrous buyers' market seems more consumer myth than easy pickings.
They bid $50,000 over asking price for a "great" four-bedroom contemporary in Valley Village, only to lose out to one of the 16 other offers tendered, Rivero, 33, said. A North Hollywood house he had been eager to see attracted so many people walking around with sales fliers that he couldn't find parking and drove off from the "vultures" who got there first.
"Every open house I've been to has been a zoo," said Rivero, who has examined 35 properties during the last three months. "If you follow what the [general] media say, you'd think sellers are desperate to sell a house, but when you get there it's totally the opposite."
So what's going on?
Real estate brokers and investors say would-be buyers misunderstand how the drop in housing prices has affected desirable neighborhoods. Just because an abandoned house in a troubled part of San Bernardino County might be going for $200,000, it doesn't mean you can get a nice place in Sherman Oaks for that amount -- or even twice that amount.
House hunters are trying to pounce on deals from sellers they expected to be frantic -- if not curled in the fetal position. What they're finding instead are bidding wars as low interest rates and pent-up demand in traditionally stable or chic areas have kept prices up -- not as high as the market's peak, but not nearly as low as they had hoped.
"The biggest problem," said agent Phyllis Harb, "is that people are overreacting to housing statistics, thinking they can come in and make an offer 20% below price."
As sales figures and home buyers' anecdotes are underscoring, when the residential real estate bubble burst, it set off several distinct sprays that created false hopes and confusion.
Though nearly 20,000 homes in Southern California sold in March, a 52% jump from a year earlier, a sizable number of those transactions occurred in Riverside and San Bernardino counties, where foreclosures exploded. In the region overall, foreclosure sales accounted for 55% of March's deals.
Bank-owned or not, the cheaper properties are dominating the sellers' block in the notoriously expensive L.A. County real estate market. In March, 2,871 homes under $300,000 were sold compared with only 734 a year earlier, according to real estate information firm MDA DataQuick.
At the higher end, just 202 homes priced above $1.2 million changed hands last month, compared with 354 in March 2008.
Houses priced from $400,000 to $800,000 represented less than a quarter of the market in March, down from about 45%, meaning fewer offerings for would-be buyers in that mid-market or pickier sellers, according to DataQuick.Mark down Nicky and Bunny DeMarinis as frustrated. They offered about $1 million for a 3,300-square-foot traditional in the Los Feliz area. Though it boasted a magnificent view, the house was an ode to passe, with cheesy frescoes, gold trimming and 1970s-era kitchen appliances, they said. For all the updating it required, the owner came down only a fraction from his $1.7-million asking price and passed on the DeMarinises.
The couple, who own Nicky D's Wood-Fired Pizza in Silver Lake, have seen about 50 houses so far. They don't know where to vent their anger: lenders demanding higher down payments and less-favorable terms, talking heads distorting the market with oversimplifications or listing agents itching for bidding wars.
"You get out there and think you can grab something at a fantastic price, but that's not the case," Bunny DeMarinis said. "Each time we look at a house and see these inflated prices and our offer is rejected, we feel rejected too. We had an unrealistic portrait of what was really happening. It's disillusioning."
It's becoming a populist theme among potential local buyers and a contentious topic on websites devoted to the post-bubble market.
Real estate investor Burt Slusher said home shoppers should disregard the broad trends and focus instead on nuances and inventory in finely drawn areas.
Take the 40% jump in L.A. County home sales in March compared with a year earlier. In studying the data, Slusher said, he found that a large batch of those deals transpired in Palmdale, Compton, Inglewood and other communities that suffered as a result of "treacherous subprime mortgages."
People interested in properties in coveted niche markets such as Pasadena, Culver City and Santa Monica have read or heard too much about frenzied activity in the bottom of the market, he said, without comprehending that it held little relevance for them.
Slusher's advice is to muster patience, because he believes there's still an over-inventory of mid- and upper-priced properties that will drive overall prices down into 2011.
"Buyers hear about foreclosures and bank sales and a bad economy and think they can offer a beer price for a wine home," Slusher said. "But the market is not a homogenous place, where everything is the same."
In classic economics, buyers should have a decided advantage in neighborhoods in which supply dwarfs demand. Where there's typically a six-month inventory of houses for sale in coveted Beverly Hills, Pacific Palisades and West Hollywood, for instance, there's a year to two years' worth today, agent Christopher Hain said.
Hain has a theory about why all that supply hasn't translated into blocks full of delirious new homeowners. He calls it the "sucker syndrome," in which buyers are nervous about overbidding when nobody truly knows whether Southland home values have reached their bottom.
Said Slusher, "Nobody wants to be the sucker who paid too much, so they combat that fear by offering unrealistically low amounts. But if you're trying to time the bottom, you're going to end up with junk. It's always the best houses and cheapest houses that sell first."
More should be known about the market for more-expensive properties when "jumbo" loans -- ones exceeding $417,000 -- become available this summer, according to DataQuick. In a sign of how locked-up conditions are, jumbo loans represented 40% of all Southern California purchases in 2007. In March they accounted for 10% of the activity.
On a recent Sunday, an open house for a vintage 3,159-square-foot Craftsman near Occidental College in Eagle Rock drew 105 people in the first hour despite sweltering temperatures, a Lakers playoff game and a list price of $699,000. Never mind the hilly curb appeal or the aroma of freshly baked cookies that listing agent Tracy King baked. There was plenty of head-shaking among would-be buyers about the absence of bargains.
Jose Mares, 38, a Huntington Park police officer, said he'd been searching for eight years for a house. To him, the dark-shingled house needed too much renovation to justify the tab. He thinks he knows why it's priced where it is: There's not a glut of quality competition close by, and the owner and listing agent know their edge.
"Some want to charge $550,000 for a starter house," Mares said.
King, the agent, said she'd heard earfuls about that, and noted that this was not your father's housing crash. Today, everyone is savvier, able to analyze properties with a few keystrokes or see a street view using Google.
Instant information, though, also means fiercer competition and fewer hidden gems. As an example, King cited a 1,625-square-foot, midcentury-style fixer-upper in La Crescenta priced at $299,000. Forty people were standing on the front lawn within an hour of its listing, she said. Ultimately, there were 80 bids, 15 of them exceeding $400,000. The winning bid was $480,000.
"What I'm seeing is that perceived bargains are going in multiple offers for more than the asking, and buyers are very disappointed," King said. "Real estate is hyperlocal, so a [regional] $250,000 median price is meaningless here."
Predicting where values are headed is hardly a science either, no matter what the cable-TV experts or the galaxy of websites with every imaginable statistic say. For one thing, people selling costlier homes tend to have deep pockets buffering them from needing a fire sale to stay afloat. If they don't like the bids, they can pull their property off the market.
Banks are an even bigger X factor, and not just because of their stricter lending requirements and bailout havoc. USC real estate professor Tracey Seslen said she'd heard that lenders were carefully timing the release of homes they'd repossessed to avoid further flooding the market and driving prices down more. Those institutions also know that a fresh avalanche of foreclosures from people with resetting loans may be looming.
"So the banks are playing this game too," Seslen said. "They're keeping prices artificially high."
Rivero, the soon-to-be-married business-development exec, wishes that weren't so, and hopes his tenacity pays off.
"We've learned not to get our hopes up because it sets us up for heartbreak," he said. "What's driving me is that I actually want a house."
The Los Angeles Times
The confident smile Sam Rivero wore as he hunted for his first house had a lot to do with the buzz thumping in his ears. Ever since home values began sinking, pundits have touted the juicy opportunities for aspiring buyers priced out of the market before, and the young business-development executive heard that cue like a sonic boom.
Out he ventured into Mount Washington, Glassell Park, Eagle Rock, Montecito Heights and other desirable middle-class communities northeast of downtown Los Angeles, searching for a bargain in the $400,000 range. Candidates came and went, and Rivero, who is getting married, was upbeat. Considering the pulverized housing values, with the median price of a Southland home today -- $250,000 -- at half of its 2007 level, the properties should come gift-wrapped, right?
As the Glendale resident and his fiancee, a makeup artist for the television show "Entourage," discovered, the supposedly wondrous buyers' market seems more consumer myth than easy pickings.
They bid $50,000 over asking price for a "great" four-bedroom contemporary in Valley Village, only to lose out to one of the 16 other offers tendered, Rivero, 33, said. A North Hollywood house he had been eager to see attracted so many people walking around with sales fliers that he couldn't find parking and drove off from the "vultures" who got there first.
"Every open house I've been to has been a zoo," said Rivero, who has examined 35 properties during the last three months. "If you follow what the [general] media say, you'd think sellers are desperate to sell a house, but when you get there it's totally the opposite."
So what's going on?
Real estate brokers and investors say would-be buyers misunderstand how the drop in housing prices has affected desirable neighborhoods. Just because an abandoned house in a troubled part of San Bernardino County might be going for $200,000, it doesn't mean you can get a nice place in Sherman Oaks for that amount -- or even twice that amount.
House hunters are trying to pounce on deals from sellers they expected to be frantic -- if not curled in the fetal position. What they're finding instead are bidding wars as low interest rates and pent-up demand in traditionally stable or chic areas have kept prices up -- not as high as the market's peak, but not nearly as low as they had hoped.
"The biggest problem," said agent Phyllis Harb, "is that people are overreacting to housing statistics, thinking they can come in and make an offer 20% below price."
As sales figures and home buyers' anecdotes are underscoring, when the residential real estate bubble burst, it set off several distinct sprays that created false hopes and confusion.
Though nearly 20,000 homes in Southern California sold in March, a 52% jump from a year earlier, a sizable number of those transactions occurred in Riverside and San Bernardino counties, where foreclosures exploded. In the region overall, foreclosure sales accounted for 55% of March's deals.
Bank-owned or not, the cheaper properties are dominating the sellers' block in the notoriously expensive L.A. County real estate market. In March, 2,871 homes under $300,000 were sold compared with only 734 a year earlier, according to real estate information firm MDA DataQuick.
At the higher end, just 202 homes priced above $1.2 million changed hands last month, compared with 354 in March 2008.
Houses priced from $400,000 to $800,000 represented less than a quarter of the market in March, down from about 45%, meaning fewer offerings for would-be buyers in that mid-market or pickier sellers, according to DataQuick.Mark down Nicky and Bunny DeMarinis as frustrated. They offered about $1 million for a 3,300-square-foot traditional in the Los Feliz area. Though it boasted a magnificent view, the house was an ode to passe, with cheesy frescoes, gold trimming and 1970s-era kitchen appliances, they said. For all the updating it required, the owner came down only a fraction from his $1.7-million asking price and passed on the DeMarinises.
The couple, who own Nicky D's Wood-Fired Pizza in Silver Lake, have seen about 50 houses so far. They don't know where to vent their anger: lenders demanding higher down payments and less-favorable terms, talking heads distorting the market with oversimplifications or listing agents itching for bidding wars.
"You get out there and think you can grab something at a fantastic price, but that's not the case," Bunny DeMarinis said. "Each time we look at a house and see these inflated prices and our offer is rejected, we feel rejected too. We had an unrealistic portrait of what was really happening. It's disillusioning."
It's becoming a populist theme among potential local buyers and a contentious topic on websites devoted to the post-bubble market.
Real estate investor Burt Slusher said home shoppers should disregard the broad trends and focus instead on nuances and inventory in finely drawn areas.
Take the 40% jump in L.A. County home sales in March compared with a year earlier. In studying the data, Slusher said, he found that a large batch of those deals transpired in Palmdale, Compton, Inglewood and other communities that suffered as a result of "treacherous subprime mortgages."
People interested in properties in coveted niche markets such as Pasadena, Culver City and Santa Monica have read or heard too much about frenzied activity in the bottom of the market, he said, without comprehending that it held little relevance for them.
Slusher's advice is to muster patience, because he believes there's still an over-inventory of mid- and upper-priced properties that will drive overall prices down into 2011.
"Buyers hear about foreclosures and bank sales and a bad economy and think they can offer a beer price for a wine home," Slusher said. "But the market is not a homogenous place, where everything is the same."
In classic economics, buyers should have a decided advantage in neighborhoods in which supply dwarfs demand. Where there's typically a six-month inventory of houses for sale in coveted Beverly Hills, Pacific Palisades and West Hollywood, for instance, there's a year to two years' worth today, agent Christopher Hain said.
Hain has a theory about why all that supply hasn't translated into blocks full of delirious new homeowners. He calls it the "sucker syndrome," in which buyers are nervous about overbidding when nobody truly knows whether Southland home values have reached their bottom.
Said Slusher, "Nobody wants to be the sucker who paid too much, so they combat that fear by offering unrealistically low amounts. But if you're trying to time the bottom, you're going to end up with junk. It's always the best houses and cheapest houses that sell first."
More should be known about the market for more-expensive properties when "jumbo" loans -- ones exceeding $417,000 -- become available this summer, according to DataQuick. In a sign of how locked-up conditions are, jumbo loans represented 40% of all Southern California purchases in 2007. In March they accounted for 10% of the activity.
On a recent Sunday, an open house for a vintage 3,159-square-foot Craftsman near Occidental College in Eagle Rock drew 105 people in the first hour despite sweltering temperatures, a Lakers playoff game and a list price of $699,000. Never mind the hilly curb appeal or the aroma of freshly baked cookies that listing agent Tracy King baked. There was plenty of head-shaking among would-be buyers about the absence of bargains.
Jose Mares, 38, a Huntington Park police officer, said he'd been searching for eight years for a house. To him, the dark-shingled house needed too much renovation to justify the tab. He thinks he knows why it's priced where it is: There's not a glut of quality competition close by, and the owner and listing agent know their edge.
"Some want to charge $550,000 for a starter house," Mares said.
King, the agent, said she'd heard earfuls about that, and noted that this was not your father's housing crash. Today, everyone is savvier, able to analyze properties with a few keystrokes or see a street view using Google.
Instant information, though, also means fiercer competition and fewer hidden gems. As an example, King cited a 1,625-square-foot, midcentury-style fixer-upper in La Crescenta priced at $299,000. Forty people were standing on the front lawn within an hour of its listing, she said. Ultimately, there were 80 bids, 15 of them exceeding $400,000. The winning bid was $480,000.
"What I'm seeing is that perceived bargains are going in multiple offers for more than the asking, and buyers are very disappointed," King said. "Real estate is hyperlocal, so a [regional] $250,000 median price is meaningless here."
Predicting where values are headed is hardly a science either, no matter what the cable-TV experts or the galaxy of websites with every imaginable statistic say. For one thing, people selling costlier homes tend to have deep pockets buffering them from needing a fire sale to stay afloat. If they don't like the bids, they can pull their property off the market.
Banks are an even bigger X factor, and not just because of their stricter lending requirements and bailout havoc. USC real estate professor Tracey Seslen said she'd heard that lenders were carefully timing the release of homes they'd repossessed to avoid further flooding the market and driving prices down more. Those institutions also know that a fresh avalanche of foreclosures from people with resetting loans may be looming.
"So the banks are playing this game too," Seslen said. "They're keeping prices artificially high."
Rivero, the soon-to-be-married business-development exec, wishes that weren't so, and hopes his tenacity pays off.
"We've learned not to get our hopes up because it sets us up for heartbreak," he said. "What's driving me is that I actually want a house."
California Bill to Bar Builders From Offering Mortgages
The Laborers’ International Union of North America (LIUNA) has suggested that a new assembly bill be introduced in California to bar homebuilders from involvement in the mortgage business.
In their new report, they argue that corporate homebuilders in California systematically pressured homebuyers to finance their new home purchases via directly-owned or affiliated mortgage companies that pushed exotic, high-risk offerings. “Corporate homebuilders profited from the loans and from the artificial inflation of the housing market bubble. Their practices contributed to the current housing and economic crisis and families and communities were devastated when the bubble burst,” the release said.
One example cited in the report found that the mortgage subsidiary of homebuilder DR Horton increased its use of subprime lending in Riverside and San Bernardino Counties from six percent in 2004 to 36 percent by 2006.
Once subprime lending phased out, builders turned to FHA loans for financing; 5.5 percent of the government-backed loans originated by Lennar’s mortgage subsidiary Universal American in 2007-2008 have already defaulted. That compares to a 2.8 percent default rate seen within the first two years on the FHA loans the company originated in 2005 and 2006.
LIUNA is pushing Assembly Bill 1534, which would prohibit homebuilders from writing mortgages on the homes they build, protect buyers from “pressure tactics,” and provide buyers with more options and the ability to make more responsible choices.
In their new report, they argue that corporate homebuilders in California systematically pressured homebuyers to finance their new home purchases via directly-owned or affiliated mortgage companies that pushed exotic, high-risk offerings. “Corporate homebuilders profited from the loans and from the artificial inflation of the housing market bubble. Their practices contributed to the current housing and economic crisis and families and communities were devastated when the bubble burst,” the release said.
One example cited in the report found that the mortgage subsidiary of homebuilder DR Horton increased its use of subprime lending in Riverside and San Bernardino Counties from six percent in 2004 to 36 percent by 2006.
Once subprime lending phased out, builders turned to FHA loans for financing; 5.5 percent of the government-backed loans originated by Lennar’s mortgage subsidiary Universal American in 2007-2008 have already defaulted. That compares to a 2.8 percent default rate seen within the first two years on the FHA loans the company originated in 2005 and 2006.
LIUNA is pushing Assembly Bill 1534, which would prohibit homebuilders from writing mortgages on the homes they build, protect buyers from “pressure tactics,” and provide buyers with more options and the ability to make more responsible choices.
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