Debt-market bomb could hurt us all
This article was written in 2007 and I found it interesting because the author predicted what would happen to the debt markets and why. The author calls it the insurance effect. Offering insurance against the risk that a borrower will default on paying what is owed makes investors comfortable in buying riskier debt from borrowers more likely to default. The availability of insurance created a feeling of safety that encouraged so much risk-taking behaviour that the insurance safety net had to fail, leaving homeowners and investors fully exposed to the risks of their behaviour. Fast forward to 2012!
2011 Was a Phenomenal Year for P2P Lending
Two major peer to peer lending groups ended 2011 on a high note. The Lending Club issued $257 million in new loans in 2011, up 100% from 2010. Prosper issued $749.8 million in new loans in 2012, an annual growth rate of 178%. Peer to peer financing is working and seems like it is here to stay.
U.S. lawmakers debate housing finance reform
Conforming mortgage loan limits were set to expire October 1, 2011. Democrats and Republicans alike agree that Freddie Mac and Fannie Mae should be wound down, but there does not seem to be the political will needed to end the government backstop in the mortgage market and limit taxpayer losses. Three years after going into receivership, Fannie Mae and Freddie Mac now back nearly nine in ten new mortgages. Higher loan limits were set for FHA through 2013. The loan limits for Fannie Mae and Freddie Mac reverted to pre-2008 limits.Foreclosures dipped in ’11, but new wave feared
This article is more local but interesting. The area of Dorchester and Mattapan, MA saw a significant drop in foreclosures during 2011. Another increase in foreclosures is expected in the spring 2012. Taking a pro-active stance, a local non-profit has started a small pilot program with financial backing from the city to help educate homeowners at risk of losing their mortgages. They are offered legal and financial advice in hopes of stopping the flow of vacant homes in the area.
Government Set to Sell Foreclosures in Bulk
The Obama Administration, in conjunction with federal regulators and led by the overseer of Fannie Mae and Freddie Mac, is developing a pilot program to sell government owned foreclosures in bulk lots of 50, 100 and 500 to investors as rental. According to a Federal Reserve white paper on housing, “A government facilitated REO-to-rental program has the potential to help the housing market and improve loss recoveries on REO portfolios. Officials say they want to bring back private capital and help support rental opportunities for households, particularly when rent rates are up at the same time home prices are down.
Lessons Learned: More Tips on Topics to be Included in Loan Documents (& Modifications)
This article is written from the perspective of the frustrated mortgage professional who has experienced trying to do workouts. In his “Lessons Learned”, he lists mortgage workouts to avoid:
Complicated ownership structure – if the loan closing is complicated, the workout will be complicated;
Unsophisticated borrowers – if the borrower is not sophisticated then expect to devote an inordinate amount of time and money to structuring around and cleaning up problems planted by the borrower; and
Uncooperative borrowers – if almost every item on the closing checklist becomes the target of complaints then ask yourself what it would be like if this loan hits a tough spot.
Remember the 80/20 rule – 20% of the people will take up 80% of your time and resources, if you allow it.
