Consumers are discovering that home sellers are willing to drop their asking price as the spring buying season unfolds. When combined with continued low mortgage rates, that translates into a buyer's market in many areas of the country.
Mortgage executives also are in the midst of a buyer's market, as a wave of subprime firms go out of business or put themselves up for sale. In January, National Mortgage News noted that the abrupt closing of Mandalay Mortgage, Woodland Hills, California, was "the eighth nonprime lender of note to fail within the past 60 days." Subprime lending activity grew rapidly in recent years, but increased competition caused once-wide margins to shrink.
Those subprime shutdowns emerge against a backdrop of a shrinking wholesale lender universe. A few years ago ABN AMRO Mortgage Group Inc., Ann Arbor, Michigan, was the country's largest wholesale loan funder. However, it recently was sold to O'Fallon, Missouri-based CitiMortgage Inc. Formerly high-flying Argent Mortgage Co., Irvine, California, and its retail arm, Ameriquest Mortgage, Irvine, California, now are up for sale, according to industry sources.
Calabasas, California-based Countrywide Financial Corporation Chairman and Chief Executive Officer Angelo Mozilo recently said, "The industry will likely see continued pressure on margins as mortgage origination volumes decline and industry capacity is rationalized. We are also preparing for increased borrower delinquencies and continued credit deterioration."
Today's circumstances grew out of a positive effort to "push homeownership," says Gary Akright, president of Dominion Mortgage Corporation, Dallas. Akright adds that Wall Street firms got involved in expanding originations, which led to more-liberal underwriting. So-called exotic mortgages, which combined teaser rates and the potential for negative amortization, were sold to borrowers with lower credit scores who were eager to purchase homes.
But earlier this year, subprime defaults in mortgage-backed securities (MBS) rose to more than 10 percent, according to a report from Arlington, Virginia-based investment bank Friedman, Billings, Ramsey Group Inc. That's above the high point for delinquencies reached in the 2001 recession. Low down payments, a soft real estate market and adjustable rates resetting upward are contributing to the challenging situation.
Securitizations boomed in 2006, but early defaults are causing investors concern today. Even hedge funds...