bobbyw24
03-07-2010, 09:39 AM
As mandated by the Housing and Economic Recovery Act of 2008, HUD recently released a report to Congress addressing the root causes of the foreclosure crisis and made recommendations on actions that should be taken to mitigate the crisis and help prevent similar crises from occurring in the future.
In its report, HUD said most of the initial increase in foreclosures was driven by subprime loans. These inherently risky loans have accounted for a much larger share of the mortgage market in recent years, and foreclosure rates among these loans have grown rapidly. In addition Alt-A loans, another fast-growing segment of the market, have experienced higher delinquency and foreclosure rates, HUD said.
In both subprime and Alt-A market segments, foreclosures have grown most rapidly among adjustable rate loans. However, as the economy deteriorated in 2008 and 2009, the level of foreclosures among prime fixed-rate loans also rose, “further exacerbating the crisis,” HUD said.
In an option-theoretic view, the primary factor driving defaults is the value of the home relative to the value of the outstanding mortgage. While a lack of equity in a home is strongly associated with foreclosures, HUD said most borrowers become delinquent due to a change in their financial circumstances that makes them unable to meet their monthly mortgage obligations. These so called “trigger events” commonly include job/income loss, health problems, or divorce.
SNIP
Another common factor alleged to have contributed to the foreclosure crisis is the Community Reinvestment Act (CRA), passed by Congress in 1997 with the goal of encouraging banks to meet the credit needs of the communities in which they have branches. Critics of the CRA claim that the wave of risky lending was generated in no small part by banks being pushed into taking these loans to meet their CRA requirements. However, HUD said a variety of empirical evidence supports the view that CRA’s requirements played little or no role in producing the foreclosure crisis.
Many of the same critics raising questions about CRA’s role in producing the foreclosure crisis also argue that federal regulations requiring the government-sponsored enterprises (GSEs) to devote a sizeable share of their lending to low- and moderate-income borrowers played a significant role in fostering the growth of risky lending. HUD said the GSEs certainly contributed to the growth of the subprime market, but there was clearly substantial demand for these securities from a wide variety of investors.
Full piece at
http://www.dsnews.com/articles/hud-addresses-root-causes-of-foreclosure-crisis-2010-03-05
In its report, HUD said most of the initial increase in foreclosures was driven by subprime loans. These inherently risky loans have accounted for a much larger share of the mortgage market in recent years, and foreclosure rates among these loans have grown rapidly. In addition Alt-A loans, another fast-growing segment of the market, have experienced higher delinquency and foreclosure rates, HUD said.
In both subprime and Alt-A market segments, foreclosures have grown most rapidly among adjustable rate loans. However, as the economy deteriorated in 2008 and 2009, the level of foreclosures among prime fixed-rate loans also rose, “further exacerbating the crisis,” HUD said.
In an option-theoretic view, the primary factor driving defaults is the value of the home relative to the value of the outstanding mortgage. While a lack of equity in a home is strongly associated with foreclosures, HUD said most borrowers become delinquent due to a change in their financial circumstances that makes them unable to meet their monthly mortgage obligations. These so called “trigger events” commonly include job/income loss, health problems, or divorce.
SNIP
Another common factor alleged to have contributed to the foreclosure crisis is the Community Reinvestment Act (CRA), passed by Congress in 1997 with the goal of encouraging banks to meet the credit needs of the communities in which they have branches. Critics of the CRA claim that the wave of risky lending was generated in no small part by banks being pushed into taking these loans to meet their CRA requirements. However, HUD said a variety of empirical evidence supports the view that CRA’s requirements played little or no role in producing the foreclosure crisis.
Many of the same critics raising questions about CRA’s role in producing the foreclosure crisis also argue that federal regulations requiring the government-sponsored enterprises (GSEs) to devote a sizeable share of their lending to low- and moderate-income borrowers played a significant role in fostering the growth of risky lending. HUD said the GSEs certainly contributed to the growth of the subprime market, but there was clearly substantial demand for these securities from a wide variety of investors.
Full piece at
http://www.dsnews.com/articles/hud-addresses-root-causes-of-foreclosure-crisis-2010-03-05