Pick-a-Pay Loans: Worse Than Subprime

From Treasury to Banks, an Ultimatum on Mortgage Relief
New York Times

Remember that infamous meeting last October at the Treasury Department, the one where then-Secretary Henry Paulson locked the chief executives of the nation’s nine largest financial institutions in a room, and wouldn’t let them out until they agreed to accept billions of dollars in government bailout money — whether they wanted it or not? O.K., that’s a bit of an exaggeration. But I was reminded of that meeting on Thursday night when I was shown a letter that the administration had just sent out calling for yet another big meeting at Treasury with yet another sector of the financial industry. Signed by Treasury Secretary Timothy Geithner and Shaun Donovan, the housing and urban development secretary, the letter demanded that representatives from the top 25 mortgage servicers assemble in Washington on July 28. It is likely to be every bit as painful for them as that Paulson meeting last October was for the bank C.E.O.’s.

Pick-a-Pay Loans: Worse Than Subprime
Wall Street Journal

For the third straight month, option adjustable-rate mortgages are generating proportionally more delinquencies and foreclosures than subprime mortgages, the scourge of the U.S.
Option ARMs were typically issued to creditworthy homeowners and allow borrowers to make a range of monthly payments. The payment options include a partial-interest payment that adds the unpaid interest to the loan's balance. On many such loans, balances have risen while values of the underlying properties have plummeted amid the housing crisis.

As of April, 36.9% of Pick-A-Pay loans were at least 60 days past due, while 19% were in foreclosure, according to data from First American CoreLogic, a unit of Santa Ana, Calif.-based First American Corp. In contrast, 33.9% of subprime loans were delinquent, with 14.5% of those loans in foreclosure, the figures show.

Payment-option mortgages are heavily concentrated in the worst-hit regions in the housing market, including California and Florida, making borrowers inordinately vulnerable to declining property values. The deepening loan turmoil could mean higher-than-expected losses for Wells Fargo & Co., J.P. Morgan Chase & Co. and the Federal Deposit Insurance Corp.'s own insurance fund.“The realization of the issues related to option ARMs is just beginning,” said Chris Marinac, director of research at Atlanta-based FIG Partners.

Movement To Expand Home Buyer Tax Credit Gains Steam
Builderonline.com

Pressure on lawmakers to extend and increase the federal tax credit for home buyers has intensified in recent weeks. Congressional committees are now weighing no fewer than seven housing tax credit-related bills. Prominent business groups have lent their support for such measures. And governors of several states have authorized their own tax credits or advances on the federal credit. So far, though, only lawmakers in California have indicated they’d like to see their state’s largesse extend beyond this year.

In Washington D.C., bills under consideration by House Ways and Means Committee and Senate Finance Committee are, in many respects, variations on the same theme. They would extend the federal tax credit to all buyers, not just-first-time buyers to whom the current tax credit is confined. All want the tax credit to be available to buyers into 2010. Most would eliminate income restrictions on who’s eligible for the credit, and reduce the time buyers must live in the house purchased as a primary residence to two years, from three under the current bill.