NAREE Report: Foreclosure Fallout, Teller of Subprime Tales

Yes, it was a grim morning today at the second NAREE session of the day, Foreclosure Fallout. Two very interesting speakers kept us perkier than a Starbucks double expresso: Steve Dexter, California Mortgage broker and author, and Richard Bitner, author of a great mortgage industry blog who was handing out pre-pub copies of his book “Confessions of a Subprime Lender: An Insider’s Tale of Greed, Fraud & Ignorance.” (I have 2 copies if someone wants to borrow). Your take-away: It ain’t over yet, there’s $250 billion out there in adjustable rate mortgages. One product, Washington Mutual’s loan pay option ARM, a stated income loan, mostly written in CA and FLA, is already seeing a 15% foreclosure rate after just 9 months. That means the ink isn’t even dry yet on the loan docs and folks are letting go. The blame lies with those who lent the mortgages and those who underwrote them, and perhaps Realtors who pushed a little too hard to “make the numbers work”. These guys think we won’t be out of this until 2010, and things will get worse before better. The governemnt should not bail out and start legislating controls lest more sources of capital dry up. That’s our problem now, liquidity — investors are gun shy. Already we are hearing of foreclosures in the higher-credit score classes, which is not good news. Some good news: the heavily discounted and REO properties are starting to move, and Jumbo (non-conforming) rates are getting closer to conventional numbers — as of today the rates were apart by 3/8ths of a point. Â