“The next six months, the industry, all of the folks that are out there trying to solve this problem, they are going to be very busy,” said Mark Fleming, chief economist for First American CoreLogic, a California research firm. “There are a lot of people facing their resets right now. A good share of them don’t have the refinance option.” Nationally, the number of subprime adjustable-rate loans resetting peaked at 7.6 percent of the loans outstanding last month, according to data from CoreLogic. More than 300,000 such loans will adjust this summer. CoreLogic’s data covers about 80 percent of the mortgage market.

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Yesterday we were presented with a report that ut a glossy shine on the subprime crisis. In part – and the main emphasis on the report – was that the worst was over for the subprime crisis. We questioned the validity of the report, seen nationally and on Google News. Today, we are told the opposite – “About half of recent subprime and Alt-A borrowers may soon owe more on their mortgages than their houses are worth or hold minimal equity, putting $800 billion of debt at greater risk of default, according to Barclays Capital.”

People wonder exactly what they are supposed to believe. Granted, the great expense of the winter heating season is over for many households, but the high cost of gasoline and food are a bigger problem for many. Perhaps tainted subprime paper has been identified in the secondary market, but we seriously doubt that the worst is over.

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A suit files in South Carolina alleges the borrower was not properly informed of how an option ARM actually works. The suit was filed Nov. 16 in U.S. District Court in Charleston and names as defendants World Savings Bank FSB of Oakland, Calif., and Golden West Financial Corp. and Wachovia Corp., both of Charlotte. Option AMRs were invented in the 1980’s for wealthy borrowers, but mortgage enthusiasts sold the products to anybody and everybody by 2005.

By paying only the minimum, the unpaid interest is added to the balance of the mortgage, a process called “negative amortization.” Once the balance reaches a set amount, usually 125 percent of the original principle, the loan automatically resets to a higher interest rate. Hefty pre-payment penalties often mean the loans are unfavorable for refinancing, trapping the borrower, the lawsuit states. Attorneys say aggressive sales tactics left most borrowers with no idea about how the loans worked.

In a prior experience with HFC, and HSBC company, regarding a different type of loan one borrower described how lenders make the loan paperwork look right by omitting some items at closing. “Contracts are probably valid and legal, but during closing the customer isn’t told everything. After closing the buyer is told that the loan cannot be repaid within the loan period at the stated payment amount” the customer said. “Option ARMs will be the same way. If it is explained after closing, using branch empoyees as witnesses to what was said, the customer can try to recind, but it usually won’t happen. It’s all in the emotional link and sales tactic.” said the borrower.

Unpaid interest added to the back end of the loan was the backbone of second mortgage loans from HSBC’s Beneficial Finance and HFC.

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There may no responsibility to the customer when applying for a loan, but some loan officers felt bad when they knew the customer could not afford the house payment after the loan reset. They made the loans anyway. One website, Settlement Scams, shows how some loan officers made the loans anyway, telling about how they felt bad after the fact.

Prime borrowers were given subprime loans when they actually qualified for home mortgage loans at prime rates. All of today’s subprime problems cannot be attributed to borrowers with less than stellar credit. The truth is many problems can be attributed to mortgage officers and companies with less than stellar tactics. It does not take much intelligence to know that the total income shown on the borrower’s paystubs will not be enough income to pay the mortgage after a year.

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Every new loan that is larger than the last contributes to increasing over-all economic instability. The outcome of such has historically been a crash corresponding to the magnitude of this debt distortion. According to analysts, by 1999 twenty-five percent of all sub-prime loans were made in a predatory
manner. Some lending practices were modified after 2002 as others learned from Household International’s nationwide $484 million predatory lending settlement. Ameriquest didn’t learn, or got cocky, depending on one’s opinion. The $325 million settlement agreement covered approximately 725,000 loans valued at more than $109 billion made by Ameriquest from January 1, 1999 to December 31, 2005.

As we study the subprime crisis by mid-2005 anybody and everybody started selling new mortgage products, no-doc, interest-only, adjustables, and other new ideas. Lenders financed illegal aliens subject to deportation, vacation homes, and mortgage brokers sold questionable products to any lender that would buy them. The boom was on. By 2006 the first adjustables started to default. Was the boom just predatory lending? Were the products worse than Household and Ameriquest products, or was the servicing of those products predatory in nature? Perhaps the answer lies with the fact that companies saw how little Household International and Ameriquest paid in fines relative to how much they made in profits. It becomes a question for a ‘moral values in today’s business’ college course. The outcome of such has historically been a crash corresponding to the magnitude of this debt distortion, and that fact remains set in stone. Just look at 1929.

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Barclays and HSBC are on different ends of the mortgage crisis but between them they lost $6 billion from their exposure to the U.S. housing crisis and related credit crunch. HSBC lost money because of U.S. mortgages going bad, and Barclays lost money because of collateralized debt obligations (CDO’s) based on U.S. mortgages. The process of putting together a mortgage pool begins when a home loan is originated by a bank or mortgage lender. That loan is typically sold to a Wall Street firm that pools it with thousands of others. Once a pool is packaged, it is sold to investors in different slices, based on risk. That is the CDO.

One should keep in mind that the U.K. mortgage market is not much better than the U.S. mortgage market. While some say the U.K. market is a bellweather that assumption is based on theories that the U.K. market is approximately 12 to 16 months ahead of the U.S. cycle. Analysts suggest that U.K. regulators did a much better job than U.S. regulators, but through it all Barclays and HSBC managed to lose $6 billion. The faint of heart must not look at the reset period for U.S. adjustable rate mortgages. We are just starting to see resets that should go on for two more years.

Why would HSBC and others actually work with borrowers to refinance their risky loans when the banks cannot sell the paper to investors? If a risky mortgage is already in a mortgage pool is there a tendency to refinance without altering the pool? If so, what happens to the chain of ownership and who actually has the deed to the property? What is the resulting impact of any future foreclosure, also known as repossession in the U.K.?

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A review of investors with interest only loans shows they are still paying the bare minimum each month. For the average home owner with an adjustable rate mortgage the options are not as good. Many families are considering how to tighten up the budget, and paying off the credit cards might sound good. More aggressive borrowers are calling their credit card company with an ultimatum – either settle or less than the balance due or nothing at all. Debt settlements, and early credit card payoffs for less than the full amount due, come with high risks as negotiations begin.

We invite you to visit Settlement Scams, where you will see a multitude of sins you might never consider. Second tier scams, introduction scams, the offer becomes a proposal scam, less than the full quoted amount scams, and others provide interesting reading. If you want to negotiate with your credit card companies so you can make the higher payments on your mortgage you should become familiar with the pitfalls.

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Not too long ago the staff at Mortgage Blues warned about option arms. Now these home loans are beginning to worry borrowers and lenders. One real possibility is that borrowers are behind on their mortgage as they keep up with their credit card payments. Of course the opposite might be true. But as soon as credit card rates skyrocket to the maximum allowed by law the bubble might burst for these home owners.

Many option ARMs are scheduled to reset to higher payments this year and next — an estimated half trillion dollars worth during 2006 alone, according to mortgage giant Freddie Mac. Federal and state financial institution regulators, along with some prominent lenders, worry that not all borrowers now making minimum payments are aware of the size of the monthly payment increases they may soon face. Worse yet, some of these loans were made to people who were on the financial bubble to begin with: their credit was stretched to make even the minimum payments necessary to afford the house they purchased.

To assume that all borrowers currently making the minimum payment can absorb huge increases is not realistic.

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If you are concerned about your adjustable rate mortgage or just cleaning up your credit report an issue that you should be aware of is the statute of limitations on old debt. Many people believe they must pay everybody regardless. At the same time some creditors try to get people to renew their debt, primarily because the statute of limitations is about to run out. Be careful when talking to these people on the phone. Any misworded answer to any simple question can restart the debt, throwing the statute of limitations out the window.

One web site with a chart that shows the statute of limitations is Settlement Scams. Their chart details the statute for open ended, written, oral, and promissory contracts, and limitations differ from state to state.

Another nice chart is on the Household – HSBC Watch web site, and it shows you how to collect from debt collectors and creditors if they violate your rights. See their chart on their “Your Money” page. It has legal references, precedent, and reasons why you can sue creditors and bill collectors. If you are cleaning up your credit report and the statute of limitations has run out your debt must be removed. Creditors, if they report your credit history inaccurately, are held responsible. According to Household – HSBC Watch you could sue. Some violations come with a fixed fine, while others are determined by the court.

When you cite the legal references it gives your argument much more credibility. With the help of these two web sites you can do to work on your credit report.

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Boston Federal Reserve Bank president Eric S. Rosengren urged banks to take a second look at subprime borrowers, saying many have improved their credit scores since buying a home. If that is the case banks could step in and help those homeowners. Meanwhile arguments and debates continue as issues are labeled as “bailouts” or “rescues.” It is interesting to note the soundness of Rosengren’s theory – which it is – while contrasting it against new issues of predatory lending.

In our “lawsuits” section we see new predatory lending investigations and suits. Unfortunately these borrowers may not stand a chance of being refinanced by traditional banks. Such is the legacy of predatory lending. Skeptics make a different point, saying the two biggest predatory lenders that paid the biggest fines in the Untied States bear considerable watching. The two are Household International and Ameriquest. Some suggest Ameriquest settled their predatory lending suit so their Chairman could be rewarded for his efforts.

HSBC, headquartered in London, bought Household International in 2003, although complaints continue. President Bush made Ameriquest’s Arnall the ambassador to the Netherlands. Roland E. Arnall of California is Ambassador Extraordinary and Plenipotentiary of the United States of America to the Kingdom of the Netherlands. He was sworn in by Secretary Rice on February 27, 2006. Previously, Ambassador Arnall was Chairman of the Board of Ameriquest Capital Corporation, a privately held financial services company headquartered in Southern California.

So far removed from working class families with adjustable rate mortgages some suggest the government and big banks don’t care about anyone’s home or their mortgage. We report so you can decide. Comments are always welcomed.

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