The Wall Street Journal reports that a growing number of investors, including big companies, are trying to force companies that sold them bum real-estate loans to take them back.
On its Money & Investing front, the paper says companies like Fannie Mae and bond insurers MBIA and Ambac Financial are looking at forcing lenders to take back the loans under clauses in sales contracts that allow it if the loans “default unusually fast or contained mistakes or fraud.”
The Journal notes that Countrywide Financial reported in its first-quarter earnings that its liability for returned loans rose to $935 million from $365 million in a year.
The fight over mortgages that lenders thought they had largely offloaded is another reminder of the deterioration of lending standards that helped contribute to the worst housing bust in decades.
Such disputes began to emerge publicly in 2006 as large numbers of subprime mortgages began going bad shortly after origination. In recent months, these skirmishes have expanded to include home-equity loans and mortgages made to borrowers with relatively good credit, as well as subprime loans that went bad after borrowers made several payments.
Many recent loan disputes involve allegations of bogus appraisals, inflated borrower incomes and other misrepresentations made at the time the loans were originated. Some of the disputes are spilling into the courtroom, and the potential liability is likely to hang over lenders for years.
The paper says that an increasing number of these claims are ending up in court. That’s just one more (well-deserved) headache for banks and other lenders already slammed by their overaggressive lending.
More bad home-sales news
New-home sales rose 3.3 percent last month from March, but only because that month’s previously announced number was revised downward. Sales of new homes were down 42 percent in April from a year ago.
Meanwhile, the Standard & Poor’s/Case-Shiller index of existing-home prices showed their decline is picking up speed. They fell 14.1 percent in the first quarter from a year ago. The papers are pessimistic about the news. The Journal:
Home prices nationwide are now 16% below their peak in the second quarter of 2006. Prices rose almost 90% from the beginning of this decade to that peak and now are at levels seen in the third quarter of 2004.
Despite the declines, prices are still almost 60% higher than at the start of the decade.
Many analysts expect prices to decline an additional 10% or more before hitting bottom as the housing market is battered by tighter lending standards and a wave of foreclosures that is boosting supply.
The New York Times calls it a “bleak picture” and reports that the housing glut means there is nearly eleven months worth of inventory on the market, the highest since the early 1980s “when the economy was in a deep recession and interest rates were two to four times as high as they are today.” But that’s not technically true, according to Bloomberg, which reports that inventories fell from 11.1 months in March to 10.6 months in April.
A consumer-confidence measure hit the lowest in nearly sixteen years, with fewer Americans saying they will be buying homes in the next six months.
Breaking the brokers’ grip
The Times on C1 and the WSJ on B1 report that the federal government has reached a settlement in its antitrust case against Realtors, forcing the group to put real-estate listings on the Web. It was a rare antitrust move by the Bush administration, and one that was applauded by consumer advocates. We’ll put our hands together, too. Markets don’t work well if information is hoarded by one group, which is able to boost (or at least maintain) its prices that way. Brokers collect a median commission of nearly $12,000 for selling a house.
Both papers note that the government says those commissions will come down, but the Journal says that’s unlikely at least in the “near term” as it hasn’t worked so far.
Over the past decade, the Internet has given consumers access to far more information about homes on the market. But, in contrast to its success in bringing down the costs of stock trading and booking hotels and airline tickets, it hasn’t lived up to expectations that it would slash home-sales commissions.
SEC Bears down on trades