Regulators, Wall Street Confront Subprime Loans

More reports on the changing landscape for lenders. "About 450 workers at Irwin Mortgage in Fishers face an uncertain future after the firm's parent said it might put the mortgage unit up for sale. Home mortgages used to be a cash cow for Irwin Financial. But officials said they fear profits will shrink as big competitors take more of the market." "'Indymac delivered outstanding results in 2005. This performance was achieved despite less than favorable conditions for mortgage lenders including the flat yield curve and industry volumes and declining profit margins,' said Michael W. Perry, Indymac's Chairman and CEO. Two milestones were particularly noteworthy as annual revenues surpassed $1 billion for the first time in the Company's history and we became one of the nation's top ten mortgage lenders." "As the housing market slows, the booming subprime real estate loan market, loans for people with less-than-stellar credit, is also slowing, observers say. 'In general, there's been a subprime boom over the last two years,' said Jeffrey DerGurahian, 'but Wall Street is getting concerned about the risks in these loans.'" "One industry veteran predicted that 'exotic' loans, a category that includes subprime loans, would be curtailed in 2006. 'The secondary market is tired of creative financing products and is starting to price against them,' said Pat Stone." "Subprime loan originations grew more than ninefold, from $35 billion to $332 billion, between 1994 and 2003. Subprime loans totaled $403 billion in 2004, 17.6 percent of all originations. But the party may be over, with bonds backed by subprime home loans losing about 2.5 percent since September." "America's mortgage market will shrink about 20% to $2.24 trillion this year, heightening the temptation of some borrowers and lenders to bend the rules, industry officials said. 'Lenders looking to keep their volumes up maybe won't be looking closely at loans,' said Regina M. Lowrie, chairman of the Mortgage Bankers Association. 'Look at what happened during the period of peak volumes we've seen since 2003; the largest increase in fraud in the last decades. This year, we need to be more vigilant.'" "Mortgage fraud losses exceeded $1 billion last year, more than double the $429 million a year earlier, FBI figures show. The crime, perpetrated against or in collusion with lenders, has ballooned, increasing seven-fold in the last five years alone, said Kurt Pfotenhauer, the MBA's senior vice president of government affairs." And from an editorial at the Voice of San Diego. "Appraisal inflation is the product of pressure from lenders and others to pump up the value of homes. Essentially, more money exchanges hands among sellers, lenders, real estate agents, title companies and others. A growing number of appraisers are going public with their professional experiences dealing with this pressure." "One important fact for consumers to know is that independent appraisers receive a flat fee and do not take a percentage of the selling price. So when honest appraisers refuse to 'hit the price,' they sacrifice future business, and suffer financially. Some appraisers, however, work as staff for lenders or for a company owned by the lender. This is not illegal, but the lender must ensure complete independence between the loan production staff and its appraisers." "Many states, including California, as well as the federal government are considering legislation that would require more oversight of the appraisal industry. It is important, however, for all of those involved in the housing industry to not wait for the future implementation of regulations, but to come together on this issue. Our goal is to give honest appraisers the ability to do their jobs; to ensure lenders are providing accurate loans; and make certain homebuyers can fulfill their dreams of becoming homeowners without overpaying."