what happened to the mortgage market?

PresenPresentsts What Happened to

the Mortgage Market?

Elizabeth Lamoureux, New Hampshire Housing Finance Authority

Elizabeth LamoureuxManaging Director, Home Ownership Division

New Hampshire Housing Finance Authority

• Master of Business Administration Degree

• Certified Public Accountant and Certified Mortgage Professional

• Prior to joining the Authority, was Vice-President of NH Business Development Corporation and State Director of the NH Small Business Development Center.

• Active Board member and Treasurer for the Mortgage Bankers and Brokers Association of New Hampshire.

• Serves on the Audit Committee for NeighborWorks Greater Manchester.

• Formally served on the Boards of the New Hampshire Society of CPAs and the NH Rural Development Council.

Curriculum vitae:

Who is New Hampshire Housing?

• New Hampshire Housing Finance Authority is a self funded, tax exempt public benefit corporation established by the state legislature. 

• Although established by statute as a public instrumentality, we are not a state agency and receive no operating funds from the state government.

• The Authority administers a broad range of programs designed to assist low and moderate income persons and families to obtain decent, safe and affordable housing.

Mortgages in the old days…..

• 20% down• Solid underwriting• Fixed rates• HOME for a lifetime!• Raise families• Sign of achievement

Market began to change……

• Smaller down payments• Automated Underwriting• Government says “Everyone should be

a home owner”

Ok! Sounds like a plan!

• New mortgage products:– Adjustable rates– Low doc– No doc– 80/20– Interest only

Now we’re cooking…

• How about reaching a few more people:

• No ratio restrictions• No credit scores• No money down• Internet lending• You WILL get a

“Yes”

Mortgage Insurance

Primary mortgage insurance (PMI)

very competitive delegated approval lots of waivers easy to get

Appraisals

• Just tell me what you need

Everyone is making money!

• Brokers paid at closing – no credit risk• Mortgage Companies and Banks made up-

front fees and passed loans on to investors• Investment banks made money securitizing

loans• No risk. Make the loan and sell it!• Credit rating agencies thought this was just

fine

Ah, the good life!

• Buyers used their home as a piggy bank. New car, trips, home equity lines.

• If they ran into trouble they could just sell and reap the profits.

• But if you took the “bacon” out of the pig already

• Your little piggy won’t go to market!!!

What Happened?

• The folks in the 80/20 had an adjustable second mortgage and the interest rate went sky high.

• The folks in the interest only had to start making principle payments.

• The folks in the adjustable got into the loan with a low teaser rate and then the rate adjusted up…way up.

• And the folks who had equity took out equity lines of credit to pay off credit cards!!!

And down we go…

• Delinquency rates were rising• Unemployment was rising• Home values were declining• Investing in housing became risky

business • Investors pulled out• Stock market crashed

• Mortgage Insurers put restrictions that made it nearly impossible to buy

• Declining markets• Property types• Credit scores• Large down payments• Working toward pulling out of the

market

• Rating Agencies (who thought all this was just fine) now begin to down grade MI companies.

• MI companies (now actually looking at the file) refuse to pay claims.

• Empty properties aren’t selling.

Who do foreclosures affect - everyone…

• People are no longer able to refinance as they have no equity

• Towns with a lot of empty properties are not getting taxes paid

• Condo’s with a lot of empty units are not getting condo fees to run the development

The Government steps in.

All mortgage insurance is government – FHA, VA, RD

But lenders were not approved or forgot how to do government insured loans

But wait….The Democrats to the rescue!

Home affordable modification Program (HAMP)

• Required servicers/investors to forgive debt

• Easier and cheaper to foreclose• Took borrowers months to get a mod (if

at all)• Understaffed and under trained

• Encouraged borrowers to get behind on payments• Negatively impacted credit scores• Credit card limits decreased and interest rates

increased• Denied car loans• Hit to credit score ranged from 30 to 100 points• Credit scores used by employers and landlords!• To get a mod or not to get a mod?

Foreclosures grew.

• Servicers didn’t have trained staff to handle the large volume.

• People waited months for a modification only to be told no.

• Promises had been made to investors.• Making Home Affordable didn’t work.• Big banks needed a government

bailout.

The Economy Suffered

• Housing prices continued to decline (17% in NH)

• People couldn’t sell to get out of their mortgage.

• Mortgages were “under water”• Jobs continued to be lost.• Incomes were lost or reduced.

• Bank owned properties became 30% of the market of homes for sale.

• Even “safe” fixed rate mortgages went bad.

• Lenders tightened credit availability.• Government began subsidizing rates.• Government took over Fannie Mae and

Freddie Mac.

Let’s find someone to blame…

• How about the brokers?• Yes, that’s easy. Let’s blame them. • And let’s protect the consumers from

them!

Legislation

• Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE)

• Truth in Lending Act (TILA)• Real Estate Settlement Procedures Act

(RESPA)• Dodd-Frank Financial Overhaul Legislation • Department of Labor Administrator’s

Interpretation NO 2010-1

Hiatus to foreclosures

• Short cuts discovered• Halted in 50 states• Result – weaker sales• Slows the economy• More job loss

New Hampshire Housing

• Lowest rates in our 30+ year history!• 3.50% 1-point (4.199% APR)• 3.75% 0-point (4.378% APR)• 4.25% + grant (4.912% APR)

• APR based on 30 year term, 96.5% LTV, including MI.

Lowest rates in history. Why aren’t people buying?

• They’re afraid!• They worry about losing their job• Tough economy hurt credit scores• Mortgages hard to get• Hard to save a down payment• Waiting for the bottom• Short sales and bank owned properties not

the bargain they thought

Your future buyers….

• Looking at a home as an investment (short-term)

• Cautious about entering the market• Minorities • Echo boomers• Talking on facebook

New Hampshire Housing

• “Safe” and affordable mortgages• Low down payments• Emergency Home Repair Loan (EHRL)• Home buyer education• Down payment assistance• New program with Fannie Mae

Especially for you….

• New Production Initiative (2007)• $20,000, non-amortizing second

mortgage at 0% for buyers in approved developments.

• Market approved developments on our web site.

Projects approved:

• Bow Highlands, Bow• Dalton Village, Nashua• Demetria’s Crossing , Manchester• Gile Hill, Hanover• Kinkade Haven, Louden• Moulton Cove, Laconia

• Prescott Square, Nashua• East Ridge Village, Manchester• The Vineyards of Concord, Concord• Winnisquam Village, Tilton• East Ridge Village, Manchester• Wyndbrook at Dover, Dover

Total allocated:

• $2,040,000

• 102 Units

• Stressed Cash Cow waiting for market to turn!!

Thank you!

Elizabeth LamoureuxElamoureux@nhhfa.org

603-310-9270

www.nhhfa.org