Filed under: Money and Finance Today, Personal finance, Housing, Federal Reserve

Federal Reserve Governor Randall Kroszner gave Consumer Banks Association members a glimpse of Fed thinking at his speech yesterday before the Fair Lending Conference. He blames the current mess on employment losses (primarily in the hardest-hit auto industry-dependent states - Michigan and Ohio), slowing house price appreciation and the loosening of underwriting standards. No big surprise here, but he did leave out specific mention of the hardest hit foreclosure states - Nevada, California and Florida - in his discussion. Wonder why?

He said more than one-third of the subprime mortgages issued in the second half of 2005 and for all of 2006 were issued with second liens up from just 10% prior to that. Also, lenders failed to escrow taxes and insurance on many of these loans throwing borrowers into deeper trouble when those came due. Given that for many subprime borrowers this was their first home, they “did not fully anticipate the costs of taxes and insurances on the property,” Kroszner said. In addition, while historically two-thirds of subprime loans were terminated through refinance or house sale before the interest-rate reset, that’s not happening now because of “sluggish house price appreciation” and “too little equity to qualify for new loans”

He also gave us a glimpse of the staggering numbers. In each quarter from now until next year, monthly payments for more than 400,000 subprime mortgages are scheduled for their first interest rate reset. That’s twice the number of resets per quarter in the first half of 2007. During the first half of 2007 about 200,000 loans reset per quarter. Getting a better idea of why foreclosure rates are doubling? And he’s not even talking about the risky prime ARMs that also are due to reset in the second half of 2008 through 2010.

Continue reading Fed’s finally giving clues to its solutions for mortgage mess

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This entry was posted on Wednesday, November 7th, 2007 at 2:57 am and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.