Mortgage loans outstanding surpassed $12 trillion, according to the chief of the U.S. Treasury. Meanwhile, the risk of fraud on America's mortgages is growing a slower pace.
As of September, outstanding mortgage debt was about $12.8 trillion -- up more than $5 trillion since the beginning of the decade, according to a prepared remarks statement by U.S. Treasury Secretary Henry Paulson.
"And today's mortgage-backed securities marketplace features substantial liquidity," Paulson added. "The daily trading average of Agency Mortgage Backed Securities is nearly $244 billion, up from $38 billion a decade ago."
And the risk of fraud on those mortgage loans is slowing.
The CoreLogic U.S. collateral risk index reportedly rose an average of 4 percent per quarter in the first half of 2006, but only posted a 1 percent increase in the third quarter, when early estimates of appreciation indicated that house price appreciation stopped declining.
CoreLogic's data indicate the risk of mortgage fraud and loan delinquency causing economic impact in vulnerable markets is slowing down.
But the coming year holds several predicaments involving exotic loans and, although the growth of fraud risk slowed recently, "the market is still ripe for mortgage fraud scams and other real estate risk factors continue to rise," CoreLogic said.
Borrowers who took out adjustable-rate mortgages with interest only, negative amortization and minimum payment options at the height of the products' popularity face potentially large payment shock over the next few years driven by the unusual loan terms and higher interest rates. Nontraditional loans were essentially non existent until 2002, thereby next year marks the first time that the real estate market faces this situation, CoreLogic noted.
"When the payments are due and new rates kick in, homeowners who stretched too far to buy their dream house will experience great difficulty in affording their house payments," CoreLogic said in the announcement. "Individual real estate markets are likely to experience significant stress around the country. As a result, markets with high shares of exotic loans will have to contend with the results of payment shock stress. These stresses may include increased repurchases and loan buybacks as loan performance deteriorates."
Despite the risks, CoreLogic concluded that 2007 will mean better news for home buyers, with lower prices and a continued focus on managing risk for lenders. Risk management tools will play an important role in saving lenders and borrowers from falling victim to fraud or heading into foreclosure.