Mortgage Daily Logo

Bad Values Lead to Big Discounts on 2005-2007 Vintages

Mortgage News

Discounts on real-estate-owned sales are rising, and a new report has identified three vintages that are responsible for most of the decline. Much of the problem lies with properties that were overvalued at origination.

Using the Federal Housing Finance Agency’s House Price Index as a comparison tool, Standard & Poor’s Ratings Services analyzed more than $505 billion of distressed sales out of the $4 trillion in non-agency loans originated between 2000 and 2007.

S&P found that while only 1 to 2 percent of loans originated between 2000 and 2004 were discounted by more than 25 percent, the share jumped to 4 to 5 percent for loans originated between 2005 and 2007.

The New York-based firm speculates that total losses on all of the vintages it studied with discounts of at least 25 percent amounted to $113 billion.

Losses are expected to rise by at least 75 percent if the loans that are currently delinquent follow a similar pattern.

“If we use the FHFA House Price Index as a base guide, we have learned that many properties are actually liquidating at discounts that significantly outpace the volatility that the HPI would consider,” S&P Managing Director Diane Westerback said in the report. “What these large variances between loan origination and sale amounts generally suggest is that original home values were overstated on mortgage applications and not corrected during the originators’ review of the property value.”

The biggest problems with unexplained value discrepancy are with subprime mortgages.

The ratings agency noted that, contrary to popular opinion, there was no concentration of valuation issues with refinances, low-doc loans or low-balance loans.

Westerback acknowledged the imprecise nature of the HPI but warned that discounts of at least 25 percent warrant attention.

Related Posts

Centex Home Equity Announces Name and Brand Change to National Mortgage, LLC

Third-Quarter 2012 Mortgage Litigation Index

Lawsuits involving excessive fees, servicing fees and loan fees beyond state maximums. Defendant Plaintiff Court Amount Overview Case Title Case Number Date Filed Date of Activity Link to Story Fannie Mae and Freddie Mac Orangeburg County, Richland County, South...

Centex Home Equity Announces Name and Brand Change to National Mortgage, LLC

Net Branch Lawsuits

Litigation involving net branch operations. Defendant Plaintiff Court Amount Overview Case Title Case Number Date Filed Date of Activity Link to Story PHH Mortgage Corp. Mathews Supreme Court of Virginia na Court held that the term "branch office" includes not only...

Centex Home Equity Announces Name and Brand Change to National Mortgage, LLC

Whistleblower Lawsuits

Litigation related to loan servicing, including escrow issues, transfer of servicing and servicing borrowers in bankruptcy and foreclosure.   Defendant Plaintiff Court Amount Overview Case Title Case Number Date Filed Date of Activity Link to Story Bank of...

Popular posts

How Long Does It Take to Refinance a Mortgage
How Long Does It Take to Refinance a Mortgage

So, you’re interested in refinancing your mortgage. Maybe you want some extra capital to do that home project you’ve always dreamed of, interest rates are nearing record lows, or you want to start consolidating debt. Regardless of the motivation behind the refinance,...

How Does Refinancing a Mortgage Work
How Does Refinancing a Mortgage Work

A home purchase is considered an investment, and a robust one at that. Savvy owners are constantly looking for new ways to reduce debt, save money, pay less in interest, and ultimately build equity. Refinancing is one way to leverage your investment and do just that....

What Does It Mean to Refinance Your Home
What Does It Mean to Refinance Your Home

You can think of refinancing your mortgage as a debt redo. Essentially, you’ll swap out the existing loan for a new one - ideally with better terms and conditions. Only this time it could help you save money on high mortgage payments, rather than just borrow it....

Setting up the Utilities in My New House
Setting up the Utilities in My New House

All the tedious, time-consuming paperwork has been signed, sealed, and delivered. Your belongings are packed into what seems like a million boxes and you have a solid plan to haul all your existing furniture to the new place. Just as your boxes and furniture need to...

When Is My First Mortgage Payment Due?
When Is My First Mortgage Payment Due?

Navigating your way through a brand-new mortgage loan can be a difficult task, especially for first-time homeowners.   After handing over a large sum of money for the down payment and closing costs, it’s important to pay attention to the timing of your first...

Newsletter

Don’t worry, we don’t spam