Monday Morning Cup of Coffee: Subprime lending is back

By Kerri Ann Panchuk

• April 29, 2013 • housingwire.com

Monday Morning Cup of Coffee is a quick look at the news coming across the HousingWire weekend desk, with more coverage to come on bigger issues.

The Federal Reserve and the Office of the Comptroller of Currency halted the independent national foreclosure review in January, hoping to end a complex and costly process in exchange for a one-time $9.3 billion settlement between mortgage servicers and potential victims of wrongful foreclosures.

But the deal, which includes $3.6 billion in payouts to harmed homeowners, remains controversial despite efforts to soften the blow. News agencies – like UT San Diego – say homeowners remain mostly unsatisfied with settlement payouts as low as a few hundred dollars. Not only are U.S. lawmakers looking into the settlement, the Government Accountability Office continues to review aspects of the deal.

Subprime is back and this time borrowers and lenders know exactly what they’re getting into, the Los Angeles Times claims in a new report.

Apparently, some Americans with shoddy credit scores and past foreclosures want in on today’s rising real estate prices and they’re ready and willing to buy homes now. The LA Times notes in a new article that despite this being the era of “tightfisted banking,” at least one couple interviewed managed to get a subprime loan with a 10% interest rate after going through a foreclosure and the bankruptcy of a business.

Of course to get the loan, the homeowners had to put down a 35% downpayment. But with the right amount of money up front, the article says lenders are going subprime again. To protect themselves, lenders are looking more deeply at collateral, downpayments and the borrowers’ ability to repay the debt. Lenders also are holding loans on their own books in the hopes that a private secondary market will eventually be there to buy them in the future. Click here to read more.

The next foreclosure crisis is coming, but this time it’s not home mortgages in trouble. Instead, the Wall Street Journal suggests commercial mortgages are about to reach a reevaluation period in which lenders either demand full payment or decide to extend the life of the loan.

The only problem is small businesses depleted their reserves during the recession, making them riskier long-term bets for lenders. The end result could be businesses either having to find a new lender or eventually facing a foreclosure, the business publication suggests.

Banking regulators closed two banks this past week. The Georgia Department of Finance shut down Douglas County Bankin Douglasville, Ga., appointing the Federal Deposit Insurance Corp. as receiver. The FDIC entered into an agreement for Hamilton State Bank in Hoschton, Ga., to assume all of the bank’s deposits.

The four branches of Douglas county bank will now operate as branches of Hamilton State Bank. Last December, Douglas County Bank had $316.5 million in total assets and $314.3 million in total deposits. The FDIC estimates the closing will cost the Deposit Insurance Fund $86.4 million.

Parkway Bank in Lenoir, N.C., also was shut down by North Carolina banking regulators and the FDIC. CertrusBank assumed all of the deposits. The total cost to the DIP fund came in around $18 million.

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