More High Net Worth Foreclosures
In 2009 and 2010, lenders have flocked to the guarantees offered by the Federal Housing Administration‘s loan program.
I have seen the first hints of that trend in Home Mortgage Disclosure Act data that I pulled from some of the bigger banks. FHA lending is way up. This is not just a reflection of how those guarantees appeal to lenders. It also shows something about the ability of buyers. FHA loans often come with higher origination fees. Nonetheless, many borrowers can only qualify for an FHA loan, because they do not have the down payment that is needed for a conventional loan.
Up until the end of the first-time homebuyer tax credit, home sales were slow. Now, they are sputtering. The supply of homes on the market is growing, and the number of sales is dropping. That suggests that there will be more price reductions, in spite of the low cost of credit.
What about in places where FHA is not a factor? Housing Bubble has an interesting analysis. They have shown that in communities where the median home price exceeds the thresdhold for an FHA loan, sales are far slower. There is a ceiling for an FHA loan – $271,000 in many parts of the country, but up to $729,500 in some pricier areas. In my home county, the limit is $334,650. That would pay for a fairly nice home, although it certainly would not cover the cost of buying a mansion.
At the end of last month, the Wall Street Journal reported on the high delinquency rates for homes with mortgages of greater than $1 million. In February, 13.3 percent of borrowers in this category were delinquent. That is far more than the national average, which is just 8.6 percent.
Those borrowers can’t get out of their loan through an FHA refinance, unless they are able to put down at least another $220,000. ‘Nuf said.
Lenders that specialize in loans for high net worth individuals are having to put aside more money for expected losses. Bank of America’s US Trust unit made a larger than normal provision. Charge-offs at Northern Trust increased eleven-fold year over year.
Loan size might not be the only problem. Increasingly, buyers are not borrowing. Cash sales are way up.
