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Loan Officers Have A Plan….

by Peter G. Miller
February 4th, 2008

The Federal Reserve is out with a survey of lender opinions, and when it comes to rescuing distressed borrowers the most viable option is an FHA mortgage.

According to the latest Senior Loan Officer Opinion Survey on Bank Lending Practices, “significant numbers of domestic respondents reported that they had tightened their lending standards on prime, nontraditional, and subprime residential mortgages over the past three months; the remaining respondents noted that their lending standards had remained basically unchanged. About 55 percent of domestic respondents indicated that they had tightened their lending standards on prime mortgages, up from about 40 percent in the October survey. Of the thirty-nine banks that originated nontraditional residential mortgage loans, about 85 percent reported a tightening of their lending standards on such loans over the past three months, compared with about 60 percent in the October survey. Finally, five of the seven banks that originated subprime mortgage loans noted that they had tightened their lending standards on such loans, a proportion similar to that in the October survey.”

Wouldn’t “prime, nontraditional, and subprime residential mortgages” encompass just about every mortgage on earth?

What’s ahead?

“Concerning residential real estate loans, between about 70 percent and 80 percent of domestic respondents expect the quality of their prime, nontraditional, and subprime residential mortgage loans, as well as of their revolving home equity loans, to deteriorate in 2008. Finally, about 70 percent of domestic respondents expect a deterioration in the quality of both credit card and other consumer loans.”

So much for those who believe we “might” have a recession.

On the matter of foreclosure mitigation, the lenders had this to say:

“More than 85 percent of respondents indicated that they expect loan-by-loan modifications based on individual borrowers’ circumstances to be at least a somewhat significant loss-mitigation strategy at their banks. More than 65 percent of respondents also anticipate steps—such as short sales or deed-in-lieu of foreclosures—in which borrowers lose possession of the house to be at least somewhat significant loss-mitigation steps at their banks. A large number of respondents also indicated that their banks’ loss-mitigation strategies will include refinancing of loans into other mortgage products at their banks or into Federal Housing Administration (FHA) products. Finally, about 35 percent of respondents expected streamlined loan modifications of the sort proposed by the Hope Now alliance to be at least a somewhat significant loss-mitigating strategy for their banks.”

How, exactly, will this happen? HUD is only refinancing a few hundred delinquent conventional borrowers per month.

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