In the latest drastic move to bolster ailing credit markets, the Federal Reserve said today it will buy up to $500 billion in mortgage-backed securities of home-loan giants Fannie Mae and Freddie Mac as well as their smaller rival Ginnie Mae.

The Fed will also buy up to $100 billion of Fannie and Freddie’s debt.

The total of $600 billion is separate from the $700 billion bailout money approved by Congress. In a separate announcement, the Fed said it would inject $200 billion into the market for credit cards, auto loans, and business loans, bringing the Fed’s total support to $800 billion.

The nation’s central bank cited elevated interest rates on the mortgage securities and debt of those  companies as a reason to invest $600 billion.

The Fed’s release said: “This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.”

Read the full statement HERE.

And separately, the Fed said it will set up a $200 billion program to support credit card loans, auto loans, student loans and loans guaranteed by the Small Business Administration. Under the new program, the Fed’s New York branch will lend the money to holders of securities backed by new or recently issued consumer and business loans.

As part of the program, the U.S. Treasury will provide $20 billion in credit protection to the New York Fed. That money is part of the $700 billion bailout previously approved by Congress. Read the full release HERE.

And in other mortgage news…

• Downey Financial to file for bankruptcy after government seized assets
• Citigroup bailout “an outrage”
• Citigroup gets a bailout
• Wells Fargo to cut mortgage jobs in Irvine
• Downey Savings seized by regulators
• A ‘good’ borrower these days is someone who…
• Happy holidays: Freddie, Fannie halt foreclosures till 2009
• FDIC pushes IndyMac model for troubled mortgages
• 39% of O.C. home sales are foreclosures
• Wachovia, Golden West under investigation
• Open forum on mortgages
• Impac Mortgage getting booted from NYSE
• Will drop in foreclosures stick?
• O.C. foreclosures plunge to 7-month low

The Federal Reserve, doing everything it can to alleviate the credit crisis, reported today a 75% increase in its assets to $2.076 trillion now, vs. $1.187 trillion a year ago.

Richard Fisher, president of the Federal Reserve Bank of Dallas, said in a recent speech that he would not be surprised to see that figure hit $3 trillion, or roughly 20% of GDP, “by the time we ring in the New Year.”

“The composition of our holdings has shifted considerably. Previously, almost 100 percent of our holdings were in the form of core holdings of U.S. Treasuries; today, less than a third are. The remainder consists of claims deriving from our new facilities,” he said.

The economics blog Calculated Risk graphed something called the “Total factors supplying reserve funds” that is similar to assets. Click on the graph — it gets larger with each click — to see the dramatic change over the past month. (Graph posted with permission)

And for more financial news…

• Some foreclosures get multiple bids, others languish
• Schwarzenegger proposes 90-day foreclosure moratorium
• Ditech.com parent may fail
• New York Fed hires risk expert from … Bear Stearns
• Credit crunch eases on Election Day
• Some can’t borrow as much on their plastic
• 1st rise in O.C. distressed homes for sale since July
• Our financial system ripe for more disasters
• Chase-WaMu to help 400,000 avoid foreclosure

The loans that shook the financial world started small.

In 2004, the first year that the Fed’s Home Mortgage Disclosure Act database tracked high-priced subprime loans, subprime was a bit player in the California home market.

But a Register analysis of HMDA data shows that subprime quickly grabbed market share in lower middle-class neighborhoods up and down the state in 2005 and 2006. In 2007, as subprime giants like Orange-based Ameriquest and Irvine-based New Century downsized or shut down, subprime again became a bit player.

These maps show the spread and retreat of subprime loans in Orange County and neighboring counties from 2004 through 2007. Another set of maps below describe a similar pattern statewide.

These maps represent what we’re calling the subprime penetration rate, the percentage of total home loan volume in each census tract that was high-priced. Yellow on the map indicates that subprime accounted for 15 percent or less of total loan volume; green is for 15 percent to 25 percent; light blue for 25 percent to 35 percent; dark blue for more than 35 percent.

A caution: The industry defines subprime using credit scores; the Fed defines high-priced loans as those that cost at least 3 percentage points higher than a Treasury bill of comparable maturity. The two terms don’t match, but the Fed’s high-priced category appears to capture most subprime and some alt-A loans.

In 2004 there are just a few pockets where subprime lenders grabbed more than 15 percent of the market: most notably in central Los Angeles between the I-110 and I-710 freeways, and in the Inland Empire, especially along the I-10 corridor.

In 2005 and 2006, however, the picture changed dramatically. Suddenly the subprime guys and gals were making more than 35 percent of home loan volume in a huge swath of LA and the Inland Empire. They also started doing big business in Orange County, where many of them were headquartered. Look at the I-5 corridor and especially at Anaheim, Garden Grove and Santa Ana.

By 2007, business was cooling down almost everywhere outside central L.A. and portions of San Bernardino County.

Click on images to get a larger view.

2004

2005

2006

2007

For the statewide view and more maps, continue reading.

Read the rest of this entry »

Mortgage rates jumped in Orange County today after the Federal Reserve did an emergency cut of its key Fed Funds rate half a point to 1.5%.

Al Hensling, head of loan brokerage United American Mortgage in Irvine, said there is no clear explanation for why mortgage rates spiked, but it often happens after a Fed cut. Later, as markets have time to digest the news, mortgage rates will stabilize and eventually dip, he said.

The best rate on a 30-year fixed-rate loan up to the old conforming limit of $417,000 rose to 6% with a one-point fee, up from 5.75% earlier in the day, Hensling said.

And rates on larger loans up to nearly $730,000 climbed to 6.25% with a one point fee, up from 6%.

Fixed mortgage rates are only loosely associated with the Fed’s short-term rate and are more directly tied to mortgage-backed securities, experts say.

However, the prime rate, which is the basis for home equity lines of credit, dropped to 4.5%. So borrowers with adjustable rates on their HELOCs will immediately benefit, Hensling said.

Hensling said there is a 50-50 chance that the Federal Reserve will cut rates again when it meets on Oct. 28.

And in other meltdown coverage…

• 77 years ago, Herbert Hoover wrote …
• Fed makes emergency half-point rate cut
• Subprime’s prime territory
• Obama on AIG’s $400,000 party: ‘Fire the scoundrels!’
• Debate: Meg Whitman, Warren Buffett to head U.S. Treasury?
• AIG blasted in Congress for O.C. bash
• Will Obama socialize the financial sector?
• Shameless … even for Barney Frank

And in other mortgage news…

• Subprime’s prime territory
• O.C. bill-paying index at lowest in 19+ years
• O.C. mortgage rates steady as Dow tanks
• O.C. listings of distressed homes 6% off peak
• Three super banks to dominate O.C. lending
• BofA settling Countrywide’s Calif. suits for $3.5 billion
• Subprime nation
• Mortgage markets yawn at bailout
• Wells Fargo buying Wachovia

The list of major subprime lenders for 2006 and 2007 resembles the casualty roster from the Battle of Verdun in World War I. Only difference: way fewer walking wounded this time.

Of the 30 biggest subprime home lenders in 2006, measured by dollar volume, 22 have gone bankrupt, shut down, been sold or been seized by Uncle Sam. Most of the survivors have scaled back.

Yesterday we began exploring The Fed’s Home Mortgage Disclosure Act database by describing how Washington Mutual quadrupled its bet on subprime lending in 2007, just in time for the housing downturn.

Today we’re going deeper, using HMDA data to show what happened to the top 30 subprime lenders nationwide in 2006; these 30 together accounted for 64 percent of the subprime home loans made that year.

The list makes for grim reading:

Countrywide shows up twice by the way because it operates under two federal regulators. The Fed oversees Countrywide Home Loans while the Office of Comptroller of the Currency supervises Countrywide Bank.

WaMu was not the only major lender that rolled the dice on subprime in 2007.

World Savings made WaMu look timid, expanding its subprime business by seven times, from $1.5 billion in 2006 to $10.65 billion in 2007. Banking operations of its parent, Wachovia, were just taken over by Citigroup in a shotgun marriage arranged by the Fed.

And then there’s Bear Stearns — remember them? — who doubled their subprime lending from $1.95 billion in 2006 to $3.9 billion in 2007.

World Savings and Bear Stearns were both too small in 2006 to make our list.

Thanks to Matt for digging up the status of all the lenders. In many cases that involved grave-digging.

We’ll continue our exploration of HMDA in future posts. If you have an idea, please tell us in the Comments section or send me an e-mail.

Here’s more mortgage meltdown coverage:

• JPMorgan buys seized WaMu, deposits are safe
• WaMu to slash money for loan losses
• Washington Mutual ousts CEO, reaches deal with regulator
• O.C. financial stocks hit after busted bailout
• Oil under $100, O.C. energy stocks hit
• O.C. mortgage rates dip amid turmoil
• Citigroup buying Wachovia banking operations

This just in: 2007 was a bad year for mortgage lenders and borrowers.

The Federal Reserve just released a nationwide summary of mortgage data for 2007, collected under the Home Mortgage Disclosure Act. Among the, uh, highlights:

• The total number of home loan applications fell by 6 million, from 27.5 million in 2006 to 21.4 million in 2007.
• The number of loan originations fell by 3.5 million to 10.4 million.
• “Higher-priced” (translation: subprime and Alt-A) loans were a much smaller share of the market, declining from 28.7 percent of home loans in 2006 to 18.3 percent in 2007.
• 169 lenders that reported loans in 2006 disappeared from sight in 2007. They were virtually all mortgage companies, not banks, thrifts or credit unions. Some of the companies that vanished probably made loans in 2007 before shutting down, the Fed says, so the real number of loans made in 2007 is higher than reported.
• As subprime bit the dust, plain-vanilla FHA loans expanded by 20 percent.
• “Piggyback loans” — simultaneous first and second mortgages on the same home — plunged. The Fed estimates there were 1.37 million piggyback loans in 2005, 1.43 million in 2006 and just 600,000 in 2007.

That’s it. And in other cheery mortgage news…

• Foreclosure of the week: Walk to the beach
• O.C.’s bad loans worse than nation’s
• Time to buy a foreclosure in Surf City?
• Huntington Beach investor bids on Ed McMahon’s loan
• Bear Stearns pays $28 million for unfair mortgage billings
• How low will 30-year go?
• Mortgage market in pictures (and audio!)

Finally, the Federal Reserve on Monday issued new home-lending rules meant to protect borrowers with dinged credit and prevent future foreclosure epidemics like this one.

In my opinion, the biggest changes are:

• No more stated-income loans, dubbed liars loans, where borrowers fail to prove their income via tax returns and paycheck stubs.
• The borrower must be qualified based on the highest possible payment within seven years. (Hmm.. I foresee interest-only loans with the payment fixed for the first seven years as the next big thing.)
• No more prepayment penalties, if the loan payment can change in the first four years. And for other loans, a prepayment penalty cannot last for more than two years. (During the boom, there were cases of borrowers getting a 30-year loan with the payment fixed for two years, but the prepayment penalty for three years. Ouch.)

These rules, known as changes to Regulation Z, will apply to all lenders and carry the weight of law. That’s much stronger than the suggestions (known as guidance) the Fed and other regulators previously approved. (Read all the changes by CLICKING HERE.)

The Fed doesn’t define subprime by credit score, but its focus on higher cost loans will target folks with credit issues. The Fed says the rules will apply to first lien mortgages if the interest rate is 1.5 percentage points above a certain index, and if its a second lien than 3.5 percent.

Kurt Eggert, a law professor at Chapman University who follows the mortgage industry, said in a statement:

“If these rules had been in place when we first knew that we needed them, the whole subprime crisis could have been averted. For a couple of years before the subprime market melted down, the widespread attitude in the subprime industry was that there was little reason to check whether borrowers could repay, because housing prices were always going to go up and everyone was going to make money even if the borrower had to sell the house. Prudent underwriting went out the window and there was a feeding frenzy by lenders and investors.

These new rules seek to restore order to the subprime market. They are the first necessary step to bringing back subprime lending and perhaps even subprime securitization, since the primary goal of the rules is to make sure that subprime borrowers can in fact repay the loans they receive.”

Interesting. What do you think?