In the year since Ben Bernanke became chairman of the Federal Reserve, the nation’s central bank has led a push by regulators, including the Comptroller of the Currency and the Office of Thrift Supervision, to raise mortgage lending standards, making it tougher for borrowers … to get a loan. Reducing the number of people who can secure a mortgage also may threaten the recovery of the U.S. housing market that the National Association of Realtors is predicting for the end of 2007.
[. . .] U.S. foreclosures begun on sub-prime adjustable-rate mortgages, or ARMs, rose to a four-year high of 2.19 percent in the third quarter as borrowers struggled to pay mortgage bills while interest rates increased, the Mortgage Bankers Association reported. During the five-year boom in housing prices, homeowners who fell behind on mortgage payments could sell their homes and pay off their loans or get better refinancing terms based on the higher value of their property.
[. . .]“There’s a monster beneath the surface of the financial markets,” Shaughnessy said. “No one knows when or where the credit crisis is going to rear its ugly head.” [emphasis added]
Nearly half of all consumers (47 percent) say they think a housing bubble and collapse of housing prices is very likely (16 percent) or somewhat likely (31 percent) in their local residential real-estate market within the next three years, according to an Experian-Gallup survey.
… Fears of a potential housing price collapse are greatest in the West (52 percent) and the East (49 percent) but lower in the Midwest (41 percent) and the South (44 percent).
… “Housing market conditions may not have reached bottom at this point, with 57 percent of renters thinking there is the potential for a price collapse in their local areas over the next few years and 18 percent of all Americans expecting prices to decline during the year ahead,” says Ty Taylor, president of Experian Consumer Direct.
California lawmakers are considering new restrictions on unorthodox mortgage lending.
The loans have let hundreds of thousands of residents with shaky credit or lower incomes snap up homes using features like no money down, variable interest rates and interest-only loans.
About half of all new loans in California are nontraditional. They offer riskier borrowers low introductory payments in exchange for higher monthly bills that in many cases will begin kicking in this year.