Subprime, FHA, VA Loans Mortgage Weak Spots

By Julavits, Robert | American Banker, November 7, 2001 | Go to article overview

Subprime, FHA, VA Loans Mortgage Weak Spots


Julavits, Robert, American Banker


Existing conventional mortgages may weather the economic storm, observers say, but FHA, VA, and subprime home loans look vulnerable to delinquency, default, and loss -- and could cause the collapse of some lenders.

"That one-third of the (home mortgage) market is at significant risk," said Mark Zandi, the chief economist at Economy.com. "We'll see significant losses, and maybe even a few smaller lenders go belly up."

He and other economists cited rising unemployment as well as declining income among many homeowners still on the job.

In addition, lenders that originate and service FHA and VA mortgages will have to clean up after defaults and shoulder losses from higher servicing costs, observers say.

The government eventually covers defaulted FHA and VA loans, but lenders must keep paying interest and principle to investors in securities backed by the loans. Also, a systematic worsening of loan performance raises servicing costs.

Lost overtime in many industries has seriously affected income, Mr. Zandi said, and some workers have taken pay cuts just to hold on to their jobs. The plunge in purchase-loan applications in recent weeks suggests that home sales will further weaken in the months ahead, he said, and housing prices are also starting to soften.

"The weight of the deteriorating job market is overwhelming the benefit of the lower fixed-mortgage rates," Mr. Zandi said. "Incomes are being disrupted, and if you combine that with weaker home-price growth, that suggests that we'll see an increase in mortgage credit problems."

Sung Won Sohn, the chief economist at Wells Fargo & Co., pointed out that delinquency has risen sharply on FHA mortgages, though only slightly on conventional loans.

According to the Mortgage Bankers Association's latest data, delinquency on FHA and VA loans surged 79 and 41 basis points, respectively, to 10.79% and 7.63% in the second quarter. The rate for conventional loans was up just 16 basis points, to 2.93%.

Many of the government-backed loans are made to first-time homebuyers or those who would have trouble borrowing in the conventional market, Mr. Sohn said, and this group is especially vulnerable to downturns. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Subprime, FHA, VA Loans Mortgage Weak Spots
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.