Mortgage Lowdown

– Pushpa Sathish, Staff Writer

Arizona is waking up to the fact that fraud in its mortgage industry is taking a significant toll on its real estate value. The large number of cash-back deals of late has induced a state legislation, which if passed, will make mortgage fraud a felony. The bill, introduced by Sen. Jay Tibshraeny of Chandler, seeks to punish offenders with up to 10-year sentences.

Cash-back deals are swindles that work by obtaining mortgages that are much more than the actual values of the houses; the difference from the real value is pocketed as profit. This scam pushes up the values of all other homes in the entire neighborhood, with homeowners left to bear the negative effects associated with overpriced homes. AZ Central reports:

Only two states, Colorado and Georgia, have laws specifically regulating mortgage fraud. Most states, including Arizona, must try to prosecute the crime under general fraud laws, which make convictions difficult and less of a deterrent.

– Pushpa Sathish, Staff Writer

Come February, and mortgage rates in the United Kingdom are set to rise by 0.25 percent following a rise in the base rate set by the Bank of England. Halifax, the nation’s largest mortgage lender, announced that its standard variable rate (SVR) for new customers will take effect immediately — 7.25 percent as opposed to the old 7 percent. Halifax’s customers on fixed-rate deals have nothing to worry about though — the new rates do not affect them in the least. Halifax follows the example set by Nationwide, the UK’s biggest building society, which is increasing its base mortgage rate from 6.49 percent to 6.74 percent. Both savings rates and tracker mortgage rates are also expected to go up along with the base rates. Money Guardian reports:

Stuart Bernau, executive director at Nationwide, said: "The changes we are making to our mortgage and savings rates are relatively straightforward and simple. We are pleased to be able to act quickly to make it clear to our members how they are going to be affected following the increase in the Bank of England base rate."

There’s a lot going on in the sub-prime mortgage industry, and it’s not all good. Rising interest rates, increasing home prices, decreasing customer bases, defaulting customers, slowing housing sales, and soaring competition have forced most companies to either cut back operations, close shop or sell out to larger brokerage firms like Morgan Stanley, Barclays Plc and Deutsche Bank AG. Recent events that prove this:

• Mortgage Lenders Network USA Inc. (MLN), the 15th-largest issuer of sub-prime mortgages with $3.3 billion loans in Q3 2006, announced that it was temporarily not going to issue new loans through its wholesale unit.
• Ownit Mortgage Solutions Inc., the 11th-largest issuer in the market, filed for bankruptcy last week at the U.S. Bankruptcy Court of San Fernando Valley, California, with debts totaling more than $100 million.
• Sebring Capital Partners LP cut back on its staff in 2006, and subsequently closed down in December.
• Saxon Capital Inc. sold out to Morgan Stanley for $706 million last month; the latter is planning to cut 170 jobs.
• The year 2006 ended with the sale of First Franklin, National City Corporation’s sub-prime lending and servicing unit, to Merrill Lynch & Co. for $1.3 billion. The financial management company also acquired associated units, the National City Home Loan Services based in Pittsburgh, and NationPoint, headquartered in California.

The larger brokerage firms who are snapping up the smaller sub-prime lenders and servicing units are protecting themselves and spreading risks of default by packaging home loans into larger securities and selling them to clients who want interest income.