Some 2nd mortgages for down payments drying up

WASHINGTON — The common pattern of homebuyers with rickety recognition taking out 2nd mortgages for down payments is ending because there's no investor demand for securities backed by such as loans.

The handiness of second-mortgage funding for subprime borrowers have all but disappeared, according to a trade publication's study last calendar month of more than than 1,000 mortgage bankers and brokers.

Typically, homebuyers who couldn't come up up with 20 percentage of the purchase terms for a hard cash down payment were required to purchase mortgage coverage from companies like PMI Group Inc., Radian Group Inc. and MGIC Investing Corp. to protect loaners from default.

But in 2005 and 2006, at the extremum of the lodging boom, 22 percentage of new mortgages had "piggyback" 2nd loans used for down payments, according to a recent Federal Soldier Modesty analysis of place loan data.

The downside, as many loaners and investors discovered, is that if a borrower defaults, the holder of the 2nd mortgage typically acquires nothing, even after a foreclosure sale.

The survey, published by Inside Mortgage Finance, a Bethesda, Md.-based trade publication, establish 83 percentage of loaners and agents said there was no marketplace in September for 2nd mortgages made to borrowers with weak recognition histories and not adequate hard cash to do place purchase down payments.

The study is "one of the most dramatic examples" of how the lodging marketplace downswing is affecting the manner mortgage industry participants behave, said Seth Thomas Popik, the survey's Godhead and a principal with Nashua, N.H.-based research house Geosegment Systems.

For so-called "Alt-A" mortgages that necessitate limited confirmation of a borrower's current income, 61 percentage of the bankers and agents said there was no involvement in offering a 2nd mortgage.

Part of the declining mentality on defaults is that increasing Numbers of borrowers are not able to do higher mortgage payments as their initial low "teaser" loan rates reset. The job is expected to decline in 2008.

Federal Modesty President Ben Bernanke told federal lawmakers Thursday that an norm of 450,000 subprime mortgages will reset to higher rates each one-fourth through the end of adjacent year.

Surging default rates have got battered institutional investors who were large purchasers of mortgages that were pooled to distribute recognition risk.

Some loaners have got decided to go out the marketplace for second-mortgage securities. As of Dec. 31, Citigroup Inc.'s CitiMortgage unit, which purchases loans from Banks and recognition unions, will halt buying 2nd mortgage and place equity loans.

Mark Rodgers, a Citi spokesman, said in an e-mail that the determination was "reached as we go on to supervise the marketplace and focusing our concern on merchandises and programmes appropriate for the market." Citibank still offers place equity loans directly to consumers through its Citibank division.

The study establish 2nd mortgages are still available for borrowers with high recognition scores. However, defaults on 2nd mortgages for borrowers with strong recognition are also rising.

As of July, the per centum of second-mortgage borrowers with strong recognition who were 60 or more than than years delinquent had more than doubled from a twelvemonth earlier to 1.3 percent, according to research house First American LoanPerformance.

A Federal study conducted in early October establish that 41 percentage of responding Banks said they had tightened loan criteria either "considerably" or "somewhat" for mortgages offered to borrowers with strong recognition histories, up from about 15 percentage of Banks who reported tighter criteria in July.

As for borrowers with weak credit: 40 of 49 Banks said they no longer offer subprime mortgages.