Mortgage Meltdown and Foreclosure Defense: Private Lending Might be a Resource for You

Besides all of the strategies we are collecting for you here, there are some monetary resources you could consider. Things like reverse mortgages are not likely to yield you anything if you are in trouble because you needs lots of equity to get into those. But there are private lenders and peer to peer lending groups that are getting more active. 

Here are some resources you can go to to learn about and perhaps secure a private loan. These resources are equally applicable for those investors who wish to pursue higher returns by lending, peer to peer or in investment pools. Mostly these loans are NOT securitized. 

Description of Zopa and Prosper et al:

USA Today Article:

Peer to Peer Leader Featured on TV:

Peer to Peer Featured on CBS TV:


Business Opportunity:

Mostly small business lending:

Luxury Mortgages:


May 24, 2008


Mortgages Without U.S. Backing Start to Rise

THE private mortgage market in the United States — almost moribund in the wake of the subprime crisis that bankrupted some lenders last year — is showing small signs of revival.

In the first quarter of this year, there were $116 billion in private mortgage loans, loans not issued or insured by the federal government or a government-sponsored entity. That was up from $84 billion in the final quarter of 2007, according to a survey of lenders by Inside Mortgage Finance, a newsletter.

In the wake of the collapse of the private mortgage securitization market in the second half of last year, few banks were willing to make loans that they could not sell, primarily to the government-sponsored enterprises Fannie Mae and Freddie Mac. Those agencies are private companies, but they have a limited right to borrow from the Treasury, and investors generally assume that the federal government will bail them out if they get into serious trouble.

The agencies’ share of the mortgage market rose to a record 75.6 percent in the final quarter of 2007. Add in the 1.3 percent share for Department of Veterans Affairs loans, and the 4.5 percent share for the Federal Housing Administration, and the share of truly private mortgage loans fell to a record low of 18.6 percent.

In the first quarter, the private share recovered to 24.2 percent, meaning that in a country that considers itself the bastion of private enterprise, three of four new home loans had some sort of government-related guarantee.

“There are more banks and other lenders increasing their portfolio lending,” said Guy D. Cecala, the publisher of Inside Mortgage Finance. “At year-end, banks were reluctant to do any portfolio lending.” Portfolio lending refers to an institution’s making a loan and holding on to it, rather than selling it either as a mortgage or as part of a securitization package.

Much of that private lending appears to be in jumbo mortgages, which are too large to be bought by the agencies. The limit had been $417,000, but Congress has raised it temporarily, with differing limits in various areas.

There is still a great reluctance to grant mortgages to subprime borrowers. Mr. Cecala estimated that $10 billion in subprime loans were made in the first quarter, a little less than in the final three months of 2007. In 2005 and 2006, about one in five dollars lent went to subprime borrowers, with a peak volume of $625 billion in 2005.

While there is a little more private lending activity, the private mortgage securitization market continues to shrink. Investors have not yet been reassured that new securitizations will be safer than the disastrous ones from 2006 and early 2007.

A look at the total volume of mortgage loans helps to explain how the mess was created. In 2003, with interest rates at very low levels, a record $3.9 trillion in mortgage loans were made, most of them for refinancing. When interest rates edged up the next year, it seemed reasonable to expect a big falloff, but the decline was only 26 percent.

Mr. Cecala said that the mortgage industry, having greatly expanded to deal with the wave of refinancings, looked for ways to keep lending. The availability of alternative products, allowing larger loans relative to value, or giving borrowers the option to make very low payments for a limited time, grew. That easy credit helped to push home prices up, until they peaked in 2006.

Now, with mortgage defaults rising, Congress is expected to enact housing legislation to permit the F.H.A. to guarantee refinancing loans to homeowners in danger of losing their homes. A Senate committee approved a bill this week to allow such guarantees, but only if the loan amount was reduced to a figure lower than the current value of the home. Such a reduction would cause a loss for the original lender, but that loss might be smaller than it would be with the alternative: the house goes into foreclosure.

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