Housing.com News, Analysis & Opinion: Mortgage & Loan: Mortgages--And Mortgage Fraud--Continue To Rise

Homeowners increased their mortgage borrowing by almost $600 billion in the last quarter of 2006, an annual pace of 6.4 percent, significantly faster than the rise in housing prices, according to the Fed’s newest estimate of household and business balance sheets. Mortgage debt climbed more slowly in the fourth quarter than in the third quarter, though, reflecting the slowdown in home sales. But with prices creeping up slowly, homeowners dug deeper into their equity to keep up their spending. Owners’ equity as a share of the total value of their property edged down to 53.1 percent at the end of 2006, from 54.4 percent in the fourth quarter of 2005.

Of course, depending on who you ask, this could either be a sign of homeowners' increasing net worth or a sign that the hot times are coming to an end:

Households cut back sharply on the equity they extracted from their homes. By one simple measure calculated by Haver Analytics, the cash that homeowners took out from new mortgages dropped to a seasonally adjusted annual rate of $168 billion in the fourth quarter from about $266 billion in the third quarter.

This is clear evidence that homeowners are getting past the "home as ATM" trend that popularized so much of the housing boom years. Perhaps not coincidentally, the FBI announced it was stepping up efforts against mortgage fraud:

Suspicious activity reports regarding mortgage fraud schemes that included property "flipping" and inflated appraisals have more than doubled to 35,617 in the two years through 2006, the FBI said in a statement. The reports reflect losses of about $946 million, it said.

It doesn't surprise me that the FBI and the MBA are pushing vigilance against mortgage fraud now, given that the housing sector is becoming less profitable overall. It's easy to paint the role of vigilant law enforcer once the profit motive is off the table. It's also worth noting that the opaque nature of the industry makes it nigh-impossible to seriously pursue fraud cases, as this AP article notes:

The FBI said mortgage fraud is difficult to track for a variety of reasons. For starters, the industry is not required to report fraud. Moreover, the sale of mortgage loans on secondary markets can "conceal or distort the fraud," thereby reducing the number of cases reported. "The true level of mortgage fraud is largely unknown," the agency's report said. The bureau said fighting mortgage fraud is a priority due to the impact of mortgage lending and housing on the broader economy.

A good start to improving the economy and extending homeowner wealth might be more transparent controls on the mortgage industry, no?

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If you believe the Fed, homeowners are continuing to set record levels of mortgage borrowing, albeit at a slower pace: Homeowners increased their mortgage borrowing by almost $600 billion in the last quarter of 2006, an annual pace of 6.4 percent, significantly faster than the rise in housing prices, according to the Fed’s newest estimate of household and business balance sheets. Mortgage debt climbed more slowly in the fourth quarter than in the third quarter, though, reflecting the slowdown in home sales. But with prices creeping up slowly, homeowners dug deeper into their equity to keep up their spending. Owners’ equity as a share of the total value of their property edged down to 53.1 percent at the end of 2006, from 54.4 percent in the fourth quarter of 2005. Of course, depending on who you ask, this could either be a sign of homeowners' increasing net worth or a sign that the hot times are coming to an end: Households cut back sharply on the equity they extracted from their homes. By one simple measure calculated by Haver Analytics, the cash that homeowners took out from new mortgages dropped to a seasonally adjusted annual rate of $168 billion in the fourth quarter from about $266 billion in the third quarter. This is clear evidence that homeowners are getting past the "home as ATM" trend that popularized so much of the housing boom years. Perhaps not coincidentally, the FBI announced it was stepping up efforts against mortgage fraud: Suspicious activity reports regarding mortgage fraud schemes that included property "flipping" and inflated appraisals have more than doubled to 35,617 in the two years through 2006, the FBI said in a statement. The reports reflect losses of about $946 million, it said. It doesn't surprise me that the FBI and the MBA are pushing vigilance against mortgage fraud now, given that the housing sector is becoming less profitable overall. It's easy to paint the role of vigilant law enforcer once the profit motive is off the table. It's also worth noting that the opaque nature of the industry makes it nigh-impossible to seriously pursue fraud cases, as this AP article notes: The FBI said mortgage fraud is difficult to track for a variety of reasons. For starters, the industry is not required to report fraud. Moreover, the sale of mortgage loans on secondary markets can "conceal or distort the fraud," thereby reducing the number of cases reported. "The true level of mortgage fraud is largely unknown," the agency's report said. The bureau said fighting mortgage fraud is a priority due to the impact of mortgage lending and housing on the broader economy. A good start to improving the economy and extending homeowner wealth might be more transparent controls on the mortgage industry, no?