Transcripts

Homeowners Are Getting Burned Paying the Price for the Hot Housing Market

PAUL KANGAS: Homebuilder Toll Brothers this week announced disappointing earnings, citing the most unique housing slowdown in 40 years, one not driven by a weak job market or high interest rates. That kind of news, along with a decline in mortgage applications and falling housing numbers, have some industry watchers predicting a hard landing in the housing market. As Stephanie Dhue reports, that could force changes to the real estate industry.

STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: As signs of a housing slowdown multiply, some homeowners are in over their heads. Notices of pending foreclosures have increased in once-hot real estate markets. Experts say aggressive interest-only and option-adjustable rate mortgage loans are putting some homeowners in a bind.

BRAD GEISEN, CEO, FORECLOSURE.COM: What we`re seeing now is after those teaser rates were over, there was a jump in their payment. Now those adjustables are all starting to re-index. Rates are going up and many times the mortgage payments are double what they actually qualified for, which puts a lot of people in a distress situation.

DHUE: Homeowners in distress could put pressure on Congress for change. If there`s a sharp price decline, some Americans could wind up upside down in their mortgages, meaning people owe more than a property is worth. If that happens to many homeowners, analysts predict lawmakers will target the lending industry for reform.

ANDY LAPERRIERE, ANALYST, INTERNATIONAL STRATEGY & INVESTMENT: People are going to talk about fraud and they`re going to talk about how the banks really mislead individual homeowners and borrowers and I think some sort of Sarbanes-Oxley for the banking industry is the kind of thing we could be looking at a year or two from now.

DHUE: But others say banks are likely to intervene to keep homeowners from foreclosure, because doing so is in the industry`s best interest.

DOUG DUNCAN, CHIEF ECONOMIST, MORTGAGE BANKERS ASSOCIATION: Their interests are aligned. If the borrower becomes delinquent or goes into default on their loan, they`re going to lose money. They may lose the house. They`ll get a bad mark on their credit report. But the lender loses money as well because the legal aspects of managing the foreclosure process are expensive.

DHUE: It may be too early to declare a hard landing for the housing market. Economists say the real test will come this fall when we see if today`s home inventory is sold near the asking price at a deep discount or is pulled off the market. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.