Mortgage Chaos

Super Jumbo Seconds - Gone With the Wind

Traci Gregory — Fri, 16 Nov 2007 19:12:58 +0000

Most of my lenders are pulling second mortgages for super jumbos off the market by Tuesday, November 20. LTVS for stated income, verified assets will be at 65% max for most lenders on anything super jumbo or larger. Some of my lenders will go to 70%, but on a $4 mil purchase, that makes the downpayment $1.2 million. Gives one pause, doesn't it?

MARKET COMMENTARY from Vertice:
"Two-year Treasury notes headed for a fifth weekly gain, their longest rally in eight months, as falling stocks and the prospect of an interest-rate cut next month prompted investors to seek the safety of government debt. Yields held near the lowest in 2 1/2 years as Goldman Sachs Group Inc. said the slump in credit markets may reduce bank lending by as much as $2 trillion".

[Count the zeros: $2,000,000,000,000 - that's the estimated cost of the war in Iraq . . . give you any ideas? Say, End the war and spend whatever is left in this country??? It would take care of two serious problems for us, wouldn't it?]

"U.S. debt also rose before a Treasury Department report that economists surveyed by Bloomberg News expect to show foreigners purchased $71.5 billion more U.S. assets than they sold in September, from net sales of a record $69.3 billion in August."

Bush effectively against HR 3519

Traci Gregory — Thu, 15 Nov 2007 23:13:17 +0000

I hope that I have written my last diatribe re: HR 3519.

EXECUTIVE OFFICE OF THE PRESIDENT, OFFICE OF MANAGEMENT AND BUDGET, has issued a STATEMENT OF ADMINISTRATION POLICY that is against most of the Bill HR 3519.

Notable are references to work already being done by the Department of Housing and Urban Development in revising its Real Estate Settlement Procedures Act (RESPA) to enhance mortgage disclosures, and the Federal Reserve’s intentions to improve disclosure requirements and develop new national standards for unfair and deceptive practices.

The best news is that it pointedly states "The Administration does not support the provisions of H.R. 3915 that could overly constrict the primary and secondary markets for mortgage finance, such as the bill’s specific underwriting standards, assignee liability provisions, and the subjective obligations for mortgage originators. The Administration is concerned with these and other provisions that could lead to greater uncertainty and increased litigation, which could cause an undesirable reduction in mortgage credit and a drop in future homeownership."

Who would have thought it? Well, I admit I have been told he wouldn't let it go into law, but I didn't expect an announcement this early in the game.

Read the full text here

Pax et bonum

Contact Your Congressional Representative TODAY Regarding H.R. 3915

Traci Gregory — Wed, 14 Nov 2007 14:26:59 +0000

From the National Association of Mortgage Brokers:

Following the mark-up of the bill by the HFSC, NAMB's Government Affairs team continued to work tirelessly with members of Congress and their staffs to clarify the anti-steering provision to ensure that consumers continue to have the ability to finance origination fees and costs and to clarify our ability to receive compensation for our work. Thanks to your patience and timely response when called to action, I am pleased to report that clarifications to the anti-steering language have been made and our concerns have been addressed.

Our work is not finished. Specifically, Title III, which proposes changes to HOEPA that will adversely affect consumers' ability to obtain mortgage financing, must be amended or removed entirely. We anticipate that there will be a number of amendments offered to Title III when H.R. 3915 reaches the House floor.

TODAY, we are asking you to CONTACT YOUR CONGRESSIONAL REPRESENTATIVE and urge him or her to support any amendment(s) that may be offered by Rep. Gary Miller (R-CA) to modify Title III, or any other amendment offered to eliminate Title III in its entirety, to help ensure credit will remain available for consumers who need it most. The mortgage reform effort in Congress should move forward and H.R. 3915 is the first step, of many, in this deliberate process.

With H.R. 3915 set to go to the House floor for a vote this Thursday, November 15, 2007, THE TIME TO ACT IS NOW.

find your elected officials here

HR 3915 On to a new vote

Traci Gregory — Tue, 13 Nov 2007 20:53:35 +0000

FHA Secure

The FHA Secure program is available to borrowers who have late mortgage payments due to their arm adjusting upwards and making their house payments too high to handle. FHA will refinance, with no penalty for the lates, and allow you to keep a second mortgage, even if the value of your house has fallen and the loan to value is now over 100%.

If the loan limits are changed to $417,000, thousands of people will qualify to refinance with an FHA loan - their interest rate will go down (way down) and they can get a fixed rate loan for 30 years. What a boon!

And the amazing thing is that the FHA is making it easier for Brokers to do FHA loans, while HR 3915 appears to be trying to wipe out mortgage brokers across the country and redesign the lending system so that only about 20% of the American population will qualify for a conventional loan.

H.R. 3915 highlights

the removal of yield spread premium to brokers in most instances. Yield spread is paid to brokers as an indirect income from lenders they sell loans to. Apparently Capital Hill thinks every broker in the country is making a mint off yield spread and "steering" borrowers to loans that aren't good for them for the profit from yield spread payments.

There is something else to do with that money -Spend it on the borrower to help them get a loan.
I got a call Friday from a lady who was going to buy a house that needed work and she wanted the purchase money and the rehab money in one loan. Countrywide had offered her the same loan at 6.875 and she wasn't getting enough love from her Countrywide loan officer. She asked if I could do the loan, and I said sure, and so we did her application, priced her loan and sent her the docs.
This loan has a pricing adjustment (a charge of 1%) to rate because of the rehabilitation money. (Anything that varies from an 80%, full doc, 30 year loan for someone with perfect credit has some sort of adjustment to rate - that's why what you see in the newspapers and on the internet is NOT what you're offered when you ask for rate, unless of course, you're that borrower) Because of that fee, her closing costs were going up $1,150 (1%) and she hardly had 3% to put down.
With my yield spread premium, I was able to pay her 1% for her, and get her a rate of 6.5% and had a fannie mae approval within an hour or two of talking to her. I emailed the list of documents I needed, and she has a loan.
I did a better job for her than Countrywide (much bigger player than me) and empowered her to buy her house, and with a better loan. HR 3915 wouldn't have allowed it, even though it was to her benefit.
Thousands of Brokers do the same thing - there is no other way to get a no closing cost loan, but to put the cost into rate, and pay the costs from the yield.

Additionally, HR 3915 will not allow the financing of closing costs and prepaids. On refinance transactions, this is normally a given - you roll your costs in, lower the interest rate, lower the payment, and nothing out of your pocket. If this bill becomes law, every refinance will mean you write a check for 3-4% of the loan amount - and that's going to hurt most people.
There are many other line items that will create such a burden for lenders that I think most lenders won't do the loans under those circumstances, or will increase the cost of the loan (the interest rate you pay) to cover their liability. I've heard estimates that these changes will raise interest rates by as much as 2%. And that is if you can prove your income, your ability to repay the loan, have exemplary credit and a lot of money to put down on a house. Otherwise, you'll stay where you are. And if that means in your parents' house, you'll probably still be there to inherit it.

The worst irony is that they, Capital Hill, have decided to see that there are NEVER again months and months of foreclosures for loans that should not have been made. In a free market place, the fact that lenders have lost BILLIONS of dollars on these loans, and decided they didn't want to do any more because they don't want it to happen again either, would resolve the entire issue.

And, in this market that we have now, lenders have done just that. 100% investor purchases started disappearing last December. The lenders saw the writing on the wall - they wanted to stop the madness. As the year has gone on, more and more programs have gone away (along with about 200 lenders who went out of business), so we are down to mostly plain vanilla at the lenders ice cream shop.

The market is repairing itself. It isn't over - there are more loans in default, and more will go into foreclosure, but this "perfect storm" will never pass this way again. The market can't bear it.

Capital Hill, with its vote-getting mentality in full evidence, either doesn't want to hear the truth about the market being in correction, or can't understand the complexity of the mortgage market as it really works.

The country has a whole doesn't have huge foreclosure problems. There are pockets that do have huge problems: California, Arizona, Nevada, Florida. Those areas will take longer to come back, because that is where the largest numbers of foreclosures exist.

But the reality is that 70% of the country is experiencing growth in real estate markets. It isn't what it was twelve months ago, but it isn't declining.

It will be declining, however, if this law actually passes as it stands today. When only 20% of the population can qualify for and get a mortgage, there won't be many houses sold, I can't see that there will be any new ones built, and the fallout from real estate not moving will be a tremendous blow to this entire country.

Funny, I said in my blog months ago I had stopped worrying about the mortgage meltdown, and even my meltdown, and had moved my concern up a notch or two, to cover the entire USA. One of my readers told me that wasn't my job. Whether it is my job or not, it is my country and my children are growing up here . . . And I'm thinking that instead of them moving on after college, and me selling my big house and getting two small ones (one on the beach for the winter, and one in Montana for the rest of the year) we're all still going to be together in 2025. Horrors!

Thursday, November 15
H.R. 3915 will be brought up on the floor of the United States House of Representatives.

If you don't know about HR 3915, you should read the final text (as it stands today). I suggest you read it and then get in touch with your representatives and let them know that you are concerned (you should be) about where they are pushing this country with HR 3915.

You can find your elected officials here

I've asked my friends, my clients and my family to do the same thing. If everyone doesn't make enough noise about this bill, life in these United States is going to be a different place in a couple of years.

Pax et bonum

ps. From my friends at Vertice, the current MARKET COMMENTARY for 11/13/2007:

U.S. 10-year Treasuries fell for the first time in a week as investors pulled out of longer-dated debt on speculation inflation will accelerate. The decline pushed yields up from the lowest in two years before reports this week that economists predict will show growth in wholesale and consumer prices quickened in October. Equity futures pointed toward stronger U.S. stock markets later today, crimping the appeal of safer government debt. Trading was closed yesterday because of a holiday in the U.S. Ostwald predicted the 10-year note will yield between 4.2 percent and 4.35 percent this week. Analysts' forecasts compiled by Bloomberg, with the most recent predictions given the heaviest weightings, suggest it will rise to 4.48 percent by the end of the first quarter of 2008.

COMMITTEE PASSES H.R. 3915 45 - 19

Traci Gregory — Wed, 07 Nov 2007 15:30:09 +0000

GOES TO FULL HOUSE NEXT WEEK

So, Senator Bradley Miller's bill has the approval of 45 of his peers. It moves on to the House, and then President Bush has the choice to sign it or veto it. My Republican friends don't think he will ever let government take over the market in such a gross fashion, but my Democrat friends think he may throw this bone to the Dems because he has taken such a hard line on other things.

Read the final mark up of the bill as it passed.

Whatever happens, the face of the mortgage industry is changing, and on the surface it appears that "Big Brother" is taking care of consumers who can't take care of themselves . . . Yeah, you can read into that remark that I don't think "BB" needs to interfere with our lives anymore, AND that consumers should be responsible for the things they do. Particularly when they make a commitment for 30 years and a lot of money.

I know there are loan officers who made loans with no thought to the consequences for the borrower and made a lot of money doing it. I'm not one of them, and I don't think all of them worked for broker shops.

I also know that what the politicians are ignoring is that America has a "hunger" for credit, and expects to get everything on a signature, not with the exchange of cold hard cash. Theoretically, they know they'll pay for using other people's money, but most don't look at it as realistically as, say, Dave Ramsey or Suze Orman.

They are also ignoring the fact that Wall Street fed that hunger with loan programs that created a lot of profit, because selling money makes money.

Two Wall Street firms moved directly into the sub prime market with their own mortgage companies to feed the greed:

Merrill-Lynch bought First Franklin (a company specializing in sub-prime loans) for $1.3 billion on Dec. 30, 2006. Why? Because the money was great!

Bear Stearns opened Bear Stearns Residential in 2005. This from Business Wire "Bear Stearns Residential will focus on non-conforming loans which are included in the private label MBS market." Read non-conforming: sub prime loans.

"The addition of a wholesale unit complements our presence as the largest underwriter of mortgage-backed securities," said Warren Spector, President and Co-Chief Operating Officer of Bear Stearns. "The business allows us to round out our mortgage franchise and provides us with an additional way to serve our clients. By employing the latest technology, we are enabling brokers to come directly to Wall Street for financing."

Loan Officers are sales people. Face it. They sell a product. Money. They do a lot of other things, the good ones consider long term goals of the borrowers, and real life circumstances, along with usually un-meet able expectations of the uninitiated. And they give advice, answer endless questions about credit, pricing, payments, programs. But it isn't a charity. They do it, like I do, for pay. We have families to support, we can't do it for nothing!

Then there are loan officers who for whatever reason, be it greed, ignorance or lack of support from their company, will put a loan where ever it will close fastest and pay the most. And sometimes, they place loans that way because the borrower wants it that way - "I don't care what it costs, it has to close in 7 days!" They don't care before it closes, but they will after it closes . . .

So, my take on this is-

The way America works will change with this bill. Mortgages won't be easy to get (that has already happened, and will worsen)
Where America gets mortgages will change - Brokers will disappear, maybe not all of them, but a lot of them will do something else. They might work for a Bank or a lender, or they might change industries. (Something I've thought seriously about for a couple of years. This is hard work, not easy money, and there is a tremendous amount of stress involved. If the stress increases and the money decreases, there comes a time when it just doesn't work anymore.)
We all know that when there isn't money to buy houses, there isn't money to build houses, and that means there isn't money to pay people in the real estate industry, or the construction industry, and that will trickle down to manufacturers. That is a lot of people who aren't making money like they were.
When there isn't any homequity money to use for debt consolidation, there are no credit cards being paid off, because we all know most people in this country aren't making huge payments on credit card debt out of their paychecks.

While I do believe that most things politicians do is primarily motivated by votes, and they leap to causes that will generate attention that they are concerned with their constituents' well being, these guys are offering some positive changes. Training and licensing requirements for loan officers is a very good thing. I've worked for a lot of companies in my 20 years in this business, and mostly, it is self-taught. Loan Officers learn a lot from the lenders they sell too, also. So, if the only reps calling on your company were from New Century Mortgage, or First Franklin, you got a lot of influence from the sub-prime mindset. Remember, they were selling too.

Attempting to change the way the market works by outlawing yield spread, and regulating underwriting guidelines is probably not such a great idea. I'm sure none of these lawmakers learned all the nuances of underwriting and risk management in the months since the sub-prime meltdown, but they want to redo the way the country runs. Impressive, isn't it?

The market would, if left alone, correct itself. Stated income loan guidelines are being changed every day. Stricter reasonableness tests of income have become standard with every lender I work with. The orchids of the mortgage world, the exotica, like Elvis, have mostly left the building. If they aren't gone, they are stripped down, and unappealing, so that borrowers don't qualify, or don't want them.

Everyone needs to remember that lenders don't want houses, they want the money. Since they are stuck with the foreclosures, they are doing everything they can to ensure that they don't write any more loans that fail.

I'm lately reading Mobs, Messiahs, and Markets, a really GREAT book by William Bonner and Lila Rajiva. It is hysterically funny, packed with good information, and well written; not like other dry, overly intellectual books on finance and politics.

There is a line in the Chapter "The Devil Made Them Do It" that reminds me of all the people behind H.R.3915:

"It was not what people did not know that proved their undoing: it was what they thought they knew that wasn't so."

Peace.

MARKET COMMENTARY

Traci Gregory — Mon, 05 Nov 2007 16:17:33 +0000

From my friends at Vertice:

U.S. Treasuries rose, driving yields on two-year notes to near their lowest since July 2005, after Citigroup Inc. said it may reduce the value of subprime mortgages and related securities by as much as $11 billion.

Investors bought government debt as a haven from a decline in stock markets and high-risk assets. Treasuries are headed for their best year since 2002, topping returns produced by European bonds, on speculation the financial-market turmoil will hurt the world's largest economy more than anywhere else, a Merrill Lynch & Co. index shows. Citigroup Chief Executive Officer Charles Prince resigned after the company said yesterday that subprime mortgages and related securities may have lost as much as $11 billion of their value in the past month, a decline that may wipe out half of the company's profit so far this year

FHA Reform Moves Ahead in Washington/Bradley Bill to Broker Incentives to Work

Traci Gregory — Thu, 01 Nov 2007 00:56:10 +0000

Talk about conflicting agendas in the government:

The FHA Reform Bill is moving right along:

Passed full House by a vote of 348-72
Passed Senate Banking Committee by a vote of 20-1
Public Comments in the Senate closed October 22, 2007
Expected to pass the full Senate in November, 2007
President's signature expected in November, 2007
FHA commissioner confirms rapid implementation

Benefits of the FHA Reforms include Elimination of the audited financials and net worth requirements for BROKERS; Brokers can post a surety bond in lieu audited financials; Loan limits in high cost areas increased to at least $417,000; Minimum downpayment reduced to 1.5% or lower.

Ironically, moving through the same system, is Bradley Miller's Bill, H.R. 3915 the "Mortgage Reform and Anti-Predatory Lending Act of 2007, which will send Brokers the way of the dodo and dinosaur and is due to be voted on November 6.

The FHA is making it easier for Brokers to become approved to do their loans, which makes it appear that they would want us to stay in business and perhaps work to refinance the mortgages that everyone considers questionable for the borrower . . .

And Sen. Miller wants to legislate underwriting guidelines. I guess his group feels they are better at underwriting mortgage loans than the industry (perhaps being a politician does that for one), and so they want to make their underwriting guidelines law. And, they wants to re-arrange the way the market works, eliminating indirect pay to Brokers.

Too bad I'm not registered to vote in North Carolina.

Capital One and Clark Howard

Traci Gregory — Sun, 28 Oct 2007 16:38:32 +0000

Clark Howard has been dissing Capital One for years, but he's happy with them now.

Today he's singing their praises because they've agreed to change the way they report your information to the credit bureaus. In the past, Capital One did not report how much of your credit limit you were using. That way it always looked like you maxed out 100 percent of your credit, effectively destroying your score.

Clark thinks this was intentional because they wanted to hurt your credit and prevent other companies from "poaching their customers". Now the company has agreed to report credit limits to the bureaus. So some Capital One customers will have big score boosts and be eligible for better auto insurance rates, homeowner's insurances rates, mortgages and more.

Capital One's change is huge because 30 percent of your credit score is based on how much credit debt you're carrying versus how much credit is available to you. So someone who has a card with a $5,000 limit and uses only $1,000 (20 percent usage) has a higher score than someone who has a card with a $20,000 credit limit and uses $15,000 (75 percent usage).

New Unused credit lines will have much the same effect. 720CreditScoreToolKit.Com has a $10,000 line that should boost anyone's score.

DOJ/Antitrust on Real Estate Commissions

Traci Gregory — Tue, 23 Oct 2007 20:19:20 +0000

The Department of Justice, Antitrust Division has unleashed a firestorm with its new website "Competition and Real Estate".

They have links on the front page to articles named Consumers can save thousands of dollars in commissions and Calculate how much you can save. You can look up your state and see what discounts and rebates are allowed by law there . . .

Georgia, for instance, allows for choice of brokerage services (Discounted commission for selling agent; or MLS Listing fee only) and allows brokers to offer rebates to consumers.

In the firestorm, the National Association of Realtors has posted on their website . . . "The DOJ arguments at the Web site display a flagrant disregard for the free competition the agency is supposed to champion. It uses the Web site as a promotion for unbundled and discount services. It doesn’t present persuasive argument to show that one model has certain advantages over another. Instead, it dictates what it believes is the ultimate wisdom about real estate brokerage."

You can read their entire commentary at Realtor.Org

Real Estate Agents may make a lot on a commission, but they work hard for it, and honestly, it is like any other service you buy, you can spend the money or do it yourself, but paying a professional is probably the way to go unless you have a lot of time to spend on doing the sales job. My hero Frank McKinney uses Real Estate Agents, AND helps them sell his houses . . .

Maybe the Justice Department is trying to boost the economy by recommending people get cheaper in the way they do things, but historically, I believe agents sell houses faster than FSBO owners. And nothing is selling fast right now.

And, that's why I have time to blog on a daily basis . . .

Outsmart the Credit Bureaus as they introduce the New Scoring System

Traci Gregory — Mon, 22 Oct 2007 01:50:00 +0000

The Credit Bureaus are changing the way they do things again . . . the mortgage industry has fallen apart . . . it is harder to get loans because lenders want HIGHER SCORES on every loan they do and now the credit bureaus are changing the way they calculate score.

Some models (the term used to describe their calculations to reach your score) no longer will compute authorized user accounts.

Now it appears you can fight back and use secrets of your own to raise your credit score. The 720 Credit Score Toolkit touts a chance for an unsecured line of credit that will raise credit scores in 30 days.

They even have a "10 Second Version" for people in a hurry to move on to the next subject.

There is a purchase requirement in order to obtain credit, so it isn't free, but what is these days? If my score were low and I needed a loan, I think I'd spend $400 or $500 if it would make THE difference in my score that enabled me to get the mortgage I wanted.

Food for thought . . .