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Category: Lending (page 42 of 56)

October 4, 2008

Other types of credit may be feeling the crunch, but home mortgages are still readily available

by

Suburban Phoenix Real Estate Broker

Author website

This is my column for this week from the Arizona Republic (permanent link).

 
Other types of credit may be feeling the crunch, but home mortgages are still readily available

Bad news about the economy is coming in from all directions, so you may be in the mood for some good news: There is plenty of money available for home loans.

By taking over FannieMae and FreddieMac, the federal government has essentially nationalized the secondary mortgage market. The lenders themselves are still private entities, but the government’s loan guarantees are viewed as being so strong that, by now, virtually all residential real estate loans are coming through Fannie, Freddie, the FHA or the VA.

The other way of saying the same thing: There is virtually no secondary mortgage market left for non-conforming or sub-prime loans.

So while you may have trouble getting new car financing or a loan for your business, you should have no problem getting a home loan — if you qualify and if the amount you’re borrowing falls within the limits set by the four government agencies guaranteeing home loans.

And there’s the rub: For most of the Phoenix area, qualifying for a conforming loan should be no problem. But higher-priced homes are sold with non-conforming “jumbo” loans, which are difficult to obtain right now and come at much higher interest rates.

Using an FHA loan, it is still possible to buy a home with “nothing down.” FHA borrowers are obliged to pay a 3.5% down payment, but this can be offset by the $7,500 tax credit incorporated in the mortgage relief bill passed in July. FHA borrowers can ask the seller for up to 6% in closing costs, so they can take possession of the home for no money out of pocket.

But there’s a catch: To obtain an FHA loan, the home will have to pass a rigorous FHA appraisal, which will eliminate many foreclosed homes unless the seller is willing to correct the most serious defects.

All that notwithstanding, while the financial sky might be roiling with dark clouds, real estate is still a silver lining. Because of the government’s loan guarantees, lenders are willing Read more

October 3, 2008

Bloodhound Blog Radio: Living in a Post-Bailout World

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Last Monday, Sean Purcell and I hosted Top Dawg Greg Swann on Mortgage Mondays on Bloodhound Blog Radio.  We discussed what real estate agents and lenders can do in a post-Bailout world.

The bailout bill passed today after the Senate signaled its support to the House.  President Bush signed this bill into law and the world is safe, once again.

Interesting points in our conversation:

1- The Community Reinvestment Act (original sub-prime loans), conceived in 1977 and super-charged in 1995, was the actual starting point of the “toxic loan” revolution that took our economy down.

2-The Bailout may be an instrument to keep people into homes through the “loansharking collection” principle.

3-Greg talks about his strategy of working with investors (and why it works).

4- Predictions about the convergence of low-priced and mid-priced homes through financing caps.

5- Strategies for REALTORs to find ready, willing (and most importantly) and ABLE clients.

If you run an 8-minute mile, you can get a 10K in while you listen to this on your iPod.  Mere mortals should just download the podcast and try to get 3 miles in on the treadmill whil listening to the three of us.

Listen to the podcast here.

October 3, 2008

Mortgage Market Week in Review

by

Mortgage Officer

Author website

Well, here we are on Friday again. Are you getting motion sickness from all of the news and rumors that are flying back and forth? Wow has it been another week to forget, hasn’t it?

Here are the topics we’re going to talk about today: The Bailout/Rescue Plan, some very weak economic reports, the credit markets and do bankers really trust each other?

First, there were several economic reports that came out. None of them were good. Here’s a rundown of them:

1. Jobs – the jobs report came out this morning and showed that 159,000 jobs were lost in September. While the number was lower than what the markets expected (they expected 200,000), it was a very weak report.

2. Factory orders came in down 4%. That’s not the direction we’d like them to go.

3. Car Sales fell off a cliff in September. Ford’s sales dropped 35%. Ouch.

4. A couple of reports on personal incomes, personal expenditures and the like came out and they weren’t good.

If these were the only issues that we had, we’d have our hands full and we’d see mortgage rates drop due to the increased weakness in the economy.

But that’s not all. The credit markets have taken a major hit in the last week. What’s happening with that? A couple of brief highlights:

1. Banks are very concerned about running out of money (capital). Wachovia (more on this later) and Washington Mutual have been “bought out” to keep them from going under. Other banks are concerned that the losses they are experiencing will not enable them to keep their capital ratios where they should be. Due to that, there is an increasing reluctance to lend to commercial customers and to lend to consumers. How bad is it? I’ve heard a variety of conflicting reports. What I can say from personal experience is that for people (consumers, not businesses) who have the following: 1) Some equity in the Read more

October 1, 2008

A Look past the hyperbole of “The Great Depression”

by

IDX Search Entrepreneur

Author website

My Grandmother is 89. In 1929, she was 10, living in Duquesne, PA, a steel mill town not far from Pittsburgh.

Grandma is still a story teller, although Alzheimer’s has mixed up the palette of her recollections, which makes for some interesting mash ups. Before Grandma’s synapses got all Web 2.0, it was the Depression stories that fascinated me the most.

They were even better than the WWII stories, which were pretty good because she worked in an ammunition factory, but that’s a story for another crisis.

All of Grandma’s Depression stories, from the time a truck carrying oranges jackknifed on the road right before Christmas, to the beautiful indoor pool, gym and library that Carnegie built (where Aunt Emma secretly played basketball), to the truant officer chasing down Uncle Joe, all of them had a three-part moral:

  1. We were dirt poor.
  2. You don’t ever want to be that poor.
  3. Save your money just in case anything like that happens again.

As I got older, I started to understand how being a “Child of the Depression” had molded my Grandmother. The bargain shopping. Walking across the parking lot of the A&P stooped over not because of age, but because she was looking for dropped change. The look of disbelief Christmas morning when my brother and I sat in a pile of un-boxed toys surrounded by shreds of wrapping paper a foot thick, looking for more.

The lingering impact that living through the Depression had on my Grandmother used to interest me as an exercise of amateur psychology, a topic I’d toss around with my parents to show them they got something for the four years I spent doing keg-stands at URI: She was conditioned. Using a tea bag twice is a mild sort of PTSD. Aren’t I clever?

I don’t feel so clever, now. Now I’m recalling Grandma’s somewhat more reliable pre-Alzheiner’s stories looking for tips, or hope, or something…She did always say, poor as they were, they were happy. That’s something, right?

This morning a friend forwarded me a link to something that is on the Wikkipedia page for The Great Depression, a page that probably has gotten more traffic Read more

September 30, 2008

VA and FHA Higher Loan Limit Extension Through 2011: The Main Street Bailout

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

We don’t have a “Main Street” in Southern California; we have the US Route 101 (or CA State Highway #1). We call it the Coast Highway, the Pacific Coast Highway, or the PCH.  When I think of a bailout plan for Main Street, I think of it for homes within 5-10 miles of the PCH.

We got that “Main Street bailout” a few months back.  FHA loan limits were hiked to as much as $729,000, earlier this year and the VA followed suit, this summer.

Both provisions are gone after Christmas…unless…

…President Bush gets to leave a legacy for the Main Streeters on the coasts.  The scuttlebutt in D.C is that President Bush wants to extend the life of those temporary loan limits, for FHA and VA, through 2011.

This program has helped us a lot.  Consider that California loan originators have funded more FHA product in August, 2008 than we have in the prior two years.  When declining market conditions limited agency jumbo loans to 85% loan-to-value, FHA picked up the slack.  With the tenuous outlook for PMI companies, FHA and VA jumbos are filling the vacuum for new home buyers.

It is further rumored that these “guvvie jumbos”, limited to purchase transactions, will be made available for refinance transactions; 100% loan-to-value for VA and 95% loan-to-value for FHA.  The rumor is that President Bush believes that government financing can provide relief for homeowners stuck in jumbo ARMs, soon to be adjusting.

It’s conjecture at this point but we may just have these loan products until 2011.

September 30, 2008

A Quick Primer on Liberal & Conservative Economic Theory

by

Real Estate Renaissance Man

Author website

We may or may not be in favor of the bailout.  We may or may not fully understand what the bailout will or won’t do.  We may or may not be any smarter than the politicians who (in my humble opinion) don’t have a clue what the bailout will or will not do.  But I am guessing we can all recognize good ideas from bad ideas.  It’s easy: the former stimulates business and the latter stifles it.

Case in point (you can read the full story here):

Congressional leaders scrambled Tuesday to come up with changes to help them sell the failed $700 billion financial bailout to rank-and-file members. One idea gathering support: raise the federal deposit insurance limit to reassure nervous savers and help small businesses…

Republican House aides said the FDIC proposal might attract some conservatives who want to help small business owners and avert runs on banks by customers fearful of losing their savings…

Another possible change to the bill would modify “mark to market” accounting rules. Such rules require banks and other financial institutions to adjust the value of their assets to reflect current market prices, even if they plan to hold the assets for years…

Some House Republicans say current rules forced banks to report huge paper losses on mortgage-backed securities, which might have been avoided…

Liberal Democrats who opposed the bill are suggesting other changes. Their ideas include extending unemployment insurance and banning some forms of “short selling,” in which investors bet that a stock’s value will drop…

The conservatives want to

  • Raise the insured limit on bank deposits.  Of dubious actual benefit in my opinion – but tough times call for paper mache measures.
  • Change the mark-to-market rules.  The mark-to-market rules are onerous to investment companies and do not reflect asset values accurately.  This should have been enacted long ago.  Using the bond concept of yield to average life would make more sense.

The liberals, on the other hand, want to

  • Extend unemployement insurance.  What? To stimulate the economy you want to increase the weight of one of its anchors?  I know this is Read more
September 30, 2008

Tom’s Top Ten Reasons He Doesn’t Like the Bailout….

by

Mortgage Officer

Author website
  1. Because a government intervention the financial systems rarely works well.
  2. Because it fails to acknowledge the fundamental shift that is occurring in our society as we move from being “overleveraged” to using credit responsibly.
  3. Because Nancy Pelosi likes it.
  4. Because no one has been able to prove that by buying this garbage from the banks, it will do anything to actually help credit get done.
  5. Because Barney Frank likes it.
  6. Because JP Morgan and the FDIC were able to work out a very smooth transition when Washington Mutual closed down last week and it was done without any unusual interventions.
  7. Because the bailout refuses to consider that not all banks are equal.   Those who are most likely not going to make it would get the same government money as those who are perfectly healthy.    That’s just not right.
  8. Because Rep. Peter Hoekstra (R-Michigan) voted against it, and I have a lot of respect for Pete.
  9. Because the Main Stream Media is preaching an unbelievable amount of panic, distrust and fear and they are doing it with items that are not factual.
  10. Because the government hasn’t done a good job (because I don’t believe they can) in showing that there’s a connection between buying bad assets from the banks and helping Main St.
  11. Because Citigroup and the FDIC worked out a “take over” of Wachovia without any significant market disruptions and without any unusual bailout efforts.

Okay, so it was actually 11.   The point is, the bailout is not good for our country and not good for our economy.   Are banks going to fail?  Yep.   Do I hope that “my bank” isn’t one of them?  Yep.   But like Jeff Brown says, we know how the story ends up and we’ll all be fine.

Tom Vanderwell

September 29, 2008

Wachovia Fails… Did You Notice?

by

Real Estate Renaissance Man

Author website

Lost in the tsunami of bail-out failure, Wachovia gave up the ghost.  Wachovia now joins Countrywide and WaMu as the big three option arm originators now become three of the biggest financial failures of all time.  If this looks familiar to any posts you may have read here at BHB, including those on The Mortgage Dance and Wachovia Completes the Gang of Three, consider it pure coincidence.

Does it sound like I am gloating a little over the downfall?  I am.  Option arms were the tool and bribery was the modus operandi.  Loan originators fed their greed while homeowners lied to get homes they could not afford and Wall Street leveraged the whole thing to apocalyptic proportions.

I wonder if there is enough blame to go around.

September 29, 2008

An Update on the Bailout….

by

Mortgage Officer

Author website

and yes, after doing some more reading on it, I do still consider it a bailout.

I’m going to put a copy of a post that Yves at Naked Capitalism wrote in italics and then my comments will be interspersed in bold print and then I’ve got more thoughts at the end.

Hope this helps you understand it better.

Congressional Charade: Changes in Bailout Bill Cosmetic, and Everyone Knows That

For a quick, one-stop synopsis of the Mother of All Bailouts (as of this month), see this readable version at Clusterstock (we’ve become a recent convert to this site).

Reader and sometimes contributor Lune, who was once a Congressional staffer and still subscribes to the the inside-the-Beltway press, provided a wrap of their coverage of the bailout bill. It makes clear that everyone understands that turning Hank Paulson’s three pager into a 110 page draft made for a nice fig leaf but made virtually no substantive difference.

Gee, why doesn’t that surprise me.   They added 107 pages of rules and regulations and it’s basically just spelling out the same difference as before.

From Lune:

Well folks, we’re almost to a done deal (certainly closer than Thursday). The Hill papers are reporting that they’re getting closer in both the Senate and the House to the needed votes to pass the new bailout bill. Roll Call gives the most frank assessment of what happened over the weekend in an article entitled “Same Bailout, New Dynamic” (subtitle: Outrage Prompts Sales Effort).

All the late-night talks, last-minute demands and dramatic pronouncements aside, the fundamental structure of a $700 billion Wall Street rescue plan that Congress spent the weekend wrangling over has not changed significantly from the outline proposed by a bipartisan group of Senators and House Members last Thursday.

Did you hear that?:  It’s basically the same deal as last week Thursday, just spun differently.

“This is in essence the same,” said Sen. Bob Corker (R-Tenn.), who attended those talks.
. . .
Assuming enough House Republicans agree to vote for the package, it appeared that the House could vote as early as today, while the Senate might have to wait to take it up Wednesday after Rosh Read more

September 26, 2008

Some Details on the WaMu Buyout

by

Real Estate Renaissance Man

Author website

In a comment to an earlier post I was sent the link to JP Morgan Chase’s Investor Presentation regarding their purchase of WaMu.  This was courtesy of Bob Wilson, whom readers may know for his many thoughtful comments here on BHB.  I highly recommend reading it by clicking here, but in the mean time – some of the highlights:

  • They are taking over the deposits and leaving the liabilities.  This helps the FDIC out tremendously but I can’t help thinking of the great line from The Godfather: “Leave the gun, take the cannoli.”
  • They plan to exit all non-bank originated retail lending.  Say good-bye to most of WaMu’s products.
  • They are most excited by WaMu’s large presence in California.  According to their projections CA sees the most population growth, followed by Texas and then Florida.  This is great news for these hard-hit areas.  Arizona sees about half the growth rate and the northeast and rust belt continue their problems with fundamentals.  (I believe we are looking at a very stratified housing market for some time to come.  There has never been a national housing market and such a concept is becoming harder to even say with a straight face.)
  • JP Morgan Chase paints a pretty rosy picture of potential earnings.  They look at their credit card and investment sales in-branch and overlay that onto all the WaMu branches.  But I don’t see the same types of customers at WaMu as I do at Chase and I have a hard time believing Chase will get the same level of commercial banking profits from them.
  • Expected cost of this acquisition is $1.5 billion now and another $.5 billion over the next couple of years.
  • They will keep WaMu’s low risk, profitable lending programs in the multi-family niche which should be welcomed by investors who are currently getting shut out of the market by underwriting constrictions.
  • Finally, they project current-pricing-to-trough depreciations for CA, FL and the US as a whole.  The numbers are interesting, but what’s more interesting are the headings.  They project losses based on three scenarios: Current Estimates, Deeper Recession and Severe Recession.  Apparently the analysts feel we are Read more
September 26, 2008

Mortgage Market Week in Review – to Bail or not to Bail?

by

Mortgage Officer

Author website

Yikes, every week it’s getting more and more challenging to lay out for you what’s going on in the markets.   Hopefully it will get easier, but I’m not really sure that it will for a while.  So what are we going to talk about this week?   This week it’s about the proposed bailout, the biggest bank failure in the history of our country, and a few thoughts from Dick DeVos (huh – trust me, it will fit in later).

The bailout – $700,000,000,000.00. That’s how much money the Treasury wants to have to bail out the troubled financial institutions.   What do they want to do?   Here it is in a nutshell:

  • They want to buy approximately 5% of the mortgage backed securities (presumably the worst ones) from the banks and investment institutions.
  • Why?  The theory is that if they take those loans off their books, that will free those institutions to start lending again (start loading up their books with better loans this time.)
  • Do we have any guarantee that it will work?   Nope, the only guarantee we have is the word of Treasury Secretary Paulson and Fed Chairman Bernanke, both of whom are very smart but both of whom have been wrong on numerous occasions as the credit crisis has spread.
  • Would the tax payer end up paying for the entire $700 Billion?  Long term, probably substantially less than that because, depending on how the portfolio gets managed, because these loans are backed up by assets (houses) and the value of those won’t go the way of Washington Mutual stock and become worthless.
  • Will banks immediately turn around and start lending more to others?   That’s a question that we don’t know the answer to.
  • I read an article this morning that said that the Central Banks might actually be making the problem worse.   How so?   They keep pumping more money into the system and that is making it easy for banks to borrow money from the Fed so they don’t have to borrow money from each other and that has put a squeeze on the normal credit markets.   Interesting Read more

September 26, 2008

The Mortgage Dance Continues

by

Real Estate Renaissance Man

Author website

I posted the following back in July and with WaMu going down it seems like a good time to bring it back to the top.  If there is any confusion as to who is going down and why, make a point of clicking the link on the “accounting debacle”.  It goes to a post from August of last year and will explain a lot about what is really happening and why.

And the beat goes on…  but sometimes it helps to have that little bouncing ball show us exactly what lyric we are singing this week.  All together now:

Today the Fed suprised no one by opening the discount window to ailing siblings: Fannie Mae and Freddie Mac.  Together they hold more than half of all mortgages in the US and the guarantee that they would not fail has been implied for some time.  The Fed also intimated there would be no other bail outs in the foreseeable future.  Who is walking the thin line?  WaMu, Wachovia, Downey, Indy Mac (oops, they were written out of the chorus last week).  Now it looks as if the Fed has reworked a few more lines and their song to the Wall Street firms goes a little something like this: if you can not fix your problem with the ability to borrow at 2.25%, your problem is not fixable.

This does not bode well for our short list.  Downey is more of a regional and will likely go down under its own weight of Losses and Lawsuits (the real ”L” words).  Previous posts right here on BHB have fixed WaMu as the consensus “next big one” to fall.  Wachovia, in my opinion, is more of a question mark.  Straight-laced, tea-loving bank goes to a frat party where “everyone who is anyone” is drinking and the peer pressure just becomes too much.  This is a hangover for which they are ill prepared.

What does this mean for real estate and the mortgages that drive its cycles?  Here’s one thought: if you are a specialist in homes that do not play the Fannie/Freddie tune, you may Read more

September 24, 2008

“Buy when there’s blood in the streets”

by

Suburban Phoenix Real Estate Broker

Author website

I wrote $975,000 in new contracts today. No way they’ll all be accepted, but they’re strong offers backed by a lot of cash. If we don’t get these properties, we’ll go for others. Amazingly, the quality of lender-owned properties seems to be going up even as the prices go down. The lord alone knows what will happen in Washington and Manhattan, but it’s a good time — for now, at least — to be a Realtor in Phoenix.

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September 24, 2008

You know, I was wondering….

by

Mortgage Officer

Author website

All of the talking heads and all of the politicians keep talking about how we aren’t just giving $700 Billion to Wall Street, we’re investing in mortgage backed securities that we’ll eventually be able to resell and earn a good portion of that $700 Billion back, heck we might even make a profit on it.

Let me lay out a couple of things that I know:

  1. Chairman Bernanke said that the $700 Billion number was determined in that they feel they need to buy 5% of the mortgages that are “out there.”
  2. They are going to buy the mortgages that no one is able to sell today because the price that they would have to sell them at would require that the seller immediately goes into bankruptcy.
  3. At this point (9:45 PM EST on Thursday), it appears that there is a very good chance that the amount that the Treasury will be paying for these assets is above “what they are worth.”  (It’s hard to know what they are really worth, but it sounds like the price the government will pay is way more than what they could get on the market right now).

Now let me attempt to make a conclusion from this:

  1. The Treasury is going to buy 5% of the mortgage market and I think that it’s a safe assumption they aren’t going to get the highest quality portion of the market.
  2. According to the Federal Reserve’s own report, (just taking that snapshot in time) delinquency ratios for residential mortgages at commercial banks were running approximately 4.2%.
  3. That means that there is a very good chance that the portion of the mortgage backed securities market that the Treasury is going to buy is the “garbage” that’s currently part of the delinquency ratios.
  4. So, if the 4.2% delinquent portion becomes 84% of the the pipeline that the Treasury buys and 80% of that portion becomes essentially worthless, that means that we’d, as tax payers, take on approximately $470,400,000,000 in additional debt that won’t be “paid off” any time soon by the sale of assets.

I’d love it if I was missing something here, but I have a feeling that Read more

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