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Category: Lending (page 53 of 56)

September 18, 2007

Chicken Soup to Social Responsibility – Damn, I’m a Paradox

by

Realtor, Associate Broker

Author website

I don’t pretend to understand the half of what Greg is trying to convey. This much, however, I will confess. Government is necessary, coalitions have value, and social responsibility is incumbent on all of us.

Slam zoning laws if you must, but if, as a homeowner, you suddenly find yourself sharing responsibility for maintenance of your side yard fence with the owners of the strip club next door, you will undoubtedly see some benefit in government intervention. I did time in Houston; I know of what I speak. If you loathe the union that professes to defend your profession and your livelihood, consider that you have choices. These choices may include speaking from a pulpit of change and reform while all the while paying your member dues or, alternatively, resigning and declaring free agent status. And if you detest government intervention in any form, consider that it is necessary for an orderly, progressive, sustainable society.

Who is not to blame for the mortgage mess? Take one step back. As lenders, money was flowing from the spigot like there was no tomorrow. As mortgage brokers, there was money to be made by cranking the faucet, and it was a foot race to see who could get to the sink first. As agents, we sang the “Houses are expensive, but money is cheap” refrain until we were blue in the face. And, as for the consumer, it really doesn’t matter in the final analysis whether they were motivated by necessity, opportunity or unadulterated greed.  We all helped make this bed in which we now must lie.

Kudos to the Feds for being reactive if not proactive. Without a decisive response to our current situation, water under the bridge be damned, many innocent and not so innocent citizens would continue to suffer. Libertarianism is just ducky, ducky, that is, until the basic fundamentals are violated. The human condition all but guarantees that our unchecked actions will affect those around us.

Government regulation does not, did not, result in loan fraud or financial overcommitment. Government regulation can not be fingered for the shortcomings of the lending or real estate professions. Government intervention is neither the cause Read more

September 18, 2007

Federal funds rate cut by a half-point

by

Suburban Phoenix Real Estate Broker

Author website

Here:

The Federal Open Market Committee cut its benchmark federal funds rate by a half percentage point to 4.75%. In an effort to ease the credit crunch, the Federal Reserve also reduced its discount rate in lockstep to 5.25%. This is the first cut in the federal funds rate since June 2003. In a statement, the FOMC said the action “was necessary to forestall some of the adverse effects on the broad economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.” The Fed said that some inflation risks remain. It said the credit crunch could hurt the economy.

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September 5, 2007

Instead of a bailout of troubled borrowers, why not implement an equity-sharing plan?

by

Suburban Phoenix Real Estate Broker

Author website

Via Poor and Stupid, TCS Daily has a free (or at least free-er) market solution to bailouts for struggling mortgage borrowers.

The idea? “[A] debt-for-equity swap with sub-prime borrowers.” Borrowers would give up 20% of their downstream equity in their homes in exchange for 20% debt and therefore payment relief:

To implement the swap plan, government would create an agency to buy equity from troubled borrowers. Call this new agency Bailie Mae.

When a borrower swaps with Bailie Mae, the borrower’s monthly payment of principal and interest immediately falls by 20 percent. Instead, Bailie Mae provides the other 20 percent of the monthly payment. The borrower still has to pay the full cost of other components of the mortgage payment, such as taxes and insurance.

As long as the borrower makes the new monthly payment, he stays in the home. When the home is sold, 20 percent of the gross proceeds go to Bailie Mae. At that time, Bailie Mae will be responsible for repaying 20 percent of the outstanding balance on the mortgage loan.

For example, suppose that the outstanding balance at the time of the swap is $100,000, and the borrower’s monthly principal and interest is $800. With the swap, the borrower’s monthly principal and interest payment would drop to $640, and Bailie Mae would pay $160 per month.

Several years later, the borrower gets a job in a new city and sells his home. By this time, the outstanding loan balance is, say, $90,000. Bailie Mae is responsible for 20 percent of that, or $18,000, with the borrower responsible for the remaining $72,000. If the home sells for $110,000, then 20 percent of that goes to Bailie Mae, which means $22,000. Another $72,000 is used by the borrower to pay off the loan, leaving $16,000 to go to the borrower.

Suppose that the house is sold for only $80,000. In that case, Bailie Mae gets only $16,000 even though it still has to pay $18,000. The borrower gets nothing, and $62,000 goes toward paying off the loan. The cost of the remaining $10,000 shortfall in paying back the loan is borne by the responsible lending Read more

September 4, 2007

ARMs Look Scary Before They Look Good or (How Wall Street Dupes the Little Guy)

by

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

Author website

I don’t look real smart today, do I ?

Mortgage rates in general took a fairly substantial dive during the previous week with longer term rates dropping double digits in most cases and some rates returning to mid-2006 levels. However, the Mortgage Bankers Association reported a spectacular increase in the interest rate of the one-year adjustable rate mortgage (ARM).

Hold on just one second ! Now is the time when you SHOULD be a contrarian. The alternative title of this post is the one you should read. Wall Street has always been ahead of the little guys and gals. They look into the future, and try to get money committed to best profit off of their forecast. If an annual ARM rate is rising above the fixed rate mortgage rate, Wall Street is trying to induce borrowers to lock up money.

Why would anybody in their right mind do that?

Wall Street thinks rates are going to drop like a ball off of a table. They think the inverted yield curve we’ve seen is a precursor to a recession. The inverted yield curve has indicated an impending recession some 85% of the time since the Civil War – which side would you bet on if this were Vegas?

Nobody likes the R word. I’ve been sensitive to the R word since Bill Gross of PIMCO talked about the housing recession in late 2005. He, and I, are more sensitive to the concept of a “housing recession”; we’re both in California. It’s estimated that close to 10% of the jobs in California are related to the housing industries be they Realtors in Rialto or a painters in Petaluma.

Why the Wall Street shuffle with higher ARM rates? They want you to take the risk of a fixed rate so they can stick them in the MBS pools for a few years. They know those loans will sell at a premium in 12-18 months- when rates are dramatically lower. To continue the Vegas Read more

August 31, 2007

President Bush Unveils “FHA-Secure” Program Today

by

Real Estate Rainmaker

Author website

Today, President Bush Announced Steps At The Federal Level To Help Homeowners In Need Of Assistance Avoid Foreclosure. These steps will help homeowners having difficulty paying their mortgages and ensure that the problems now disrupting the housing industry do not happen again. The fundamentals of America’s economy are strong – economic growth is healthy, wages are rising, and unemployment is low. The markets are in a period of transition as participants are re-assessing and re-pricing risk. 

The White House insists that this is not a bailout.  What are your thoughts?  What are the benefits or disadvantages of this temporary plan that aims to alleviate the pressure on the subprime drama?

———–
Comments are encouraged!

 

August 25, 2007

What price friendship? “He says he spends more than $100,000 a year on cabanas, food and alcohol for him and his guests”

by

Suburban Phoenix Real Estate Broker

Author website

In a dreadfully serious soft-core porn piece on the mission-blending of swimming pools and ultra-lounges at Las Vegas casino-resort-hotels, the New York Times coughs up this Gilded Age morality play:

Rainmaking aside, how expensive can it get for high-end customers seeking a raucous Sunday afternoon? Randy Lund, a C.P.A. who works as a branch manager for mortgage broker Meridias Capital, has been going to Rehab since Day 1. He says he spends more than $100,000 a year on cabanas, food and alcohol for him and his guests. Yet as much as Rehab is about recreation for Mr. Lund, it is also about business.

“I bring Realtors and clients and they love it at Rehab,” says Mr. Lund, trim, shirtless and wearing board shorts. “I met a guy here who was a friend of a friend, I invited him to hang out with us in my cabana, and I bought him a few drinks. He turned out to be a multimillionaire who owns shopping centers and a jet. Now he’s a mentor to me, and we’re in the process of developing our own shopping center here in Vegas.”

When you’re writing your mortgage check next week, do pause to reflect that your money is going to worthy purposes.

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August 25, 2007

The New York Times goes on a Countrywide manhunt

by

Suburban Phoenix Real Estate Broker

Author website

The New York Times on the Countrywide mess and how the company got there:

ON its way to becoming the nation’s largest mortgage lender, the Countrywide Financial Corporation encouraged its sales force to court customers over the telephone with a seductive pitch that seldom varied. “I want to be sure you are getting the best loan possible,” the sales representatives would say.

But providing “the best loan possible” to customers wasn’t always the bank’s main goal, say some former employees. Instead, potential borrowers were often led to high-cost and sometimes unfavorable loans that resulted in richer commissions for Countrywide’s smooth-talking sales force, outsize fees to company affiliates providing services on the loans, and a roaring stock price that made Countrywide executives among the highest paid in America.

Countrywide’s entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers, according to interviews with former employees and brokers who worked in different units of the company and internal documents they provided. One document, for instance, shows that until last September the computer system in the company’s subprime unit excluded borrowers’ cash reserves, which had the effect of steering them away from lower-cost loans to those that were more expensive to homeowners and more profitable to Countrywide.

More:

In a mid-March interview on CNBC, Mr. Mozilo said Countrywide was poised to benefit from the spreading crisis in the mortgage lending industry. “This will be great for Countrywide,” he said, “because at the end of the day, all of the irrational competitors will be gone.”

But Countrywide documents show that it, too, was a lax lender. For example, it wasn’t until March 16 that Countrywide eliminated so-called piggyback loans from its product list, loans that permitted borrowers to buy a house without putting down any of their own money. And Countrywide waited until Feb. 23 to stop peddling another risky product, loans that were worth more than 95 percent of a home’s appraised value and required no documentation of a borrower’s income.

As recently as July 27, Countrywide’s product list Read more

August 20, 2007

So if there has to be a bail out…

by

Mortgage Banker

Author website

What if Jeff and Brian are right?  What if it is preordained in the cards that a federal bail out of Countrywide is an absolute necessity and a foregone conclusion should the behemoth lender fail?  While Jeff certainly provides a well reasoned and thrilling John Grisham version of a Countrywide rescue; why wouldn’t we look at some other (less plausible no doubt) bail out options?

Let me say this first and foremost: I don’t support a bail out of Countrywide.  Period. I think its a horrible idea for all the same reasons bail outs in the past have been bad ideas – they reward the wrong-doers.  Why do we reward the Mozilos and their billions of dollars while punishing the American public?    If I am forced to accept a bail out, I would rather it be a bail out of the American public rather than a few rich puppeteers overlooking the pacific ocean from their posh Malibu homes.

Here are a few outrageous ideas that probably won’t work for a million reasons, and have a shot longer than you do of being hit by an asteroid tomorrow morning; but just for fun lets float a few out there.  My bail out options to keep from rewarding the greedmongers:

A couple of general guidelines:

  • Bail out options apply only to loans secured by primary residences; and maybe even just to owners of one property.
  • Bail out options apply only to those loans underwritten with full income documentation (maybe stated income for self-employed borrowers)

Bail out options for the American public (hey, if my tax money’s going to anyone, I’d rather give it to my neighbor):

  • Pre-payment waivers: Anyone with a prepayment penalty on their existing mortgage receives a voucher to refinance with out being penalized. This could be financed by individual lenders, Wall Street banks, or investors.
  • Voiding of pre-payment penalties: Alternatively, the government could pass legislation nullifying all pre-payment penalties allowing borrowers to refinance immediately with out paying the fees associated with the penalty.
  • For those that paid a pre-payment penalty between June 2006 and today – a tax credit for the full amount of any pre-payment penalty paid Read more
August 20, 2007

Sub-Prime Borrowers Got Lucky- They Didn’t Pay Enough

by

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

Author website

I floated an idea about a federal bailout, along the lines of Chrysler in 1980, of Countrywide Financial Corporation. I wanted to highlight two things in this post: Countrywide is in trouble and their trouble is our trouble. My premise is that the collapse of CFC goes beyond the 55,000 employees. I may have been guilty of thinking like Charles Erwin Wilson.

Jeff Brown replied, “Countrywide ain’t no Chrysler” and proved that my premise may be an insult to Adam Smith. His idea of a bailout was more along the lines of a Tom Clancy novel with Ben Bernanke playing Jack Ryan, Angelo Mozilo playing Dr. Strangelove, and Bank of America playing the United States Marine Corps. Life often imitates art so my money’s on Jeff’s covert bailout plan.

What really happened to the mortgage market ? They didn’t properly price loans for the risk they assumed. While Hilary Clinton is crying about the “poor borrowers” what about the poor lenders who got caught in the middle of this mess? Borrowers said “We’ll buy it if you give it to us on the cheap !”, Wall Street said “We’ll take the extra yield!”, and we all said “This time it’s different !” Extrapolations proved that a two bedroom condo on the Las Vegas Strip would sell for at least $5 million in this new economy, fueled by leverage.

Read Ralph Alter at The American Thinker:

The dirty little secret of the sub-prime crisis is the fact that sub-prime lenders failed to charge interest rates high enough to offset their expected level of defaults. Make no mistake: sub-prime lending is going to have borrowers who fail. Even conforming borrowers sometimes default. Enabling lenders to charge enough to make profitable loans to less qualified borrowers will result in a higher level of foreclosures. But it will also enable legions of “sub-prime Americans” to realize the American dream of home-ownership.

Who were the losers of the explosion of non-prime lending? The 10-15% of the homeowners who were able to buy homes, Read more
August 17, 2007

Is opportunity knocking in the real estate market?

by

Suburban Phoenix Real Estate Broker

Author website

I tell people we live in the last affordable ghetto in North Central Phoenix. We live right on the edge of the neighborhood, the place where $400,000 makes its leap to $750,000 on the way to a million. We moved here knowing what the neighborhood had to do, and, so far, it has not disappointed us.

This morning, I’ve been drooling over this listing. The comp value of this home in turn-key condition should be around $600,000, maybe more. Sad for the sellers, and I could kick them for letting the house go to hell, but this is a sweet opportunity that will bear fruit right about the time Persephone comes back from Hades.

This is my friend and client, investor Richard Nikoley, writing yesterday:

Probably not what everyone is thinking, right now, but if I’m going to keep my head about me and keep a market perspective on the market, then I have to consider that when some people sell out of fear, panic, to preserve diminishing profits, or to stop losses, there’s always someone on the other side of that trade. So the question arises — and one should always, always try to discern the motivations behind each side of a transaction — why are an equal number of people buying, right now, what so many are selling, right now? Could it be because others are selling at cheaper and cheaper prices and those buying are seeing bargain-basement prices? If you had to guess, who would you suspect is likely getting the advantage?

For some reason, people don’t tend to think of the stock market like they do most other things. In other areas, it’s called a sale. There’s always someone, somewhere, wanting to get out of an asset — for whatever reason — and depending on their motivation, they’ll take less and less for it. Others lie in wait for such opportunities in order to accumulate assets at relatively low prices.

Everyone is welcome to their doomsday, economic collapse, chickens-coming-home-to-roost scenario, or whatever. But do keep in mind that what is going on is essentially and mostly an exercise in total freedom and Read more

August 13, 2007

Congressional “leadership” on lending policies: What is “crisis-itis?”

by

Suburban Phoenix Real Estate Broker

Author website

The Conspiracy to Keep You Poor and Stupid, which should be in your feed-reader — especially right now:

What is “crisis-itis?” It is my own diagnosis. It is a form of dementia where the inflicted believes his or her own self worth rises as the situation he monitors worsens. In all cases, the inflicted greatly exaggerates his or her control over events, as well as the size, duration, and impact of those events. In extreme cases, the inflicted seeks to worsen the crisis to inflate his or her self esteem.

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August 12, 2007

It’s A Lenders’ Market

by

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

Author website

I pulled a Cramer today. The pressure has been mounting for some time, now.

Roberta Lee, a real estate broker in Norco, CA left a comment on an article I wrote on Active Rain:

My son is in the mortgage industry. He took the time….. 🙂 to enlighten me…..”Mom this isn’t a buyers market or a sellers market, it’s a lenders market.”

Ain’t that the truth, Roberta? I had two, um, situations this week that influenced the Cramer that erupted at 3PM this afternoon. Both involved incompetence and arrogance by the wholesale lending “professionals”. THAT is going to be a problem that needs to be addressed immediately.

Customers are scared. I know and you know that this stuff happens every ten years or so but it’s pretty scary when it’s happening to you. I do a fair amount of business in negative amortization loans. That product has been repriced to reflect the investor’s perception of increased risk but the portfolio lenders are still in the game. I’ve come full circle and have started placing loans with the banks I used in the 90s. None of my old friends are there, anymore. They’ve been replaced with the cast of High School Musical.

One rep doesn’t truly understand her products. She parroted the sales manager’s script when I questioned about a recast and argued relentlessly while I did the math. She was off by about nine months…those nine months matter to an engineer (my customer). When I asked her to be more precise with her answers, that customers’ financial futures were at stake, she flippantly replied that it wasn’t her problem these “morons” are in trouble. She lacks what business school professors might call, um, a “consumer-centric” philosophy.

Another bank rep couldn’t understand why my customer was nervous when she broke a promise to me. The problem was exacerbated by her poor knowledge of her bank’s closing process, so she told another little white lie. This delayed the closing another day. When I explained why customers were stressing in this Read more

August 11, 2007

Thomas Sowell: Housing woes caused by land-use restrictions and federal micro-management of lenders

by

Suburban Phoenix Real Estate Broker

Author website

Hoover Institute Economist Thomas Sowell:

Amid all the hand-wringing and finger-pointing as housing markets collapse, mortgage foreclosures skyrocket, and financial markets panic, there is very little attention being paid to the fundamental economic and political decisions that led to this mess.

The growth in risky “sub-prime” mortgage loans by people buying homes they could not really afford has been a key factor in the collapse of housing markets, when the risks caught up with both borrowers and lenders.

But why were home buyers suddenly taking out so many risky loans and lenders suddenly arranging so much “creative” financing for these borrowers?

One clue is the concentration of such risky behavior in particular places and times.

Interest-only mortgages, where nothing is being paid on the principal for the first few years, enable many people to get started on buying a home with lower mortgage payments at the outset.

But of course it is only a matter of time before the mortgage payments go up and, unless their income has gone up enough in the meantime for them to be able to afford the new and higher payments, such borrowers can end up losing their homes.

Such risky mortgage loans were rare just a few years ago. As of 2002, fewer than 10 percent of the new mortgages in the United States were of this type. But, by 2006, 31 percent of all new mortgages were of this “creative” or risky type.

In the San Francisco Bay Area, 66 percent of the new mortgages were of this type.

Why this difference in times and places? Because housing prices were skyrocketing in some places and times, so that people of modest incomes had to go out on a limb to buy a house, if they expected to buy a house at all.

But why were housing prices going up so fast, in the first place? A number of studies of communities across the United States and in countries overseas turned up the same conclusion: Government restrictions on building.

While many other factors can be involved — rising incomes, population growth, construction costs — a scrutiny of the times and places where housing prices doubled, tripled, Read more

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