Ahhh. Friday on the eve of a 3 day weekend, AND the end of the month. This week I had 4 closings, which normally is a cakewalk for us. My record is 12 (back in 2003 when rates were so low!). But this week, I must say, the 4 closings were brutal. By that I mean tough to close. ALL had perfect borrowers, perfect credit, normal income…it was just the documentation of any special circumstances, this/that, the appraisal had the picture of exposed concrete we had to explain, the borrower got a bridge loan from employer and we needed a special letter of it being customary for their employees. The list goes on and on and on. I have to literally stop, breathe, and then remind myself that we are in trying times. Remind myself that my underwriters are on my team, they are not out to get me. They are asking me for these (silly?) things because they are being pounded, and I do mean pounded, by the investors that are buying these loans from us on the secondary market. You see, everyone is covering their tracks. From the investors, to the underwriters, down to us. Even the realtors. No one wants to get caught holding the smoking gun. This rationalization allows me to get through the day. Through the week . Through the very tough times. Wednesday I was living up to my nickname (Wiggie), and today, Friday, I am calm. All loans closed, all borrowers happy. That is a very good thing. So the next time your borrowers lender asks for ‘unreasonable’ things, stop a moment, take that breath, and trace backwards. Try to remember that we are all in this together, on the same team. Wading through the storm.
As for the FBI…they say they saw it coming. There was an article in this week’s Chronicle (Aug 26, Business) that disclosed top FBI officials saying they predicted this time of crisis resulting from loan fraud. But then they only had 100 agents for the entire country. Not enough man power. My take on this article, is that how could anyone have known? There are so many threads (like the Enron scandal…do we still really know where all the scams led?) The FBI only goes after the BIG guys. Losses of 1 mm or more. The large groups of fraud rings that are consciously engaging in fraud. What about the guy who is average, looking out for his family, and just wants to get in a home? His loan officer tells him he can state his income and be done with it. What about the borrowers that had a bankruptcy after losing their job? They have 4 kids and a dog, need a house because renting is not in the cards, so they take an ARM at 8.5% instead of fixed at 10.0% to save $100 a month so they can pay for school lunches? The FBI never could have gone after those people, or even imagined the number of people that would take advantage of the holes in our system that allowed for such things to happen.
Moving forward, I see good changes: Fixed rates mandatory for low down payment loans, tax/insurance escrow mandatory if the credit is adverse, full documentation of income in every case, stringent credit requirements, higher rates for those with lower credit scores. All of these changes are good. We do not realize it now, but it is changing the face of homeownership. Reaffirming the commitment and importance of owning a home. Ensuring your neighbors are as committed to homeownership as you are. If we just try to look past the details, and remind ourselves of the big picture, we can survive the day, and the year as well. Things will get better. Hang in there, and keep smiling. Godspeed to you all, and have a safe holiday weekend!
Friday, August 29, 2008
Friday, August 22, 2008
Whistling Dixie
Do you feel like someone has seriously moved our cheese? Do you ever feel like we are living in a dream world with news of multi billion dollar losses and bail outs and declining values, and foreclosures? Is this real? My question is: are these losses from companies truly actual dollar losses? Or are they just on paper? Maybe just some imaginary accounting number of a value that was not there to begin with? Kind of like the 2 Mercedes my husband lost for us in the stock market when he thought he was a day trader in 2000? Well , really, he only started out with a Chevy, but the values inflated so rapidly...before we knew it we thought our $400/share gain in yahoo was actually ours. Anyway...the point is, I DO feel in a daze sometimes. There are days that are calm, and then others that spirall out of control and you cannot stop it.
THIS WEEK several large lenders came out with lock extension fees that are abusively high. This means that if we lock in a client, and do not meet that close date, and have to extend the lock, they will charge heavily to extend the rate. The reason this is important, is to know just how serious rate locks are, especially in times when rates are increasing. Not to be taken lightly, a rate 'lock' is where we (the lender) actually go out onto the secondary market and reserve the right to a mortgage backed security with a coupon rate on it. Hence, the interest rate. If we do not honor those rates, and have high % of fallout with our investors, they charge us, or just cancel our contracts all together. What has happened now, is that borrowers need so many lock extensions (delayed closings from short sales, etc....) that someone gets left out hung to dry. So they are merely passing that risk on. And now we will have to pass on to our borrowers in some way. It is so easy to think those rate locks are for free, like air! They just appear! Not so.
Will the mortgage market be destroyed with a bailout of Fannie Mae or Freddie Mac? This week both their stocks tumbled 4 days straight, amidst worries that a government bailout would effectively wipe out common shareholders, and maybe preferred shareholders as well. The government says they do not want to own these companies. But will they have to? Don't bet on it before the elections at least. Fannie Mae chief Dan Mudd says that they are seeing record profits on their new business, and they are selling Treasury debts at auctions very successfully. Fannie Mae issued a new 'Return Policy' to lenders saying that they will 'ramp up' their loan reviews from 900/mo to 4,000/mo by the end of the year. They are expanding quality control products and practices, and are on track to double their anti-fraud investigations. Why should you care? This will be passed on to our customers in the form of increased paperwork, and lots of questions. We are already seeing it. Most customers understand, and say ' oh that darn sub prime crisis really messed us up'. But it really is not all about sub prime. It was all loans, even the conventional ones. It was the borrowers we let borrow 100%, roll in closing costs, do interest only with 5% down. These were normal people with great income, just no assets. Remember, we are a negative saving loving country! I just hope lenders don't regress back to 20% down minimum. That would be hard to digest.
I had several questions this week about the TAX REFUND of $7500 to first time homebuyers. But wait...you only qualify if you make less than $75,000 (individual) or $150,000 household. Do you think it is fair for those people to be left out? My opinion is no. They deserve a break too. They are the ones that are spending extra money on goods and services, even luxury items that trickle down to the rest of the population. Anyway..back to the program. A direct credit on your tax return, $7500 . But wait...you have to pay it back over the next 15 years. So really, should we call it a credit? Or an interest free loan? I think the latter. Either way, it will help people now, so they can prosper later.
Have you had any friends or family get their home equity line of credit reduced or cancelled? Its the new craze. Banks are assessing that values are dropping, and they are reducing credit lines everywhere. Another reason glad we live in Texas where we are capped at 80% equity on cash out lines of credit. Aren't we whistling dixie now?
THIS WEEK several large lenders came out with lock extension fees that are abusively high. This means that if we lock in a client, and do not meet that close date, and have to extend the lock, they will charge heavily to extend the rate. The reason this is important, is to know just how serious rate locks are, especially in times when rates are increasing. Not to be taken lightly, a rate 'lock' is where we (the lender) actually go out onto the secondary market and reserve the right to a mortgage backed security with a coupon rate on it. Hence, the interest rate. If we do not honor those rates, and have high % of fallout with our investors, they charge us, or just cancel our contracts all together. What has happened now, is that borrowers need so many lock extensions (delayed closings from short sales, etc....) that someone gets left out hung to dry. So they are merely passing that risk on. And now we will have to pass on to our borrowers in some way. It is so easy to think those rate locks are for free, like air! They just appear! Not so.
Will the mortgage market be destroyed with a bailout of Fannie Mae or Freddie Mac? This week both their stocks tumbled 4 days straight, amidst worries that a government bailout would effectively wipe out common shareholders, and maybe preferred shareholders as well. The government says they do not want to own these companies. But will they have to? Don't bet on it before the elections at least. Fannie Mae chief Dan Mudd says that they are seeing record profits on their new business, and they are selling Treasury debts at auctions very successfully. Fannie Mae issued a new 'Return Policy' to lenders saying that they will 'ramp up' their loan reviews from 900/mo to 4,000/mo by the end of the year. They are expanding quality control products and practices, and are on track to double their anti-fraud investigations. Why should you care? This will be passed on to our customers in the form of increased paperwork, and lots of questions. We are already seeing it. Most customers understand, and say ' oh that darn sub prime crisis really messed us up'. But it really is not all about sub prime. It was all loans, even the conventional ones. It was the borrowers we let borrow 100%, roll in closing costs, do interest only with 5% down. These were normal people with great income, just no assets. Remember, we are a negative saving loving country! I just hope lenders don't regress back to 20% down minimum. That would be hard to digest.
I had several questions this week about the TAX REFUND of $7500 to first time homebuyers. But wait...you only qualify if you make less than $75,000 (individual) or $150,000 household. Do you think it is fair for those people to be left out? My opinion is no. They deserve a break too. They are the ones that are spending extra money on goods and services, even luxury items that trickle down to the rest of the population. Anyway..back to the program. A direct credit on your tax return, $7500 . But wait...you have to pay it back over the next 15 years. So really, should we call it a credit? Or an interest free loan? I think the latter. Either way, it will help people now, so they can prosper later.
Have you had any friends or family get their home equity line of credit reduced or cancelled? Its the new craze. Banks are assessing that values are dropping, and they are reducing credit lines everywhere. Another reason glad we live in Texas where we are capped at 80% equity on cash out lines of credit. Aren't we whistling dixie now?
Monday, August 11, 2008
August 11, 2008
The 400 people charged as of date by the FBI in mortgage fraud has totaled over $1 billion in losses. GM alone reported a quarterly loss of $15 billion- more than the market value of the company. Freddie Mac lost $821 million in the 2nd quarter (might as well round that to a billion) . I think my point is….is the BILLION the new MILLION? What is going on? Lets see, a billion is 000,000,000 – that is 9 zeros. Can you fathom that amount? How are any of these companies going to recover? Or are we all so used to hearing the B word now, that its no big deal?
Gas prices fell 20 days in a row. That is refreshing. Down more than 25 cents /gallon from the record high.
Fed left the rates unchanged. Refreshing? For some maybe. It will keep the cost of money for banks and borrowers (short term credit) lower. But the reason is that they are admitting to inflation fears and a slowdown. The fed typically will lower rates to spur spending by consumers, and raise rates when concerned about inflation.
Russia bombed Georgia (the country, not the US State) today. Now that sent the market rallying. Who knows where that will lead us. Just put them in the same category as Iraq and Iran now. Problems that we will be dealing with. The markets could go either way.
Oh, and Lenders fear a bigger waive of loan defaults, according to the NY Times. A growing number of homeowners are falling behind on their payments.
Now for some GREAT news! Texas represents 43% of the job growth in the nation! And Houston is 17% of that! Yee ha! My consensus for the week is not to float rates if you are buying a home. Don’t gamble. Lock em’ as soon as you can. Anything can happen tomorrow.
Gas prices fell 20 days in a row. That is refreshing. Down more than 25 cents /gallon from the record high.
Fed left the rates unchanged. Refreshing? For some maybe. It will keep the cost of money for banks and borrowers (short term credit) lower. But the reason is that they are admitting to inflation fears and a slowdown. The fed typically will lower rates to spur spending by consumers, and raise rates when concerned about inflation.
Russia bombed Georgia (the country, not the US State) today. Now that sent the market rallying. Who knows where that will lead us. Just put them in the same category as Iraq and Iran now. Problems that we will be dealing with. The markets could go either way.
Oh, and Lenders fear a bigger waive of loan defaults, according to the NY Times. A growing number of homeowners are falling behind on their payments.
Now for some GREAT news! Texas represents 43% of the job growth in the nation! And Houston is 17% of that! Yee ha! My consensus for the week is not to float rates if you are buying a home. Don’t gamble. Lock em’ as soon as you can. Anything can happen tomorrow.
Saturday, August 2, 2008
Constantly I am asked ‘How is the mortgage business doing?' Actually, it is doing quite well. My production is up 25% from last year. What I am finding, is that the brokers that were doing loans out of their garage, internet lenders, all of them are restructuring. No longer can these companies run on fumes. They go out of business, or if they stay in business, they are cutting costs and keeping only the top team players. This is, in my opinion, a good thing. Borrowers are realizing that doing business with smaller and unstructured companies has its costs. At Patriot Bank Mortgage, we are finding that consumers are relying more on reputation of their mortgage lender, more so than just finding the lowest rate. They are demanding service and results, at the most competitive terms as possible.
Yes, guidelines are stringent, and sometimes brutal. But isn’t that how things should be anyway? How in the world did we ever think the honeymoon of the ‘liar loan’ or the no down payment loan could go on? So……now that things are calming down, we, the average American, are left to deal with the aftershock. Those who are the most disgruntled , are the ones that have been caught red handed. The ones that were benefitting the most from the laxed guidelines. I must comment as well that there are those borrowers that have excellent credit, income and reserves that are caught a bit in the crossfire. The biggest complaint I (still) get, is that those borrowers are disgruntled about having to verify anything at all. They think that because they have all these things, they don’t have to prove it. There in lies a big issue. You see, we are loaning people, let’s say, $300,000. That is a lot of money! Yes, we require you to verify that what you are telling us is true. Just give us those bank statements. What’s the harm? Turn over the tax returns. Yes, we really want to know.
This last week, the President signed a bill that is anticipated to help some $400,000 homeowners avoid foreclosure. Here are the real interpretations:
Jobless claims are at a four year high. This news has relaxed rates a bit going into the homestretch of the summer. Oh, and have you noticed, gas is down at the pumps? Now it only costs me $55 to fill my tank versus $61. What a relief!
Rates as of Friday, August 1, 2008:
The following assumptions apply:
30 year (fixed) 6.250% APR 6.383% 30 year ( fixed ) 7.450% APR 7.585%
15 year (fixed) 5.875% APR 6.115% 15 year ( fixed ) 6.625% APR 6.836%
3/1 ARM 5.750% APR 6.639% 3/1 ARM 5.950% APR 6.073%
5/1 ARM 5.875% APR 6.549% 5/1 ARM 5.750% APR 5.872%
7/1 ARM 6.250% APR 6.638% 7/1 ARM 6.000% APR 6.124%
FHA/VA call for quote (max loan $270,000)
Yes, guidelines are stringent, and sometimes brutal. But isn’t that how things should be anyway? How in the world did we ever think the honeymoon of the ‘liar loan’ or the no down payment loan could go on? So……now that things are calming down, we, the average American, are left to deal with the aftershock. Those who are the most disgruntled , are the ones that have been caught red handed. The ones that were benefitting the most from the laxed guidelines. I must comment as well that there are those borrowers that have excellent credit, income and reserves that are caught a bit in the crossfire. The biggest complaint I (still) get, is that those borrowers are disgruntled about having to verify anything at all. They think that because they have all these things, they don’t have to prove it. There in lies a big issue. You see, we are loaning people, let’s say, $300,000. That is a lot of money! Yes, we require you to verify that what you are telling us is true. Just give us those bank statements. What’s the harm? Turn over the tax returns. Yes, we really want to know.
This last week, the President signed a bill that is anticipated to help some $400,000 homeowners avoid foreclosure. Here are the real interpretations:
- Conforming loan limit will be increased to 115% of the median home price, or $625,000, whatever is less. Sorry, Houston, with our median home price below $200,000, we will be stuck with the same $417,000.
- FHA loan limits will increase to $115% of the median home price, or $270,000, whatever is less. Sorry again, Houston, we are staying at the $270,000.
- First time homebuyers will receive a 10% refund up to $7,500- but if you make >$75,000, the refund will be phased out. Oh, and the refund is to be repaid over the next 15 years. So essentially, it is a 15 year interest free loan.
- All mortgage originators (brokers, bankers, etc) will be required to be licensed and adhere to a national registry. This is a good thing.
Jobless claims are at a four year high. This news has relaxed rates a bit going into the homestretch of the summer. Oh, and have you noticed, gas is down at the pumps? Now it only costs me $55 to fill my tank versus $61. What a relief!
Rates as of Friday, August 1, 2008:
The following assumptions apply:
- 20% Down Payment (call for other options)
- 1% Origination Fee
- Escrows Required (if no escrow, higher fees may apply)
- Purchase Transactions
- Primary Residence 30 day closing
- Credit Score 720 +
- Full Documentation of Income/Assets
- Loans > 1 mm require 30% down for these terms
30 year (fixed) 6.250% APR 6.383% 30 year ( fixed ) 7.450% APR 7.585%
15 year (fixed) 5.875% APR 6.115% 15 year ( fixed ) 6.625% APR 6.836%
3/1 ARM 5.750% APR 6.639% 3/1 ARM 5.950% APR 6.073%
5/1 ARM 5.875% APR 6.549% 5/1 ARM 5.750% APR 5.872%
7/1 ARM 6.250% APR 6.638% 7/1 ARM 6.000% APR 6.124%
FHA/VA call for quote (max loan $270,000)
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