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?