Blog of the Mortgage

It's a short path to Victory but there are many obstacles:

An Article on Yahoo posted by Reuters last week pointed to an interesting new twist in the GSE/FHA Reform.

The fact that many Mortgage Bond Trading companies may not want to include loans larger than $417k in their pools.

The Article Here: and some additional input on CR by Tanta and By Paul Jackson over @ Housing Wire

Show us that there are more than just opposing comments from OFHEO Director Lockhart to deal with. After all if the bankers don't pay what will happen?

I see a possible fee adjustment coming to rate sheets everwhere for loans over $417k and under new Limit Caps ($625k/$729k) othwerwise it's possible that an increased loan limit will actually carry zero benefit for those who need it most.

Stay Tuned. Alot will happen in the next 30 days.

It isn't rocket science but it our President has acknowledged there might be more of than an Economic issue at hand:

"To build a prosperous future, we must trust people with their own money and empower them to grow our economy. As we meet tonight, our economy is undergoing a period of uncertainty. America has added jobs for a record 52 straight months, but jobs are now growing at a slower pace. Wages are up, but so are prices for food and gas. Exports are rising, but the housing market has declined. And at kitchen tables across our country, there is concern about our economic future."

Luckily he's still in our corner on Housing Reform once again publicly asking for help on reforming the GSE & FHA:

"On housing, we must trust Americans with the responsibility of homeownership and empower them to weather turbulent times in the housing market. My administration brought together the HOPE NOW alliance, which is helping many struggling homeowners avoid foreclosure. The Congress can help even more. Tonight I ask you to pass legislation to reform Fannie Mae and Freddie Mac, modernize the Federal Housing Administration, and allow state housing agencies to issue tax-free bonds to help homeowners refinance their mortgages. These are difficult times for many American families, and by taking these steps, we can help more of them keep their homes."

We'll see how this all shakes out. It looks like End February is when both the Stimulus package and Housing Reform(included) will be on President Bushes desk for sign-off.

Today we had another Tumultuous market in terms of rates. Mortgage Bonds lost yet another 40-60bps. Another sell off triggered by hope that the stock market will carry trader's profits going forward. I've seen this time and again.

The Federal Reserve cuts the Fed Funds rate and the first thing that happens is that Stocks get a vote of confidence, for maybe a week or so.

Then, gradually, as the traders realize that neither rate cuts or cheaper financing will free up the much needed capital to fund further expansion or stop the hemorragging they begin to move their positions back into long term bets. At least those of the Mortgage and 10yr note kind.

These effects take a week+ or so to work themselves out so be sure to float your loans so that we can pull the trigger again in early to mid-february. Mark my words. 30 yr. Fixed: 5.000% @ par or better WILL be back. We got there on Tuesday early and we will come back.

Now on the Fed Emergency Rate Cut. Yesterday everyone had baked in an additional 50 bps cut by next week Thursday (1-31-08). This is now being called into question as it turns out that much of the crazy international activity that many, included Big Ben had listed as part of the reason of the emergency rate cut, is being pegged to Societe General's unwinding of trades tied to fraudulent trading activity from one trader.

The amount of those Fraudulent Trades: $7 Billion! It's being called the single largest fraudulent activity by one person. So now all the panic selling could have triggered the biggest ever egg on face episode for the fed.

But the biggest news of the day: Our Senators and Congress people have come together to vote for increased loan limits for Conforming and FHA loans.

We are looking at a 125% increase over median home price to a limit of $729K for FHA and a definite 125% increase over median home price to a $625k cap across the country for Conforming loans. Are you preparing for this today? This weekend? If there is one thing that you need to do this weekend it is to drop everything you possibly had planned because the biggeset government sponsored marketing opportunity is being thrown at your feet. ACT NOW to get your clients on board in advance. You'll hopefully have more loans than at any time in the last 6-12 months.

Jimminy Crickets what a load of BS today was huh?

Look, I get rate changes but 5, five, F'in 5??? COME ON! Evey time I looked up there was a new set of ratesheets in my inbox. I feel sorry for you in broker land because you're signed up with god knows how many lenders so you must've fielded upward of 100+ e-mails JUST for rate changes today.

Well, I'm starting to wind down today: it's almost 9p on a Wednesday and I think I can kick off after this post. Maybe get some reading in :)

In any case this market is a son-of-a-gun to time which further blosters (yes, I am feeling good about my earlier posts-emails) my suggestion to float your loans and be ready with rate lock trigger. Let's don't get ahead of ourselves and try to time this bad oscar of a market. Doing so will only lead to grey hair (no offense to anyone reading this). It really comes down to assuring our clients on the way we do business, who we've partnered with and how and why it is they can trust us (in this case you).

Our clients need to understand the following:

1. Radio Ads are sooo last week, or even earlier: maybe last month?

2. TV Ads were bought last Quarter when the TV sales team put together some SWEET deals to make sure they filled every time slot for every show.

3. Dear Sir/Madam, you're place ain't gonna be worth what it was last month if this keeps up. ie. A-C-T now!

4. You know, lending standards have pretty much been kicked backwards 6-10 years depending on product so it's now or never.

5. Retail Bankers. . .are . . . well, you can do this one yourselves but basically anyone getting paid $400-$750/transaction doesn't really have a lot of love, time or patience for a borrower now do they?

So, remember to keep your heads up. Join CAMB. Show off your Name and Company in your Signature Line and in the From: portion of your e-mail. Don't ever change your cell phone number because there's not a minute plan in the world worth losing a client or two. AND FLOAT THOSE LOANS in to me!

Then, with your full-approval in hand you can pull the trigger on the pre-discussed rate OR payment that you and your client are looking for.

BTW: Check out Education Station. I've posted some new articles of interest.

It's sad but I actually saw credit reports that looked like they had followed this basic path (I am sure many of you have as well).

**disclosure**i found this on the ml-implod-o-meter discussion board. I do not know who the poster was other than their screen name.

The Sub-Prime Mortgage 10 Step Program:

Posted: Mon Jan 21, 2008 6:04 am by HaleyDog on www.ml-implode.com

Step 1: 2000 - Lunch box Joe has a $500 gas card, a good used car and a comfortable apartment.

Step 2: 2001 - He adds his 2nd and 3rd pieces of credit which are his new 80/20 sub prime mortgages. AKA...no money down purchase 100% LTV with seller pays all closing costs. The new mortgage payments are around what he was paying in rent....as promised by the flyer found on his windshield.

Step 3: Within in 9 months after this purchase he opens a min 5 new credit cards each with a $5,000 limit. He can - he has a decent credit score.

Step 4: 2002 1st refinance. Value has increased 10 - 20%. Pays off all the credit cards he ran up shortly after Step 3, pays off both mortgages, gets some cash as promised per the add on his phone book. Cards now have buying power, gets a few more. He can - he has a moderate credit score.

Step 5: 2003 2nd refinance. Repeat step 4, add 10 - 20% to value, get more buying power, and gets a nice new car as promised per the radio ad. He can - he has a good score.

Step 6: 2004 3rd refinance. Repeat step 5, add 10 - 20% to value. Get ARM 1st to keep mortgage payment from rising. Get a bigger car as promised per the solicitation received in the mail. . He can - he has a respectable score.

Step 7: 2005 4th refinance. Repeat step 6 but get an interest only mortgage to keep mortgage payment in check. Buy 2 rentals per late night infomercial. He can - he has a solid score.

Step 8: 2006. 5th refinance. Repeat step 7 but refinance rentals and pretend they are Owner Occupied to keep mortgage payments in check as promised by the mortgage broker. He can - he has a perfect credit score.

Step 9. 2007. Get rejected for all refinance requests since value on all homes decreased by 20%.

Step 10: Walk from all mortgages, sell nice car for good used one, stop paying all max'd out credit cards, keep 1 $500 gas card and move into comfortable apartment. Watch windshield for flyers.

A market is to be considered declining if any of these tests are true:

(1) The appraisal indicates that property values are declining,

(2) An over-supply of properties exist,

(3) Marketing times exceed six months

(4) Desktop Underwriter generates a message stating the property is located in an area of declining home prices,

(5) There are comments on the appraisal that indicate values may be declining

(6) RMIC's Property Value Trends tool indicates that property values are declining

Not so long Ago I was working for the 10th Largest Wholesaler in the Country. Boy was that an easy Company to sell. Top 10.. I mean come on...we were doing loads of loans @ 95%, 90% etc. Fixed Rates, ARM Rates, POA Rates, Neg-AM Rates you name it, we did it. All at high LTV's with no seconds. In fact, our seconds were a joke, they barely fit behind any product we had unless you were looking at some 80/20 financing options and even then you had better options in the market place. 

Well, you know how that went, HERO to ZERO in 3 days flat! Amazing.

We were doing these high LTV loans because of Lender Paid Mortgage Insurance. LPMI is the acronym. The loans were being written because we were taking out insurance in the borrowers name that the borrower paid for in higher interest rates (to the Lender that shall remain nameless' benefit) that secured our (lenders) interest in case the borrower decided to "jingle mail" and call it quits on the note (not pay).

What was sweet was that we were writing these loans all the way to $1million @ 90% or $750k @ 95%, big loans, bigger insurance. Everyone was getting a little bit of the action. The Mortgage Insurance companies for sure: they had some of their best earnings years ever (05, 06) until Q3 '07.

Then July-October 2007 happened and our lending landscape was changed forever (one way or another). Along with was a re-sounding "We're Full" from the Mortgage Insurance companies. So, Jumbo went buh-bye (this is only one part of the issue, I am fully aware of the remaining pieces here) and all of the fun high LTV Single Lien LTV Product got thrown out with the bathwater (collapsing companies?).

So, we're all here in 2008, looking at Conforming loan limits of $417k and wondering if the sky really is falling... I mean, can a house in Marin be sold for $1.25 mill (median) if the average buyer has to come in with 15-25% down now? I mean really? AND Prove every cent of his wages? It's not like the world is made up of Hedge Fund Zillionaires, Internet Googlers or New Drug Scientists.

Well, there was hope for the common man, the Mortgage Insurance (MI) companies were pretty much voting for the GSE backed product (FNMA/FHLMC). So, we could still handle Flex100, MyCommunity, Flex97, HomePossible etc. FNMA/FHLMC had worked out their preferred rates of covereage on these lower loan amounts (35% on Flex, 18% on MCM etc.). There were even varying price adjusters to go along with all of this. Adjusters that got ever steeper as the market continued to show that it wasn't made of adamantium steel but maybe a weaker more maleable substance like, I don't know, pewter. But hey, without a second mortgage available your (my) options for offering high LTV product was limited anyway.

At least this stuff was fully income documented. No BS stated, hair past a freckle, I swear my borrower makes this much $ because that is what we need to qualify for loan approval.

Those assurances from the Insurance Companies are now basically gone. With the universally developed terms "Adverse Market Conditions", "Declining" or "Soft" markets fully in play (with the normal abnormal variance of acceptance) those high LTV loans for MCM, Flex100, HP100 are outta here  until further notice. Your borrower had better have: 5% down, 2 months reserves and . . .well if they have that much they likely have the requisite credit, job and housing histories that come along with a prospensity to save.

Basically, the insurance companies are taking it in the shorts for every loan that they guaranteed (with the premium being paid by the borrower through inflated interest rates) that doesn't pay in a timely manner (usually 60-120 days down). So, in order to stem future losses they are cutting off the possibility of hanging out upside down with a borrwer for a couple of years on loans being written now in areas with "adverse market conditions".  For those of you keeping track at home, those ARM Reset charts that have been fowarded throughout our industry like chronically bad jokes are just getting ready to peak. So as you can imagine those same MI companies that basically walked hand in hand to the 100% stated income alter with the now defunct (or soon to be defunct) companies are getting ready for their day of reckoning. So, the encroaching Tsunami that looks alot like the one that hit the Indonesia three+ years ago in terms of earnings outlook and loss potential is really going to put a hamper on the way we originate any kind of loan with an LTV over 80% (those that require MI Coverage). I will be posting the guideline/ltv restriction recommendations in Education Station tomorrow.

Also: there are FNMA Faqs regarding declining markets on my Submission Requirements page.

Hold onto your Hats. 2008 is still changing and it's only January 14th!

I was watching another episode of Extreme Make-Over "Home Edition" last night recovering from my weekend of snowboarding Kirkwood (the first two days are always the most muscle cramping). The poor girl they were taking care of had to live in sub 62 degree conditions at all times. Well, as with all "Home Edition" episodes there was something "Extreme": they had installed an Ice Cream parlor in the basement, next to the 80 inch Plasma screen movie theatre and bowling alley/lane etc. etc. etc.

Sometimes I wish I had problems like some of the folks have on these shows, I mean just for second, but then I change my mind. There's no amount of free stuff that would replace all of the pain and hurt that all of the people on this show go through.

Well, the topic is Ice Cream, and the girl got her own Ice Cream parlor (full of 10 different flavors).

Imagine now, we're at the Ol' 31 Flavors (Our mortgage market place) and we're looking for our Favorite flavor (Mint Chip? Rocky Road -that's an ironic one eh? Perhaps Neopolitan?) and all they have is Frickin' Vanilla!

Well, here we are (IMO) at the 31 Flavors with only Vanilla Ice Cream to choose from. It's like this: would you like Vanilla, French Vanilla, I've seen some stuff from Africa before, Hand Churned, Slow Churned, Low-fat, Gelato? We all (us lenders, you brokers) pretty much have Vanilla Ice Cream for Sale...No more 31 flavors, shoot: not even 10 flavors really.

You know, come to think of it, I would kill to have 10 different flavors of Ice Cream right now.

So now you're wondering what I'm gonna do about this problem? Well, much of the heavy lifting is being done by my competition (us lenders). They're closing up shop and removing product faster than you can say Foreclosure or Bankruptcy or something snappy like that. Also, and I don't get this, there are reps out there working for the remaining players that are apparently not returning phone calls or e-mails, or sending relevant marketing pieces or taking the time out of their day to make sure their clients/customers/brokers/partners are updated as to what is happening (you see where I am going with this?). Like I said, many are doing the heavy lifting for me. Thank you to the "many".

Me, I pretty much remember the first time I even got to have an Ice Cream cone. I just can't remember the flavor (pretty sure it was vanilla though). Man, that was like THE BEST THING EVER! So it is, still the best thing ever.

See my post for Success in 2008 on helping over come some of the Vanilla issues and. . .

We have some of the Best Vanilla Ice Cream in the busniess if you're checking!  Full of Organic Vanilla Bean, Organic Milk from Cows in Wisconsin, slowly churned by our own special artisans and hand-packed in individually re-useable containers made of 100% recycled milk bottles...It's the Best!

Only $7/pint (1 loan/month). Available on your local ratesheet (www.your-ae.com/rates).  Good Ice Cream comes with a price (1 loan/month). Yours should too.

I'll let you decide on these stories but basically Bank of America is buying tomorrow, or sometime in the future, CountryWide Financial.

How it gets done will remain to be seen.

Read the following links as they are in-depth to say the least:

http://blogs.marketwatch.com/greenberg/2008/01/the-real-story-on-countrywide/

http://www.nytimes.com/2008/01/11/business/11bank.html

http://www.housingwire.com/2008/01/10/bank-of-america-looking-to-buy-countrywide-ah-the-irony/

You know already that these are interesting times. Bank of America didn't like wholesale so much they shut it down. If they do buy Countrywide, I am trying to think of reason's they would keep that portion (wholesale/correspondent) open.

Oh, by the way, Happy Friday!

I remember when you had to get an exception and produce "compensating factors" to get a lender to budge on a back-end ratio of 36-38.
You will be able to use ratios to 60 and beyond on a strong file in 2008.

"stated income" on conforming products was limited to 65%-70%.
We expect FNMA to continue to offer this product in 2008 at 90%.

90% investor loans were unheard of-75% was the standard.
This may be reduced to 85% in California, but hey, still better than 75%.

You ALWAYS needed 2 years of 1040s on self employed borrowers.
You will only need to produce one year of 1040s on many borrowers in 2008.

You ALWAYS needed 2 months PITI in reserves or more.
You will be able to close loans with no reserves in 2008.

All gift down-payment only happened with 20% down.
We will do all gift down loans with MCM and Flex in 2008.

100% Financing was basically unheard of and if it existed you need 3-6 month PITI to do it.
We will be able to 100% financing in many markets (FHA with DPA and MCM/Flex)

95% cash-out didn't exist.
You will be able to do 95% cash-out on FHA in 2008.

We can still make more loans in 2008 than we could just a 7-8 years ago.