Private Mortgage Insurer Faces Losses

Private Mortgage Insurance group PMI group Inc has made some dire announcements:

Reuters reports that the lender:

…hit by continued weakness in the housing and mortgage sectors and the fallout in credit derivative markets, expects a third-quarter loss and pulled its previous outlook for 2007 losses related to the problems, sending its shares to a year low.

“The credit side on domestic mortgage insurance is the problem and there is no clarity on how bad that can get right now,” Geoffrey Dunn, an analyst with Keefe, Bruyette & Woods said by phone.

Dunn said he downgraded the shares last week, and added that given this lack of clarity he would keep a “market perform” rating on the stock.

Shares of the second-largest mortgage insurer in the United States were down 12 percent at $23.52 in afternoon trade on the New York Stock Exchange. Earlier in the session they touched $22.81, down 56 percent from their 52-week high back in early February.

In a statement, the company said it sees a net loss of about $1.05 a share in the third quarter, primarily due to losses at its U.S. mortgage insurance operations and a mark-to-market adjustment at its unconsolidated unit FGIC.

The extent to which the housing market has fallen is indicated by once profitable insurance groups struggling to get out of debt caused by bad loans.  Whether such groups will be able to survive is an unknown at this time.

October 22, 2007 | Filed Under Get Out of Debt | Leave a Comment 

SEC Investigates Countrywide Executive!

Another bit of bad news for Countrywide, on of America’s largest primary and 2nd mortgage lenders.

Amidst a wave of profits from stock sales during a down market, many have begun to demand that the authorities investigate the leadership of the lender.

The Guardian writes:

Under a programme of sales which began in October last year and continued until the summer, Mr Mozilo (Countrywide’s Chief Executive) cashed in at least $132m in shares. As the credit market seized up due to defaults on mortgages by low-income families, Countrywide’s shares collapsed by more than half during July and August.

Last week, the state treasurer of North Carolina, Richard Moore, wrote to the SEC demanding an inquiry into Mr Mozilo’s stock sales. North Carolina’s public pension fund owns more than $9.6bn in Countrywide stock and Mr Moore said the timings “raise serious questions about whether this is mere coincidence”.

A butcher’s son from the working class New York borough of the Bronx, Mr Mozilo has complained that his company was “demonised” over its role in the subprime crisis. Critics say predatory lending tactics led to the sale of unsuitable mortgages to millions of homeowners who found themselves unable to refinance this year because of falling property prices and are facing foreclosure.

While executives are generally bound by a structured plan to help them avoid accusations of manipulating a company’s share price, Mr.Mozilo repeatedly modified his plan in order to permit a surprisingly profitable strategy of stock sales.  It is therefore, quite understandable that this would appear suspicious to others.

October 22, 2007 | Filed Under 2nd Mortgage | Leave a Comment 

Washington Mutual Sees Profits Fall

Once again, a major bank is reporting lower than expected profits, and the culprit is once again bad mortgages.  Washington Mutual is the largest US savings and loan group, and has made the troubling announcement that their third quarter profits have fallen a whopping 72 percent.  Most of this is due to giant write offs on bad home loans and to payoff mortgage debts.

Such an announcement has seen share prices drop 4%.  Bloomberg has further details:

 Net income fell to $210 million, or 23 cents a share, from $748 million, or 77 cents, a year earlier, the Seattle-based company said today in a statement. The quarter included $967 million set aside to cover more overdue loans and falling home values. Per-share results for the company, known as WaMu, matched the average estimate of 15 analysts surveyed by Bloomberg.

The worst U.S. housing market in 16 years has driven up defaults and forced rivals including Wells Fargo & Co., CIT Group Inc. and U.S. Bancorp to take losses on residential loans this week. Chief Executive Officer Kerry Killinger vowed in April to make WaMu’s mortgage unit profitable by year-end, a target that he now says won’t be met.

“That is an unrealistic goal,” Killinger said in an interview today. “Beginning in the third quarter, the whole environment changed to a severe correction, arguably some of the most difficult housing conditions we’ve seen in decades. The challenge for home loans grew much greater than what we could have seen in the second quarter.”

With such an incredible amount of money being lost by major banks, it seems likely that the US economy is in for some rough weather.  Hopefully it will manage to survive the coming storm.

October 22, 2007 | Filed Under Payoff Mortgage | Leave a Comment 

Use Care When Defaulting on a Mortgage Loan

Consumers facing foreclosure frequently make bad mistakes when dealing with lenders.  Often, borrowers will find themselves in trouble with multiple lenders as a result of multiple mortgage loans.  Perhaps they needed some extra money and so they took out a second mortgage, or maybe they wished to avoid PMI.

Whatever the reason, the more lenders which one defaults on, the more trouble they will find.  Paying the primary lender while ignoring the second can just as easily result in foreclosure.

Many falsely believe that only primary lien holders can foreclose a property.  This is not always the case.  For example:

One potential issue can play out as follows:

One should always do their best to work with all mortgage lenders to avoid the above situation.  Often, simply selling the home, and paying off both lenders will leave the borrower with a better credit score, and hopefully some money.

October 18, 2007 | Filed Under Second Mortgage, 2nd Mortgage | Leave a Comment 

Rates Unlikely to Decline

The Fed, a private group in charge of setting the federal interest rate charged banks, has indicated that their last rate cut may be the last one for some time.

Should this be the case, it could indicate that interest rates on 1st and 2nd mortgage loans will not be declining as well.

Bloomberg has the latest report:

Federal Reserve policy makers signaled they are in no hurry to reduce interest rates again because they aren’t convinced the U.S. economic expansion is coming to an end.

The Federal Open Market Committee avoided foreshadowing its next move after lowering the benchmark rate on Sept. 18, minutes of the meeting, published yesterday, showed. Officials didn’t want investors to conclude extra cuts were guaranteed, the records said.

Economic reports since then have justified their caution: manufacturing and services industries continued to expand last month, while employment picked up. The Dow Jones Industrial Average has climbed 3 percent to a record since the meeting.

While a rate drop in the fed does not always indicate a drop in mortgage rates, it can frequently indicate the general direction which the market heads for.

If the fed keeps rates high, then banks will likely keep their funds tighter, and lend less out.

October 17, 2007 | Filed Under 2nd Mortgage | Leave a Comment 

Rough Roads Traveled for Housing Market

Speculation continues to run rampant as everyone guesses at the likely future for housing.  The Realtytimes summarizes:

Bottom line?

Housings in the dumps for the rest of the decade — at least that’s what the even money on the Mercantile Exchange says.

According to Bespoke, “So while some are hoping home prices have already bottomed, investors actually putting their money to work are betting on much more significant declines.”

Now, here comes that post-credits film clip everyone will miss because they were so annoyed by the potentially rotten outcome they turned off the tube and headed for bed.

There could be some respite from the horrific story line.

Trading in the new housing futures is light, less than two dozen contracts a day. That means, as an indicator, housing futures are little more than a trendy guesstimate rather than a solid predictor of housing’s future.

Should the housing market remain dormant for the next decade, this could result in devastation for homeowners as they find themselves slowly failing to payoff mortgage loans.

Hopefully the market picks up, but if it doesn’t, one should always prepare for the worst.

October 16, 2007 | Filed Under Payoff Mortgage | Leave a Comment 

Foreclosures Remain Unsold

An increasingly high number of homes are being foreclosed upon by banks with few if any interested buyers. This is particularly noticeable in areas with high numbers of foreclosures such as California. Few buyers means that home prices have been heavily inflated, as homes are generally auctioned for the amount owed rather than market value. If a home is auctioned for $100,000, it could potentially be worth $400,000. Of course, if the buyer bought the home for a heavily inflated price, it’s quite possible to see a home valued at $400,000 auctioned for the $600,000 owed on it rather than the $400,000 it’s actually worth.

Generally the auction is run for the sole purpose of covering the expenses to payoff mortgage lien holders. One blogger wrote the following of the dire conditions in Orange County foreclosure auctions:

I visited a foreclosure auction at the Santa Ana courthouse steps on Oct. 3, as part of my ongoing effort to learn more about why foreclosures are rising and how they may impact local neighborhoods.

Out of 34 properties auctioned that day, all but one went back to the bank because no one bid. (Thanks to Graphrix of Irvine Housing Blog for going with me and sharing info on the auction process.) I don’t know why there was only one bidder that day. However, buying at an auction entails risks, including other claims on the property aside from the lender’s as well as potential property damage from an unhappy homeowner.

Occasionally a bank can be persuaded to sell a home for less than what is owed. This generally must be arranged prior to final foreclosure, and is called a short sale. Banks often realize that they lose heavy amounts when they foreclose on a home worth less than what is owed. As a result, they often are willing to consider a short sale to pay off mortgage liens as a partial payment in order to reduce their total losses.

October 10, 2007 | Filed Under Pay Off Mortgage, Payoff Mortgage | Leave a Comment 

Rent vs Own, What to do in California?

Home sales continue to plummet across the state of California as buyers begin to contemplate renting over buying a home as a result of falling home prices. Unlike in Utah, prices in the golden state have taken a beating. Purchasing a property now could result in a loss of tens if not hundreds of thousands for a buyer. While buyers in Utah can easily acquire a Utah Home Equity loan as a means of dealing with unexpected dips in home value, such loans are increasingly difficult to obtain in California.

Frankly, banks do not like losing massive amounts of money by having to foreclose on homes. This leads to higher interest rates and higher down payment requirements which prohibit, or at the very least prevent many potential buyers from purchasing a home in California. Often home buyers decide that it is simply more affordable to rent rather than to purchase a home. Others choose to rent simply because they are frightened off by high interest rates. Second mortgage loans can occasionally be used to pay down a loan early as a means to avoid 30 years of high interest.

Here’s one blogger’s take on the debate:

But what about the tax benefits of owning? Aren’t all renters simply flushing their money down the porcelain toilet of perpetual loserville? First, there is a mistake in believing renting provides no economic benefit. Everyone needs shelter unless you are going the way of the nomad and living under the San Gabriel river. Renting provides the same economic substitute as owning a home aside from tax benefits, equity buildup, and the ability to take a sledge hammer into your kitchen wall should your heart desire. The only problem in hyper bubble markets like Southern California, renting an equivalent place will cost you 2 times less than owning. So for example, you may be able to rent a home for $2,200 that would cost you $4,000 if you were to buy it. And that $1,800 is being invested ideally at a rate outpacing inflation. The way housing is currently going, you’d be better off playing Keno at your local Indian casinos.

This is certainly a valid point. Well, the analysis regarding the cost of renting vs buying is (I wouldn’t advocate the Keno). If one looks at a home as a thirty year purchase with a high interest rate, it could seem like a lifetime liability in which a homeowner can never possibly get out of debt.

Few realize that the proper use of a 2nd mortgage loan could easily reduce a thirty year loan to a 15 year loan. Obtaining such a home equity line of credit can be extremely rewarding for a homeowner who dislikes debt.

October 10, 2007 | Filed Under Get Out of Debt, Second Mortgage, 2nd Mortgage, Home Equity Line of Credit, Utah Home Equity Loan | Leave a Comment 

Bank of America Set to Write Off Whopping One Billion Dollars

Subprime fallout is affecting the last of the major lenders as Bank of America considers writing off $1 billion in mortgage securities resulting from sub prime mortgages and home equity line of credit loans..  At this point one can only speculate at what madness American banks have been infected with over these past few years.  The Charlotte Business Journal has the latest.

Bank of America Corp. may be the next big U.S. bank to suffer consequences from the subprime mortgage crisis.

According to analysts at Sanford Bernstein, Charlotte-based BofA is looking at a $1 billion write-down of mortgage securities and leveraged loans when it reports its third-quarter earnings next week.

In a note to investors, analysts Howard Mason and Michael Howard write that BofA (NYSE:BAC) and JPMorgan Chase & Co. (NYSE:JPM) are expected to reveal a combined $3 billion in losses for the quarter.

BofA, JPMorgan Chase, Charlotte-based Wachovia Corp. , Washington Mutual Inc.  and Wells Fargo & Co.  are all scheduled to report their third-quarter results between Oct. 17 and 19.

BofA’s leveraged loan losses could be $700 million, the analysts wrote, and mortgage write-downs could be $300 million.

While one can honestly hope the best for the American Economy, it is a wonder that so many profitable banks could have made so many mistakes.  This certainly seems to indicate that there exists some serious trouble in the US banking system.

October 8, 2007 | Filed Under Home Equity Line of Credit | Leave a Comment 

Weak Dollar Good for US?

While most citizens generally grimace at the notion that the dollar has plummeted in comparison to other currencies, there could be some silver lining to the situation.  There exists the potential for a weak dollar to fuel growth and foreign investment; as well as increase US exports.  Should this occur, inflation would be heavily curbed and the economy could potentially boom rather than crash.  While perhaps unlucky, US Treasury Secretary is confident the future for the US will be strong.

Bloomberg quotes:

Treasury Secretary Henry Paulson, whose signature appears on every new dollar bill, may find the weak currency with his name on it helps the U.S. economy more than the strong one he publicly endorses.

The dollar’s 8 percent slide during Paulson’s 15 months in office is good news on the docks of Long Beach, California, where shipping containers are making their return trip to Asia filled with U.S.-made computer, auto and aircraft parts whose prices have become more competitive abroad. What’s more, economists don’t foresee the weaker currency generating higher import prices and accelerating inflation.

“The dollar is in a quasi-sweet spot,” says Joseph Quinlan, chief market strategist at Bank of America Corp. in Charlotte, North Carolina. “It’s dropped enough that it’s creating an earnings upside for U.S. multinationals, while I expect many foreign companies to hold the line on prices they charge U.S. consumers.”

While such a sweet spot is speculative, many in the US are hopping that the economy can recover from it’s latest stumble.  One thing to note for those in strong housing markets such as Utah is that inflation could actually make it easier to pay down a mortgage or Utah home equity loan.  Income increases as a result of inflation, house payments do not.

October 8, 2007 | Filed Under Home Equity Line of Credit | Leave a Comment 

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