A Solution for Jumbo-Sized Mortgages?

An article published by the Wall Street Journal gives the details of Federal Reserve Chairmen Ben Barnanke’s idea to allow companies to securitize jumbo-sized mortgages but have the federal government guarantee them. According to the article:

 Fannie and Freddie currently can buy mortgages only up to $417,000, and Congress — so far — hasn’t acted to lift that limit despite distress in that market that has made jumbo mortgages at “somewhat tighter terms and higher prices,” as Mr. Bernanke put it.

As an alternative to lifting that $417,000 cap, Mr. Bernanke offered a surprise answer to questions on Capitol Hill. He suggested that Congress could consider allowing the companies, known as “government sponsored enterprises,” buy mortgages of as much as $1 million from lenders, pay the government a fee for guaranteeing them and then turn them into securities to be sold to investors.

Mr. Bernanke’s idea is significant because it could potentially extend the government’s support and exposure to the mortgage market…

Some people might be opposed to this idea because it exposes the federal government to the risk of the second mortgage market. But the way things are going with the mortgage industry, everyone and everything is at risk. Any change that could  alleviate the market woes should be seriously considered.

November 9, 2007 | Filed Under Second Mortgage | Leave a Comment 

More Write-downs and Ratings Cuts are Inevitable

An article posted on Research Recap looks at the predictions of future write downs and ratings cuts. According to the article:

Further subprime-mortgage related writedowns are likely at big US banks and brokerages, leading to downgrades by the debt rating agencies, according to CreditSights, and Citigroup’s writedowns could extend well beyond the $8-11 billion recently identified.

CreditSights acknowledges the difficulty in assessing the potential losses in Collaterized Debt Obligations, due to the lack of disclosure and the lack of liquidity in the markets for “new age finance” instruments.

CreditSights says that amongst the three Big Banks’ capital ratios, Citigroup could be the most impacted, followed by Bank of America and JPMorgan, respectively. Citi’s Tier 1 ratio could decline below the 6% threshold if the company is forced to write-down assets in its SIVs.

“However, we believe that while both BofA and JPMorgan could incur significant CDO related write-downs, the companies’ regulatory capital ratios would be above “well capitalized” limits.

The futures for primary and second mortgage lenders are bleak as write-downs and rating cuts are inevitable. At this point, it’s no longer a matter of if, just a matter of when. And maybe we need to be focusing more on preparing ourselves for the inevitable collapse, instead of trying to fight against an impossible foe.

November 7, 2007 | Filed Under Second Mortgage | Leave a Comment 

Questionable Fees Leading to Foreclosures?

 An article published by New York Times takes at questionable fees found on almost half of the loans in a study of foreclosures. According to the article:

As record numbers of homeowners default on their mortgages, questionable practices among lenders are coming to light in bankruptcy courts, leading some legal specialists to contend that companies instigating foreclosures may be taking advantage of imperiled borrowers.

In an analysis of foreclosures in Chapter 13 bankruptcy, the program intended to help troubled borrowers save their homes, Ms. Porter found that questionable fees had been added to almost half of the loans she examined, and many of the charges were identified only vaguely. Most of the fees were less than $200 each, but collectively they could raise millions of dollars for loan servicers at a time when the other side of the business, mortgage origination, has faltered.

In one example, Ms. Porter found that a lender had filed a claim stating that the borrower owed more than $1 million. But after the loan history was scrutinized, the balance turned out to be $60,000. And a judge in Louisiana is considering an award for sanctions against Wells Fargo in a case in which the bank assessed improper fees and charges that added more than $24,000 to a borrower’s loan.

As more homeowner continue to face foreclosure, the questioning of mortgage lenders is unavoidable. It would be no surprise if information like this sent the nation running to spend millions more to scrutinize fees and second mortgage loans. But since inappropriate fees won’t be found in all cases, will this just put more people in debt and contribute to the financial crisis? It’s something to think about.

November 6, 2007 | Filed Under Second Mortgage | Leave a Comment 

U.S. Financial Market Plagued by Uncertainty

An article published by Money Morning talks about the uncertainty and mixed signals of the financial market, particularly as relates to first and second mortgage loans. Here is an excerpt from the article:

Why do many investors have so much trouble understanding that the credit crisis is far from over? That’s simple: Wall Street continues to send out mixed messages. Anytime there’s any kind of news that could be interpreted as a positive development, Wall Streeters erroneously trumpet it as proof the crisis has ended.

This past week, for instance, the unemployment and non-farm payroll reports indicated that employees generally seem to be navigating the ongoing subprime mortgage mess pretty well (at least, so far). Indeed, a quick glance at the news of last week would seem to be additional evidence that the economy is humming along quite nicely, thank you very much: Gross Domestic Product (GDP) is surging; labor remains steady; and, as expected, U.S. Federal Reserve policymakers reduced interest rates by another quarter point.

But if that’s all true, then why are stocks (save for techs) plunging? What’s especially worrisome is that stock prices are forward-looking, reflecting not the situation we’re dealing with now, but rather what’s still to come. Well, apparently, the worst is yet to come, and the mortgage woes are nowhere near over.

So basically, you can’t believe anything you hear from Wall Street. If you really want to know what’s going on, you’re going to have to look at the figures yourself. And don’t get drawn in blindly by the Wall Street euphoria. Remember, better safe than sorry.

November 5, 2007 | Filed Under Second Mortgage | Leave a Comment 

First American Sued for Falsely Inflating House Values

 According to the article published by “The Truth About Mortgage,” First American Corp. and its eAppraiseIt mortgage appraisal unit are being sued for inflating mortgage appraisals to enable more loans by Washington Mutual. This is certainly an interesting twist for the primary and second mortgage lender.  Here is an excerpt from the article:

Apparently Washington Mutual had complained that appraised values were coming in too low, effectively killing loans in the process, forcing the bank to handpick appraisers to bump values higher, even if they weren’t accurate.

Per the lawsuit, eAppraiseIt allowed Washington Mutual’s loan production staff to handpick “appraisers who would bring in appraisal values high enough to permit WaMu’s loans to close.”

“The independence of the appraiser is essential to maintaining the integrity of the mortgage industry,” Cuomo said. “First American and eAppraiseIt violated that independence when Washington Mutual strong-armed them into a system designed to rip off homeowners and investors alike.”

Cuomo said e-mails documented the fact that eAppraiseIt executives understood their actions were wrong, but continued to break the law to secure future business with the mortgage lender and banking giant.

So how does this affect those looking to buy a home? Just keep in mind that it might be a good idea to get a second opinion from an appraisal company completely unaffiliated with the mortgage lender. While the lender might not acknowledge the second appraisal, at least you will know whether or not they’re being honest with you.

November 2, 2007 | Filed Under Second Mortgage | Leave a Comment 

Primary and Secondary Mortgage Fraud Hurts Economy

A wonderful editorial exposes the true damage caused to the American Economy by mortgage fraud within the primary and second mortgage lending industries.

Howard Lax writes:

Mortgage fraud is now a part of our lexicon, but few people understand what this means and the harm it causes. Mortgage fraud is a catch all phrase that encompasses schemes allowing one or more parties to a real estate transaction to obtain money through illegal or unethical means. Mortgage fraud cost us, as a society, somewhere between $946 million and $4.2 billion in 2006, and the cost will increase.

Residential mortgage transactions are particularly susceptible to fraud, since the mortgage lending industry relies on patterned transactions to simplify home sales and mortgage financing with as little cost and time as possible.

In a “normal” residential sale transaction, the buyer, seller, and real estate broker(s) negotiate a sale using a model purchase agreement. The buyer meets with a loan officer from a mortgage broker or lender, and chooses a standard loan product to finance the transaction. The lender obtains an appraisal of the property and a credit report for the borrower. An investor underwrites the loan with the assistance of an automated system, conditionally commits to purchase the loan after closing, and “locks” the loan terms. The mortgage broker or lender obtains a title insurance commitment and schedules the closing after the loan is approved. A closing agent (usually a title insurance agency) explains the closing documents, acknowledges the parties’ signatures, accounts for the parties’ funds, distributes the proceeds of the transaction, sends the deed and mortgage to the Register of Deeds for recording, and issues title insurance policies for the buyer and lender. The lender sells the loan to an investor, and the borrower makes monthly payments to the servicing agent selected by the investor. Because the documents are standard, and the roles of the parties are very uniform, nobody spends the time or money to perform much due diligence on the transaction. Hence, it is relatively easy to interject false documents or parties into the transaction to obtain money.

Obviously an industry-wide cleanup is needed. Sadly, the nation seems more focused on keeping large banks afloat, than in punishing them for their wrongdoings.

Unfortunately, such leniency will likely hurt America in the long run, just as it has in the short.

October 25, 2007 | Filed Under Second Mortgage | Leave a Comment 

Housing Stocks Soar…Upwards?

In a surprise which only serves to illustrate that random state of the Stock Market, the housing stock index jumped with it’s greatest one day gain in five years.

Unfortunately, this is not a sign of a housing recovery.

CNBC explains the reason for this odd event:

The Dow Jones U.S. Home Construction Index, a yardstick that measures home builder performance, rose 8.1 percent in mid-afternoon trading.

“When you see this kind of move it’s because the stocks are over-shorted,” said Alex Barron, Agency Trading Group analyst.

Investors who short stock bet that the price of the shares will fall. They borrow the shares on the hopes that they’ll replace them with shares they’ll purchase at a lower price.

“As soon as the stocks start to go in the opposite direction people rush to cover their gain,” Barron said.

While this is unlikely to signal a positive future for housing stocks, it did give a glimmer of home to builders and second mortgage lenders.

October 23, 2007 | Filed Under Second Mortgage | Leave a Comment 

Stockholders Clamor for New Countrywide CEO

Major primary and second mortgage lender Countrywide is receiving a heavy backlash from stockholders requesting a new CEO be put in place.

The AP has the latest:

 A pension plan that owns shares of Countrywide Financial Corp. has asked the mortgage lender’s board to oust Chairman and CEO Angelo Mozilo amid criticism of the company’s management and a sharp decline this year in its stock price.

The Washington D.C.-based American Federation of State, County and Municipal Employees, which counts 1.4 million members, asked the board to replace Mozilo with two independent directors to the board in a six-page letter sent late Thursday.

In its letter, the union-affiliated pension plan called on the Calabasas-based company to also replace its executive compensation committee with people who have not played a role in the committee’s actions.

“Adding new independent directors is a way for stockholders to change an atmosphere that allows a dominant dual-role chairman and CEO to operate without appropriate checks and balances,” Gerald W. McEntee, president of the union and chairman of its pension plan, wrote in the letter.

This is certainly an interesting turn of events.  It remains to be seen how Countrywide chooses to respond.

October 22, 2007 | Filed Under Second 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 

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 

← Previous Page — Next Page →