Mortgage Chaos

News from all over, again . . . indymac, bear stearns, fannie, freddie, and the beat goes on and on and on

New Yorker editor David Remnick said the provocative cartoon was intended to satirize those [Obama's religion and other] rumors and those who traffic in them. In fact, the New Yorker is a publication that would be inclined to support Obama. New York Gov. David Peterson, the state's first black governor, condemned the cover as "one of the most malignant, vicious" magazine covers he's ever seen. The National Association for the Advancement of Colored People called it "tasteless, Islam-a-phobic, mean-spirited and racially offensive." The Obama campaign early on called the cartoon "tasteless" and "offensive" and even Republican presidential candidate John McCain referred to the cover as "inappropriate." Judge for yourself - I don't care for it at all.
Lehman Brothers' CEO Dick Fuld is seriously mulling a way to take itself private and out of the public eye
	Back in the news, Indicted former Bear Stearns hedge-fund manager Ralph Cioffi has hocked houses in New Jersey and Naples, Fla. to secure a $4 million bond, but saved the Southampton digs for the family. According to Assistant U.S. Attorney Patrick Sinclair the government is considering further criminal charges against two former Bear Stearns executives indicted last month related to the collapse of two hedge funds they oversaw.  In a court hearing in U.S. District Court in Brooklyn, Sinclair said "the government is indeed contemplating additional charges." Reuters for full story And, check this out!! According to the New York Post, Cioffi would like to start an independent hedge fund and may have some investors lined up . . . wonder if they'll still be there in 20 years . . . .
Fannie Mae and Freddie Mac . . . End of Illusions.  The Econonmist has a series of articles detailing the problems at Fannie Mae and Freddie Mac.  Now that we've jumped to trillions of dollars at their behest, surely the American Public will sit up and pay attention to what the federal reserve is doing to us by printing more and more money. Highly detailed, easy to understand . . . you should read every word. Hank Paulson, America’s treasury secretary, unveiled the emergency plan to save Fannie Mae and Freddie Mac, two mortgage giants that owe or guarantee $5.2 trillion.  He wants you to know how imortant it is so you won't mind paying for it . . . this isn't capitalization or free markets as we know them, this is nationalization and it will only create problems for the people who pay the bills.  That would be me and you . . .
The FBI had launched an investigation of IndyMac Bank for possible mortgage fraud shortly before the thrift was closed by regulators and placed into receivership, according to news reports. Fraud and they failed . . . they couldn't do anything right then could they?
Even though mortgage fraud for housing "doesn't seem quite as violent" as mortgage fraud for profit, it has its own consequences, according to a representative of the Florida Office of Financial Regulation's Bureau of Financial Investigations. Fraud for Housing is when a borrower commits fraud to get housing, as opposed to fraud for monetary gain. And that, my dears is life in my lane . . . I'm seriously thinking of Montana . . . horse, bedroll, rifle.  Sounds like the place to be to me!

INNOVATIVE FINANCING

In the days where one only hears about the credit crisis and lack of liquidity, people are stymied on where to turn to finance their latest projects. While the reality is there has been a huge change in residential financing (probably for the better, and probably forever!) commercial lending programs have not been affected as much, although lately commercial lenders are finding it harder to sell their paper because of lack of liquidity in the market in general.

As it is harder to get the money to get projects off the ground, we’ve tried to stay ahead of the curve and maintain as many options for our borrowers as possible. While there are still straightforward choices like SBA loans and commercial loans for expansion, purchases and refinances, and Church loans based on tithing, we’ve found there are other forms of financing that aren’t as complicated or time consuming and for the most part also aren’t as costly as traditional financing.

I’ve added stockloans from Hedgelender to my portfolio of products and capital advances against credit cards.

The beauty of both programs is they are not based on applications, financial statements, tax returns or credit criteria. And they both fund VERY quickly.

Stock Loans can be used for any number of things, and can be made through a myriad of choices. Here are some highlights:

• Finance your real estate with interest-only repayment while still retaining participation in your stock portfolio;

• Refinance your MARGIN LOAN to remove the possibility of a call;

• Expand Your Business with interest-only repayment while still retaining participation in your stock portfolio;

• Diversity Your Investments while retaining beneficial ownership of your portfolio;

• Roll your Employee Stock Options into cash while continuing to participate in your stock.

Ironically, these loans run to the millions and sometimes tens of millions, and take 1/10th the time to process and fund. And, they are strictly based on the worth of the stock and the amount of shares traded; the ONLY collateral is the stock and . . . credit is NOT a criteria. Neither is purpose, as long as it is legal!

Capital Advances against credit cards is NOT a loan program - but is a purchase of future sales.

Like the stock loan, there is NO long application, financial statement requirement OR tax return requirement; Funds immediately based on credit card sales; factors ALL credit cards receivables - Visa, Mastercard, American Express and Discover.

Clients are using the money for expansion and renovation; Marketing and Advertising; purchase of new locations; Increases to inventory; purchasing much needed equipment Repairs and upgrades; buying out an existing partner; recapture of investment capital; even to pay bills and taxes.

Finer explanations and details are listed on my website PallasFinancier.Com.

Brad Inman on the collapse of the secondary housing market

Brad Inman is founder and publisher of Inman News.

In the afternath of the news about fannie mae, freddie mac and the NEW IndyMac FEDERAL BANK, Brad Inman made ten predictions about the collapse of the secondary housing market.

"...Those that do lend will revert to back-to-basics underwriting: perfect credit, large down payments, proof of income, personal character and good family upbringing.

"...Housing industry lobbyists will make the mortgage liquidity problem their number one policy issue in the next two years. They will argue that the sky is falling and it is.

"...Like so many parts of our American culture, the accessibility to unlimited and poorly scrutinized debt helped turn Americans into a sloppy group of consumers, which spawned greedy Wall Streeters, out of control lenders and starry-eyed investors."

Read all ten, and the rest of his article at Imagine housing without a secondary market

Quick Notes from all over . . . indictments at Bear Stearns . . . a new kind of black widow (!) and loans for foreign nationals again (hooray!)

The U.S. Attorney's Office for the Eastern District of New York handed down indictments for Ralph Cioffi and Matthew Tannin formerly with Bear Stearns.  You may or may not recognize them as the brains (if you will forgive me) behind the Bear Stearns High Grade Structured Credit Strategies Fund (begun  in 2003) and the Bear Stearns High Grade Structured Credit Strategies Enhanced Fund (begun  in 2006), both of which failed miserably earlier this year.

From the US Attorney's Office (Eastern District of New York) Press Release   "... The indictment alleges that by March 2007, the defendants believed that the Funds were in grave condition and at risk of collapse.

However, rather than alerting the Funds’ investors and creditors to the bleak prospects of the Funds and facilitating an orderly wind-down, the defendants made misrepresentations to stave off withdrawal of investor funds and increased margin calls from creditors in the ultimately futile hope that the Funds’ prospects would improve and that the defendants’ incomes and reputations would remain intact. " (italics all mine)

"... The subsequent collapse of the Funds during the summer of 2007 resulted in losses to investors totaling more than $1 billion."

CIOFFI was also charged with insider trading, as I understand it, for moving TWO MILLION DOLLARS OF HIS OWN MONEY out of the fund and into another.

Probably one that didn't fail, doncha guess?

Attorneys for the men maintain their innocence . . . Well, would they get paid otherwise?

Read the Press Release in its entirety here

I understand the FBI is investigating 19 other companies who were originating and securitizing sub-prime loans for accounting fraud, insider trading, and the failure to disclose true valuations.

Lovely

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July 6 2008 Update to Bear Stearns indictments

Dan Slater writes in the Wall Street Journal LAW BLOG: Bear Fund Managers Get Good Draw, Sizing Up Judge Block

So, Justice Carries a Swift Sword?  We'll See - Curiously, a poster named "Anonymous", says the sub-prime mess  . . . has plenty of people who deserve fines and jail time . . . BUT these guys are not the scapegoats we need."

Well, gee, they thought up the hedge funds, created them, bought the mortgage backed securities, and then (!) CIOFFI was charged with insider trading for moving TWO MILLION DOLLARS OF HIS MONEY out of the fund . . . leaving institutional investors in the fund with no warning . . . when they knew the fund was in danger.

They may not be the scapegoats we NEED, but it certainly appears they need to be in front of a judge for the way they ran that fund!

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Billed as social networking with a bite  (pun intended I suppose) the Black Widow Network is designed to send real estate investment deals direct to your in-box . . .

Other websites designed to take advantage of REOs and the possibility of making money off them are

• BiggerPockets.Com
• PropertyShark.Com
• Krunching.Com

If you're looking for deals - try them out -

~~~~~~~~~

I've finally located three lenders that will work with Foreign Nationals.  So I'm taking those applications again --

Requirements include:

• Assets Held in Foreign Accounts must be in English and I need copies of statements for two months.
• Seller concessions are held to a maximum of 3% and are ONLY acceptable on second homes.
• Single Family Dwellings, PUDS, Warrantable Low and High Rise Condos are the properties . . . that means NO CONDOTELS
• FULL DOCUMENTATION ON INCOME AND ASSETS
• 30 year fixed, no prepayment penalty
• 75% maximum LTV

That's all I've got for today . . .  pax et bonum

...

Housing Economic Recovery Act advances in the Senate - Do they read the bills they vote on? Really?

FreedomWorks, American Conservative Union,  Americans for Tax Reform ,  Citizens Against Government Waste,    Club for Growth,  Competitive Enterprise Institute,  and the National Taxpayers Union   have come together to urge the Senate to say NO to the Housing Economic Recovery Act, commonly known as the Dodd-Countrywide bailout bill.

Here’s an excerpt from their letter:

“The Dodd plan creates a new housing trust fund that will collect more than $530 million a year through a new levy on Fannie Mae and Freddie Mac. The trust fund in turn makes these funds available to politically active community groups like ACORN outside the normal appropriations oversight.

“In addition, the Dodd plan creates a new $300 billion facility that allows mortgage lenders to cherry-pick their worst performing loans and roll them into the FHA, shifting 100 percent of the loan liability to the taxpayer.”

http://www.freedomworks.org/uploads/dodd-frank-coalition.pdf

The THREE HUNDRED BILLION DOLLAR BAILOUT went to the Senate Floor today and advanced in the Senate with overwhelming support.

I'm thrilled that they are shouting we don't need more taxes so that Countrywide and others are empowered to keep doing business as usual . . . (I say Countrywide because from all appearances Countrywide will be one of the prime beneficiaries of this bill due to the overwhelming business it did in the sub prime market.)

The Housing Economic Recovery Act, if passed, will, after adding  $300 billion to the taxpayer’s burden, probably send those banks' worst loans to the FHA, which, you guessed it, will create another FIVE HUNDRED MILLION DOLLARS IN TAXES ON GSE's. (GSE's are Federal Home Loan Banks, Freddie Mac, Fannie Mae, Ginnie Mae, Federal Farm Credit Banks, Federal Agricultural Mortgage Corporation.)

These same issues are supported by findings released earlier this week by the Congressional Budget Office’s (CBO) scoring of legislation.

"Mortgage holders would have an incentive to direct their highest-risk loans to the program," the agency noted.

But the Congressional Budget Office thinks the FHA plan might only have a modest impact.

Despite up to $300 billion in loan guarantees, CBO's analysis of the Senate bill projects demand for only $68 billion through 2011.

"CBO estimates that approximately 400,000 loans would be guaranteed under this legislation with an average loan amount of $170,000 each. Thus, CBO estimates that FHA would require about $68 billion in loan commitment authority through 2011 to implement the program. "(The legislation would authorize FHA to provide up to $300 billion in loan guarantees under the new program)

AND   "...35 percent of the loans refinanced through the program will eventually default anyway."

CBO estimates that enacting this legislation would increase revenues by about $8.0 billion over the 2009-2018 period, net of income and payroll tax offsets. Over that period, we estimate that direct spending from those proceeds would total about $7.2 billion. The additional revenues would thus exceed direct spending by an estimated $800 million." Read the full text of the CBOs findings

So they've figured out how to arrive at a surplus in the budget, rather than a deficit by creating this whole new way of life for originators, lenders, sellers, servicers  . . . How about we just SPEND LESS MONEY?? Isn't that what you do when you don't have it?  You spend less.

Where do revenues come from for the federal government?  Regardless of who writes that last check,  ultimately, revenues come from taxpayers . . .

These bills are NOT going to improve the quality of life for most people . . . they will help lenders, who knew they had a parachute when they made these risky loans (REMEMBER THE S&L BAILOUT - they were bailed out with tax dollars).

And it will help people who probably shouldn’t have gotten a loan in the first place and may not pay it back even after this second chance.

Write your representatives. 

Stand Up and Be Heard, or you’re going to be paying for it for the rest of your life.

And, sadly, so will your kids.

Construction To Perm Financing

To Paraphrase Montgomery Gentry of Country Music fame, CPs are

Gone like a freight-train, gone like yesterday
Gone like a soldier in the civil war, bang bang
Gone like a '59 Cadillac
Like all the good things that ain't never coming back
They're gone (gone) gone (gone) gone (gone) gone, gone

Well, they aren't completely gone . . . there are two lenders in the country who will do them.  Two!

The reasons aren't that complicated, the problem with doing a construction loan in a declining market is that when you get to the end of the construction period, your value may have decreased.

A year or two ago, you could have counted on appreciation, or at least seeing the project to completion having maintained value. With Fannie, Freddie and every lender left standing declaring various levels of decline in market value, and with the added expectation that it will continue for the unforeseeable future, no-one wants to risk a six month or one year project with no idea of where the value will fall when it is finished.

You and the bank could end up with a tremendous shortfall, and if you don't have the money to close, the bank has now built itself a spec house. Since most of them are practically real estate companies now, selling their foreclosures, they aren't going to go out and create a loan that has every indicator of going south.

So, postpone that dream house for a while, and look at all the new construction that is out there - and deeply discounted. It is a great time to buy a house, prices are depressed and interest rates are very low. It just isn't a good time to build a house.

I wish you the best in all you do.

2008 and the New Year didn't bring much cheer, did it?

I've gotten through Christmas, new baby, new year's, groundhog day, and lots of political rhetoric about the mortgage mess, and essentially my business remains in a state of near madness . . . I've read dozens of books about the economy, wall street, the mortage business, and I've stayed with my conclusion that the problems we're involved in now are the result of greed, or a lesser vice, that being the American urge to consume . . . at the bottom of the food chain: homeowners in problem mortgages, I think probably they just wanted to do the best they could for the families (don't we all?), and for the top: Wall Street Bankers who created the funds for "exotic mortgage products", they just wanted to make money.  It is what they do, and they did it well. 

As you probably know, we've gotten back to stern guidelines for owner occupied properties - FHA, the original sub-prime mortgage is making a comeback (and well it should!  520 credit scores and a 97% mortgage for 6.125, 30 years fixed!! Why would you go anyplace else with that score??)

Mega Jumbo ltvs are down, although those loans still get done. 

Conventional rates are lower than they've been in . . . three years?  05 saw rates like this, in the 5's.  And while we talk about 18% in 1981, I get the impression that people who were born in the 80's don't really believe it!

If you're in an ARM, now is the time to refinance, rates are so good, you probably should move now.  If you're in a loan that is in default, there are options for you - exercise them!  No one should be losing a house right now with so many options to save them.

Bush effectively against HR 3519

I hope that I have written my last diatribe re: HR 3519. 

EXECUTIVE OFFICE OF THE PRESIDENT, OFFICE OF MANAGEMENT AND BUDGET, has issued a STATEMENT OF ADMINISTRATION POLICY  that is against most of the Bill HR 3519. 

Notable are references to work already being done by the Department of Housing and Urban Development in revising its Real Estate Settlement Procedures Act (RESPA) to enhance mortgage disclosures, and the Federal Reserve’s intentions to improve disclosure requirements and develop new national standards for unfair and deceptive practices.

The best news is that it pointedly states "The Administration does not support the provisions of H.R. 3915 that could overly constrict the primary and secondary markets for mortgage finance, such as the bill’s specific underwriting standards, assignee liability provisions, and the subjective obligations for mortgage originators. The Administration is concerned with these and other provisions that could lead to greater uncertainty and increased litigation, which could cause an undesirable reduction in mortgage credit and a drop in future homeownership."

Who would have thought it?  Well, I admit I have been told he wouldn't let it go into law, but I didn't expect an announcement this early in the game.

Read the full text here

Pax et bonum

Update on Friday, November 16, 2007 at 03:25PM by Traci Gregory

The House of Representatives Thursday approved HR 3915 in a slightly watered down version, in a 291-127 vote.

Rep. Tom Feeney, R-Fla., called HR 3915 "the landlords and lawyers relief act," because he said it would make it more difficult for renters to become home buyers, and make lenders and the investors who back them more vulnerable to lawsuits.

Formerly a "galloping horse," the housing market has "gotten very sick," Feeney said. "What we are doing for the sick horse is feeding it strychnine," by restricting home buyers' access to credit, he said. 

Appears that according to him, Americans should live on credit cards, drive nice cars, and rent their homes.  Or, maybe they could just live in their cars.

HR 3915 On to a new vote

FHA Secure

The FHA Secure program is available to borrowers who have late mortgage payments due to their arm adjusting upwards and making their house payments too high to handle.  FHA will refinance, with no penalty for the lates, and allow you to keep a second mortgage, even if the value of your house has fallen and the loan to value is now over 100%.

If the loan limits are changed to $417,000, thousands of people will qualify to refinance with an FHA loan - their interest rate will go down (way down) and they can get a fixed rate loan for 30 years.  What a boon!

And the amazing thing is that the FHA is making it easier for Brokers to do FHA loans, while HR 3915 appears to be trying to wipe out mortgage brokers across the country and redesign the lending system so that only about 20% of the American population will qualify for a conventional loan.

H.R. 3915 highlights

• the removal of yield spread premium to brokers in most instances.  Yield spread is paid to brokers as an indirect income from lenders they sell loans to.  Apparently Capital Hill thinks every broker in the country is making a mint off yield spread and "steering" borrowers to loans that aren't good for them for the profit from yield spread payments.

There is something else to do with that money -Spend it on the borrower to help them get a loan.

I got a call Friday from a lady who was going to buy a house that needed work and she wanted the purchase money and the rehab money in one loan.  Countrywide had offered her the same loan at 6.875 and she wasn't getting enough love from her Countrywide loan officer.  She asked if I could do the loan, and I said sure, and so we did her application, priced her loan and sent her the docs.

This loan has a pricing adjustment (a charge of 1%) to rate because of the rehabilitation money.  (Anything that varies from an 80%, full doc, 30 year loan for someone with perfect credit has some sort of adjustment to rate - that's why what you see in the newspapers and on the internet is NOT what you're offered when you ask for rate, unless of course, you're that borrower)  Because of that fee, her closing costs were going up $1,150 (1%) and she hardly had 3% to put down.

With my yield spread premium, I was able to pay her 1% for her, and get her a rate of 6.5% and had a fannie mae approval within an hour or two of talking to her.  I emailed the list of documents I needed, and she has a loan.

I did a better job for her than Countrywide (much bigger player than me) and empowered her to buy her house, and with a better loan.  HR 3915 wouldn't have allowed it, even though it was to her benefit.

Thousands of Brokers do the same thing - there is no other way to get a no closing cost loan, but to put the cost into rate, and pay the costs from the yield.

• Additionally, HR 3915 will not allow the financing of closing costs and prepaids.  On refinance transactions, this is normally a given - you roll your costs in, lower the interest rate, lower the payment, and nothing out of your pocket.  If this bill becomes law, every refinance will mean you write a check for 3-4% of the loan amount - and that's going to hurt most people.
• There are many other line items that will create such a burden for lenders that I think most lenders won't do the loans under those circumstances, or will increase the cost of the loan (the interest rate you pay) to cover their liability.  I've heard estimates that these changes will raise interest rates by as much as 2%.  And that is if you can prove your income, your ability to repay the loan, have exemplary credit and a lot of money to put down on a house.  Otherwise, you'll stay where you are.  And if that means in your parents' house, you'll probably still be there to inherit it.

The worst irony is that they, Capital Hill, have decided to see that there are NEVER again months and months of foreclosures for loans that should not have been made.  In a free market place, the fact that lenders have lost BILLIONS of dollars on these loans, and decided they didn't want to do any more because they don't want it to happen again either, would resolve the entire issue.

And, in this market that we have now, lenders have done just that.  100% investor purchases started disappearing last December.  The lenders saw the writing on the wall - they wanted to stop the madness.  As the year has gone on, more and more programs have gone away (along with about 200 lenders who went out of business), so we are down to mostly plain vanilla at the lenders ice cream shop.

The market is repairing itself.  It isn't over - there are more loans in default, and more will go into foreclosure, but this "perfect storm" will never pass this way again.  The market can't bear it.

Capital Hill, with its vote-getting mentality in full evidence, either doesn't want to hear the truth about the market being in correction, or can't understand the complexity of the mortgage market as it really works. 

The country has a whole doesn't have huge foreclosure problems.  There are pockets that do have huge problems: California, Arizona, Nevada, Florida.  Those areas will take longer to come back, because that is where the largest numbers of foreclosures exist.

But the reality is that 70% of the country is experiencing growth in real estate markets.  It isn't what it was twelve months ago, but it isn't declining.

It will be declining, however, if this law actually passes as it stands today.  When only 20% of the population can qualify for and get a mortgage, there won't be many houses sold, I can't see that there will be any new ones built, and the fallout from real estate not moving will be a tremendous blow to this entire country. 

Funny, I said in my blog months ago I had stopped worrying about the mortgage meltdown, and even my meltdown, and had moved my concern up a notch or two, to cover the entire USA.  One of my readers told me that wasn't my job.  Whether it is my job or not, it is my country and my children are growing up here . . . And I'm thinking that instead of them moving on after college, and me selling my big house and getting two small ones (one on the beach for the winter, and one in Montana for the rest of the year) we're all still going to be together in 2025.  Horrors!

Thursday, November 15
H.R. 3915 will be brought up on the floor of the United States House of Representatives.
 

If you don't know about HR 3915, you should read the final text (as it stands today).  I suggest you read it and then get in touch with your representatives and let them know that you are concerned (you should be) about where they are pushing this country with HR 3915.

You can find your elected officials here

I've asked my friends, my clients and my family to do the same thing.  If everyone doesn't make enough noise about this bill, life in these United States is going to be a different place in a couple of years.

Pax et bonum

ps.  From my friends at Vertice, the current MARKET COMMENTARY for 11/13/2007:

U.S. 10-year Treasuries fell for the first time in a week as investors pulled out of longer-dated debt on speculation inflation will accelerate. The decline pushed yields up from the lowest in two years before reports this week that economists predict will show growth in wholesale and consumer prices quickened in October. Equity futures pointed toward stronger U.S. stock markets later today, crimping the appeal of safer government debt. Trading was closed yesterday because of a holiday in the U.S. Ostwald predicted the 10-year note will yield between 4.2 percent and 4.35 percent this week. Analysts' forecasts compiled by Bloomberg, with the most recent predictions given the heaviest weightings, suggest it will rise to 4.48 percent by the end of the first quarter of 2008.

Contact Your Congressional Representative TODAY Regarding H.R. 3915

From the National Association of Mortgage Brokers: 

Following the mark-up of the bill by the HFSC, NAMB's Government Affairs team continued to work tirelessly with members of Congress and their staffs to clarify the anti-steering provision to ensure that consumers continue to have the ability to finance origination fees and costs and to clarify our ability to receive compensation for our work. Thanks to your patience and timely response when called to action, I am pleased to report that clarifications to the anti-steering language have been made and our concerns have been addressed.

Our work is not finished. Specifically, Title III, which proposes changes to HOEPA that will adversely affect consumers' ability to obtain mortgage financing, must be amended or removed entirely. We anticipate that there will be a number of amendments offered to Title III when H.R. 3915 reaches the House floor.

TODAY, we are asking you to CONTACT YOUR CONGRESSIONAL REPRESENTATIVE and urge him or her to support any amendment(s) that may be offered by Rep. Gary Miller (R-CA) to modify Title III, or any other amendment offered to eliminate Title III in its entirety, to help ensure credit will remain available for consumers who need it most. The mortgage reform effort in Congress should move forward and H.R. 3915 is the first step, of many, in this deliberate process.

With H.R. 3915 set to go to the House floor for a vote this Thursday, November 15, 2007, THE TIME TO ACT IS NOW.

find your elected officials here