Mortgage Chaos

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.

Good News and Bad News to cure Sub-Prime woes

Bank of America, Citigroup Inc., Countrywide Financial Corp., Fannie Mae, Freddie Mac, First Horizon National Corp., GMAC ResCap, HSBC North America Holdings Inc., JPMorgan Chase & Co, National City, Option One Mortgage, SunTrust Mortgage Inc., Washington Mutual Inc., and Wells Fargo & Co. have signed up for HOPE NOW, a Bush administration initiative designed to assist homeowners who may be facing foreclosure.

The plan is that HOPE NOW will do national direct-mail to reach at-risk borrowers, with instructions to contact their lenders or a mortgage counselor to work out a repayment plan or restructuring of their mortgage to prevent foreclosure.

They also want to expand counseling capacity to make it easier to communicate with loan servicers.

I'm guessing picking up the phone and calling to ask if there is a way to restructure is too constricting, and that's why more people aren't doing it.

In September, FDIC Chairwoman Sheila Bair spoke at the Lied Center of the University of Nebraska Lincoln campus.  The subject was money and financial responsibility.

Speaking of  Mortgage responsibility she said, "... Regulators need to make sure that borrowers have what they need to fully understand the terms of the loan. And borrowers need to make sure that they fully understand the loan before they sign on the dotted line.”

I've read that she has pushed loan servicing companies to engage in wholesale conversions of adjustable-rate mortgages into fixed-rate loans where possible when borrowers are in danger of default.

Chairwoman Bair said, "Frankly, I'm frustrated that the servicing restructuring has not reached the level that I had hoped it would.  We have a huge problem on our hands. We can't just sit here doing this kind of case-by-case, laborious restructuring process with all these millions of subprime hybrid ARMs."

Unfortunately, mortgages are labor intensive and consist of legal documents that have to be revised, approved, signed and then recorded.  I agree that they could be converted to fixed rate products, but I don't see a quick or easy way of doing it.

Now the bad news ~~~~~

From a press release on Representative Brad Miller's website:

"Representative Brad Miller, North Carolina, and Rep. Linda Sánchez, California, ... introduced legislation that will prevent hundreds of thousands of Americans from losing their homes in bankruptcy."

Essentially, they want to give bankruptcy judges the authority to rewrite mortgages that are included in bankruptcies. 

Quoting the press release again: "According to the Center for Responsible Lending, a non-partisan, consumer advocacy group, the Miller proposal could help prevent up to 600,000 people from losing their homes in the next 24 months."  That's 25,000 bankruptcies a month. Handling that paperwork will keep a lot of people busy for a long, long time . . .

Rep. Miller goes on to say:

"Responsible lenders who made loans on reasonable terms have nothing to worry about in bankruptcy court, but predatory lenders will end up with the loans they should have made in the first place" That's because responsible lenders don't have any customers who would take unfair advantage of any law that he can put on the books, I'm guessing.

Rep. Sánchez comments: "As the subprime crisis heats up, it's high time we write legislation to help America's working families instead of helping the opportunistic lenders who took advantage of them. I look forward to moving this legislation swiftly through the Subcommittee on Commercial and Administrative Law."

On 10/4/2007 when this bill was forwarded to the Committee, it's sponsors had grown to 14:

Rep Cohen, Steve [TN-9] - 9/25/2007
Rep Davis, Artur [AL-7] - 9/26/2007
Rep Delahunt, William D. [MA-10] - 9/26/2007
Rep Ellison, Keith [MN-5] - 9/25/2007
Rep Frank, Barney [MA-4] - 9/20/2007
Rep Gutierrez, Luis V. [IL-4] - 9/27/2007
Rep Johnson, Henry C. "Hank," Jr. [GA-4] - 9/25/2007
Rep Lofgren, Zoe [CA-16] - 10/4/2007
Rep Maloney, Carolyn B. [NY-14] - 9/20/2007
Rep Miller, George [CA-7] - 9/27/2007
Rep Nadler, Jerrold [NY-8] - 9/25/2007
Rep Sánchez, Linda T. [CA-39] - 9/20/2007
Rep Sánchez, Loretta [CA-47] - 9/27/2007
Rep Watt, Melvin L. [NC-12] - 9/20/2007

Having written about the pawn shop mentality of some borrowers (If I don't pay for it, the bank will get it back), I'd like for these legislators to interview oh, fifty of their constituents who have loans going into default.  And, if they're really interested in the truth, they could interview the loan officers who did the loans, and review the loan files that those borrowers presented when they applied for the loans. 

This is America, where we want it all (and to quote my favorite refrigerator magnet) we want it delivered.  Credit is so-o-o easy.  Every college student in America is offered a new charge card a week (I know it is true, I have two living in my house and I shred their mail most days because COLLEGE STUDENTS DON'T NEED CREDIT CARDS.)

I bought my first house in 1971.  Yeah, I'm over 50.  I made a $3,000 downpayment on a $13,000 house!  That's a 23% downpayment.  I was 20.  Can you count on one hand the number of people you know who have made a 23%  downpayment on a house?  Can you calculate how long it would take the average American to accumulate a 20% downpayment with the price of housing in this country? 

I have clients in Europe who have always made 20% downpayments.  They are buying houses here with 25% downpayments.  Talk about having skin in the game . . . but we've come to expect that we can buy everything  NOW and pay later.  So for all those people with ARMS, it is later, and it is hard to keep that deal we made when we signed the loan docs.

Think I'm heartless?  I HAVE AN ARM.  The payment adjusted (upward) $700 in August.  No, I don't like it, its not comfortable, but I've got to grin and bear it til I finish the renovation on my house and get another mortgage.  I knew it was coming for three years . . . And so did everyone else who has one.

Dave Ramsey, where were you when we needed you??

Rock Stars, Professional Athletes, Business Moguls

So what do Rock Stars, Professional Athletes and business moguls have in common and why are they on my mortgage blog?

Well, some of them have me in common, and those  who do, live in houses with loans that are termed Mega Jumbo.

A super jumbo loan is anything over $650,000. A Mega Jumbo is over a million dollars . . . and up to 10 or 12 million dollars.

And, while one would think if you lived in a mega-million dollar house you wouldn't be concerned with financing products, or monthly payments, the reality is that some of you are.

The new philosophy on owning a home is to regard it as an asset, or a vehicle to accrue assets, rather than merely creating a liability on your balance sheet.

To accomplish this, you get as much house as you can for as small a monthly payment as you can, and invest the rest in something that is making money faster than your mortgage is deferring interest. 

The most popular super jumbo mortgage program is the "interest only loan", which allows you to pay interest only for a defined period of time which can mean substantially lower payments for larger loan amounts.

Are interest rates higher? Mostly yes. Super Jumbo loans tend to carry a higher rate than conforming loans but rate also depends on your overall risk profile. Loans are priced based on risk, and layers of risk mean high interest rates.  Mega Jumbos  are also priced specific to the borrower, the property and the risk.  These loans aren't priced on a rate sheet, and as such are more difficult to quote to borrowers.

General rules are

• full doc loans are less risky that stated loans;
• Verified assets are less risky that stated assets;
• Higher credit scores are less risky than lower credit scores;
• Owner occupied properties are less risky than second homes or investor loans.

So, when you layer a stated income loan, with stated assets, on an investor property, the layers of risk have multiplied, and the interest rate is higher. Add that to the risk of a million dollar property (or more). Before a lender writes the check, they asses the risk they are taking, and your interest rate is the result.

Stated Pay Option Arm to $6 million? Perhaps, it depends on the layers of risk in your property. (Note) I have Stated Pay Option arms  to 100% LTV only on properties that cost $1,000,000 or less.

I also have asset based loans to 100% ltv, up to 12 or 14 million.  This means they are cross-collateralized with other assets, properties, CDs, brokerage accounts, etc.  These are more complicated to price and complete, but well worth the effort when you consider that the more expensive the property, the lower ltv a lender wants to give up.

You should have in reserves, after either purchase, stated or full doc, about 25% of the value of the house.  If you are a strong borrower (huge credit scores, low loan to value) you'll get by with less.  I've done a loan for 4.5 million, at 78% LTV with about 750K in reserves . . . that's half what you'd expect, and it worked.

As of 10/2006 a  standard interest only loan for $6 million  is going to run in the $35,000 per month range, so your income should be $90 to $100 K per month, or your trust account should pay that much. The pay option arm could drop the payment to about $10,000 a month . . . but you have to qualify at the full payment. 

You can see how that $25,000 per month in your investment program could make a big difference over five years . . . as long as you're making money.  Because unless you sell the house before your option payment period is over, you're deferring interest at the rate of $25,000 per month, too.

Send me an email if you've questions on any of these programs;  in most cases we have solutions for the most complicated deals.

And, I wish you the best! I think we should all live in six million dollar houses