Bank of America is the Country's Best Bank
Without a doubt and hands down, during the time Bank of America was in wholesale mortgage lending they were clearly the best in class. With the takeover of Countrywide soon to be complete, my partners and I are looking forward to the return of their management to the wholesale mortgage lending channel.
Bank America's wholesale mortgage processing centers were managed professionally and their staff routinely went the extra mile. Their management, though conservative, seemed to be highly solutions oriented without compromise to quality or customer service.
More often than not, I remain accessable to my clients on weekends and I respect a bank that does also. No other bank would call me on Saturdays to let me know that my borrowers conditions were being cleared. I work a lot and understand what the extra support means.
Even today, they seem to understand the "craft" of banking and that craftsmanship comes through in much of what they do. In 2008 they exited the wholesale mortgage lending business to fully concentrate on the takeover of Countrywide Mortgage. For those of us in the industry that knew what a wreck Countrywide had become, BofA's restructuring of Countrywide will be a remarkable feat when completed in April.
80-90% of Mortgage Lending Capacity Disappeared in Late 2008
Why is it so difficult to fund mortgages right now?
Many mortgage lenders across the country rely on what’s called “mortgage warehouse lines of credit” to fund their mortgage commitments. These mortgage warehouse lines of credit are smaller than what banks typically have access to, but large enough to allow these smaller mortgage companies to be categorized as "Mortgage Bankers".
These short-term warehouse lines typically offer $10 million to $100 million capacity. How they work: Mortgage lenders will originate a mortgage loan, fund the loan out of their warehouse line, package and send the bundle of closed mortgage loans to their warehouse lender in order to rejuvenate the warehouse line. Shampoo, rinse and repeat.
Mortgage warehouse lending practically disappeared last year when the credit markets seized up. With the reduced capacity and the low rates, the funding log jam has been extreme for the last few months.
Warehouse lending provides vital short-term funding capacity to smaller, independent mortgage bankers so they may compete with larger banks and mortgage lenders
The Mortgage Bankers Association estimates that warehouse lines have shrunk to about 20% of 2007's capacity ($200 billion) to today's available capacity at $20 billion.
Some estimates claim that we're closer to 10% of peak warehouse line capacity.
In 2007, there were close to 100 warehouse lenders in operation and today there are about 10.
Jumbo Loans at 5.25% Today
With Jumbo Loans being 60% of my production I get a lot of questions about this catagory of loan. Undoubtly this market has been a trying time for Jumbo loan seekers but there is also a lot of misinformation in the market place. Many banks are rigid in their ability to seek out new lending sources. These banks simply do not have the breadth of mortgage programs, forcing them to place borrowers only into products the bank is approved to write, which may not always be the best program out there.
Jumbo loans require equity, that is the first rule for most lenders with the exception of high cost area FHA programs. Without exception our firms most popular Jumbo mortgage product is the seven year fixed amortized over 30 years with loan amounts up to $3,000,000. The rate on this product without points or lender fees is 5.25% today. Some might say that's impossible but this rate is completely accurate without any hidden fees.
The downside to this program is that the loan is only fixed for seven years. However, who do you know that has kept a loan for more than seven years? Also, doesn't the Jumbo loan market require more time to recover? Maybe six months, one or two years at the most before true Jumbos come back? Of course recovery time is anyones guess but I'm sure it won't be too much longer.
The other alternative is the FHA program with loan amounts up to $729k in high cost areas and $410k in many others.
Don't just take what the bank offers. Look around a little.
Mortgage Modification Website: MAKINGHOMEAFFORDABLE.GOV
Find out if you are eligible for mortgage and modification assistance through the new Making Home Affordable program today.
The Federal government launched a new website recently named MakingHomeAffordable.gov allowing homeowners and borrowers to find out if they are able to take advantage of the refinance and loan modification programs currently available through the new Housing Affordability and Stability plan.
Log on and find out if you’re eligible very easily. A borrowers just needs to answer a few questions. If you do qualify the website MakingHomeAffordable.gov will furnish a list of documents you will need to furnish in order to complete a loan modification then encouraging you to contact your loan servicer. Your mortgage must be owned by either Fannie Mae or Freddie Mac. If you’re not sure take a look here (Fannie Mae) and here (Freddie Mac).
To take advantage of the loan modification program you have to have a Fannie Mae or Freddie Mac Loan and you must be “having trouble paying your mortgage”- showing some kind of financial personal stress. Even if you don't meet the above guidelines consider still contacting your loan servicer about a different course of action.
Much luck.
Fannie Mae Expands Limit On Allowable Mortgages
What's a real estate investor to do? Buy, buy, buy...
Last year Fannie Mae capped the number of insured mortgages an individual was allowed to have if that individual was applying to Fannie Mae for residential Financing. The last mortgage limit of record was four mortgages but Fannie Mae has recently raised that cap to ten mortgages. This means that an investor can now hold ten Fannie Mae insured mortgages, greatly expanding the opportunity to increase the investors real estate portfolio with Fannie Mae's conventional terms.
Why is this important? Fannie Mae (and Freddie Mac) are effectively the only entities offering "investor" loans with semi-reasonable terms.
Yes, it is alltogether possible for an investor to have a relationship with a bank and obtain financing for an investment property, however, for a mulitude of reasons many banks have been restricted from this type of lending. Even if a relationship bank was able to lend to their private investor client, the same bank's terms would probably not be as favorable as Fannie Mae's.
Investors are becoming increasingly active in the residential housing purchase market due to the number of bargains now available. One more sign that we are bottoming.
Virgin Money
Richard Branson's Virgin Money Mortgage has made a splash in the United States. They're introducing several new program "terms" that we haven't heard in America: Social Lending, Family Mortage and Seller Mortgage. Most of the concepts are probably U.K. oriented and may have similar counterparts in the states but the details will soon need to be expanded upon as Virgin Money continues to grow in the U.S.
Social Lending: "Virgin Money offers unique financial services and a customer experience that most banks cannot match. Having originated over $370M in social loan volume, Virgin Money is the leader in managing loans between friends and family, and a pioneer in the emerging social finance sector. And now, we offer bank mortgages you can feel good about."
Housing Market Bottom
An increase in existing housing sales this week had many potential home buyers and homeowners thinking the housing slump may be coming to an end. However, the latest data on new construction homes sales reported on Wednesday, made calling a full bottom premature.
Many of us in the industry would like to see sales pick up in all sectors of housing before calling a housing bottom. That may not be the most accurate way to call a bottom for every home buyers purpose. It may be much more accurate to call housing bottoms in regions and housing sectors first.
Some regions such as the Southwest, primarily California, Arizona and Nevada will take much longer to recover than say the Midwest where price run-ups were less dramatic. The Condominium sector will take more time to bottom that detached housing due to the additional scrutiny placed on condo associations by Fannie Mae, Freddie Mac and FHA.
I expect new construction to lag pre-existing home sales due to the fact that most new construction homes cost 20% more than the average pre-existing property. With more people quickly changing their buying habits, home buyers may feel that its time to be a homeowner but "the new home extras" are not as necessary as they used to be. If this is the case, existing home sales should see a bottom or increase in sales way before new construction.
To me, the primary indicator to measure if we're nearing a housing bottom is affordability. Affordability, per NAR's recent report has hit an all time high since the reports inception in 1968.
Falling prices are clearly a factor in the 2.9% gain in existing home sales for February in a report released on Tuesday. That uptick had been taken by some analysts and industry officials as a sign that the housing market may be nearing a bottom.
If I had to make a call from my gut, I'd say we are at housing bottom in most of the country or incredibly close to it. Obviously, you'll have to judge for yourself by looking carefully at your local housing markets affordabilty stats.
Jamie Dimon, CEO of JP Morgan Chase Dumb as a Fox
“My biggest mistake, probably of my whole career, was not closing down our mortgage broker business sooner,” Said Jamie Dimon CEO of JP Morgan Chase.
What a hippocrit! Bank executives like Dimon gorged on the production for the last ten years when home values were going up, but once the tide turned "they got smart". There was ten thousand red flags that he could have minded but chose not too. Dimon and the rest of the profit drunk bank CEO's were paying themselves tens of millions of dollars in bonuses because of mortgage broker originated business.
What Mr. Dimon said today on CNBC was an incredibly foolish statement. Let's look at the facts:
1) Fannie Mae, Freddie Mac, Chase, BofA, Citi, Wells and MANY other direct lender/banks were underwriting, approving and buying many of the loans that mortgage brokers originated.
2) Brokers were created to shop for the best rates and match underwriting overlays to the borrowers needs. Loans were first taken by the brokers then placed with direct lenders for final approval and funding. The direct lenders above were responsible to validate the broker submissions through the underwriting and approval process. All of the documentation given to the lenders by brokers were always open to quality control measures. The direct lenders neglected to execute quality control because that would mean self-incrimination. The bankers knew exactly what was in those files.
3) The above lenders established the loan programs NEVER the mortgage brokers. Loans with negative amortization, stated income, no documentation loans, 65% debt ratio, interest only, bank statement only, option arms, Alt A loans were solely the creation of the above lenders.
4) Even with "low doc loans" lenders always retained the right to confirm income (4506 form) but rarely did because of the additional fees "low documentation" loans generating for them. How insulting to think that mortgage brokers could have forced approvals upon JP Morgan Chase! Mr. Dimon you are either a complete fool or lying.
5) Bank LO's are the same people that one might find at a mortgage broker office. There is NO cultural difference between bank or broker LO's, no increased licensing requirements, no additional education and no less pressure to "perform and originate". The above banks are vicious about squeezing production out of their LO's.
6) The direct lenders and banks made the money selling these loans to the secondary markets not the brokers.
Banks and direct lenders made a fortune off mortgage brokers but now that a scapegoat is needed, the banks choose to look outward.
Yuliya Demyanyk- The New Fed Boss of Subprime Loans
A new St Louis Fed report found that approximately 5 million home purchases were financed with subprime loans between 2000 and 2006 with only about one million loans going to first time homebuyers.
Per the St Louis Fed, “the subprime mortgages data seems to suggest that the number of foreclosed homes, with mortgages funding the home purchases, already exceeds the estimated number of first-time homebuyers with subprime mortgages.”
“If a borrower took out a subprime loan in 2001, say as a first-time homebuyer, and then refinanced into a better loan in 2004, the same borrower most likely could have skipped the subprime step and become a first-time homebuyer in 2004, starting with a more stable loan and avoiding high interest rate payments and prepayment penalties.”
Yuliya Demyanyk is a research economist of the St Louis Fed. Her research focuses on the subprime mortgage market, the roles that financial intermediation and banking regulation play in the U.S. economy, and on analysis of financial integration in the United States as well as in the European Union.
Dr. Demyanyk was an economist in the Banking Supervision and Regulation Department at the Federal Reserve Bank of St. Louis. She has a PhD in economics from the University of Houston, an MA in economics from the Kyiv-Mohyla Academy, Economic Education and Research Consortium (EERC), Ukraine, and an MA in physics from the National University of Odessa, Ukraine.
Housing Affordability Now at Highest Level Since 1968
With mortgage rates at historically low levels and home prices in many cities nearing 2003 price levels, housing affordability has hit an all time high. As of March 6th, 2009 (end point in the below graph) home prices as a multiple of income are at the lowest they've been since 1968. The housing sales industry is no longer battling unaffordability but rather job market instability and excessive negative consumer psychology due to uncertainty in the credit markets.
The below index: An index of 100 means a family earning the national median family income (Census Bureau stats) can qualify for a mortgage on a typical median priced existing single family home. An index over 100 indicates that a family earning the median income more than qualifies for a mortgage loan on a median priced home with a 20% downpayment. Hence an increase in the Affordability Index i.e. 199 shows that a family is more able to afford the median priced home.
AIG The Prodigal Son Comes Back To Father Treasury
For those not keeping up with the AIG saga, I have to say you're missing something big and incredibly fascinating! A lot of cronism and dirty business is taking place under the noses of 249 million Americans (the rest of us are smelling the stink).
Americans were initially told $80 billion was needed during 2008's bailout for AIG but now the number has jumped to over $120 billion.
Where the little ball stops is anyone guess.
The Federal Banking Complex has been unwilling to release information regarding flow of funds to the CDS counterparties. However, the recipient list is starting to trickle out with much more to come now that the media and nonfinancial business community is starting to develop a taste for blood. Cassano blood.
More on Joe Cassano
What we've been able to view through the fog to this point, Paulson, the former CEO of Goldman Sachs offered up Billions of dollars worth of bailouts to AIG that ended up in the bank accounts of Goldman Sachs and other financial companies like Morgan Stanley.
AIG insured Trillions of dollars worth of CDS's through their UK operations, keeping little to nothing in the way of reserves for a time where the swaps might (did) come due. A short list of the banks receiving taxpayer funds via AIG's bailout:NY TIMES: “They [AIG] were the worst of them all,” said Frank Partnoy, a law professor at the University of San Diego and a derivatives expert. Mr. Vickrey of Gradient Analytics said, “It was extreme hubris, fueled by greed.” Other firms used many of the same shady techniques as A.I.G., but none did them on such a broad scale and with such utter recklessness. And yet — and this is the part that should make your blood boil — the company is being kept alive precisely because it behaved so badly.
Goldman Sachs
Deutsche Bank
Merrill Lynch
Société Générale
Calyon
Barclays
Rabobank
Danske
HSBC
Royal Bank of Scotland
Banco Santander
Morgan Stanley
Wachovia
Bank of America
Lloyds Banking Group
Source: WSJ research
Barney Franks Puts The Brakes on Securitization Post 100 Car Pile-up
Nero Fiddled while the Rome burned. Barney Frank decides now is a good time to curb excessive securitization...
U.S. House Financial Services Committee Chairman Barney Frank wants to limit securitizaion of mortgage backed securities on the secondary market according to a Bloomberg report. He is working on legislation that would require banks and bond investors to retain some of the credit risk on mortgages they securitize into secondary market financial instruments. Something this site and others were calling for YEARS ago.
Yesterday he stated it should be illegal to “securitize 100 percent of anything” and that those who securitize loans should be- required to consider a borrower’s ability to repay the mortgage". Sorry but this is ten years late and only offered with an economy in tatters.
The so-called “originate-to-distribute” model promoted super risky lending because banks only held onto loans for a very brief time before then selling them on the secondary market. Another method which has been floated was the bank bond structure to fund mortgages.
While not keeping much of the risk, lenders were paid to originate a high volume of loans thanks to a volume based pricing model that pushed the generation of an enormous numbers of bad mortgages to the secondary markets.
Sadly, years have been wasted and Mr. Frank has been notoriously oblivious to this problem. I hope that regulations will be implemented in a manner supportive to mortgage origination growth while increasing standards for mortgage banks and brokers.
Obama's New Homeownership Affordability Refinance Program Details
President Obama's administration Wednesday gave mortgage lenders a green light to start modifying home loans under the new $75 billion program for people currently facing financial hardship. Borrowers must fully document hardship, income and prove occupancy.
The new program provides cash incentives to loan servicers for reducing monthly payments will only modify single family residence mortgages up to $729,750 originated prior to January 1, 2009.
The Treasury also announced that lenders could begin refinancing current mortgages guaranteed by Fannie Mae or Freddie Mac on owner occupied homes that have values that have dropped.
This plan would allow homeowners to refinance at market rates with a loan-to-value ratio of up to 105 percent rather than the normal Fannie Mae or Freddie Mac 80-90% limit.
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"The Home Affordable Refinance program will be available to 4 to 5 million homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac."
In this market most of these borrowers couldn't refinance because their homes have lost value pushing their current loan-to-value ratios above 80-90%.
Below are the guidelines.
Eligibility and Verification:
>Loans originated on or before January 1, 2009.
>First-lien loans on owner-occupied properties with unpaid principal balance up to $729,750. Higher limits allowed for owner-occupied properties with 2-4 units.
>All borrowers must fully document income, two most recent pay stubs, and most recent tax return and must sign an affidavit of financial hardship.
>Property owner occupancy status will be verified through a borrower credit report and other documentation; no investor-owned, vacant, or condemned properties.
>Modifications can start from now until December 31, 2012; loans can be modified only once under the program.
Loan Modification Terms and Procedures:
>Participating servicers are required to service all eligible loans under the rules of the program unless explicitly prohibited by contract; servicers are required to use reasonable efforts to obtain waivers of limits on participation.
>Servicers will follow a specified sequence of steps in order to reduce the monthly payment to no more than 31% of gross monthly income (DTI).
>The modification sequence requires first reducing the interest rate (subject to a rate floor of 2%), then if necessary extending the term or amortization of the loan up to a maximum of 40 years, and then if necessary forbearing principal. Principal forgiveness or a Hope for Homeowners refinancing are acceptable alternatives.
>The monthly payment includes principal, interest, taxes, insurance, flood insurance, homeowner's association and/or condominium fees. Monthly income includes wages, salary, overtime, fees, commissions, tips, social security, pensions, and all other income.
>Servicers must enter into the program agreements with Treasury's financial agent on or before December 31, 2009.
Payments to Servicers, Lenders, and Responsible Borrowers:
>The program will share with the lender and investor the cost of reductions in monthly payments from 38% DTI to 31% DTI.
>Servicers that modify loans according to the guidelines will receive an up-front fee of $1,000 for each modification plus some "pay for success" fees on still-performing loans of $1,000 per year.
>Homeowners who make their payments on time are eligible for up to $1,000 of principal reduction payments each year for up to five years.
>The program will provide one-time bonus incentive payments of $1,500 to lenders and investors and $500 to servicers for modifications made while a borrower is still current on mortgage payments.
>The program will include incentives for extinguishing second liens on loans modified under this program.
>No payments will be made under the program to the lender or investor, servicer, or borrower unless and until the servicer has first entered into the program agreements with Treasury's financial agent.
Transparency and Accountability:
>Measures to prevent and detect fraud such as documentation and audit requirements will be central to the program.
>Servicers will be required to collect, maintain and transmit records for verification and compliance review, including borrower eligibility, underwriting, incentive payments, property verification, and other documentation.
>Freddie Mac will audit compliance. GSE lenders and servicers already have much of the borrower's information on file, so documentation requirements are not likely to be too burdensome. In addition, in some cases an appraisal will not be necessary (streamline refinance). This flexibility will make the refinance quicker and less costly for both borrowers and lenders. The Home Affordable Refinance program ends in June 2010.
To help borrowers the government has put answers to common questions and other tools on a Website at: www.FinancialStability.gov.
David Moffett, CEO of Freddie Mac Resigns After Six Months
After only six months of being at the helm of Freddie Mac, CEO David Moffett has announced his resignation. Mr. Moffett took the reins over from Richard Syron which left the company in the worst shape since its inception.
David Moffett
Richard Syron
The resignation will be effective no later than March 13. “I have enjoyed my time as CEO of Freddie Mac and I wish all the great employees the very best in the days to come,” Moffett said in his letter of resignation.
This change comes right at a time when Freddie Mac is in need of an additional $30 billion to $35 billion under the Senior Preferred Stock Purchase Agreement between itself and Treasury. Both Fannie Mae and Freddie Mac were taken over back September 2008 resulting in the termination of former CEOs Daniel Mudd and Richard "Dick" Syron.
Last week, Freddie Mac revealed it was investigating itself over past lobbying efforts that may have led to the companies epic failure.
Most of us from within the mortgage industry realizes how poorly both Freddie Mac and Fannie Mae were managed. The above resignation is not a big deal in and of itself but more of a reflection of what an incredibly tragic job Syron, the Regulators and the Congressional oversight committee have done.
