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As I was walking into a BBQ the other day, the thought "I wonder what we'll be talking about" zipped across my mind.  They all know I'm in the mortgage biz, we have an active foreclosure and a short sale in our neighborhood.  Naturally I figured the conversation might be centered around those two houses. 

My point is, you never know where the conversation is going to lead.  While you might expect it going one way, sometimes it turns and goes a completely unexpected direction.  This isn't wrong.  In fact, just having the conversation, any conversation, is a good thing.  Has that happened to you?  Sure it has.

Hey all you Mortgage Brokers, Mortgage Bankers, Loan Officer's out there!
I know you are seeing this.  I know you subscribe to my feed.

This is your official invitation to converse about any and all things mortgage related.

Embed this video on your blog or website and let's get the conversation rolling.

 

What conversation?

Any conversation!

What are the Rules? 

No Rules! 

• Anyone can include this on their own site (really).
• Anyone can comment.
• Anyone can ask a question.
• Anyone can answer a question.

"Can the Lender really do that?"

"How can I get this client approved?"

"What's up with my appraiser?"

"Will the Fed's lower rates?"

Mortgage Brokers, Mortgage Bankers, Loan Officers, Real Estate Agents and even the public are all encouraged to participate.

If you need technical help embedding this, or replying to this, just ask.  Mike912Mueller@gmail.com

Please fasten your seat belts

In the Wall St Journal today is an article, "Mortgage Fears Drive Up Rates On Jumbo Loans".

I want to draw your attention to the chart that's included. In particular, it shows the 10 Yr Treasury Bond Yield and both the Conforming and Jumbo Rates since last January. 

Let me make this perfectly clear: The 10 Yr Treasury Bond Yield does not create mortgage rates, but it has in the past reflected them.  We in the business have for years tracked the 10 yr. as our barometer of what is happening in the mortgage market.

While this chart only goes back to January of this year, you would see the same mirror image going back 5, or 10 years.

 

I added the Blue Connect and Red Disconnect for illustration purposes.  Can you see how Jumbo Rates (teal Line) have NOT followed the 10 year recently?

You can also see how the Conforming Rates (gold line) also have not kept up with the 10 Yr. (burgundy line).

We now have a disconnect.  We're disconnected from the indicators we've become accustomed to watching. This is the first time I've seen something like this.

 

 

 

We're flying through clouds right now with little or no radar. 

"The Captain has turned on the Seat Belt Light. Please fasten your seat belts, put your trays and seats in the upright position.  We're expecting a little turbulence ahead." 

 

 

You Only THINK You Were Approved

 You better start paying attention.  This is not a post about Sub Prime.  Sub Prime has it's woes, and it doesn't matter if it's rightfully deserved or not, Sub Prime is in a world all it's own. 

Or so we thought.

On Monday, trading for a American Home Mortgage, a large ALT-A Lender was halted on the floor of the NYSE.  The stock was tanking after it's financial backers said they would not continue with their backing.  Remember, AHM was not a Sub Prime Lender, they were primarily ALT-A.

I have personally never done a loan through AHM.  It looks like I never will.  But here's the really scary part.

Every Lender is scrambling.  No matter if it's the biggest (Countrywide) or the smallest, no matter if they do only the highest quality A Paper loans. They are all scrambling right now.  They are tightening guidelines, deleting programs and making WILD adjustments all in an effort to make sure they are the "prettiest one at the dance".

We're talking all the big girls.  And who are they?  According to Inside Mortgage Finance, the top 10 list for originators for the first half of 2007 are

1. Countrywide ($245 billion),
2. Wells Fargo ($148 billion),
3. CitiMortgage,
4. Chase,
5. Bank of America,
6. WAMU,
7. Wachovia,
8. IndyMac,
9. GMAC,
10. and American Home Mortgage ($34 billion, now pretty much toast)

It reminds me of a Backpacking quote I always liked, "When you suddenly come face to face with an angry Grizzly, remember you don't have to run faster than the bear, just faster than your buddy!"

Tuesday, Wednesday, and Thursday this week, every lender sent flurries of emails and faxes out to their brokers and loan originators.  Every Lender.

They deleted this, they modified that.  What was ok yesterday is no longer ok today.  Even from this morning to this afternoon. 

Now Pay Attention...

• Already approved for a loan?  Just about any loan, chances are pretty good the guidelines for that loan changed this week.  Your Approval may no longer be valid.
• Did you lock your rate?  That lock was for those particular guidelines, your loan may now have an additional "hit" that it didn't have before you locked.
• Did you already sign the loan papers?  - When the backers of AHM pulled the plug AHM had $300 Million ready to fund.  All of those deals went straight into the trash.  "Sorry for any inconvenience - we don't have any money to lend you.  Have a nice day!"
• Pre-Qualified?  Guess again.  Go back to your Mortgage Professional and start again.
• 'We're just thinking..."   Thinking about buying or refinancing?  If I may make one suggestion.  DO NOT Hesitate!  Get off the couch and do it right now.   This has been the craziest week I have ever seen in 14 years.  If you are sitting on the fence for whatever reason right now let me ask you this, "Do you really think it's going to get better in the coming days, weeks or months?"  Not a chance!

A self serving note: 

I am a Mortgage Broker, (I was a Mortgage Banker years ago).

I can fund loans through all the big lenders and so many more little lenders.  At one point I had over 7,000 loan programs at my disposal.  While a Mortgage Banker has certain advantages at times, right now, at this point in time, with the volatility in the marketplace as it is, I thank my lucky stars I have the flexibility when a door slams shut (as so many have closed this week), to switch lenders and find a still open door.  

It may be just my personal opinion, but if you are not working with a Professional Mortgage Broker today, you may be in for a big disappointment tomorrow.  The sad part is that I know so many wonderful, ethical, professional Mortgage Bankers who may get caught up in all this, and it has nothing to do with them or their company.  It's the financial backers of that company that they are all scrambling for.  The losers will be the borrowers as well as the professional mortgage originators working for that company.

 

 

 This bears repeating (sorry about the pun)

Here's Gretchen Morgenson (a Pulitzer Prize NY Times Author) explaining the relationships between Lenders and the "backers".  While they are talking about Sub Prime, the same relationships apply. You can read more about it here: Asking the Question

 Part One:

 

 Part Two:

Lease Option to Buy Snag

From a Sellers perspective the Lease Option could be viewed as a viable method of moving the property from the negative side of the equation to the positive  side.  If a home is on the market it obviously has no rental income, it's also not benefiting the present owners by providing a roof over their heads.  As it sits on the market it's costing the seller each and every day.  They probably have to wait to make an offer on their new home until they have an offer on their present home.  One of the latest tactics when a home doesn't sell is to Lease Option it.  I wrote about one such instance here:

Your Listing Hasn't Sold? Lease Option It!

This tactic could be a win for the Seller depending on the structure of the deal.  Many deals are structured to favor the Seller, not the Buyer.  Not that there couldn't be a Win - Win for both, I just happen to see more tilted towards the Seller.  That makes some sense as they are the ones writing the contract. 

For the potential Buyer, there are certainly risks involved. 

Lease Options are nothing new.  Rent to Own business models are known to all.  I could go down to my local Rent - A - Center and pick up a new leather couch.  Exorbitant rental fees aside, I now am watching my Rent to Own Plasma, while sitting on my Rent to Own couch.  If I miss my weekly payment, they come pick up my TV and couch and I'm back to where I started.  If I continue my payments to the end, I now own the couch and TV.  It's all good.

Lease Option the house and I will probably put something down as a deposit, I'll have to make my monthly rent on time each and every month, and then 2 years later a portion, or maybe all of my rent is applied towards the purchase price.   It's all good.

Almost.

• What happens if the market zooms in those 2 years?
• What if it declines?
• What will rates be like in June 2008?
• Will his credit be any better then?
• What will underwriting guidelines be like in June 2008?
• Will he be able to qualify for anything at all?

These are just the reasonable questions we can ask.  The foreseeable ones.

But remember, there's a reason the house wasn't sold to begin with.  Was it overpriced?  Was it below standards?   Did the owners need money?  There was a reason.

This presents another risk to the Lease Option Buyer.  What if the Owner / Seller goes under?  What happens if the home goes into foreclosure?  When you signed the agreement, did you ask for financial statements from the Seller?  Did you check to see if there were any liens on the property?  Of course not.

Lease Options can be good vehicles to move property.  But increasingly there are more and more reports coming out as good Lease Options go bad.

Here's a couple I've been following:

 Crisp & Cole lease to buy program

http://www.buzzle.com/editorials/12-2-2005-82927.asp

http://sfvblog.com/tag/investor-info/lease-option/

"If you lease option the house, you can charge up to 25% more than the current market rental price, because you are offering to let the tenants buy the house. You might also be able to use the option consideration to pay for the payments to the bank of which you are behind."

How scary is that?

Don't Worry

My good friend and highly ethical mortgage professional, Tony Gallegos shared a video he found on YouTube.

As he writes on his blog The Mortgage Cicerone,

 "Bottom line - It's BOZO's like Richard and friends that hurt our industry. Can you imagine being so proud of these sales tactics that you actually post it on YouTube?"

Personally, I liked the voice in the background, "Hi, I'm calling you on behalf of your current lenders wholesale department..."

We, the true mortgage professionals, know these people exist.  We fight their mis-information and unethical practices each and every day.  Does the poor homeowner know who they are talking to?  Not a chance. 

These people exist and they are numerous.  I had an office right next door to me, now thankfully out of business.  But there's still plenty of scum out there.  I had a client just yesterday come to me who had been dealing with these guys.

Remember, this is only a small snippet of what they do.  Don't work with telemarketers.  Don't work with people you don't know.  Don't work with someone hundreds of miles away.  Only work with a True Mortgage Professional!  If you don't know one - ask me! 

I referred a Wells Fargo Mortgage Loan Officer to two highly ethical people I trust in Florida this week.  Imagine that, a loan officer calling me, to do a refinance on her home, because she didn't want to work with anyone in her company or with someone like Robert.  Smart move if you ask me.

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Sometimes Holidays are for Worrying

With the Fourth of July holiday tomorrow I am looking forward to the Parade, the BBQ, and the Fireworks.

Holidays are times for us to slow down, to catch up with the Family, to reconnect with Friends. 

Holidays are also times when our busy day to day schedules take a break, allowing times for reflection and clear thoughts. 

Unfortunately for so many that break also means "those thoughts and worries" bubble up again to the surface.

You might recognize some of them:

• The "How am I going to make that next payment" worry.
• The "When my loan adjusts, where will it adjust to?" thought.
• The "How am I ever going to catch up?" worry.

Sometimes these thoughts and worries are so powerful they consume us. 

They make what should have been a relaxing day turn into an anxious, worry filled day. 

Catching a Frisbee while contemplating index and margin isn't what it's all about.

My recommendation to you, should you be one of those worrying types is this.

Go out and have a great time.  But make a promise to yourself and your family that first thing Thursday Morning you'll start being proactive.

Start by looking into The Foreclosure Report. 

Even if you are not in Foreclosure, it has some very valuable information for you!

• What to do before you are 30 Days Late
• "How To" Articles
• Scam and Fraud Alerts
• How to Conduct a Short Sale
• 7 Ways to Resolve Today
• Foreclosure Articles
• How to Stop Foreclosure
• Deed in Lieu
• Loss Mitigation

And so much more!

Make that promise to yourself right now - Then get out there and teach Uncle Bob that you are never too old to slip and slide!

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of Puddles and Pools...

Long term mortgages and the rates and terms they carry are determined by a couple of different factors.

While many people mistakenly think the Fed's control mortgage rates they are in fact determined by Mortgage-backed securities (M.B.S.).

M.B.S.'s are created by pooling loans and selling bonds with coupons based on the mortgage rates. 60% of the mortgage bonds in the U.S. are guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae. We've all heard of them before - right?

Yields, or rates on 10-year Treasury securities are typically used to track long term mortgage rates. Investors typically use Treasury yields as a benchmark for value, but it's the M.B.S.'s that create the actual interest rates. Factors such as supply and demand are always important.

When we talk about these large pools of money, we're talking about really large pools.
(imagine Trillions of Dollars).
Large pools of anything tend to move slow and steady.

Fannie, Freddie and Ginnie are not the only players in the 30 yr. fixed game.
There are significantly smaller "puddles" of money that need to be diversified and invested in real estate.
(now imagine Billions or Millions)

These "puddles" may be controlled by large insurance companies, investment funds, pension funds and so on.

Every now and then one of these companies has a "puddle" they desperately need to have invested.

Rule Number One of "Pools & Puddles" is...
Like water, always keep the money moving - stagnant money earns nothing.
This applies to big business and small.



Two months ago, I was approached by a representative who had a "Puddle".
He needed to move this "puddle".
To entice the rapid deployment of this "puddle" they reduced the rate.
Once again, supply and demand.

Now since they didn't want to compete head to head with F & F, that would be bad business.
They went outside of F & F's sandbox. They went "Jumbo".
(a Jumbo loan is anything above the limits of F & F, currently $417,000)

Surprisingly, the rate at which this "puddle" was offered was a full 1% lower than other Jumbo rates and even below F & F rates! -

Wow!

I told everyone of my prior clients.
Needless to say, that "puddle" dried up pretty quick. It's now gone.

I don't think I've ever seen this before in my 14 years.
They have a new "puddle".

This one's just about the same.

• It's a 30 Yr. Fixed Jumbo.
• Fully lockable.
• No tricks, no gimmicks, simple stuff.
• Purchase or Refinance.
• Owner Occupied Only.

Yes, you don't have to have a Jumbo to use it, and there is an Interest Only option.

Hands down there may not be a better loan out there for the long term owner right now.
But is it right for you? Perhaps. Only by running the numbers can anyone really say.

Remember, it's a puddle not a Pool - Not available at you local bank - and it's first come first served.

There's only so much room in a Puddle - jump in while the Puddling is good.

Work it Out!

I came across what might be a very valuable site for homeowners in trouble.

It's called WorkItOut.com

I did a little background checking and although the site is in "beta" it is NOT an start up.

From the outside it appears to be on the up and up.

It was originally registered with Network Solutions back in 1998 by a legal firm in Irvine, The Wolf Firm, and specifically Alan Wolf.

I did a little further digging and found that this isn't an "open to all" type of club.
To join, you have to be referred by your lender.

There is a limited amount of content on the site available for all to see including what I believe may be the most important two features;

• The FAQ, which gives the reader brutally honest answers to many of the common questions they may want to ask. It's here: LINK

• The List of Lenders and the contact information for that lender's Loss Mitigation Department.
  

What is that?
Let's say you are in trouble. You know it. So who do you call?
You call your Trusted Mortgage Professional!
Good call - so to speak.
But unfortunately, after running numbers and scenarios, they said there was nothing they could do for you.

Now who do you call? Your Lender - that's who!

There's a problem here too. You start with the toll free number and spend the rest of the day on hold and then finally explaining in great detail why you are calling, only to be transfered to the next representative or department who may be able to help you. This goes on with 17 different departments until finally you either hang up or get lucky and get the right department.

The people you really need to talk to within your lenders spiderweb of phone banks is the Loss Mitigation Department.

Luckily for you they are all listed right here. http://www.workitout.com/mod/glossary/view.php?id=98

I noticed it also has answers to a few questions not specifically Foreclosure related.

If you want a copy of your credit report do you know where to go?

NOT www.FreeCreditReport.com - right?
It's not free.
It is a marketing gimmick design to sign you up for their "Triple Advantage" service.

The site you DO want to use is www.annualcreditreport.com
It's the only site,

Let me repeat that again for emphasis...

It's the ONLY SITE, that allows for a truly free annual credit report
But you already knew that right?

Guilt by Association

When I have a free weekend, I like to go out and visit open houses in my area.

No, I don't wear a hood and over sized sun glasses.

I like to use www.homesopentoday.com to find the homes local to me.
It's one way I can get into the trenches and learn what is going on out there.

I was discussing with an Agent this weekend the topic of Foreclosures.
Bill Clemente of Security Pacific in Walnut Creek.
Bill is a smart, heads up kind of Agent.

I was impressed with his knowledge and understanding of the driving forces behind the market.
Bill is currently working on a Short Sale in Antioch - trying to help a client out of a tough spot.
Short sales are going to become more prevalent as we move forward into this market correction.

One of the issues we discussed is the fact that in this area where the short sale property is located, there have been a number of Notice of Defaults and Foreclosures. These properties have either sold at the public auction for less than market value, or have been returned to the lender and are going to be sold as REO.

Either way, we were discussing how this effects the regular homeowner.
Because the properties are sold or moved at below market prices, the comparable values in the neighborhood drop. Clearly a case of Guilt by Association.

In the instance of his Short Sale, the homeowner is still current in his payments.
Surprised? I was too.

The main reason, and perhaps the only reason, he has to walk away from his home is a lack of value. That is a direct result of factors outside his control having a dramatic effect on his personal life.

I ask, if you were the brother of Ted Kaczynski how would your life have changed?
Would people judge you (unfairly) not because of what or who you are, but because of who you know or who knows you.

Guilt by Association.
It may not be fair but it happens in many different forms, and it's coming to a neighborhood near you!

The Foreclosure Crunch

This is part Three in a Four part series of articles detailing the changing mortgage market.

The Foreclosure Crunch

The Foreclosure Crunch is closely related to the LTV Crunch.

In fact, both crunches fuel on each other.

I would suggest you first read the LTV Crunch before you dive into this easy concept.

Now where to start?
Hmmmmmm .....

Let's start with the 3 TRILLION in Adjustable Rate Mortgages that we know are just about ready to change, or recast in the next year. That's a huge number! And yes, it is a national number but it is going to have an enormous impact of home loans in here in Contra Costa. I mentioned we know these loans are set to change but what does that mean?

As an example, let's say you financed a couple of years ago. The best rate and term your broker found you was 5.625% fixed for 3 years (or 5, 7, or perhaps 10). It was fixed at a time in history where the rates were the lowest. That's the good part. the bad part is that the loan now is set to adjust to the current rate environment. And rates are higher now than they were then. That means the monthly mortgage payment is going to go up. How much? On a POA it could be as much as double or triple! Other loans might be a bit more manageable.

Like explained in the LTV Crunch, and the Credit Crunch, these borrowers may not be able to refinance into anything! When that happens they can either:

• Live with it and try to meet their obligations,
• List their home for sale,
• or fall behind and go into Foreclosure
  

I can tell you that many of the people I have dealt with are already strapped for disposable income. Trying to keep your head above water is a temporary situation at best. If that payment continues to rise what do you think is going to happen?

Our local housing market is somewhat crowded already. How long do you think it will take a homeowner to sell right now? Not a pretty picture is it?

That leaves Foreclosure.

But let's just say you have an ARM.
You also have a great job, plenty of cash, and overall you are doing just fine.
Maybe you last refinanced or bought with an equity position of around 20%?
This possibly can't effect you - can it?

Wrong!

Try this...

1. Go to google maps and pull up your property.
2. Now draw a circle 1/4 mile around your home.
3. Now count the number of homes in that circle.

If any of those homes in that circle sell for under market value, go under, REO or sell at auction. your home just lost value as well. If it loses too much your ability to refinance into something manageable may be compromised no matter what YOUR personal financial situation is.



How about those people on the fringe of your circle? Their values are related to those 1/4 mile further away, and so on, and so on.
So really, a foreclosure many many miles away could domino into your home!
Bummer, eh?

"Yeah Mike, but I live in an upscale neighborhood. We don't have those kind of people around here."
Wrong again.

I did a little research locally.
I went to the County Records.
I asked for a list of homeowners who...

• Live in a single family home (no condos)
  
• In the Lafayette, Orinda, Moraga, Walnut Creek, Alamo, Danville, Pleasant Hill and Concord area.
• Who have an Adjustable Rate Mortgage at least 3 years old with A Paper lenders.
• I also limited the search to the first 1,500 names.
  

Surprise!
My list started in upscale Lafayette (just because that's what I listed first) and never left!

WOW!

So if you think your neighborhood is safe, if you think you are safe, consider yourself now informed.

It's not all bad news though.

I've said it before and I'll say it again,
"If homeowners are proactive now, they can navigate a soft landing. If they are not, they could find themselves in situations outside their control that could lead to personal financial disasters like bankruptcy and foreclosure."

If you do not know what kind of a mortgage you have, if there is any chance at all, I urge you to seek out a professional review ASAP. Only a Professional Mortgage Planner will be able to give you an objective opinion on where you stand.

The LTV Crunch

This is part Two in a Four part series of articles detailing the changing mortgage market.

The LTV CRUNCH

L.T.V. is simply an acronym for Loan to Value.
This is a surprisingly simple computation resulting in a percentage.

Let's assume you have bought a home valued at $800,000.
To buy that home you took out a loan for $640,000.
Your LTV is going to be 80% - easy right?
We took the loan amount and divided it by the value.

LTV has a cousin. CLTV - the C standing for "Combined".
That brings the other loans you might have into the equation, loans tied to the property like a Line of Credit.

Using our example, let's now assume you have a 1st Mortgage of $640,000 and a HELOC (Home Equity Line of Credit) for $80,000.
Now you owe $720,000 on your $800,000 home.
That's a CLTV of 90% right? Following so far?
Pretty easy stuff.
Now we're going to twist it a bit.

The Maximum LTV or CLTV is determined by the Guidelines.
The Guidelines are a set of rules detailing all the parameters of what loans the lender will do.

"Who cares what the Guidelines say?"
For one, the Underwriter who approves your loan does.
Underwriters live by the Guidelines.
To paraphrase the heavy metal band "Faith No More" They care a lot!

And to make matters worse, I have news for you. The Guidelines are changing.
They are getting tighter and tighter.
A year ago, a typical Guideline might have said something akin to "The maximum LTV on this product is 80% with a maximum CLTV of 100%"
To a loan officer that means this program will allow an 80% first mortgage and a 20% second.

That was then - this is now.

That same text might have a completely different tone today.
"The maximum LTV on this product is 80% with a maximum CLTV of 90%".

That doesn't sound so bad does it?

But wait there's more! (one of my favorite infomercial lines)

The value on your home is determined by the sales price of others around it.
That's called the Comparison Approach of Appraisal.
This is an important concept.

Going back to our example.
Your home was valued at $800,000 and you had a CLTV of 90%.
Let's now assume you need to refinance.
Your present loan is about to recast and your payment is going to go up.

The appraiser comes in, does his thing, and comes back with a value of only $750,000!
Why?
The other homes in your area that have sold in the last 3 to 6 months, sold for less. That's why.
Your home value is a direct result of the recent sales prices of other like homes in your area.

Important Concept #2:
As the value of your home decreases, your LTV increases.
Conversely, if your home value increases - your LTV decreases.

But I digress, let's go back to your refinance.
The appraisal comes back at $750,000 and now your CLTV is not the 90% it was but instead it's 96%. The aforementioned Guidelines for the loan that you are applying to clearly state a Maximum CLTV of 95% or worse yet 90%.

The result? - You cannot qualify for that loan and must find another loan program, another alternative, or live with it. This is because of two things. The guidelines changed, and foreclosures and financially distressed homeowners in your area have lowered the value of your home by selling at prices lower than your market value. Both items clearly outside of your control.

The Moral of the Story:
What's going on around you, in the country and in your neighborhood, no matter what your personal financial situation might be, can have drastic implications on you and your financial situation.

I am an optimist. I look at this as an opportunity for those that are prepared to rise above.
I have been recommending to all my past clients to review their mortgage plans, examine their goals and needs, and make adjustments to those plans sooner than later, if need be.

The Credit Crunch

You may hear from time to time about the Transparency of Real Estate.
There are people and companies marketing this term daily.
It refers to the general idea of the borrower or clients ability to see and know what is happening "behind the scenes".

I'm all for that!

In the broader sense, I like to see behind the scenes in the greater mortgage world.
I'm one of those types that wants to know how a company is doing.

• Are they in good financial health?
• Do they have great customer service?
• Or are they hurting and teetering on the brink?

Many times the things I see as a Mortgage Broker go virtually unnoticed by the general public.
One of which is the tightening of credit guidelines across the board.

Welcome to Part One - The Credit Crunch!

Make No Mistake!
This will and does effect everyone, no matter how good or how poor your credit is.

WAMU (Washington Mutual) issued a statement to the press recently that went unnoticed by the mainstream. In that statement, they said they were "emphasizing higher-quality loans to boost earnings and cut risk after its home loans unit lost $113 million from January to March."

I can see why it went unnoticed.

Here's what you need to know:
Just how much are they "emphasizing"?
How about 70%? Yeah - 70%!

Let's put it this way.
WAMU is one of the biggest lenders nationwide.
The loan you qualified for to buy your home, or the loan your 99 neighbors have is no longer available - period!

How will this effect you?

Follow the bouncing (snow) ball here...

• Maybe not you, but when any of your 99 neighbors need to refinance in the coming months they are going to be in for a little shock.
• They will not qualify for a refinance - plain and simple.
• They will be forced to keep their loans.
• Their payments will increase (3 trillion ARMS are set to recast in the next 18 months).
• They will be forced to try and sell.
• The market will not be able to absorb the new inventory at the prices they need to sell for.
• Your neighbors will go into foreclosure.
• The value of your home is determined by the sales (comps) of others like it in the neighborhood. When those houses sell due to hardship they are not selling at top dollar are they?
• This drives down home values in even the best neighborhoods.
• When the values drop, so does another key factor in the mortgage equation, Loan to Value
  

And that's part 2 of this series... The LTV Crunch

Should We Bail Out?

There's a fierce debate going on right now.
It's a national debate but reaches right into my area.
It's going to have an influence on the home loans that happen right here in Contra Costa County.

It involves the collapse of the sub prime lenders.
It involves the coming rise in foreclosures.
It involves politicians.
It involves activist groups.
And most importantly it also involves you!

The debate revolves around whether or not the government should step in to help bail out the homeowners in trouble.

The media is going to grab a hold of this issue and play it for all it's worth. It makes great headline material.

The good guys and bad guys are all clearly identified.

On the White Hat side we have the politicians and community activists. Always looking out for the little guy.
As for the Black Hats...
We have the Sub Prime Lenders and the lying, cheating, stealing Mortgage Brokers to shoot at.


The media is also going to point at all the bad loans that were originated.
Loans like...

• Interest Only Loans
• Stated Income Loans
• No Doc Loans
• Adjustable Rate Loans
• Payment Option Arm Loans
  

As your following the story in the media just remember what my Grandfather used to say,
"That's one side of the coin, now let's flip it over and read the other."

What's on the other side?

Here's a couple of snippets:

• Those five loan types listed are not Sub Prime, they could be, but they could also be for people who have great credit scores. Having one of these loans does not mean you have a sub prime loan. You could have a 30 Year Sub Prime loan as well.
  
• The amount of principal not paid down during the first couple of years of an Interest Only Loan is very minimal. As an example a $417,000 loan amount at a 30 yr fixed rate of 6.25% would have a payment of $2,568. Over 3 years that borrower would have paid out $92,488 in payments and paid down his principal just $15,623. The same borrower, same example, Interest Only would have had a monthly payment of $2,172 ($396 less). He would have paid out only $78,187 in payments over the 3 year period ($14,300 less). Since most people keep their loans for 3 to 5 years it's not as critical as the media would suggest it is.
  
• Mortgage Lenders, Mortgage Brokers and Loan Originators are not the only ones to blame. There's plenty more responsible parties. (see http://www.patagoniafinance.com/2007/01/conspirator-or-patsy.html)

• The problem is not that these are bad loans - it is that they were sold to the wrong people.

Ultimately, it is the change in payments that will catch the unwary borrower and throw them into the foreclosure pile. That can be in the shape of a short term fixed rate like a 3/1 ARM or it could be the recasting of their Payment Option Arm, where their minimum payments might triple!

So as you discuss the topic with your co-workers around the water cooler, remember this one thing: They are only hearing one half of the story.

March Median Home Prices UP in the Bay Area

The median home prices local buyers paid for a home in the Bay Area last month (March) was $639,000.
That's a gain of 3.1% from the previous month (February).

For the the same time last year the median rise is 2.1% (March 2006 - March 2007).

March figures tend to be higher than February as the traditional buying season tends to kick into gear with the coming of Spring.

The latest data included the 9 Bay Area Counties:

• Alameda
• Contra Costa
• Marin
• Napa
• Santa Clara
• San Francisco
• San Mateo
• Solano
• Sonoma

Looking at the year over year numbers the biggest median winner was in Alameda County with a gain of 3.1%.
The biggest median loser was in Napa County with a loss of 9.2%.

Contra Costa County weighed in with a median price in March 2007 of $575,000, up .6% from a year ago.

The "Median" price refers to the the point at which there are an equal number of homes selling above and below that point.

With traditional mortgage rates relatively low, experts are looking for increasing sales in the coming months.

I Took Part in a Train Wreck

I had a phone call the other day from a former client.
It was another call for help, I had placed a Hard Money Loan for her a year ago.

She had first contacted me when her lender filed a Notice of Default on her home.
She was working but fell behind in her payments.

• Her income was minimal.
• Her job was part time temporary.
• Her credit completely trashed.
• She had absolutely no savings in the bank.
• The Trustee Sale was coming up quick.

She was in a bad position!

I setup a Hard Money Loan. It was her only option. No traditional lender would touch her. Remember this was before the collapse of the Sub Prime Lenders!

I didn't just stop there.
I made sure I also negotiated enough cash out to pay for her mortgage payments for a year.
I put that money into a savings account in her name.

The plan was simple.
Make 12 regular monthly payments on time and in a year we can get you into a better loan.

In the meantime, I also dispensed some other un - loan officerish advice.
She needed to get a better job. Preferably something Full Time, Better Pay, and with Health Benefits. Her spending patterns were not outlandish. But she did have a live in boyfriend at the time. Why didn't he help pay the mortgage? He was a self described slacker! No Job, No Money. You know the type. You can also guess what my advice was concerning him.

It turns out she didn't follow my advice. She spent the money in her savings on other things. She fell behind again. That was 6 months ago. Her solution that time was to have her father (who lives close by, is retired, and had plenty of equity in his own property) buy the home from her, finance it with his good credit and she would make the payments. I was not aware of this. I didn't get the phone call this time. Legal issues aside, it solved her problem once again.

That is until she fell behind again!
She was layed off from her part time job.
She fell behind again.
Her "Fathers Lender" filed a Notice of Default on the house she was living in.

That's why she called me. She was looking for a Hard Money Loan to bail out her Dad.
I had a long talk with her. I discovered the details, the facts, and the story.

My advice was simple and straight forward.
I would NOT do this loan.
I refused to do another loan!
She had ruined her credit, and now she had ruined her fathers credit.
It was a Train Wreck and only going to get worse.


I nicely, but firmly, told her to sell the house (if she could).
If she couldn't, it was going to go to auction and she would be out.
Trying to salvage anything out of this would be irresponsible!

I see all kinds of people.
This woman is a nice person, she's an honest person. She's not trying to use the system. She's not scamming lenders or loan officers.

But it all boils down to this.
Some people should not own houses.
Many people should, but some people are not cut out to handle the financial responsibility of owning a home.