It's not a good thing

When the head of your trade organization is facing fraud and embezzlement charges.

But that's what I read in the SF Chronicle this AM.

John A. Courson, 66, ran Central Pacific Mortgage out of Folsom, a suburb east of Sacramento, before it collapsed in February 2007, The Sacramento Bee reported this week. In July, he was named chief operating officer for the Mortgage Bankers Association of America in Washington, D.C., and is set to become the association's president in January.

The Mortgage Bankers Association is a trade organization for the benefit of the industry.

The association represents 2,400 companies and 370,000 people from mortgage companies, brokers, banks, thrifts and insurance companies. According to federal filings reviewed by the Bee, the association spent $2.2 million and employed nine lobbyists in Washington during the first six months of the year.

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The Daily Conversation...

It's Friday June 27th 2008

• I see that Stocks are down yet again today. 
• Senator Shuman took a shot at IndyMac Bank who's stock is currently around $1 a share,
• and boy do I still have issues with Radian Mortgage Insurance.

"Radian announced that investment properties will no longer be eligible for Mortgage Insurance, cash-out refinance loans in declining markets are no longer eligible for Mortgage insurance" 

and 

"At this time, they have not changed their Declining Markets Policy to match the GSE's - they will continue to apply the same declining market policy they have been using:  Maximum eligible LTV reduced by 5% if in a declining market, for loans greater than 95% LTV, they will reduce to 95% in a declining market, and the maximum LTV for Condos in declining market is 90%"

 

Embed This Video

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

One post leads to another...

Yesterday I listed three reasons why I'll continue to reach out to customers on the internet.

Reading that post prompted my friend and fellow loan officer Tom to twitter me, then call me from halfway across the US.  We had a great chat.   He doesn't blog, he doesn't video, he doesn't add to the internet.  Tom is a self described internet "end user", and that's ok.

In the course of the conversation he stated that he didn't understand why I limited myself to working local. 

Good Question.

• Yes, we can do a loan via the internet.
• Yes, we can converse by phone, by email, and by fax.
• Yes, we never have to meet face to face.

And yes, I've closed loans for people I've never met who were clear across the country.

But I corrected him and said that I don't limit myself, but instead I prefer to work with borrowers locally.

Why?

To this borrower, this is probably the single most important transaction they are every going to make.  Everyone knows that with the Rate Shopping, the APR Shopping, and Bait & Switching that goes on, there's a millions ways to screw this transaction up.  Not to mention the unethical, dishonest salesmen posing as Loan Officers.

Given all of that.  I prefer to work with local borrowers for just one reason...

http://www.youtube.com/v/dl36GnIi32E&hl=en&rel=0

Why work local? So you can see the whites of my eyes!

Yesterday I wrote about the three reasons I'll continue to answer quotes on Zillow Mortgage.

3 Reasons I'll keep trying Zillow Mortgage

That post drew some "highly charged" comments from both sides of the fence.  (I kind of figured it would hence the Animal House Food Fight image)

Here's the 3 reasons boiled down:

1. Zillow's attentive response,
2. ZMM adds to my exposure,
3. I'll engage only under the terms of  "My Plan".

The first rule in my plan is to only quote rates for those close to home (currently a 10 mile radius). Outside of the comment storm, I was contacted twice by readers who wanted to know why. (one by email and one by twitter)

Just like magic, as I was reading my daily 150+ blogs in my FeedReader, I came across this post on the Mortgage Cicerone.  It contained a video from Christine Beckwith. 

The Video is slower moving than I like, but you don't have to watch to the end.  The KEY is at 2:20 in (don't just skip there.  Watch the first 3 minutes at least!)

That's why I stay in my local area.  Eyeballs.

3 Reasons I'll keep trying Zillow Mortgage

Just in case you completely missed it, Zillow Mortgage Marketplace launched on April 2nd 2008 at 9:00 PM Pacific Time.  I was there.  ZMM offered to bring transparency to the system of borrowing.  Right from the start I was a supporter.  However, since that day, certain issues have reared their ugly head. 

• I quickly realized that Zillow can't ask the right questions.  It's just not possible.  While they may ask most of the important questions, sometimes the answer to that question leads to the necessity of a deeper question.  As guidelines change so must the questions.  Because of this, Zillow Quotes can often be "Liar Quotes".

• A guy named Brent almost brought ZMM down.  Not really, but he was "gaming" the system.  Just by luck he happened to quote someone within my 10 mile area (he's in Oklahoma) and just by luck I happened to read his quote.  Just by luck I decided to use his quote as an example in post I wrote exposing the problem.  In 2 days he had already quoted 150 people and completed 1 loan!

• An "uneducated borrower" slammed me (and 5 others) with a negative feedback rating (and he hadn't even contacted me) He was wrong, and although I could and did post a rebuttal, my rating was tarnished.  Zillow does offer the ability for the lender to post a rebuttal and I used that - however, I know full well consumers don't take the time to dig deep.  Instead they'll look solely at my "Rating Graphic" (there it is)  ======>
  

You can see Zillow fixed my Negative Rating after I exposed the problem so now I'm back to ZERO.  This latest issue started a lively discussion on "#1 Reason I'll QUIT Zillow Mortgage"  that was picked up by one of the great thinkers in the industry Brian Brady who posted "Zillow Mortgage Must Verify Consumers To Become A Marketplace" over at Bloodhound Blog.  That post garnered an even livelier discussion.

Over and over again I see unethical, dishonest rate quoting "factories" doing their best to bait the hook so they can switch the poor borrower later.  Did you know some Lenders actually hire people to quote for them?  ZMM is a hotbed of misinformation and outright lies.  They don't actively police the forum, instead they want us to report any improprieties to them.  Unsuspecting borrowers line up in droves and place requests for quotes seemingly unaware of the above listed problems.

So why, given all the bad and the ugly, would I want to even dip a toe, let alone swim in these dark and murky waters?

Reason #1: 

Zillow's proactive approach.  Specifically, David G.  Write a post about Zillow Mortgage and David G will show up (usually in minutes).  Make no mistake, he's there to protect the brand.  He's employed by Zillow, and he's a company man through and through, and he's always Zillow's biggest cheerleader.  But he's also straight forward and honest and not afraid to enter the fray of a highly charged conversation.   If the same thing happened on eBay - would anyone notice?  Would Meg call me?  David did.

Reason #2:

I don't look at ZMM as a great place for free leads.  This is what Zillow is "selling to the loan officer's".  If you are a borrower you might not know that some lenders will actually pay $500 to misquote you! (see "The Truth About Lending Tree") 
I don't care about free leads, I have a different view than most other loan officers.  This may seem strange but I look at it as just another place for additional exposure.  Just like blogging adds exposure, so does my involvement with ZMM.   Simple as that.

Reason #3: 

I have a plan.  It's my "Zillow Mortgage Marketing Plan".  Yeah, that sounds corny.  "Plan your work and work your plan" I was always told.   

1. I'm only going to complete quote requests close to home.  We don't have to meet face to face, but if at all possible, wouldn't you want to look in the eyes of the person who was lending you hundreds of thousands of dollars?  I would.  Although I could quote someone thousands of miles away - I'll stick to my neighborhood.
2. In my quote I'm going to suggest you take a minute to read a special landing page I designed just for Zillow.  Take the time to read that and you'll have a better understanding of the pitfalls before you.  Skip it and you'll probably get what you deserve.
3. I'll base my rate quote on real lockable rates.  Not rates from a week ago, but rates that are real and available at that time.  I'll also base those rates on a 30 day rate lock.
4. Respond to my Rate Quote via email or by phone and I'll offer to send you a Real GFE.  That Zillow quote didn't include many of the fees I know you'll have to have.  Items like Title Policy and Escrow Fees.   
5. Attached to that GFE will be a .pdf of my loan application.  Fill that out, send it back with the required documentation, and I'll be able to find you the best possible program at the best possible rate and fees that best meet your particular needs.  Don't want to fill out the application?  I'm ok with that.  For me, I've lost 15 minutes of my valuable time.  You may lose something even more valuable, Thousands of Dollars.

Why will I do all this knowing full well the pitfalls of Zillow Mortgage?

I'm a dreamer.  That's all.  I would like to believe that Zillow found a way to ask all the right questions.  I would like to believe that all loan quotes given were accurate.  I would like to believe that I was truly competing for your business on a level playing field with transparency and justice for all.  I would like to believe that all borrowers took the time to make informed educated decisions and didn't shop by misleading  rates and fees.

I know full well that 99 and 44/100ths of the borrowers won't do any of the above.  They certainly could, but I know they won't.  On the highly unlikely occasion that someone does though - I'll be there.  I'll earn a new client, make a new friend, they'll get a great loan and all will be well in the world. 

See, I told you I was a Dreamer! 

Jumbo Rate Locking

It's a shame that a great idea can sometimes be dragged down by others.

Yes, I'm still touting Jumbo Mortgage  Rates.

Here's a synopsis of what happened.

• Tuesday, May 6th: Fannie announces to that they are going to enable lower interest rates for Jumbo Mortgages - pushing them closer to Conforming Loan Rates.
• Wednesday, May 7th:  Fannie did just that.  Jumbo Mortgage Rates dropped significantly.
• Thursday, May 8th:  Lenders are reporting, as expected, an increase in Jumbo Mortgage Locks. 

However, upon closer inspection, those Lenders are reporting today that the loans that were locked were also a "bit higher than the prevailing interest rate".

Let me decipher that for you

(I'm using all hypothetical numbers and rates just for clarification)

You applied for a loan a couple of weeks ago with "Loan Officer Larry".  At that time let's say Larry quoted you a real interest rate for your Jumbo Mortgage at 6.75%

Yesterday Larry called you.  He was out of breath, excited, and could hardly contain himself.  He told you he locked your loan not at 6.75%, not at 6.5%, but all the way down to the unbelievable rate of 6.0%!

Can you believe it?  That Larry, what a great guy!

Here's what really happened

Rates did drop.   They dropped significantly.  But they dropped much more than Larry told you.  What Loan Officer Larry did was give you a partial break and pocket the rest in the form of Yield Spread Premium.  That's a fancy word for putting cash in his pocket.

According to the lenders, Larry made a lot of money yesterday.

How do you feel about  Larry now?  Did you get LOL'd?  Sorry about that.

Want a FREE $33,000?

Yesterday we had a dip across the boards in interest rates.

I advised my clients to lock if they could. I had three that were ready to lock.

Talk about Volatility.

Today interest rates are back up and don't look like they'll be dipping again anytime soon.

For the rate shoppers out there. If you didn't have your Ducks in a Row - you lost.

What exactly are those Ducks? Good question.

1. a Complete Mortgage Loan Application including all requested documentation.
2. an Underwriters Conditional Loan Approval
3. The ability to meet those Conditions in a timely manner

That's it. Seems pretty simple right?

But that's also why you cannot pick up the phone and shop for rates.

Without covering items 1 thru 3 above, the rate quote you hear on the phone is either from a Liar or a Knucklehead (thanks Jack)

You must work with a True Mortgage Professional. One that can properly advise you to lock or NOT to lock at any given point. One that has real time information on what is happening in the marketplace.

Speaking of locks - you did get that lock verification in writing didn't you?

Here's the proof in real dollars.

Yesterday I ran a purchase scenario for a potential client. They were not ready to lock.
Had they locked they would have been able to buy $33,000 more home. Same loan, a Conforming 30 Year Fixed.

Not for the same monthly Principal and Interest Payment - but LESS!

Yes, that's $33,000 for nothing.

If you extend that out 30 years, at an annual appreciation rate of 7.2% (go ahead and ask why) that same $33,000 becomes $265,679.17.

Is it worth working with a True Mortgage Professional yet?

As my friend Brian Brady says, "If you thought dealing with a professional was expensive, wait until you find out how much dealing with an amateur costs!"

Fixed Rates are Better!

Ok, so are the ARMS.
I just wanted to stir up the pot a little.
Lately I get more calls for quotes on a 30 yr fixed than any other loan.

As of this morning we are almost 1/4% lower for the same conforming loan profile that I would have quoted two days ago.

That's a big jump!

This has little to do with the Fed's and more to do with what is happening in the market today.

Remember, we are in an extremely volatile market right now.
Change happens and it happens fast!

How's your Ducks?

I hope to lock two loans today, maybe three.

These have approvals already and ready to close.

They have their Ducks in a Row.

BTW: If you are locking your loans - make sure you get a lock confirmation (in writing). If not your loan officer is probably playing you.

I recently streamlined the application process I'm using.

Cleaner, Neater, More Concise.

Need financing?

Call Me

(925) 288-9977 ext 104

or email at Mike@PatagoniaFinance.com

Twitter just the good stuff

I have a twitter feed for the Real Estate Agent in the SF Bay Area. It's relatively new.

If you are not familiar with Twitter - don't worry.

It's a tool that allows me to deliver content to you in the blink of an eye.

Here's the feed: http://twitter.com/BayAreaMortgage

For instructions: http://www.PatagoniaFinance.com/twitter

What's with the Fed's Securities Lending Program?

Very early this morning the Fed's announced they are increasing their Securities Lending Program by $200 billion.  Before the market opened, all financial stocks were up dramatically.

"So what is this Securities Lending Program and why should I care?"

Good question.  The buzzword you are going to hear is liquidity. 

In this we are talking specifically about the ability of big lenders to borrow money from somewhere (as in the secondary mortgage market), and lend money to somewhere (that would be you and me - the homeowner)

The Fed deals in Treasury dollars.  The Lenders deal in Mortgage Backed Securities (MBS).  Remember that lenders sell pools of mortgages to investors packaged as Mortgage Backed Securities.  The prices investors pay for those pools determines what that lender can do or not do in the future.  If the investor dollars have stopped buying what your selling you might have an issue. 

I grow tomatoes in the summertime.  I love Heirloom Tomatoes and they dominate my garden every year.  Let's assume times are tough in the mortgage business.  Yeah right!

I decide to go into the tomato business.  I box all my tomatoes as they ripen and sell them to the local grocery store down the street.  The prices that the grocer will pay me fluctuate due to the demand, but overall I should make a pretty good return. 

It's the heat of summer, and I walk in with my prized Purple Cherokee's, Black Crims, and Green Zebras.  Sam, the grocer says he isn't buying, neither is Joe down the street, or Luigi across town!  They tell me that some FDA report came out saying tomatoes might cause excessive eyebrow hair growth.

Oh no!  What am I going to do with all these tomatoes?  My garden is wall to wall tomatoes!How am I going to pay my water bill if I don't get cash for all these damn tomatoes?

I have a liquidity problem.  That's where Lenders are right now.

The Securities Lending Program allows "primary dealers" (big lenders) to exchange mortgage-backed securities (MBS), and other debt instruments for Treasury securities. 

Going back to my tomatoes.  Although the market for my tomatoes has dried up today, we all know it'll come back someday in the future (we hope).  The Feds have a program that allows big Tomato Dealers like me, who's market has dried up, to trade in some of those bushels in exchange for something else (let's say, apples). 

Now follow along, we're going to move quickly here...

Luckily the water company accepts apples as payment.  I exchange some of my boxes of tomatoes for apples.  I then pay the water company and keep the water flowing to my garden.  My existing tomato plants don't shrivel up and die.  The news comes out that the FDA story was incorrect and heirloom tomatoes actually increase a certain part of the male anatomy.  Suddenly Sam, Joe, and Luigi are all calling me for my Tomatoes!  That's what the feds hope will happen with the mortgage market.

Wow!

(all puns intended)

My Blogging Road Map

My name is Mike Mueller. I am a Loan Officer / Mortgage Broker / Mortgage Planner in Concord, California. I have been in the industry for 14 years, I've seen the good times and the bad. I work for Patagonia Finance in the San Francisco Bay Area. I am a residential mortgage broker for all of California, a commercial broker for all 50 states.

I was talking to a reader yesterday who had searched Google for a particular problem she was having. She typed in not keywords like most people do, but her actual question. Google interpreted what she was looking for and served up results. That led her to one of my blogs. The wrong one. She read many of the pages but when she couldn't find what she needed she called me. I was thrilled! Really. That's why I list my phone number at the top of every page.

I write to 5 different real estate blogs (almost daily). Each one has it's own particular flavor and purpose. Four of those are right here, the other is an international real estate network. I also guest blog in several other places. For now, I'll just limit this map to what is here on Patagonia Finance's Website.

Mike's Minute...

This is my main blog. It's been going strong since early 2001. It's a catch all, general purpose bin of useful information. It is usually 100% all my writing. No guest authors, no reprints. The topics can range from financial news (Bernanke is scheduled to speak this morning) to explaining complex mortgage plans and theory in layman's terms, to a little fun. All in all it's my personal spin on what is topical right now in the mortgage and real estate business.

The Foreclosure Report...

As a national blogger I have come in contact with some of the very best real estate people. Real honest ethical professionals who always do what is best for the client. As a loan officer I have also seen the evidence of what the worst people in the industry can do. With many homeowners facing foreclosure there was a void in the internet where these homeowners could find that honest unbiased information. The Foreclosure Report was my answer and fills that void. I have over 30 different real estate agents, loan officers, title and escrow people contributing their honest information for those homeowners in trouble. I also have searched out and found the contact information for as many Lender's Loss Mitigation Departments and continue to add to that list. The Foreclosure Report... is aimed at the homeowner that is trouble now or worried that they might be in the near future.

Foreclosure Investing...

Obviously this is the other side of the coin. Much like The Foreclosure Report, this site deals out honest and ethical information but is aimed at the person looking to purchase or invest in foreclosures, Notice of Defaults, Bank Owned Properties, and Short Sales. The information contained in this site is primarily for the investor looking at purchasing rental property correctly. Believe me there are hundreds of ways to do it wrong. Late night infomercials, get rich quick seminars, and scammers have always found this arena fertile ground for their devious ways. We work very closely with our preferred investor clients. While this site delivers only some of what we give our clients, it's a start.

Reverse Mortgage Help

Here's another area where the scammers and unethical individuals can reap steep rewards. Make no mistake, as Reverse Mortgages increase so will the crooks. This blog is meant to counter that and provide simple honest information. A reverse mortgage can make a huge difference in the quality of life for seniors when properly done. As the nation's boomers age this will soon be a very important aspect in the mortgage world. Working with a true mortgage professional will be critical. Knowing the difference vital.

So that in a nutshell is a virtual roadmap to who I am, what I write, and what I do.

I can't fight the bad guys all by myself but via the power of blogging and search engines, I'm trying.

Thanks for reading, and please please, feel free to call me, anytime!

Mike Mueller

Technorati Tags: mortgage, real estate, short sales, foreclosures, reverse mortgage

Jumbo Loans are making a comeback

Well, in part, they never left. They were fundable, just exorbitantly priced. That is changing. In case you missed it, here's what has happened.

Around the beginning of August, Investors who normally bought pools of Alt-A loans from lenders decided the risk wasn't worth the reward.

The loans they were buying were not Sub Prime, they were Alt-A which includes Jumbo Loans, Home Equity Loans, as well as higher quality Stated Income Loans. These investors simply stopped buying pools at competitive prices. Instead they offered the lenders drastically lowball offers on their pools.

That in turn threw some Lenders out of business and others scrambling for liquidity. Countrywide borrowed 11.5 Billion from lines of credit and then sold another 2 billion of stock to Bank America.

To simplify the mortgage securitization process think of it this way. Every lender needs to make new loans in order to stay in business. Servicing existing loans doesn't pay enough.

Imagine the Lender and their vault. There is a finite amount of cash in the vault. During the month the Lender lends as much as they can out of their vault. Pretty soon the vault is running empty. So the lender turns to the secondary mortgage market and sells the loans they have done to investors. By selling the loans, in return they fill their vault back up and then make more loans. Simple, eh?

The money the Lender receives from the investor is based on a number of different factors. Some are directly determined by the loans in the pool, others are external. Some outside factors might be the overall economic situation, or what other available investments they could buy instead. Inside the pool factors include how that particular pool is expected to perform, their credit score, their loan to value and so on.

Want to know a secret? Real interest rates for mortgages are not determined by the Feds, they are a direct result of this secondary mortgage market and how much they are willing to pay for these pools.

I received a call this morning from a contact I have at a large lender. She told me they had just arranged for the sale of a pool of Jumbo Loans to the secondary market and in doing so this was the first step in getting Jumbo Loans back on track.

I've been doing some extensive research since that call and created somewhat of a cheat sheet.

I do want to caution that this is current as of today, it could change tomorrow, and is only meant as a general guideline as to what is currently out there and Real. I have to emphasize the REAL aspect.

I cannot tell you how many emails, faxes, and phone calls I have gotten from Pseudo Jumbo Wholesale Reps pitching me everything they can in order to get my business. Many of them are using the same sales tactics a used car salesman would to get my loans into their system. The problem is that I know things they don't. I know people above them that they don't. I know the truth.

So here is, as of today August 29th, 2007, a general guideline as to what you can expect to do today in the world of Jumbo Financing (over $417,000):

FULL DOC

Loan Amount	LTV	Credit Score	Debt Ratio	Reserves Required
$500,000	95%	680	45%	6 months
650,000	90%	680	45%	6 months
750,000	85%	700	45%	6 months
1,000,000	80%	680	45%	6 months

Stated Income / Self Employed

Loan Amount	LTV	Credit Score	Debt Ratio	Reserves Required
$500,000	90%	680	45%	6 months
650,000	85%	720	45%	6 months
750,000	75%	720	45%	6 months
1,000,000	70%	720	45%	6 months

How about Rates? One of my insider newsletters has this to state about rates and locking:

"We still maintained a lock-in stance for all non-conforming and jumbo loans as that market is changing daily. Until Wall Street investors set the market for jumbo loans, we maintain that stance."

I hope this helps you know a little better of what is going on in the dimly lit backrooms of lenders and those that buy their pools. If you have questions, please feel free to contact me at any time.

Mike Mueller (925) 288-9977 Ext 104

Feel The Pain

At first I was just going to let this slide off into obscurity. I can't.

On Friday, I watched Jim Cramer of CNBC have his own personal on camera meltdown. I'm not a big fan of Cramer, but I certainly can feel his pain.

Cramer's was upset by the Fed's not paying attention to what is actually happening in the market. His Pain comes directly from his contacts in the hedge fund business. The fact that "good people" were losing their jobs because of the Fed's position. His Pain was that two of the Feds, Ben and Bill, were not paying attention. They just were not getting it.

I mentioned yesterday that the market was operating in uncharted territory right now. The 10 Year Bond Yield and the mortgage rates that have been mirroring the rise and fall of that bond yield have gone their separate ways.

My metaphor of choice was flying a jet through a cloud, no visibility, with no radar. Flying Blind.

I talked to a few Agents today. They've watched the same news I have, they've seen the same articles, some many even read that post. Yet as I was discussing current events with them, discussing the current Mortgage Meltdown, it became crystal clear they were just not getting the gravity of the situation. They just were not getting it.

"Mike, does this mean you can't get my self employed client approved for a 80/20 first time home buyer on a Non Owner Occupied duplex with his 600 credit score?"

Let's put it this way...

"Ladies and gentlemen, This is the Navigation Officer. I regret to inform you that it appears both the Captain and Co-Pilot have used their emergency parachutes and have left the plane. We'll pretend nothing has happened and continue flying on autopilot. Have a Nice Day and thank you for flying Mortgage Airlines!"

"So, how soon can we get them pre-approved and ready to make an offer?"

That right there is My Pain.

Jim, I feel for you.

Here is Jim's Meltdown.

Ben S. Bernanke, Chairman

William Poole, Federal Reserve Bank of St. Louis

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:

This is bigger than just a Lender

Monday, trading for one particular lender was halted on the floor of the stock exchange.
The company is American Home Mortgage Investment Corp. (Ticker symbol AHM)
Although they may have done Sub-Prime Loans, they are what is called a Alt-A lender.
That means they fund loans that may fall slightly out of conforming guidelines.
Typically an Alt-A product might be a loan that has a "wrinkle", keeping it from being pooled with other normal loans.

The problem for American is that their financial backers have abruptly stopped their "backing".
This story in from Bloomberg states that American had $300 Million of loans that it had already told borrowers they would fund. The company site says, "It does not anticipate funding approximately $450 to $500 million today."

The AHM Website also says, "These issues are primarily the result of the unprecedented disruption now occurring generally in the secondary mortgage market."

Imagine you are set to close on your new home.
All you are waiting on is the funding for the fully documented, 700+ credit score, 30 year fixed loan you signed last week.
The phone rings, it's your loan officer, he has bad news...

"Sorry, your whole deal just fell through. The lender is out of business!"

The article says towards the bottom:

"Writedowns, collateral calls and cash shortages triggered bankruptcies of subprime lenders New Century Financial Corp. and Mortgage Lenders Network USA Inc., and led to sales of Accredited Home Lenders Holding Co. and Fieldstone Investment Corp."

But remember, those were Subprime Lenders - American is an Alt-A Lender, there is a difference.

"The company was the 20th-largest Alt-A lender in 2006, according to March data from trade publication Inside Mortgage Finance. IndyMac Bancorp Inc. ranked first."

IndyMac was caught up in this as well, but they have a slightly different spin - They reported that their profits were down, but their shares went up!

"IndyMac Bancorp Inc., the No. 2 independent U.S. mortgage lender, said profit declined as more borrowers fell behind on payments and it made less from selling loans to investors. The shares rose as much as 20 percent as the company said credit losses weren't as steep as its competitors."

Is that like saying, "Business sucked, but our business sucked less" ?
You bet it is!

In the end the point is that ALL THINGS ARE CONNECTED.

You, me, the subprime lenders, the house next door, the house across country. Everything and everyone. Just because you have signed loan documents, just because you are dealing with a A paper lender, don't for one minute think that you are safe. We're all connected.