“Which Of The Big Lenders Risk Collapse?”
Readers suggested a topic surrounding the changes in the lending industry. “Which of the big lenders are at the most risk of collapse in 2007? HSBC? Countrywide? etc. I suppose I’ll start looking through their 10KSB & 10Q’s for clues.”
One said, “1. Countrywide, Option One and Ameriquest go bankrupt. What happens to a mortgage when no one wants it at any price? Fannie Mae attempts to turn in a Long John Silver’s placemat as a financial statement, they get another extension and a stern warning that they will be delisted.”
Another said, “Credit will tighten and this means that there will be fewer sources of funding since the MBs holders will begin to demand the appropriate risk premium. Debt is debt and has to be paid back at some point in time. This is why M3 cannot expand indefinitely. Deflation will happen because of credit destruction.”
One hears aircraft. “Bernanke says he will drop money from helicopters. Your argument says people won’t pick it up, or banks won’t lend it. I just can’t believe that. A bank that doesn’t lend is out of business.”
One is doubtful, “He will continue trying to walk the volatile tightrope between death by fire (inflation / possible run on the dollar) and ice (recession / deflation). Discrete helicopter drops will only be used to the extent judged as necessary to stay on the tightrope. Good luck!”
The Wall Street Journal. “As more homeowners skip out or fall behind on their mortgage payments, some lenders have started tightening their underwriting standards.”
“That might not be enough to save them from losses. Mortgage lenders, such as Countrywide Financial Corp., Downey Financial Corp. and FirstFed Financial Corp., try to avoid risky ’subprime’ borrowers and have become more cautious about whom they lend to in general. Also, they’re setting aside more reserves for potential defaults. But the increasing popularity of second mortgages could end up undermining their efforts.”
“New data in a research report from securities firm UBS show a high percentage of borrowers with delinquent, defaulted and foreclosed loans have second mortgages, which they’ve usually taken out at the same time as their first loans to buy a house. The UBS data suggest these borrowers are so stretched financially by the added debt that they can’t make payments on their first loans on time.”
“Second mortgages underwritten by the same bank that originated the first loan are termed ’silent seconds’ because the loan-to-value ratio lenders report includes only the first mortgage. They can enable a home buyer to borrow more, often to buy a property he or she couldn’t otherwise afford.”
“These second mortgages, sometimes called piggyback loans, started to take off along with other ‘nontraditional’ mortgages, such as interest-only mortgages and payment-option ARMs, as housing prices appreciated in recent years and meeting traditional mortgage requirements became more difficult.”
“Today, adjustable-rate, interest-only loans constitute the highest percentage of silent seconds. In the ‘Alt-A’ mortgage market, where borrowers have good credit but don’t necessarily fit traditional lending standards, 58 percent of the $24.6 billion in adjustable-rate, interest-only mortgages originated in 2006 have second mortgages.”
“The amount borrowed in silent seconds probably is greatly underestimated, says David Liu, a director in the U.S. Securitized Products Strategy Group at UBS. The lack of knowledge among lenders about silent seconds held elsewhere presents a problem as the lenders try to determine how much to set aside for potential losses.”
The LA Times. “Ownit Mortgage Solutions Inc. of Agoura Hills, which shut down abruptly early this month, has filed for bankruptcy protection, saying it owes more than $165 million to Merrill Lynch & Co. and other financial firms that bought Ownit loans now in default.”
“The filing is a sign of the stresses felt by so-called sub-prime lenders such as Ownit, which make higher-cost loans to borrowers with poor credit or limited incomes. In its filing, Ownit listed its assets as between $1 million and $10 million and said it owed $170 million to its 20 biggest creditors. By far the biggest portion of the debt resulted from soured mortgages.”
“Ownit sold its loans on the condition that it would have repurchased them if the borrowers missed payments in the early months.”
“Merrill Lynch demanded that Ownit repurchase mortgages totaling $93 million. Several other Wall Street firms are seeking smaller amounts, and Calabasas-based Countrywide Financial Corp. has $11 million in loans it wants Ownit to buy back.”
“Merrill Lynch was Ownit’s chief backer on Wall Street, having bought a 20% stake in the company for $100 million in September 2005. Merrill also had provided a large credit line to Ownit and purchased two-thirds of its loans to convert into mortgage-backed securities.”
you have to love this.
The NAR signed a reciprocal membership agreement with the Mexican Real Estate association, Association Mexicana de Profesionales Inmobilarios, in October. This means that all of Mexico’s 2,500 members will become Realtors on January 1, 2007.
Above from Los Angeles Times, Sunday December 31, 2006 page k13
Looks like NAR has cooked up a spicy bean burrito.
Another good read from Safe Haven:
Real Estate and the Post-Crash Economy
By Barry Ritholtz
The Housing boom and bust have been page-one news for what seems like years now. Is there anyone left in the country who doesn’t know about the huge run up in home prices during 2002-06, and the subsequent “correction?”
My guess is no one. What most people may not be aware of, however, is just how unusual residential real estate has been in the current cycle. The housing boom has played an enormous role, with few truly appreciating the outsized contributions the “Real Estate industrial complex” has played in the recovery and expansion. It can politely be described as “atypical.”
Since the recession ended in 2001, Real Estate has been crucial in enabling enormous consumer spending, and helping to create many new jobs. These two factors have been the primary drivers of the post-crash economy. With this economic expansion now entering its 4th year, the cooling real estate market is increasingly presenting new risks. With the peak of the boom long since past, the current inventory build up, sales slow down, and price decreases are starting to take their toll on economic activity. Given how extraordinary the boom was, we may not be in for a run-of-the-mill downturn.
Few investors seem to have fully considered the impact the boom and subsequent bust will have - for the real estate market, to equities, and to the overall economy. Today’s commentary aims to correct that. We want to put Housing’s surge into the broader context of this business cycle, and examine what the slowdown will mean to various economically sensitive sectors. To do that, we will look at:
- How this expansionary cycle got started;
- Why this post-recession cycle has been so unusual;
- How this housing market has been “backwards”
- Where these factors are impacting consumption, the economy, and equities.
more here, including great graphs:
http://www.safehaven.com/article-6603.htm
Great site! So IF it was the housing boom that kept us out of the downturn of 2001, could we also say it was the military build-up as well. So as our troops come home as some hope. I expect some defense corporations to downsize as well. So, When the democrats are in power, their timing sucks! Everyone always blames who is in power right or wrong. Some will blame the minimum wage increase as well. Maybe, they should wait around and see what 2007 brings before they take too much on.
Ritholtz writes a great blog; it’s a daily read here in the Lux household.
Wow - that is a great article that puts everything together and make so much sense. Prepare for the worst!
And what does the American side get for the deal?
Any ideas how New Century will fare next year?
Well, i pulled this list off of the MBA’s annual convention report (october ‘06). This was for end of Q2 (page 12 of report):
Top Subprime YTD
1. Wells Fargo
2. HSBC
3. New Century
4. Countrywide
5. Freemont
6. Option One
7. Ameriquest (who gets the baseball park when they go down?)
8. WMC
9. Washington Mutual
10. CitiFinancial
11. First Franklin
12. GMAC
13. Accredited Home
14. BNC
15. ChaseHome Financ
16. Novastar
17. Ownit
18. Aegis
19. MLN
20. EMC
21. ResMae
22. FirstNLC
23. Decision One
24. Encore
25. Fieldstone
(warning: PDF 1.23mb)
http://tinyurl.com/yx7yz9
by the looks of that, it would appear Wells Fargo, New Century, HSBC, and Countrywide bear heavy watching.
New Century has made three loans in Lincoln, CA(Sacramento MSA) in the last 8 weeks. All three loans are at $200,000 over market value and all are at 100% of the purchase price. Three loans on one street? How much more is there in this area and throughout California? I believe these were “cash back acquisition” loans, where the buyer put the extra $200,000 in his pocket, or perhaps split the $’s with the sellers.
I have just notified the RMBS rating divisions of Fitch, Moody’s and Standard & Poors, with copies to the COB, CEO, & CFO.
This $h!t has to stop now. New Century will be going under soon with these kinds of business practices.
The way their stock prices is acting (NEW is the symbol), it is making new yearly lows daily during the last several trading sessions while the DOW and S&P continue to go up.
Not a good sign. My bet is there is alot of bad news behind the price action and it may go into the teens soon.
Somebody in that company (or somebodies!) needs to go straight to jail…do not pass Go!
Several of those are now gone or are expericing change:
Countrywide is about to $hit can 10,000
Opition One - Is on the Auction block
Ameriquest (closed all retail branches, see my photo in the pics)
WMC - They have changed their name and are now using the GE name
Ownit- Bought the farm
MLN - Appears to have also bought the farm
Encore - They are on their last legs (see ECC for press releases)
A little more:
(1) http://forum.brokeroutpost.com/loans/forum/2/77339.htm
Just got this in an e-mail. Anyone else heard of these?
Own It - CLOSED
Sebring - CLOSED
Maribella - CLOSED
MLN - Lost it’s only investor today, scrambling to replace them.
D1 - needs a 580+ for any stated Loans
People’s Choice - 660+ needed for FTHB to
great find c & c! thanks for the link.
I just read this from Countrywide’s latest 10QSB:
Pay-option loans with accumulated negative amortization:
29.6B 2006
14B 2005
Accumulated negative amortization (from original loan balance):
471M 2006
75M 2005
I would say that’s some exposure. nice growth. lol
Table, page 53 (bottom of page)
http://tinyurl.com/ymaygz
Did anybody notice that mot of these joints are in SoCal? If you look at the top loan shops, 55% of the businessvolume (dollar amounts) takes place in SoCal/OC. How do you guys fit that many basements and boilers in such a tight area?
Just another nail in the coffin on the SoCal (RE never goes down here” myth.
Aren’t they booking the accumulated neg-am interest as revenue? Sure does make their bottom line look good now, but stand by for some hellacious earnings restatements in the near future.
cheez posts “Accumulated negative amortization (from original loan balance):
471M 2006
75M 2005″
Of course they book that money as a collected asset.
I worked at Countrywide’s HQ in Calabasas for two years. The worker bees had mostly drunk the koolaid during the bubble and looked the other way when absurd loans came across, which happened daily back in 2003-5.
Does anyone know what happened to ECC? I can’t look up anything on the stock? They were NAS listed.
Nevermind - ECR:
Sold to Bear Stearns
I think many of these sub-primes will be bought by private equity firms and larger banks. Maybe the GSE’s will scoop a few up in an attempt to hide the ugly truth.
ECC is in liquidation. They sold the origination platform to Bear Stearns, and are are running off the portfolio.
1. Wells Fargo
2. HSBC
3. New Century (On the ropes, hasn’t seen really big problems yet)
4. Countrywide
6. Option One (HRB is trying to sell this)
11. First Franklin (NCC sold this to Merril Lynch, who you think would have learned something from ownit.)
12. GMAC (Doing alot less of this)
13. Accredited Home (LEND, in better shape than the RMREITs b/c they can retain earnings)
16. Novastar (Too much carried over RTI, look for this to blow up in late 2007)
17. Ownit (Dead!)
25. Fieldstone (On the ropes)
First Franklin has either been sold or is for sale by their parent company National City.
First Franklin is the proud owner of one of Casey Serin’s loans. I got a call from a recent New Century borrower. They just did an 80/20 cash out refinance for a senior borrower, total loan amount was $130,000, Zillow said the property was worth $102,000. Borrower had a hard time keeping up with a $63,000 loan. Wells Fargo made a cash out 100% loan to two borrowers ages 77/91 for $200,000, a 40 year IO 2/38 ARM terms (IO period ends in 2 years also). Wells approved a $216,000 loan for a lady on a disability income of $30,000 using NINA documentation, her house payment equaled her total income. I have many more stories about most of the companies on this list. Getting rid of 90% of these places is a good start.
Retain 10% of them, surely you jest! Shitcan them all and short em all just for giggles.
Wells will probably be O.K., but are foreclosing on some loans.
HSBC owns a lot of real estate already, which is dropping in value. New Century….see above. Countrywide, I have no idea, but they seem to be risky, yet a survivor type company. Fremont Investment & Loan (not Fremont Bank, BTW) is a laughing stock. Not only do they have a big sub prime exposure, they hold a lot of paper for the condo construction business. If they survive, it will be strange. Option One? I have heard they are toast already. Pirates. Just like H&R Block. I new a tax preparer who worked there for one season. She could not believe the predatory nature of the oranization. Shameful. WAMU has Long Beach Morrgage, who will not last long, as WAMU’s bigger problems will make them short tempered for any LBM issues.
The whole industry is a can of worms. RMBS buyers like Fortress Investments are probably hating all these lenders as they’re going to be a bagholder. It could unwind some hedge funds in the same way Long Term Capital faced problems.
Hmmmm.
Well Fargo had an executive owned appraisal subsidiary called ValueIT doing the appraisal work forl their originations.
Every L/O had one appraiser in their pocket rubber stamping values and guranteeing 24 hour turnround times as a marketing scheme.
Pure out and out conflict of interest racketeering.
These f*cks are toast.
The Ownit info is interesting. MLN (which stopped funding loans on Friday after missing a few on Thursday) also has a servicing arm. However, I don’t believe they are legally separate entitiies, and if MLN experiences similar buyback obligations, there’s no telling what will happen to the servicing arm.
It is interesting how they structured these subprime outfits. If I am not mistaken, Ameriquest, Option One and Ownit were all closely held and not subject to stock market reporting. Also, it is convenient that H&R Block put Option One in a corner by itself so as to protect their credit rating.
When you talk about silent second mortgages. I have seen mortgage brokers tring to get around the so called 10-20% down so their customers do not have to pay for mortgage insurance. They have this 90%-10% mortgages. I think HSBC is big with this program. What happens when there are all these defaults and no insurance to protect the bank? It seems like the banks are the ones that became reckless.
It’s standard for RMBS to be done as Special Purpose bankruptcy remove vehicals. The loans are sold into a trust, bond holders buy bonds, and the trust buys the loans.
There is alot of shady stuff in the housing bubble, but don’t think everything that moves is evil.
Don’t forget the Derivatives King, JP Morgan.
JP MORGAN? Nahhhh !
It’s you and the rest of the G8 taxpayers who anyways are going to pay the bill when the sh-t hits the fan. These bloodsuckers and warmongers frome JP Morgan never pay and never go bankrupt. Old principle. If you are big enough, the government will come to the rescue. Socialism for the big fish bankers and other vampires.
“Ownit Mortgage Solutions Inc. of Agoura Hills, which shut down abruptly early this month, has filed for bankruptcy protection, saying it owes more than $165 million to Merrill Lynch & Co. and other financial firms that bought Ownit loans now in default.”
Now that the water is draining out of the subprime swamp, we are beginning to catch a glimpse of those who were swimming naked with all the snakes and alligators that live there.
Wow, these mortgage shops guaranteed the loans they were selling? So that’s how they unloaded all these crazy loans. What a bunch of fools at Merrill for thinking a fly by night outfit like this would ever be able to make good on these guarantees. For Merrill’s sake, hope they priced in a fat risk premium to the purchase price.
Fat risk premium? I guess you never heard of the conundrum = land w/o risk premiums.
Sounds like a sweet deal.
Have no fear. Merrill Lynch is one of Da Boyz of Wall Street. What they lose in the mortgage game, they will steal friom the 401k’s by manipulation.
Oh man, aint that the truth…
The funny thing is that Merrill owned 20% of Ownit. So Merrill was forcing itself (Ownit) to buy back mortgages from…itself (Merrill). Presumably, this is part of the reason Ownit went under. Why would Merrill do this? Perhaps to force the company bankrupt for some other reason?
Maybe Merrill does better in bankruptcy court as a creditor than as a stockholder.
Anyways it’s your money not theirs. Ultimately you will be paying the bill.
“fools at Merrill thinking a fly by night outfit would make good on those guarantees” — My landlord, who wants to sell me the house where my furniture is living, is proposing some deal where if the house fails to appreciate in 5 years he guarantees to buy it back. Guarantees backed by WHAT !! Told him I wouldn’t mind giving him a more favorable mortgage than the one he’s got, but he needs 80% of the asking price, and that’s a bad risk.
It is worth pointing out that as these multi-hundred million dollar loses roll out (Option One, Ameriquests judgement, Ownit, etc.) no one is mentioning bailout.
And with record bonus’ flowing on Wall Street, I doubt Joe six pack will take kindly to cleaning up the mess.
Well, who did Merrill sell the loans to? Or did they sort of keep them in house?
pension funds, 401ks, City of San Diego pension fund, hedge funds, foreign countries, etc……….
This is what will kill the market going forward. It won’t matter what market it is West Hollywood or Santa Monica or OC…it’s toast once the credit dries up and it will.
I can hear the derivitives explosions now.
Interesting, Ownit (deceased) & Countrywide (still looting) right in the same areas of SoCal. I got tired of run-up equity slackers made that way with Daddy’s inheritance buying Range Rovers to make the daily commute on Ventura Blvd. I moved. SoCal -Nice restaurants, stuff to do there, but too many kooky, spoiled residents.
I hope Merrill Lynch takes one up the poop chute! What a bunch of greedy criminals! I would love to see them go out of business someday.
It used to very difficult to qualify for a mortgage. You had to prove you were a “saver” instead of a spender - have money for the downpayment, money in reserves, no credit card debt, clean record, etc.
Now we have “spenders” with mortgages as well. Why bother with a downpayment? Tap every penny from the house and spend it.
There’s no way this ending is pretty.
I bought in ‘96, sold in ‘04 and am so glad. I have so many friends who bought recently and can’t afford their homes once their ARM resets.
I agree with you Lisa. This entire country is in the midst of lunacy with spending patterns and credit gone wild. I second your opinion that there is “no way this ending is pretty.”
“…credit gone wild.”
I’m sure it would make a great video. Lou?
“There’s no way this ending is pretty.
I bought in ‘96, sold in ‘04 and am so glad. I have so many friends who bought recently and can’t afford their homes once their ARM resets.”
You’re right. There is no way this comes to a pretty end. I anticipate an utterly staggering number of foreclosures to come over the next 3 years. Shoehorning people into houses they could never afford was a bad strategy. Good for the short term, (mortgage brokers, realtors, speculators, etc.) bad news long term. Now that appreciation is done, swarms of sellers are heading for the exits. But with lending standards tightening, there is barely anyone left who can qualify to buy. Pull up the mls in any major metro area on the west coast and one quickly realizes that more than 80% of the listings are affordable for around 10% of the population. Yeah, that’s sustainable (NOT). But there will be no government bailout. This whole “helicopter drops of money” talk is a joke. Our government is not going to make the majority of the country pay for the mistakes and misfortunes of the greedy minority over the last 5-7 years. The banks aren’t going to fail. They will get nicked up, but will survive. Same with the builders. And as far a homeowners, not everyone is an FB. While a lot of houses were bought and sold over the course of this bubble (and HELOCED), plenty of banks, builders, and individuals will make out ok. A large number though, will not, and they will learn an expensive lesson. But we will not reinvent the wheel to save them. Maybe FB’s could be offered a 50 year mortgage or something to spread out the debt, but that’s all. Prices will just continue their downward spiral, with a few upticks here and there as individuals buy the dips, until they settle at a level sustainable given local economic conditions. Many will lose homes, a lot of whom should never have been owners. A lot of houses will sit in disrepair for years. Some construction projects will do the same. But life will go on. Eventually, things will come full circle, and prices will start to appreciate again.
Happy New Year. And thanks be to Ben for the blog.
This whole “helicopter drops of money” talk is a joke. Our government is not going to make the majority of the country pay for the mistakes and misfortunes of the greedy minority over the last 5-7 years.”
Remember the S&L crisis? Never underestimate the pandering of politicians. Also, inflation has been Fed policy since its’ inception, and Bernanke has loudly and repeatedly states that he will not risk deflation. Look at the incredibly low interest rates that caused all this mess…they have already decided that liquidity will not be stopped.
But he’ll risk hyperinflation instead?? Come on man, get your head out of the sand. At the end of the day the Fed will protect the dollar hegemony at any cost…FBs, GFs, Ameriquests, WAMUs be damned. We get hyperinflation and we are all in a lot of trouble. If we get deflation, only certain groups not smart enough to be out of debt and and in cash or gold will get roasted.
Groups like Social Security, Municipalities and States, and large corporations all of whom have massive debt holdings. I doubt deflation will be permitted at any cost ( that is if anyone really has a say in the matter at all )
Sorry GH, but you’re assuming that the Fed can actually control inflation once they’ve let it out of the bottle. They can’t and it will lead to Hyperinflation, at which point we are all screwed…including the Fed itself as well as the wealthy who really run the country. You really think that they’ll let that happen? The game ends with hyperinflation. It can continue with deflation albeit with fewer players on the field left over.
Keep in mind that as of last reporting the M3 supply had doubled since 2000 moving from approximately 6.5 Trillion to around 10.5 Trillion as of March of 2006 and very likley over 11 Trillion today. I would say we have quite substantial inflation as it is, and I am pretty sure anyone who has had to buy anything not made in China recently will agree. As to the ability of the Fed to control what happens, they do have the ability to steer which direction we go in a limited fashion and pick which rock to run aground on.
The problem with the deflation outcome assuming those holding pensions or other fixed value assets is that there may not be enough money in the universe to meet the demand since revenues will be very limited making this outcome questionable. I just cannot see this ending any other way than with hyperinflation and a huge devaluation of the dollar.
JMW,
Of course the fed can’t control inflation. They also can’t control deflation. Banks, wall st., and debtor nation (USA) believe they can inflate the debt away, rather than risk the system being crushed by deflation. The Fed believes they can manage inflation better than deflation, so they will take their chances at sparking hyperinflation. It’s as simple as that.
GH
YOu got it.
Hyperinflation and huge devaluation of the dollar.
That is what is going on right now, despite the cover-up.
The private (un)Federal Reserve Bank can’t stop it.
I think you are wrong on helicopter drops. When this thing goes down and the Gov can’t borrow anymore and tax revenues dry up they will resort to dropping money. There is a big problem, though.
When AG and the gang at the Fed lowered interest rates to compensate for the dot.com bust they had hoped that it would go into business investing. Instead, it went into housing. All the Fed can do is offer the money. Where it goes is anyone’s guess.
One thing you can bet on, though, BB will not repeat the mistakes of the Great Depression. He will make all new mistakes. Money will be available, but just how this thing plays out is the new conundrum.
Yup. If it had gone into business investing, it would have been what economists call “self liquidating debt.” Borrowing to invest in productive assets (or say, educational expenses) eventually pays for itself. Instead this money inflated housing and and prevented the stock market from further collapse. Even the money that was HELOC’ed out of the housing market was mostly used to buy consumer goods, much of them imported.
“Our government is not going to make the majority of the country pay for the mistakes and misfortunes of the greedy minority over the last 5-7 years.”
…..except that greedy minority might actually be the greedy majority….then the vote and campaign fund cultivating will decide what Congress does.
Oh yes it will. Oh yes it will. That’s what they do in all countries. That’s what the ruling classes are there for. “We the people is about them and their interests, not yours.” Sorry.
I will not let my taxes bail anyone out of the GREED!
You supply a pretty ending for something you agree won’t end pretty. So which is it?
“Mortgage lenders, such as Countrywide Financial Corp., Downey Financial Corp. and FirstFed Financial Corp., try to avoid risky ’subprime’ borrowers and have become more cautious about whom they lend to in general.”
It will be awfully hard to avoid risky ’subprime’ borrowers as long as homes are priced at levels where those opting for traditional (fixed rate) financing cannot compete with risk loves willing to drink the toxic loan koolaide. The current prevalence of subprime borrowers is a consequence of lending standards which give them a bidding advantage over prime borrowers.
BTW, the same principle applies to the bid-inflation advantage highly leveraged hedge funds have over 401(K) plan participants in the stock market. Like flippers who used toxic loans to buy many homes for “investment” purposes, hedge funds will be able to leave town much more rapidly than middle America when the leverage tide runs out. As usual, middle America (at least what’s left of it) will be left holding the bag, mainly in the form of sinking pension assets.
And builders are still building like it’s going out of style. Keep sapping that future demand with all those incentives which falsely keeps the price inflated, hoping things will turn around. When it finally stops working, you will see some huge YOY declines and these homebuilder stocks should take a hit (but they will probably rise on the bad news).
I said this already on another thread, but I believe the readily available subprime loans are tightly connected to builder use of incentives. When supbrime lending tightens up and appraisal fraud goes out of fashion, look for builder incentives to go away, as it will no longer be possible to get the loan proceeds to cover the cost of the car or the exotic vacation offered as an incentive.
But then the price of the home needs to go down to compensate and move the merchandise.
ummm, that’s kind of the point…
When supbrime lending tightens up and appraisal fraud goes out of fashion…
All it’s gonna take is to charge some of the owners of these hack shop rubber stamp appraisal mills with violation of RICO statues and ship them off to FED prisons for a decade, and the appraisal fraud will dry up in an instant.
The f*cks who run these places are not the best and the brightest of the white-collar financial criminal element.
“The current prevalence of subprime borrowers is a consequence of lending standards which give them a bidding advantage over prime borrowers.”
I wouldn’t say that current lending standards have given sub-prime borrowers an advantage over prime borrowers — it’s merely given them the opportunity to compete and over-bid for properties, which before they didn’t have the ability to do. If a prime borrower is really determined to purchase a property, he’ll beat an equally determined subprime borrower, every day.
And as the credit cycle winds down, there are less people in range of qualifying for home loans, thus reducing the available pool of buyers yet again.
Yeah, no doubt. That pool is shrinking every day. The housing cheerleaders are missing this point — how will ‘07 rebound from ‘06 when the biggest contributors to the ‘00-’05 boom, subprimers and speculators, increasingly become an endangered species?
Very simple, it won’t.
Add to this increasing defaults and you have the makings of a perfect storm. This said, I believe the FED’s strategy is going to be to bail out the banks and lenders with “printed” cash, leading to a period of 20% plus inflation. The net effect will be to default on hundreds of billions in foreign debt without actually defaulting… In other words we will pay the debts with devalued currency. This may not work so well for us small guys since income is likley to be hard to come by over the next decade in the US.
…and what will happen to interest rates if they do that? How do you propose that they cap it to 20% inflation exactly??
I am not sure how much control the FED has on the macro scale, but with deflation would government and corporate fixed obligations such as pensions, servicing of foreign debt and social security not become more expensive? How would these obligations be met? If there are widespread defaults would that not lead to a volatile economic situation and loss of faith in the US dollar? Is there enough money to meet our obligations as things stand, particularly given the likelyhood that millions will default on home loans in the next five years and we will lose a large source of employment (real estate related)
Correct, GH. Deflation means you would have to raise taxes and cut benefits to pay debt. Politicians call that a ‘non-starter’.
Ben –
The other part of the story, which I don’t believe is widely understood at this point, is that as the rotten subprime layers are peeled away from the mortgage applicant pool, those who are left will not be willing to stretch the family budget near as far to buy a home, as doing so entails placing yourself into subprime status.
It will soon be clear that subprime status is not due to some kind of genetic condition, but rather a consequence of the household’s decision of whether to purchase a home beyond their financial means, and the lender’s decision whether to fund such a loan.
P.S. Thanks for running a great blog, and happy 2007 to you!
In recent years the sellers have looked at “price offered “rather than how solid the borrower was because anybody could get a loan . The sub-prime borrower/speculators was put on equal footing with the prime borrower and this is what the problem was .
In addition , sub-prime borrowers on low /no down loans don’t have much in the game and they tend to overbid for properties or pay top dollar ,they shouldn’t of been in the game to begin with .
In the past lending cycles ,sub-prime borrowers had to put more down as well as pay higher rates and fees, as it should be for the risk .
What Housing Wizard says is very true. I typically work with buyers with 20% down payment (sometimes as low as 10%, but often over 20%.) I worked with someone all year in 2005, who got outbid 4 times on houses. He was very careful with his 20% down-payment which took him 15 years to save. The “outbiders” were typically low or no down-payment buyers who bid over listing prices. For them, it did not matter what they paid, as long as prices were increasing. With a temporary low payments of interest-only for 2 years, paying 10,000-20,000 more did not changer their payment very much.
When you have a young couple come to you and you use both incomes to determine how much they can borrow. I know your hands are tied that you can not talk about things like, do you plan on having any children? I work with couples who do not have a clue about future cost or if one of them gets fired or sick. Do you have any ideas that would help first time homebuyers not get in over their head?
Glenda …It’s very simple . You tell the young couple to buy less than they can qualify for and you educate them about the true cost of ownership and adjustable loans and lead them in the right direction to affordable home ownership ,even if it means less house or waiting until they save more money . That’s what I always did as a RE agent as well as when I was in lending . I’ts nice to be able to sleep at night .
I agree. I just know that it is against the law as a mortgage broker to ask to many questions. I sometimes get the client after they have met with a MB and it is hard to change their mind. I explain that MB cannot ask those questions about personal choices. I also understand it must be hard in inflated markets to say to someone to live on one income. I don’t care who’s.
Glenda ….You telling me the RE agents can’t ask certain questions to pre-qualify a borrower ,yet real estate people can say ,”buy now or be priced out forever ?”
As a lender you can’t turn down a loan based on discounting a second income because of possible children in the future ,I agree . IMHO ,you can ask as many questions as you want to determine the proper housing to show people . If I happened to know that a couple was going to have children soon that would influence what I showed them in not wanting them to get over their heads . RE agents that push the max house that a sub-prime lender will go are not thinking of this young couple and only thinking of commissions .
winjr –
You may have missed one of my main points, which is that subprime borrower status is not some kind of genetically-inherited characteristic. Rather, it is a status which is mutually agreed upon by the borrower and the lender. If the size of loans made were consistently in line with what the borrowers were likely to be able to repay, then we would neither have many subprime borrowers nor unaffordably priced houses.
GetStucco
No problem. If some of the hedge funds collapse and the stock market falls we can print some more money. How does $3 = 1 Euro sound?
One thing worries me about these hedge funds. I’m a long time follower of the sound bites of Washington’s greatest hack. That being, Alan Greenspan. Greenspan has ALWAYS covered his flabby ass by throwing in odd sound bites which he can refer back to when someone complains that he didn’t give any warning. For instance. The stock market crash/decline = Irrational Exhuberance. The property boom = Frothy in places. He once remarked that, “Derivates could be a problem at some point.” So: #1 The stock market turned out to be a problem. #2 The property market is following his ‘frothy’ sound bite forecast. Does that mean the hedge funds or the derivatives market is going to be #3?
betcher sweet ass on it. At some point, the herd is all going to look up with this OH SH** look, and start running for the door.
Hedge funds–derivatives– rhymes with “portfolio insurance and program trading”.
Answer: YES. Number 3 are the Hedge funds. What a funny name. I prefer “Casino funds.” “Mirage funds.” “Leverage to your eyeballs funds.” “Funny Money funds.” “I don’t care a damn funds”. “Mad Rocket Scientists funds.” “No fun funds”.
Mike –
Spot on. AG was famous for his veiled delphic warnings. The last I recall (in one of his final speeches as Fed chair in fall 2005) was,
“History has not dealt kindly with the aftermath of protracted periods of low risk premiums.”
AG’s frothy speak nonsense came well after everyone who ever wanted to be was on board with a mortgage. He lowered the rates so it could all happen, then warned of it happening. He’s a scam artisit for the private banking families who own the Federal Reserve, and they are orchestrating another depression.
Ah, Merrill Lynch. Current and past management gets all the bonuses. Watch as a bunch of executives leave the company because “they want to spend more time with their family.”
Isn’t that like the worst explanation? Anyone who leaves to spend more time with their family should set off alarms. We will now see forensic signatures that look for this kind of behavior to let people knkow something isn’t right.
Tom:
It is the Biggest red flag just after you got you Millions in Bonuses or Cashing out your huge employment contract or pension.
But if you leave without taking much money and leave your pension money with the company, ya know maybe h/she is telling the truth?
Does anyone know how exposed smaller players like Charles Schwab Bank, Ing Direct, etc., are to sub prime mortgages? I haven’t heard of problems with such banks, but wanted to know any info from folks here.
And ECC, the mortgage REITs, LEND….
“The amount borrowed in silent seconds probably is greatly underestimated, says David Liu, a director in the U.S. Securitized Products Strategy Group at UBS. The lack of knowledge among lenders about silent seconds held elsewhere presents a problem as the lenders try to determine how much to set aside for potential losses.”
Is it just my imagination, or do I hear a giant sucking sound of loanable funds getting set aside to cover potential losses from silent seconds?
How could they NOT know how much is out there in “silent seconds”? I mean: They loaned the freakin money!
This is a new use of the term silent second. Historically, that term applied to seconds with no payment, no interest, and no specific due date. They were typically given by housing agencies to facilitate the purchase of homes by low income, first time buyers. The second was used as the “down-payment” and to reduce the amount of the first loan. They only had to be paid when the person sold the house in the future.
These new loans are not silent. They are high rate piggy-back seconds that increases the risk of the first loan as well. Low or no down-payment purchases have always had a much higher delinquency and foreclosure rate. At my bank, we consider the total loan to value, including the second, even if the second is from a third party. We look carefully at the terms of the second, and do not allow 100% total financing even if our loan is 80%.
What lenders should I be on the lookout for when my folks bring me a lending letter to go with their purchase contract. I am very leary of these internet letters and banks. Most of the banks our clients use is Countrywide, H.S.B.C., Wells Fargo.
Not sure what you are asking. If you are looking for a loan, it is best to do your homework on yourself. Know your credit report, scores and have explanations for anything not normal. Have an idea what amount you can put down, and your price range. Find out what kind of loan best fits your situation, and then shop for rates and terms. There is a difference in rates out there. Also shop the second tier banks not listed in this topic, they often offer lower rates. Use a mortgage broker if you need access to subprime qualifying.
“Which of the big lenders are at the most risk of collapse in 2007? HSBC? Countrywide? etc
Answer: If as predicted on this blog that 20% of the subprime mortgages default within the next 2 -3 years, then ALL WILL BITE THE DUST!
If a bank’s loan portfolio went belly up by 20%, combined with 30% decrease in property values, they would be hurting really bad.
ALL WILL BITE THE DUST!
More than likely, however the guys who ran these scam operations new that from the begining. So the last laugh is on the American public for believing all the crap they spewed out the last several years.
But those 20% aren’t usually total losses (unless they’re seconds)
No of course not any loan backed by collateral will not be a total loss, however 20% of any loan protfolio going bad is extremely high and would eat into any bank’s equity on a given year. Plus it is very expensive to take back property. back payments owed, legal fees, foreclosure fees. It all adds real quick and the loan to value cushion could erode rather quickly.
Especially if there IS no cushion!
This blog did not “predict” that 20% of subprime mortgages will default in the next few years. Rather, we were citing a recent report from a nonpartisan think tank which said this…
—————————————————————————————–
1 in 5 subprime loans in trouble, report says
2.2 million borrowers seen as likely to lose their homes
By Ron Nixon
NEW YORK TIMES NEWS SERVICE
December 20, 2006
About one in five subprime mortgages made in the past two years is likely to go into foreclosure, according to a report released yesterday, with San Diego among the regions expected to be hard hit.
About 1.1 million homeowners who took out subprime loans in the past two years will lose their homes in the next few years, the report said. The foreclosures will cost those homeowners an estimated $74.6 billion, primarily in equity.
The report, written by the Center for Responsible Lending, a research group in Durham, N.C., was based on data supplied by Moody’s Economy.com. Researchers examined more than 6 million mortgages made from 1998 until the third quarter of 2006 in the first nationwide study on the performance of subprime mortgages.
http://www.signonsandiego.com/uniontrib/20061220/news_1b20foreclos.html
If 20% default, and the lenders sell the properties at 50% discount, that would be a 10% loss for the subprime loans. It will be billions in write-offs, but I doubt it would knock them all down. Even Nortel and Cisco survived billions in write-offs after the dotbomb crash. The smaller players will be wiped out, which is already happening.
Didn’t Nortel and Cisco have lots of cash from stock offerrings? Cash will save you it is obvious that these subprime guys do not have any cash.
20% is only the 2006-2006 originations. The report goes on to say another 10% of the sub prime loans originated in 2001-2004 will also go down. Based on volumes, that equates to about 30% of ALL sub primes in existence are toast. BIG number.
….”2006-2006″ should be “2005-2006″.
Paladin,
The BIG number especially looms large given that the pace of home sales normally slows in a real estate bust, as owners who can afford to hang on generally try to avoid selling at a loss. A large number of foreclosed subprime owners will result in myriad forced sales at fire sale prices, as banks don’t want to turn into crowded used car lots for pre-owned homes. These will become the new comps as the market adjusts to life without subprime borrowers.
I am watching Deutsche Bank and HSBC ride the market down right now. They are on the hook for Ownit and a Southstar Funding. Deutsche has reduced from $1,099,000 to 899,000 so far. 22% reduction. And here is the funniest part. They had an $850,000 offer the first week and did not even respond. They foreclosed on a the K*shch*nk*’s, a Russian couple in March 2006. They bought it to flip and it looks like a first payment default on $915,000. 18 months later at 6%, plus foreclosure costs, the present value is over $1,000,000.
And there are 24 more listed for sale just like this one in a one mile radius.
Of course, the Spring Fling will save them all….except Robert Cote has renamed it the Spring Sting……
I don’t get what you’re saying? if 20% is of 2005-2006 will be toast and 10% of the 2001-2004 will also go down, how can that equate to 30%? Mathematically, it has to equate to some type of blended average (i.e. a number between 10% and 20%). Am I missing something?
Mo, many more loans were done in 2005-2006, than during the 2001-2004. It is about 50/50, so the average is 10+20=30%. You are correct in spotting the issue.
No. You will bite the dust. That’s the beauty of banking. A lot of people don’t get it. The ultimate risk is on the citizen and it’s you and only you that will get it in the smacker, not the banker.
I am in the mortgage industry and received notice Friday afternoon Mortgage Lenders Network based out of CT. is shutting their doors. They were one of the better subprime lenders that (I thought) ran a tighter ship. They had been around since 1998. I guess profits ain’t happening.
Just saw this on Mortgageservicingnews dot com.
Fannie Tightening Underwriting Standards
Fannie Mae has announced that, effective Jan. 30, borrowers must be qualified at “a fully-indexed rate that assumes a fully-amortizing repayment schedule” in order to qualify a loan for purchase by the government-sponsored enterprise. The GSE is also eliminating its “InterestFirst” interest-only loan product category and reclassifying it as a loan “feature” to be used with other mortgage products. In addition, Fannie will be permitting temporary buydowns for fixed-rate mortgage loans with an IO feature and making other changes to its IO underwriting. Fannie Mae can be found on the Web at http://www.fanniemae.com.
Another nail in the loose credit coffin???? I tink so…
Maybe THE nail in the coffin. How many first time buyers would qualify based on the fully-indexed rate and a fully-amortizing repayment schedule??
Without the first time buyer, the rest of the trade-up market grinds to a complete halt.
You nailed it. AND all of a sudden all of banks that normally sell their loans to FNM have to follow the same loan qualifications. The spigot is closing shut.
I agree. The credit bubble trivializes how hard it is to earn and save money. I guess I shouldn’t be, but I’m surprised how difficult it is to simply put after-tax employment income aside.
One problem facing you (at least in recent years) is that you have been competing with folks whose houses were earning them a third income. Unless this situation quickly returns (which, so far as I know, only ever existed in all of US history from 1998-2005), then it may get easier for you to save money again in the next several years, assuming your income source is reliable, as you will have less competition from people whose home equity ATM income fuels their ability to outspend you.
Save a thing that is printed and created in almost infinite quantity by these crooks called central bankers. These bandits have destroyed a long time ago the notion of savings and the value of money.
About freaking time they tightened up the lending standards. I’d like to buy a house (with cash), and I’m very tired of competing with all these potential FB’s, overbidding on houses, and driving the prices up.
This should have been done years ago. Harldy anyone could qualify at current prices under these circumstances. This if it happens will have a tremendous effect in driving down prices, since sellers will only be able to get what the market can afford.
Baffling that the much anticipated wave of “housing bust causes tighter standards, causes a more severe bust, causes even tigher lending standards etc.” has now officially commenced.
Are Fannie execs playing the wave, or are they merely tactically responding to a potential housing busts. All the same, I suppose.
Fannie Mae has announced that, effective Jan. 30, borrowers must be qualified at “a fully-indexed rate that assumes a fully-amortizing repayment schedule” in order to qualify a loan for purchase by the government-sponsored enterprise.
This is a big deal. This will tighten the screws on lending. I wonder how many loan officers and realtors really understand the economics of the boom. It was not a housing shortgage, but loose lending supply that would make a crack whore look tight.
HALLELUJAH!
Another nail in the coffin.
Ever thought they propped up all of these sub-primes and the market to get the MOST BONUSES they can in 2006 knowing in 2007 they will get like ZILCH?
Seems like a set-up to me.
WAMU!!
could this be Ownit Mortgage website?
http://www.ownitmortgage.com/
not much there about mortgages.
I found this about Ownit.
Unless I have wrong site above this must be pretty scary for those who lost their jobs and have mortgages with Ownit Mortgage!!
Ownit Mortgage Solutions is one of the nation’s fastest growing wholesale mortgage lenders. Building on a 15-year history of service excellence, Ownit continues its exceptional growth year after year, generating loan volume of $8.3 Billion in 2005. Ownit is dedicated to providing brokers with innovative products and services that expand homeownership opportunities - like the groundbreaking RightLoan(TM) Product Suite. Headquartered in Agoura Hills, CA, Ownit has 15 branch locations throughout the United States. We offer challenging work in an exciting environment, where autonomy and entrepreneurship are encouraged and rewarded.
According to the Ownit web site the company was in business for over 15 years, employed over 700 people and originated $8.3 billion in 2005. No one at the company was available for comment.
Stanley, you have the correct site. The site is now used to help the unemployed keep their healthcare thru December and get new jobs with other sub prime lenders.
From a mortgage brokers’ bulletin board:
“I know a lot of people that went to MLN thinking it was the promised land. It doesn’t take enormous brain power to figure out that any lender that is undercutting their competition on rate by .75 to 1.50 bps, letting borrowers go 100% stated at 600 and using the first page of the bank statements as full doc is eventually going to get their @ss handed to them. Subprime people are exactly that, subprime and their credit sucks for a reason: they don’t pay on time. I think the industry is finally figuring out that they need to go back to treating these borrowers with higher rates and more money down.”
But then they wouldn’t be able to pay 600 to 800K for a stucco crapbox in SoCal…and then what would happen to all the nice realtors and mortgage brokers? How will they pay for their MB 240s and BMW 330i’s then??
Sarcasm Off.
Japan had a ridiculous overnight rate, 0%. They couldn’t GIVE the money away. After all, no matter how cheap you make a house, who wants to buy it if the VALUE IS GOING DOWN.
Lower interest rates will not save the housing industry.
hear hear, this is why the “helicopter drop” argument is a such bucket of manure.
It is manure as far as reviving the RE corpse. But it will stimulate other sectors, is the opposite of what happened during the Great Depression, and will prevent deflation. Therefore, in BB remains true to character, it will happen.
During the period after the initial 1929 crash the FED cut the discount rate from 6 1/2 to 1 1/2% and ALL sectors of the economy tanked.
Folks — time for a little realpolitik. It’s not Benny’s decision to make — the Fed is the creation of the Congress, and what the Congress giveth, it can also taketh away. 35% of homeowners have no mortgage: many are older, some are on fixed incomes — and one thing that every single one of them does religiously is vote. They will join forces politically with high net worth types for whom debt is a tax abatement strategy, not a burden, and make sure that helicopter drops and other inflationary options are not on the table. The USA is not a banana republic and there will be no printing-presses-gone-wild episodes like the goldbugs are fantasizing about. Politicians do a lot of stupid things, but when it comes to protecting their own jobs and a$$es, they’re actually very shrewd.
The printing presses are running full-bore. As for those seniors, tell them you are going to deflate the value of their homes, which are the only significant savings they have, and cut back on their social security payments to reduce inflation. Oh, and we will be raising taxes too, to meet our debt interest obligations. Then see how they vote.
There are no “printing presses”. Inflation is created by debt increases. This requires low interest rates veses the CPI, lending institutions with the guts to loan money, nations willing to finance US trade and government deficits, and a willingness to allow subprime borrowers to borrow. A number of these no longer exist.
The odds favor general deflation.
All you need is one “lending institution with the guts to loan money”: namely, the “Federal” “Reserve”.
I am having a hard time understanding this article, but this author seems to be saying we are stuck on the inflationary treadmill until we slip and slide off the back and get a face burn from the belt. http://www.safehaven.com/article-6612.htm
No. You export your inflation to other countries and the stupid fools accept the stupid game.
It’s very funny hearing about political responsability. Don’t overestimate politicians. Germany was not either a banana republic after the first world war. These things happen even to anglos. Keep spending and printing money like craze the way you do, and eventually the same thing will happen.
I dunno, pitched street battles between right wing veterans and communists certainly make me think of banana republics.
The argument about who will take the credit to create
inflation is simple. People in massive debt will go further
into debt to buy FOOD and ENERGY as it spirals out of control.
The hook is set, just as we (our banks) have done to 3rd world
countries everywhere, we are the last fish in the pond.
Welcome to the real world.
Milk prices are going up here 4,33 % at midnight.
City Bus fairs are goind up 10%!
Nice way to start the year!
Well all that money that the Fed lends out are lent to banks. How bad does the balance sheet of the average American have to be before the banks refuse to lend them more money, even if they got it for free?
Japan had also a big currency-account surplus, which the US has not in the last decades. Low interest rates of the FED would lead on the international markets to a fall of the dollar that imports inflation and give export-oriented industry a boost, i.e. no deflation and some wage inflation. By carefully balancing domestic deflation with imported inflation, the Fed could avoid both deflation and hyperinflation and make Americans poor in the process, relative to other countries, because someone has to pay the piper.
I got Jan puts on many of the mortgage brokers so I hope this pans out soon!
Makes me sick. The lenders offer non traditional (toxic) loans, and piggyback loans, then the buyers (and speculators) use them to drive up the prices of houses. Meanwhile, people like me with a hefty down payment and without a box full of stupid get priced out. Priced out not because we can’t buy, but because we choose not to buy what we really can’t afford.
I’m trying to be patient, but sometimes the whole bubble makes me want to go on a rampage.
I hope they all go out of business.
Backstage, go rent a nice house from a stuck flipper. You will get it for 1/3 the cost of owning. Lets say $2,000/month rent, instead of $6,000/mon PITI. Save $48,000/year, increase your cash, live in a nice place and be very happy and very patient. We own four houses, but did just this, when we needed to expand for the mother-in-law and extra kids. It is very funny when I tell all my Realtor friends and my wife tells her co-workers what we did. It is like a light bulb goes on in their heads and they say, “Wow, that is smart.”
Even after the market corrects, there will be no appreciation for many years, so don’t get in a big hurry to buy, even at the bottom. Take your time, enjoy a nice house now on some GF’s nickel.
Renting from a flipper could be a money saver but it could also have several disadvantages. You might have to leave quickly If the bank forecloses and there is a good chance that you’ll never get your damage deposit back.
This is actually kind of scary. The housing statistics (prices and sales) have only just crested top and started down. Now we find out the mortgage industry is like a termite ridden shack built in 1870, ready to collapse at the slightest ill wind that comes along, rotten to the core.
Got my investments in gold and silver. Where’s the popcorn? This is going to be very entertaining.
Don’t forget commodities players like ADM. That will also protect against inflation if the Fed chooses that path.
Got my investments in gold and silver
Better stock your gun cabinet and ammo caches too.
When the shit really hits the fan, and the middle class finally wakes up to the fact that they’ve been royally f*cked forever by their gov and big bankers, the guns are gonna come out and
the Nazi Gestapo of Homeland Security will immediately impose a ban and extinquish your Constitutional rights under the 2nd Amendment.
With the widening chasm of wealth between the haves and have-nots in this country, the cradle to grave advertising barrage touting that “You can have it all” is it any wonder that the sub-prime borrowers took whatever was offered to live this dreamlife? Compund this with the fact that corporations have lost all ethics in the attempt to get every last dollar out of every last consumer in the country and Voila! But maybe it will be “different this time”. Maybe the crooked bastids will go down too as the unintended victims of their own greed.
New Ariz Resident . I agree with you that alot of people were vunerable to the “dream ” and that is why the sub-prime market took off . Had the market continued to appreciate those sub-prime gamblers would of made some money ,but it isn’t going to turn out that way for many . The lenders were dead wrong for putting people into houses they could not afford however even if those borrowers wanted it .
Yes, but at the end of the day, living within one’s means is largely a matter of personal responsibility. I DO have sympathy for those who have had unlucky occurances (job loss, health problems) that have pushed the over the edge. But I have little sympathy for those who are simply unable to match their spending to their income. I always have. I didn’t get my first credit card until I was in my 30s. I just don’t understand people who borrow their way to the poorhouse.
From an article just published in the Christian Science Monitor entitled “Why consumers may show more discipline in 2007″ at http://www.csmonitor.com/2007/0102/p01s04-usec.html
“Still, households remain highly leveraged. US mortgage debts now total about 46 percent of all US home values. That percentage has more than doubled since the 1950s. “Homeownership is now much more precarious,” says Tamara Draut of Demos, an advocacy group in New York worried by America’s high consumer debt levels”.
‘”Democratization” of credit, with new types of loans available to more people, has generally been a positive force in recent years, Zandi says. “This probably has allowed … for a more stable economy,” he says.’
Zandi does not see the Picture. Subprime lending (a direct consequence of “democratization” of credit) has turned the housing market on its head by giving those who are either too ignorant to know how much house they can afford, who do not care (because they have nothing to lose) or who intend to flip, the means to outbid traditional buyers who only want a home as an affordable place to live in. Let’s see if he is singing the same tune once the current credit quality inversion (that is, lending market conditions which adversely select the worst credit risks into the loan officer’s lair and leave better credit risk customers out in the cold) comes to a painful conclusion.
Mortgage Trickery to Avoid
By Amy Hoak
Word Count: 626
marketwatch.com
Brian Diez, a former military man, entered the mortgage business after a career as a stockbroker, in part figuring he would like the opportunity to help families buy their first homes. He learned quickly, however, that not all mortgage brokers have their clients’ best interests at heart.
“What became clear to me is every company was really interested in selling as many loans as they can, and not really helping clients,” says Mr. Diez, sales manager for First Class Equities in Oceanside, N.Y. His quest to inform consumers prompted him to create a blog on the topic, http://briandiez.blogspot.com.
The “dirty tricks” he has seen and heard of range from brokers steering clients into products clearly unsuitable for them to shady switcheroos at the closing table.
http://www.marketwatch.com/news/story/how-protect-yourself-shady-mortgage/story.aspx?guid=%7B44421CD9%2DAD68%2D43F9%2DB94B%2DA321ECD8285D%7D
five years ago option one added on an insurance policy to my mortgage that covered the appliances in the house (NEITHER I nor my wife had opted to purchase the insurance.)It took a letter from our lawyer to get them to cancel this useless scam. When they found that I was renting the house’s second floor apartment they wanted us to purchase rental loss insurance that exceeded the amount of the rent that we were charging on the lease. we as a matter of fact were told by the state that this was an illegal practice on their part. Every month we had to have our insurance carrier on the house policy send a letter to option one telling them that the insurance was infource. (Every Month Option one would send us a bill for house insurance that mind you would take us to collection if we didn’t opt out of it in time. this ment that I was on the phone for hours and hours to get to talk to some one that was incapable to speak English. to tell them that this or that part of the system was deminished in practical use. three years ago My wife had a massive heart attack since the house was initially in my wife’s name prior to the marrage so was the loan. As I was driving back and forth to a hoespital some 65 miles distant I lost interest in opening the mail for about a month by then they Had initiated forclosure on the property. I had the funds to square it away but I was a bit busy at the time. so I sent 75 fax copies of a power of attorney to the bank indicating that they could do business with my attorney. They never indicated to me that they or the twelve certified and noterized copies had been recieved, instead they disconnected their Fax line. the final and most confusing (diddle) that they pulled on us was to require that we send a request for a code number so that we could send them a check to cover the mortgage. My suggestion is that anyone putting their hard earned cash into option one or their parent Wells Fargo Bank Should be boiled in their own gravy and a sprig of hembane put in their heart. only an opinion which I am still allowed under the constitution thus far.
Quam Maximanus Credula postia est.