With stocks down 98% from a year ago, rising loan delinquencies and very little liquidity, Indymac, one of the nations top 10 mortgage lenders is done! It’s closing its wholesale and retail operations as well as halting any new locks. At one time IndyMac was a major player in the “Alt-A” market (loans with risk levels between subprime and prime). From Bloomberg earlier today:

IndyMac, the second-biggest independent U.S. mortgage lender last year behind Countrywide Financial Corp., has lost almost $900 million in the nine months ended in March amid tumbling home prices. The company is focusing on mortgages that can be sold to government-sponsored enterprises like Fannie Mae and Freddie Mac.

If you are in the market for a home mortgage and were working with a mortgage broker, call your broker to ask if the loan was to be placed with IndyMac. You’ll need a new lender!

In other bleak news, it was disclosed today that Fannie and Freddie may be required to raise as much as $85 billion in additional capital. To be fair it’s due to new accounting rules, but still the markets were in turmoil.

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Tags: credit crisis, indymac, liquidity
Categories: Economics, Mortgages, Subprime Mortgages
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The Washington Post is alleging that Senator Obama received a special “discount” when he purchased his home in 2005. This is what is being reported:

He locked in an interest rate of 5.625 percent on the 30-year fixed-rate mortgage, below the average for such loans at the time in Chicago. The loan was unusually large, known in banker lingo as a “super super jumbo.” Obama paid no origination fee or discount points, as some consumers do to reduce their interest rates.

The article discloses the income of the Senator and the property type. Obviously this would have been a full documentation loan disclosing assets on a super-super Jumbo loan.

However, the article fails to mention one very important aspect of interest rates. The senators FICO score. This makes a big difference. The article states that the average loan rate for a similar program was 5.94 percent. So, supposedly he received a 30 basis point “discount”. Well considering the average credit score in Illinois is 684, if the Senators FICO score was well above 720+ then a 30 basis point difference is well within the range. So, I don’t understand why the Post is making such a big deal about a $300/month savings for a higher credit score borrower. They obviously don’t read my blog otherwise they would have read about the four corners of a mortgage.

Based on some of what I have read about the Senator, for example he has no revolving credit card debt and he’s lived frugally all his life, I have a hard time believing that he would have a below average credit score. This is pure speculation on my part and I have nothing to back it up. However, I am willing to give him the benefit of the doubt on this.

I will reveal one thing on what I think about Senator Obama. Even though I disagree with most of his political platform, I like him. I still admire him and have a lot of respect for him. He’s a decent man, and an all American success story.  I know he’s also a politician, but from what I have seen so far (especially after all these years of the Clinton and Bush slime machines) I believe when it comes to character he’s heads and shoulders above both of them.

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Tags: credit scores, Mortgages, senator obama
Categories: Credit Scores, Interest Rate, Mortgages
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Negative amortization was always controversial. Option ARMS (Pick-a-pay) always have had a negative amortization feature. In fact this loan has always been World Savings bread and butter. For the financially savvy person this loan makes complete sense. It has features which allows you to lower your taxable income, decrease your cost of funds over the long term and if used with a carefully calibrated investment strategy allows you to maximize returns to the max. Within this context negative amortization is a well accounted for risk and balanced by high returns. Even if on a short term basis you ended up with some negative amortization, over the long term, you would come out ahead.

The problem is the average consumer is not tremendously financially savvy. And therein lies the problem. When option arms were marketed to the average Joe as a financial vehicle, loan originators who themselves are not tremendously financially savvy saw an opportunity to sell more house for lower monthly payment. I’m not trying to put the onus solely on the originator here either. I am of the opinion that the head of every bank in the United States fully knew what they were selling to the average borrower.

I remember a borrower a few years ago who insisted beyond any reasonable persuasion that he wanted to be in such a loan. He said that the payment on the 5/1 ARM I was proposing was to high and he wouldn’t’ be able to afford the house after a few years. However, with the option ARM a different lender had proposed he would be “comfortable”, so if I didn’t give him a similar option he was going to go with the other lender.

This borrower had no business being in an option ARM. Not only was he relatively financially unstable, he was trying to live way beyond his means, counting on future income and future equity to compensate for the short term loss. This was never the market for the option ARM and these types of borrower had no business being in this type of loan. In fact I wrote a post back in 2005 warning borrowers about the dangers of the option ARM. I wanted to remind folks that despite how things were being advertised as a borrower you are still obligated to pay back the full loan amount with any accumulated interest.

And it is because of stories of such borrowers over the past few years that today we sit where we are. Today, Wachovia, one of the largest underwriters of option ARM’s pulled the plug on these negative amortization loans. Here is the news clip from Fortune magazine:

Wachovia (nyse: WB - news - people ) announced Monday that it is pulling the plug on it’s Pick-a-Pay program. The pay-what-you-will exotic loan offerings weren’t exactly subprime –the borrowers were a bit better-heeled Alt-A types– but the default rates on the loans have been much higher than expected and have been driving the lender’s losses.

The loans gave borrowers the option of paying several amounts each month, including low payments that led to an increase in the principal amount of the loans.

Not only did they stop the program they also have said they’ll waive the prepayment penalties on these loans as well. Most option ARM included three year hard pre-payment penalties. So whether you sold or refinanced the loan within the first three years you had to pay a prepayment penalty. With the fall in home prices adding to negative amortization more than they had figured things are not looking good that the banks can make money on these. So, Wachovoia took a long hard look and decided to cut their losses. According to Housing Wire:

Wachovia also said it will waive all prepayment fees for borrowers looking to refinance out of an option ARM, a clear indication of the stress borrowers in such loans are now facing; the bank recently hired Goldman Sachs Group Inc. (GS: 174.90, +0.19%) in an effort to help it figure out what it should do with the Option ARM loans on its books.

As you can tell it’s not just the consumer who is in pain here, Wachovia is hurting too.

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Categories: Arizona, Congress and Government, Humor and Fun, Interest Rate, Mortgage Roundup, Mortgages, Real Estate
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The good news is most US Senators have disclosed the circumstances of how they obtained their home mortgage. The bad news is 23 have not. Should we be suspicious? I think we should. The story this morning:

Amid a brewing scandal over special mortgage deals given to two U.S. senators, Politico last week asked the offices of all 100 senators to describe the circumstances under which they obtained their own home loans. Seventy-seven senators have complied so far. Twenty-three have not.

Senators are not required to report in their disclosure forms any financial information about their homes unless they draw rental income from the home. But in the wake of questions regarding mortgages obtained by Sens. Chris Dodd (D-Conn.) and Kent Conrad (D-N.D.) — loans they received through a VIP program run by Countrywide Financial Corp. — Senate Majority Leader Harry Reid (D-Nev.) has said that the disclosure rules should be changed so that senators’ mortgage details are made public.

Full story (Senators’ mortgages under microscope).

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Tags: Mortgages, scandal, senators
Categories: Congress and Government, Mortgages, Real Estate
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I look through the visitor statistics from time to time to get an idea for what people seem to like on this blog. However, that’s kind of a limited way of getting an understanding of what the audience is looking for, because my audience can only read what I write. I don’t know if I’m making any sense.

Anyways, the purpose of this post is to hear from you. I’ve been blogging for a few years and it hit me today that I’ve never really asked my readers what they would like to see on this blog. I know I’ve posted a lot about FHA loans, Mortgage Insurance, Subprime and various other topics, but today I want to ask you. What are are some topics you’d like to learn more about?

I know may people call to ask me if the market has bottomed out. Well, I can’t really say for sure, but there can be good buys out there. In fact, there was one person who said he really didn’t think he could get a good answer from a real estate agent, since they have an interest in the answer. But, I reminded him that not all real estate agents are like that.

So, going back to the original question. Would you like to see some analysis of when and when not to do a refinance? How about an interest rate trend review? See, there I go again. I’m trying to come up with some topics.

Seriously, leave a comment below regarding a home mortgage related topic you’d like me to write about and I promise to take you up on you request.

photo credit: jamuraa

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Tags: Mortgages, Real Estate, topics
Categories: Blogging, Mortgages
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There is a scandal brewing in Washington involving members of the Senate Banking Committee and Countrywide. Apparently these guys were getting “special deals” from Countrywide and are now pleading ignorance. I guess the trick is when you’re getting special treatment the best thing to do is not ask questions. I’ll have to keep that in mind if I should ever become a politician.

Denial. Ignorance. Incompetence. Fill your word here __________ after you watch the Chairman of the Senate Banking Committee revealing to reporters that  he doesn’t know the interest rates these days. Geez. Why are you then spearheading one of the most important mortgage banking reforms of the modern era? Twitter me Senator, I’d be happy to send you hourly updates on mortgage rates:

More on the brewing scandal.

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Tags: interest rates, Mortgages, senate, senators
Categories: Congress and Government, Interest Rate, Mortgages
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I receive a lot of questions on the Home in Five Down Payment Assistance Program. The most popular question is of course regarding the availability of funds for non-targeted areas. Well, if you were waiting for these funds before making your purchase then wait no more. We have some good news today. I received an e-mail this morning that there has been $2,000,000 released for down payment assistance in non-targeted areas.

What does this mean to you then?

This means that money is now available for down payment assistance on properties that are outside the designated targeted zones but inside Maricopa county. Just so everyone is clear here are some quick facts:

• Borrower must be fully approved for a loan program which allows the use of down payment assistance (such as FHA)
• Borrower can use funds to purchase anywhere in Maricopa county.
• The borrower does not need to be a first time home buyer (for these funds).
• Have a property in escrow, appraised and underwritten - since the money runs out quick.
• The rate on this program is 6.3% and the assistance is 5% of the purchase price.
• Funds are disbursed on a first come first serve basis.

This program allows up to 5% down payment assistance.  Funds can be used to pay closing costs as well, it just depends on how you end up structuring the loan with your loan officer.

Just a reminder that these funds are HUGELY popular and go fast, so if you are anywhere close to finding a property…this is a SUPERB time to take the plunge!

Read more on the Home in Five Down Payment Assistance Program.

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Tags: Down Payment Assistance, maricopa county
Categories: FHA, Mortgages, Uncategorized, down payment assistance
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Senator Kent Conrad admits he wasn’t aware that Countrywide gave him preferential treatment on his mortgage and donated the equivalent fee to a charity. Senator Christopher Dodd on the other hand also got a loan from Countrywide but denies he was treated any differently. I don’t know if I buy that necessarily. Shame on Countrywide for treating these powerful senators differently than the regular borrower. It only hurts the industry when big companies try to pull this kind of shenanigan.

Now why is this significatn you ask? Well because these two Senators sit on the Senate Banking Committe, and Dodd is in fact the chairman. This committee has been actively seeking ways to regulate the mortgage industry since early last year.

Now, if I were a Senator on this committee, I’d highly recommend not doing any Real Estate transaction until the credit crunch is fully behind us and any legislation has been dealt with. Or, just doing a cash purchase if you must delve into the market.

Here is the story from Bloomberg:

June 14 (Bloomberg) — Senator Kent Conrad said he was given preferential treatment on a mortgage from Countrywide Financial Corp. and will write a $10,500 check to charity.

“It appears Countrywide waived one point on my mortgage,” Conrad, a North Dakota Democrat, said in a statement today in Washington. “Although I did not ask for or know that I was receiving a discount, and even though I was offered a competitive loan from another lender, I do not want to have received preferential treatment.”

Conrad said he also received a loan from Countrywide on an eight-unit apartment building in Bismarck, North Dakota, even though the lender typically serves properties that have four units or less. He said he had decided to refinance that loan with another institution.

Conrad and Senator Christopher Dodd, who oversees the U.S. mortgage industry as chairman of the Senate Banking Committee, were among those who received loans through Countrywide’s “V.I.P.” program, which waived points, fees and borrowing rules for prominent people, Portfolio magazine reported June 12. Dodd has denied receiving preferential treatment.

Full story here.

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Tags: countrywide, senate banking committee, senators
Categories: Congress and Government, Mortgages, Uncategorized
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A few weeks ago it was widely reported that a Congresswoman from California was having mortgage trouble. Today we find out that Ed McMahon is talking about foreclosing on his house. This from Yahoo! News:

Ed McMahon talks about possible home foreclosure

Ed McMahon on home foreclosure: `If you spend more money than you make, you know what happens’

LOS ANGELES (AP) — Ed McMahon blames the possible foreclosure of his multimillion-dollar Beverly Hills house on a set of problems all too familiar to many Americans: a foundering economy, health problems and poor planning.

“If you spend more money than you make, you know what happens,” McMahon said Thursday night on CNN’s “Larry King Live.” “You know, a couple of divorces thrown in, a few things like that. And, you know, things happen.”

McMahon, 85, appeared with his wife, Pamela. The couple said they are $644,000 behind on their mortgage payments and are in negotiations with lender Countrywide Home Loans Inc. to set a foreclosure date.

McMahon, in a neck brace, said he had stopped working since he broke his neck in a fall 18 months ago. He didn’t elaborate.

McMahon, who was Johnny Carson’s sidekick on the “Tonight” show, said the house had been on the market for two years and that although 50 organizations or individuals had looked at it, no one had made an offer. Documents show McMahon has a $4.8 million mortgage on the home.

“It’s like a perfect storm,” he said. “Economy problems. Selling the house right now is a tremendous operation.”

If you know of any other famous folks on the brink of foreclosing on their home I’d like to hear.

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Tags: ed mcmahon, foreclosure, Real Estate
Categories: Debt, Mortgages, Real Estate
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Over the past month or so Fannie Mae and Freddie Mac have made a few announcements regarding maximum loan levels. For some odd reason I didn’t post these changes as they were announced. Perhaps I was distracted by other things going on. So, I want to share with you some of the major changes which have been announced recently and how it could affect your situation for obtaining a home mortgage loan.

The really major change is regarding declining markets. As you may or may not be aware the term declining markets entered our lexicon late last year. In fact I even wrote a post suggesting that while “subprime” may have been the word of the year for 2007, “declining markets” has a good chance of being the word of the year for 2008. The reason being that because Fannie and Freddie (along with mortgage insurance companies) announced that they would be automatically cutting 5% off the the maximum loan to value on any property determined to be in a declining market. Now Arizona has been deemed a declining market, so it affects all loans in this great state of ours.

What does this mean to you? Well all Fannie and Freddie loans cap out at 95% which means the borrower needs to put 5% down from his/her own funds. This maximum loan amount was cut back to 90% in declining markets. Which meant the borrower no had to put 10% down for the same loan.

Recently Fannie and Freddie have made some changes stating that they would allow 95% loans again. The problem is finding mortgage insurance companies willing to insure mortgages up to that high of a loan to value. We have developed a relationship with such a mortgage insurance company. Hence, moving forward we are able to do loans upto 95% under the following conditions:

• Fixed rate programs only (fully amortizing)
• $417K max loan size
• Primary residence only
• Purchase or rate and term refinance (no cash out refinances allowed)
• 680 minimum credit score

This is only part of the full set of guidelines, therefore it is important to review this completely with your lender. So I will forewarn you that not all will qualify for this new higher loan to value. Additionally this is a lender specific policy, different lenders have different risk tolerance and relationships with different mortgage insurance providers. Do not take this as an industry wide guideline.

The other changes announced are regarding loan to value for investment properties and cash out transactions. But due to the fact that the Phoenix market is designated a declining market, the changes do not really affect anything for loans here. Meaning our terms are already more strict and we are required to follow the more stringent guidelines when making an underwriting decision.

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Tags: declining markets, fannie mae, freddie mac, Mortgages
Categories: Arizona, Mortgages, Phoenix, Real Estate
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