• Recommended Links

Over the weekend I finally caught the movie, No Country for Old Men. It’s critically acclaimed and several friends recommended that I go see it. At times the movie was boring and slow. At times it was quick witted and interesting. However, most of the time nothing about the movie made sense.

In the current mortgage landscape nothing makes sense.

I still get several refinance requests from the internet where people are shopping and getting quoted rates that haven’t existed in years. Moreover, to get a loan closed today is much more difficult than ever before. So for anyone to do a loan at the lowest possible rates doesn’t make any business sense.

Some requests are for home purchases by real estate investors. Every day lenders are limiting their risk by limiting what a mortgage broker can and cannot submit. Every day programs are disappearing. There are very few high risk loans available. It’s only a matter of time before buying a home with no money down will become extinct.

Most of the inquiries I get are questions. Simple questions such as “Is now a good time to refinance?” or “Will not paying my bills hurt my credit?” The people who ask these don’t give me any information about themselves just a name and an email. That’s like asking your optometrist (eye doc) “Do I have ocular degeneration?” without having him/her/it look at your eyes.

Just like the movie, No Country for Old Men, there is no end in sight to all the madness.

Interesting stuff from around the web:

Rocky Mountain News: File under nice hotel but will it give me Marriott Reward points? Ritz puts on finishing touches: It’s the home stretch for the $75 million Ritz-Carlton Denver, which opens its doors a week from today.

Paul Kedrosky: File under the misery gets worse or how California Dreaming is turning into a real nightmare Option ARM Misery

Calculated Risk: File under what happens when corporations don’t pay their debt Analysts: Corporate Defaults to Rise “Drastically”

Zillow: File under 2007 ends 2007 - It’s a wrap

Trulia: File under 2008 begins New Year’s Resolutions for Online Real Estate and Trulia

Alex King: File under now this is what I call a year end review 2007 in Review

4Realz: File this under A trip down the memory super-highway

AMG: File under Chop Suey Subprime Woes Gives the Chinese Politburo 10% Stake in Major US Bank

PhotoMatt: File under Misery is the key to happiness.

If you have an interesting link that you’d like to share, just post in the comments. I’m always on the lookout for interesting readz!

From the Rocky Mountain News:

With foreclosures at record levels, a Colorado regulator has tackled prepayment penalties that can trap borrowers in costly mortgages.

The measure, which took effect Friday and was announced Monday, prohibits fees that extend past the dates loans are adjusted to higher interest rates.

Read the full story: Prepayment fees limited

Five-Year Mortgage Rate Freeze Looms
Wednesday December 5, 8:42 pm ET
By Martin Crutsinger and Alan Zibel, Associated Press Writers

Bush Mortgage Plan Will Freeze Certain Subprime Interest Rates for 5 Years WASHINGTON (AP) — The Bush administration has hammered out an agreement to freeze interest rates for certain subprime mortgages for five years to combat a soaring tide of foreclosures, congressional aides said Wednesday.

The aides, who spoke on condition of anonymity because the details have not yet been released, said the five-year moratorium represented a compromise between desires by banking regulators for a longer time frame of up to seven years and mortgage industry arguments that the freeze should last only one or two years.

Another person familiar with the matter said the rate-freeze plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.

The administration said President Bush will speak on the agreement at the White House on Thursday and the Treasury Department announced that Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson would hold a joint news conference Thursday afternoon with mortgage industry officials.

Treasury also announced there would be a technical briefing to explain more of the proposal’s details.

Paulson, who has been leading the effort to craft a plan, said on Monday that the program would only be available for owner-occupied homes — to ensure the break is not given to real estate speculators.

The plan emerged from talks between Paulson and other banking regulators and banks, mortgage investors and consumer groups trying to address an avalanche of foreclosures feared as an estimated 2 million subprime mortgages reset from lower introductory rates to higher rates.

In many cases, the higher rates will boost monthly payments by as much as 30 percent, making it very difficult for many people to keep current with their loans.

The plan is aimed at homeowners who are making payments on time at lower introductory mortgage rates but cannot afford a higher adjusted rate.

Through October, there were about 1.8 million foreclosure filings nationwide, compared with about 1.3 million in all of 2006, according to Irvine, Calif.-based RealtyTrac Inc. With home loan defaults still rising, the trend is expected to worsen next year.

The plan represents an about-face for Paulson, who until recently had insisted the mortgage crisis could be handled on a case-by-case basis. However, he and other administration officials became convinced the tide of foreclosures threatened by the mortgage resets represented such a severe threat that a more sweeping approach was needed. They opted for a proposal that was along the lines of a plan put forward in October by Sheila Bair, head of the Federal Deposit Insurance Corp.

Paulson and other federal regulators began holding talks with some of the country’s biggest mortgage lenders, mortgage service companies, investors who hold mortgage-backed securities and nonprofit groups that provide counseling for at-risk homeowners.

Under the typical subprime loan — those offered to borrowers with spotty credit histories — the rates for the first two years were at levels around 7 percent to 8 percent. But after two years, those rates were scheduled to reset to levels around 9 percent to 11 percent.

For a typical $1,200 monthly mortgage payment, the reset could add another $350 to the monthly payment, greatly raising the risks of loan defaults by homeowners struggling with the current payment.

The wave of mortgage foreclosures threatened to make the most severe slump in housing even worse by dumping more foreclosed properties onto an already glutted market, further depressing home prices and shaking consumer confidence.

The deepening housing slump has already roiled financial markets, starting in August, as investors grew increasingly concerned about billions of dollars of losses being suffered by banks, hedge funds and other investors.

The administration plan is designed to deal with the crisis by letting subprime borrowers who are living in their homes and are current on their payments to avoid a costly reset for five years. The hope is that by that time the housing downturn will have stabilized, clearing out the glut of unsold homes and halting the steep slide in prices that is hitting many parts of the country.

With sales and prices once again rising, the expectation is that homeowners will be able to renegotiate their current adjustable rate mortgages into a more affordable fixed-rate plan.

The housing crisis has become an issue in the presidential race with Democrats Hillary Rodham Clinton and John Edwards putting forward their own proposals this week that would go further than the administration.

Clinton said her own proposal that would impose a 90-day moratorium on foreclosures and freeze the rates for five years or until they had been converted to fixed-rate loans was a better approach that would help more people.

“Although the administration is finally giving the foreclosure crisis the attention it deserves, it seems that President Bush is going to give struggling homeowners far less than they need,” she said in a statement.

Mark Zandi, chief economist for Moody’s Economy.com, called the administration plan a good first step, but said the government eventually will have to go further given the problem’s size and the threat to the economy.

“This is the most serious housing downturn we have seen in the post World War II period,” Zandi said. “It is a threat to the broader economy. The risks of a recession are very high.”

Associated Press reporters Deb Reichmann and Nedra Pickler contributed to this report.

Here’s an interesting article on how mortgage rate adjustments have changed lifestyles. A few years ago people were using their homes as ATM’s; taking out cash at will to buy things. I was never a big proponent of racking up debt at the expense of your home’s equity. Here’s why: Mortgage market hangover could choke holiday sales

However, I doubt a lack of equity will really curb the appetite to purchase “stuff.” To put things in perspective on Saturday I ventured to Best Buy to check out flat screen (LCD/PLASMA) televisions. The ones with $1000 up to $5000 price tags. The section was full of people all wanting to buy this high ticket item including myself. While I was enamored with the “kick ass” picture quality and slick design, I opted against buying a new television. It’s basic logic, whenever I buy something I feel the need to use it to justify the purchase. As it stands, other than sports I rarely watch television so buying a television would force me to watch television.

Visa wasn’t happy with my decision, but I’ll bet that he was happy with this past weekends results. Visa should change their marketing slogan, “It’s everywhere you want to be” to “No equity, we’ve got you covered.”

Mortgage article from the Denver Post:

A jubilant Wall Street barreled higher Tuesday after the Federal Reserve cut its benchmark interest rate by a larger-than-expected half percentage point.

Read the full article: Dow does rate victory dance

Inman, a leading real estate news outlet, has an article entitled: Mortgage data links higher-priced loans with delinquencies

Blacks and Hispanics were also more likely to be stuck with higher-cost loans than whites. Under HMDA, higher-cost loans are defined as first-lien loans with annual percentage rates that exceed the interest rate on Treasury securities of similar maturities by 3 percent or more. The threshold for junior loans is 5 percent.

These statistics are often misleading. However, Inman does state:

Part of the difference in both denial rates and the incidence of higher-cost loans between ethnic groups can be explained by factors such as property location, income relied on in underwriting, and loan amount, Federal Reserve Board analysts said.

So this really issue isn’t black or white, it’s grey.

I usually rely on Andy Rooney Ben Stein to make sense of whatever ails America. His self-effacing wit tends to overshadow his knowledge. He’s like the “very rich and very eccentric” grandfather we wished we had, the one who was wise beyond his years who spoke from the heart. My maternal grandfather fit this profile except there a distinct language barrier as he spoke Tagalog and I didn’t.

Earlier this month Ben Stein wrote a piece called How Speculators Exploit Market Fears. It discusses what hedge fund managers do to create action in the stock market. Rather than take snippets from the article, here’s the full article:

Here’s a fact: The speculators and hedge fund managers who run today’s stock market need market volatility in order to make money.

They can’t make enough money if the market stays flat or moves only a bit, so they like extreme and unexpected price movements. They especially like sudden, surprise movements down, when they can make money off stocks they borrow and sell — or, as they say, “sell short.”

Money Lust Satisfied

That’s what’s been happening the past couple of weeks. But it’s not interesting to say that the speculators are whipping the market around to satisfy their money lust. So the speculators themselves make up reasons for why the market is fluctuating, flog those reasons to the media, and then profit if some other speculators believe the jive reasons and jump in the way the manipulators want them to.

Supposedly, the market is “correcting” because of worries about the housing slowdown, and also because of fears that the debt markets that support mergers and acquisitions is drying up.

These are interesting theories, and people who don’t know a lot about the stock market or the economy might find them beguiling. What follows are a few truths that show how shallow these “reasons” for the stock market moves are.

Housing a Theory

Yes, the housing market has slowed from a spectacular bubble level to a simply pretty good level. Housing sales and starts are now about what they were in 2002, and no one thought we were in a housing depression then.

In any event, housing is only about 5 percent of the economy. If it falls by 15 percent, that would represent a fall-off of about .75 percent. That’s not trivial, but it’s also not the stuff of which recessions are made.

The fact is that there is no recession. The economy is suffering from a labor shortage, not a surplus of unemployment. The Fed is worried about excess demand, not slack demand.

Corporate profits set new records every day. Whatever’s happening in residential sales and building is simply not slowing down the economy. Why should a Boeing or a Merck or a Pfizer have any reaction to housing at all? Because the speculators sell everything they can when nervousness sets in — and for no other reason.

A Minor Major Mess

Subprime is a mess. But it’s a small mess. Subprime mortgages account for roughly 20 percent of mortgages even in the most heavily exposed states. About 20 percent of them are delinquent in some way. That’s 4 percent of mortgages.

Of these, maybe half, or 2 percent, will go into foreclosure. There will be roughly 50 percent recovery on sale of these. This is a loss of 1 percent in the mortgage market — a sum the lenders have already made many times over because of the hefty fees on those deals. In the context of the size of the U.S. financial sector, it’s nothing.

And why should a crisis in subprime drive down stocks in Mexico and Thailand? Again, because the speculators seek to create panic to make money by selling short, and they sell short everything.

There’s simply no connection between subprime and developed or developing nations’ stocks. This by itself shows the thin context of the selling wave late last month.

Money’s Still Cheap

What about the supposed drying up of loans for mergers and acquisitions by private equity firms? Well, here’s a good, simple test of just how valid that explanation is for stock market moves: The majority of private equity takeovers are financed with junk debt.

If there really were a major shortage of funds for these deals, the interest rate on the junk would skyrocket. Instead, while the rate has risen by about 150 basis points in the past month, the spread between junk and investment grade is now about 290 basis points, according to leading junk analyst Martin Fridson.

This is a lot lower than the year-end average of the spread from 2002 to 2006, and far below the almost 800 basis point spread during a true interest-rate crunch like the one after the tech meltdown in 2000-2002.

So that’s phony, too. Interest rates have risen, but not anything like what they’ve done in real crises. And besides, the Dow fell by about 550 points the week before last, yet not one of the Dow stocks is involved as either acquiror or acquiree in a private equity deal.

In short, money is no longer virtually free the way it was for private equity deals in the past year. But it’s not expensive by historical standards, either.

Spreading the Fear

In other words, it’s all the speculators trying to panic us so their sell programs will make money. And they’ll make money as long as they can spread their panic. When they can’t do that any longer, they’ll work the long side — and make up reasons for that, too.

In the meantime, the economy is strong. Profits are great, and interest rates are low and will stay that way. Don’t sell. With all the shrieking about the market, it only fell to what it was about five weeks ago — and we didn’t think we were poor then.

So let the speculators shout “fire.” As of right now, they’re not blowing anything but smoke.

Two quick points:

131+ mortgage companies have shut down. If you’re a consumer chances are you’ve never heard of these companies. If you’re in the mortgage business, you’ve probably heard of a fraction (i’d say 25%) of these companies. For the most part, those that bet on high risk loans (subprime, alt-a, non-owners, etc.) lost. The ones that bet on low risk loans (conforming) are still open for business.

However, one quick look at Google Trends and you’ll notice that countrywide, mortgage, credit, or liquidity don’t show up as “hot searches” in Google.

Sometimes you need Ben Stein to make sense of a nonsensical world.

Here’s a mortgage primer on which loans are no longer the flavor of the month on Wall Street. They’re the Michael Vick’s of the mortgage world, they were once very popular on but now nobody wants to be associated with them. Okay, that’s a little bit too harsh since these loans didn’t kill dogs. Then again, these loans have put families in dire straits so lets keep the Michael Vick analogy.

Loans the Wall Street doesn’t like:

• THE LOANS WITH THE REALLY REALLY REALLY LOW RATE AND LOW MONTHLY PAYMENT

Also called: 1%, NEGATIVE AMORTIZATION, NEG AM, OPTION ARMS, PAY OPTION ARMS or

“A CAN OF WHOOP ASS WAITING TO HAPPEN”

• THE LOANS FOR BORROWERS WITH REALLY REALLY REALLY BAD CREDIT HISTORIES

Also called: SUBPRIME, NON PRIME, POOR CREDIT, 2/28s, 3/27s, or

“I GUESS THIS IS WHAT I GET FOR NOT PAYING MY BILLS”

• THE LOANS FOR BORROWERS WHO HAVE GOOD CREDIT BUT WHOSE OVERALL LOAN APPLICATION DOESN’T MEET FANNIE MAE OR FREDDIE MAC’S STANDARDS

Also called: ALT-A or

“SO I’VE GOT GOOD CREDIT AND A GOOD JOB BUT I’M PENALIZED FOR NOT SAVING ANY MONEY”

• THE LOANS FOR BORROWERS WHO CAN’T REALLY REALLY REALLY SHOW HOW MUCH MONEY THEY’VE MADE OR HOW MUCH THEY HAVE SAVED UP

Also called: STATED INCOME, STATEDSIVA, SISA, NO DOC, or

“DON’T THEY HAVE LOANS FOR PEOPLE WHO DON’T HAVE JOBS?”

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY DON’T WANT TO PUT ANY MONEY DOWN

Are called: 80/20, 100% Financing, NO MONEY DOWN, 103%, 107% or

“I WANT A LOAN WHERE I GET TO KEEP MY MONEY IN CASE MY JOB GETS OUTSOURCED TO INDIA”

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY DON’T WANT TO PAY AN AMORTIZED PAYMENT

Also called: INTEREST ONLY, IO, or

“IF I LIKE PAYING DOWN PRINCIPAL MY PAYMENT GETS RECAST TO A LOWER PAYMENT EVERY MONTH”

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY WANT TO BUY A HOME THEY HAVE NO INTENTION OF LIVING IN

Also called: INVESTMENT PROPERTY LOANS, NON OWNER OCCUPANCY, NOO or

“I’M GOING TO BE THE NEXT DONALD TRUMP”

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY MAKE A LOT OF DOUGH

Also called: JUMBO, NON CONFORMING, SUPER JUMBO, MILLION DOLLAR LOANS, ANYTHING OVER $417,000 or

“THAT’S PRETTY LOW FOR A RATE OF RETURN AND PRETTY HIGH FOR A MORTGAGE INTEREST RATE”

It remains to be seen if Wall Street still likes:

• THE LOANS FOR BORROWERS WHO REALLY REALLY REALLY HAVE NO INTENTION OF LIVING IN THEIR HOMES FOR 15 to 30 YEARS

Also called: ADJUSTABLE RATE MORTGAGES, ARMS, 3/1, 5/1, 7/1, 10/1, TEASER RATE LOANS, HYBRID LOANS, BALLOONS or

“THE AVERAGE PERSON MOVES EVERY 5 to 7 YEARS, SO WHY SHOULD I GET A LOAN FOR 30 YEARS?”

Wall Street will always like:

• THE LOANS WITH REALLY REALLY REALLY NO RISK

Also called: FHA, VA, CONFORMING, FANNIE MAE, FREDDIE MAC or

“THE LOANS THAT MAKE UP THE MAJORITY OF THE AMERICAN MORTGAGE LANDSCAPE”

Next Page →

• Denver Lender LLC

  We are a mortgage company located in Denver, Colorado. Click here to compare mortgage rates.
  

• Search for:

• Tags

  adjustable rate mortgage appraisal colorado commercial compare consolidation construction conventional credit score debt denver fha first mortgage first time home buyer fixed rate mortgage foreclosure home equity home equity loan home loan investing jumbo lending loan amount meltdown mortgage mortgage backed securities negative amortization prepayment prime property purchase rate rate increase real estate refinance reverse mortgage second mortgage shopping stated income Subprime va value

• Recent Posts

  • No Country for Mortgage Brokers
  • File under…
  • Monday Morning Quarterback
  • Keeping up with…
  • Video: The Subprime Meltdown of 2007
  • Pavilions, Argonaut, and more
  • Why don’t we save?
  • Spanning the web
  • Mad World
  • What will 2008 bring…

• Legal

  The content provided on this website is presented for informational purposes only. The information provided on this website should not be construed as offering legal, financial or other advice to be relied on by the reader to make or refrain from making any decision or to take any action. The investment, mortgage or financial services or strategies mentioned in and throughout this website may not be suitable for you.