No Country for Mortgage Brokers
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.
Your mortgage changed your lifestyle or did it?
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.”
Option Arms are in the news again
File this under: Unsuspecting borrower duped into getting a difficult loan to comprehend.
From Sunday’s Denver Post: Crushing ARMs squeeze homeowners
In 2003, 1.1 percent of mortgages originated for a purchase or refinance in Colorado were option-ARMs and another 2.5 percent were interest- only loans that didn’t pay down principal, according to First American LoanPerformance, a San Francisco mortgage research firm.
…
Many borrowers don’t understand amortization »”>negative amortization, how their payments are rising, and why the loans they expected to rescue them are dragging them into foreclosure, he said.
The mortgage brokers who sold these loans were (most of them are out of the industry) dumber than dirt yet were great at selling these products. If you went with a mortgage broker because they sold you on a loan products, who’s really to blame?
What are your chances of getting tickets to the World Series?
If you wanted tickets for the World Series, how many people will you be competing against? I like to think in numbers so here’s my quick math:
According to the swami known as Wikipedia, Denver’s population was approximately 2.5 Million in 2006. I’d guess that the population was risen a few thousand in the last year.
There are approximately 18,000 tickets available for each World Series game at Coors Field.
There are 3 possible games for a grand total of 54,000 tickets available.
Each person can purchase up to 4 tickets and lets assume most people will buy 4 tickets for only one of the games. (If you had a brain you’d buy 4.)
That leaves only 13,500 sets of 4 tickets.
Here’s the kicker, they’re only available online.
Children typically make 25% of the population so the 2.5 million drops to 1.8.
Let’s just say that half the people don’t care about the Rockies or at least don’t care about going to the game. We’re now at 900K.
And not everyone has access to the internet so again lets slash by 50% to 450K.
And not everyone that has access to the internet will be available at 10 AM next Monday again slash by 50% to 225K.
And not everyone that has access to the internet next Monday has broadband again slash by 50% to 113K.
113K will be competing for 13K tickets.
Ever been to a game at the Big House? Imagine going through the turnstile at Michigan Stadium with that many people at the same time. Qwest, Comcast, and all other internet providers better be ready. Throw statistics and probability out the window, getting tickets to the World Series is going to be MADNESS!
Foreclosure begets REO
When I think of REO, I rarely think of properties, real estate, or banks. I usually think of the Holiday Inn commercial. You know the one where the guys hum “Take it on the Run” by REO Speedwagon:
REO stands for Real Estate Owned. People inside and outside of the real estate industry believe that foreclosure and an REO purchase are one and the same. They aren’t. A REO property is the direct result of a failed foreclosure sale.
To learn more about REO, visit the REO BLOG.
Colorado Foreclosure Act
An article from the Denver Post explores the foreclosure »”>Colorado Foreclosure Act:
The new law aims to protect homeowners and governs some specific investor actions.
How is the homeowner protected:
Ending such “equity-stripping” abuses was one aim of Senate Bill 71, also known as the Colorado Foreclosure Protection Act as it made its way through the General Assembly in 2006. It became law in January. The practice of equity stripping is now illegal, under the act.
What specific investor actions?
It differentiates between “equity investors,” whose intent may be to purchase the property, and mere consultants who provide help and advice, typically for a fee. Specific standards govern the behavior of each group, with the threat of fines and prison time for violations.
The law says a purchase contract must give the seller three business days to cancel it. It also lays out requirements for a “leaseback,” in which a homeowner sells the property to an investor and stays on as a resident and renter; and for a “buyback,” which gives the seller an option to repurchase the property at a later date.
Read the full article: Foreclosure act: A measure of protection
Near-term home sales index dives
Mortgage article from the Rocky Mountain News:
What is a near-record low for an index that forecasts near-term home sales suggests that borrowers in expensive areas are struggling to finalize home purchases amid mortgage market troubles.
Read the full story: Near-term home sales index dives
To merge or not to merge
PRIVATE MORTGAGE INSURANCE: If your down payment is less than 20% of the purchase price of the home, mortgage lenders require that you take out Private Mortgage Insurance (PMI). This insurance protects the lender in the event you default on your mortgage. PMI has fallen out of favor in recent years due to the 80/10/10 (80% first mortgage, 10% second mortgage, 10% down payment), 80/15/5 (80% first mortgage, 15% second mortgage, 5% down payment), and 80/20 (80% first mortgage, 20% second mortgage, 0% down payment).
On the heels of the mortgage credit crisis comes word that the two bigger players in the mortgage industry may merge. However, after further deliberation, they decided against a merger.
MGIC drops bid for rival Radian
The mortgage insurers agree to end the deal and focus on how to survive in the industry.
By Emily Fredrix The Associated PressMilwaukee – Mortgage insurer MGIC Investment Corp. abandoned its $5 billion bid to buy rival Radian Group Inc. on Wednesday, saying it was in each other’s best interest to concentrate on surviving in the faltering mortgage industry.
Radian had vowed to see the deal through when MGIC announced in August it wanted to back out. But chief executive S.A. Ibrahim said Wednesday that Radian didn’t want to fight and instead needed to weather what he called “an industrywide scramble to survive.”
Investors seemed hopeful for both companies after news of the agreement.
Though Radian’s shares tumbled as much as 9 percent after the market opened Wednesday, they closed up 16 cents at $18.27. MGIC shares fell 29 cents to end at $30.05.
MGIC, based in Milwaukee, had agreed in February to pay about $5 billion in stock for Radian, valuing its shares at $60.78. Shares of MGIC closed the day the deal was announced at $70.09.
As problems mounted in the mortgage market, both companies saw their shares tumble and the deal’s value sink.
MGIC said it did not believe it had to complete its purchase of Philadelphia-based Radian because their joint interest in subprime-mortgage investor C-Bass LLC could be worthless.
The decision to end the deal was mutual, both companies said.
Neither party paid the other to get out of the agreement, according to a news release. The original agreement said there would be no breakup fee if a decision was mutual.
Both companies’ shareholders had already approved the deal, which MGIC had said would close in early October.
But woes felt throughout the mortgage industry made the deal difficult to finish, said Michael Zimmerman, MGIC’s vice president of investor relations.
While this is akin to splitting up, it remains to be seen what this means to the borrower. There aren’t too many PMI companies left and when the two biggest PMI companies are more concerned about surviving, especially when in 2007 PMI is tax deductible, this can’t be a good sign.
Flipping houses
For some reason I get A LOT of visitors searching for “Fix and Flip in Denver” and “Fix and Flip loans.” Most people I’ve talked to regarding “fix and flips” simply don’t have a clue how much time or money is involved in a buying a house, remodeling, then selling it for a profit. People who are unprepared either go broke or wreck their credit or both. However, buying a home, fixing it, and then flipping it has always fascinated me.
Growing up I really enjoyed This Old House and Hometime. 20 years later and much to my surprise these shows are still on Public Television. The cast of characters has changed but the premise remains the same, remodel an aging house.
Today there are several shows devoted to flipping homes and I’m addicted to each and every one of them:
Property Ladder: By far the best of the shows not named This Old House or Hometime. Candidates for this show are fix and flip novices. The show is an hour long and typically the show focuses on the struggles these novices endure while flipping. They do receive guidance from Kristen Kemp a real estate investor. What I like is that follow through to the end and show some flips as complete flops.
Flip That House: If you have a short attention span, this fix and flip show is for you. It’s only 30 minutes long! Experienced and inexperienced flippers are depicted in a quick view of the fix and flip process. The show usually ends with a how much the home was purchased for, how much they spent, and the new price with the expected profit highlighted.
The Real Deal/Real Estate Pros: In one hour this show follows successful real estate flipper Richard Davis and his company, Team Trademark. It’s a pretty interesting show laden with extremely tight deadlines. Getting a house ready in a week only to get one of your employees into the property seems a little far fetched.
Flip This House: I liked this show because of Team Trademark but there was a lawsuit and Team Trademark moved on. There are other “teams” that are featured, one in San Antonio, TX, one in Atlanta, GA and the latest is in New Haven, CT. If you’re in drama you might want to skip the last team, the New Haven group seem to be as cohesive as the 2004 Boston Red Sox.
Flipping Out: Last week a new fix and flip show debuted on Bravo. It’s about Jeff Lewis, a professional real estate investor. Remember it’s on Bravo, the network that brought us Queer Eye for the Straight Guy in other words, expect a lot of drama.
OK Einstein, where are rates headed?
A borrower calls me after finding my blog and starts the conversation with “OK Einstein, where are rates headed?” I usually expect an opening line like this from friends or just about anyone with a New York accent. Although the caller was sans the accent he could’ve easily been one of my wise-ass friends so I responded with a sarcastic “What’s it worth to you?” The person on the other line paused for a second and said “Seriously, do you think rates are going to go up any higher?” I paused for a second and said, “so let’s step back for a second, you really found my blog on the web, called me and started your call with OK Einsten…. wow!”
For the next ten minutes we discussed remortgaging which is a fancy term for refinancing. I explained to him that many people who have a 5 year ARMS have extremely low rates so their extremely hesitant to refinance. Luckily he had all his documents, I asked him to take out his NOTE so I could go over how his ARM will adjust.
His current rate: 5%
His current margin: 2.25%
His current index (12 month LIBOR): 5.49%
His caps: 2/2/6
- His first year adjustment has a maximum adjustment of 2%
- Each subsequent year can adjust a maximum of 2%
- With a lifetime maximum adjustment of 6% above the original rate of 5% or 11%.
His adjustment will take place sometime next year. Unless his index drops significantly, his rate will probably adjust to 7%.
After talking to the caller, somewhere along the line we became friends. We discussed golf. We discussed houses. We discussed 529 plans. He was looking for advice, not a loan. At the end of the call, he thanked me for my time. I added the caller’s name to my rates watch database and hope to hear from him when he’s ready to either purchase his next home or refinance when rates drop.
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