Home Loan Focus

Archive for the ‘Mortgage Industry’ Category

The CIT Group announced the sale of its home loan business including regular home mortgages as well as manufactured home mortgages.  The company by many analysis estimates came close to bankruptcy as they suffered through 4 quarters of losses after making too many bad mortgage loan calls.

After personally doing business with CIT in their core business, Business Loans, for several years, I have to wonder if the mortgage loan business exit surgery is more endemic of a larger problem at CIT.  There are aspects of their business that are very tight, when it comes to processing and collecting payments and other aspects.  However, they seem to have a collective short coming in my opinion when it comes to evaluating loan risk and underwriting loans.

So far business loan defaults have not made the headlines that mortgage defaults have, but as more businesses suffer the impact of inflation, higher fuel costs, and a slow down in the global economy, the CIT’s core business may suffer strains that may not fair any better than its mortgage business.  With many large office and processing areas around the country, some of which I have visited personally, I expect that cut backs will likely follow and this might even harm CIT’s real competency (running tight processes in transactions) which could destabilize the rest of the business.  The famous (some would call them infamous) debt collectors of business bad debt, might find themselves in the cross hairs of debt collectors if that happens and they do not have a large number of real assets to sell off to pay down their debt.  You sure can’t put out a financial fire by selling off the office furniture…

Foreclosure filings were significantly up last month signifying an increase in foreclosures both in the last year as well as within just the last month.

Foreclosure filings last month were up nearly 50 percent compared with a year earlier, according to one company’s count released yesterday. Nationwide, 261,255 homeowners received at least one foreclosure-related filing in May, up 48 percent from the same month last year, and up 7 percent from April, foreclosure listing service RealtyTrac said.

Washington Post

That increase is in the filings related to foreclosure.  Its kind of a measure of the red tape that is filed as opposed to the actual foreclosure itself.  Its akin to measuring the number of divorces by all the divorce related letters, and correspondence of the lawyers involved in the proceedings, which could be measured in feet of paperwork with scores going up like a nightmare version of an xbox 360 game.  Its very similar unfortunately for foreclosures.

However the increase in foreclosures is not just a red tape escalation, but the real deal.  The number of total mortgages in a state of foreclosure as measured in a percentage was 2.47 percent up from 1.28 percent during the first quarter a year ago.

Senator Kent Conrad found himself in a bit of a pickle this week, as it was revealed that he received favorable treatment from Countrywide when financing a Florida vacation home for over $1 million.

The favorable treatment came in two forms and relates to Barack Obama’s most recent scandal.  James Johnson was working for Barack Obama trying to vet Vice Presidents when it was revealed that Johnson used to be a lobbyist and had received sweet heart loan deals himself after leaving one of those companies.

Johnson apparently told Sen. Conrad to call the CEO of Countrywide, one of the companies at the heart of the subprime loan scandal, which is currently being purchased by Bank of America.  The CEO of Countrywide later instructed loan officers at Countrywide to shave off one point from the points paid on the mortgage. 

The dollar value of this transaction was not that great and the Senator after admitting the perspective of possible impropriety has promised to donate about $10,500 to charity.  It points out though that many lawmakers, who may not always get direct benefits in the form of campaign contributions may be getting a lot of smaller perks on the side and through the backdoor.  If a Senator can save $10k on a home loan, what do they save when they buy a car or shop for medical insurance?  Do they pay anything on credit card rates or hotel stays?

Conrad (D-N.D.) said yesterday that he sees nothing wrong with calling Mozilo, the chief executive of the nation’s largest mortgage lender, Countrywide Financial. And the Senate Budget Committee chairman is adamant that he received no special deals.

But by reaching out to Mozilo, Conrad became another VIP enrolled in the “FOA” — Friends of Angelo — loan program.

“[T]ake off 1 point,” Mozilo instructed a subordinate in a March 17, 2004, e-mail obtained by Condé Nast Portfolio magazine. In another e-mail that April about a Conrad loan, Mozilo wrote: “Make an exception due to the fact that the borrower is a senator.”

The US has hit a need velocity in foreclosure rates.  There are currently 1 million homes in the que going through the foreclosure process.  This is not a reference to total foreclosures since the housing crisis. This is just the current homes pending foreclosure.

This is definitely a dubious milestone in the housing and mortgage crisis and one that is going slightly unnoticed while Oil is spiking close to $140 a barrel with predictions of hitting $150 before the Fourth of July.

If gas rates hit $5 or $6 per gallon this summer, it sure will not help any of the unfortunate homeowners trying to save their homes from foreclosure. It won’t even help the banks trying to minimize their losses, and it definitely won’t help banks offer new loans to people to buy homes and help the market actually begin to hear.

There was a time when it appeared that the mortgage crisis might abate and markets could recover within a year or two. We are now coming up on what some would consider the one year mark, things are rapidly getting more desperate and the solutions put forward so far . Possibly even more troubling could even be the number of people that are beginning to give up on entering or staying in the housing market. With potential homeowners actually leaving the marketplace and opting to rent instead, the housing market will continue to contract faster than waistlines trying to determine the answer to the question does Hydroxycut work.

For months the Federal Reserve has been cutting the rates that banks pay to borrow money, but this month those drops only translated to about 0.125 percent.  Banks would seem to be pocketing the difference to either pay for their past losses or to try and lure investors back into the mortgage backed security market with higher yields.  You might hope for a better rate, but you’ll be doing good to get approved for a loan let alone a gift baskets the way things are going in the mortgage market these days.

The average rate on a 30-year U.S. mortgage with no upfront points declined 1/8 percentage point to 6-3/8 percent on Monday, according to BestInfo Inc.

The 30-year mortgage rate with one upfront point dropped 1/8 percentage point to 6-1/8 percent.

US mortgage rates drop 1/8 pt on Monday

A few years ago consumers were trying to figure out how to add every conceivable amenity from 3 and 4 car garages to home theater seating to their homes and then flip them making a profit and moving on to something even better.  These days they are doing good just to get financing at all not only in the US but also in the UK.

The Bank of England reported that the number of new mortgages being approved for people buying a home was just 58,000, the worst monthly figure since the Bank began collating the data 15 years ago, and only about half the recent peak of 115,000 witnessed in May last year.

Observers had expected a small rebound after the severe crisis the credit markets experienced in March, when Bear Stearns had to be rescued by the US Federal Reserve.

Mortgage approvals fell to new low in April – Mortgages, Money – The Independent

If the global market on interest brings reality to the US from the UK, US homeowners might expect an increase in the rate of interest that they are paying on mortgages.  Many people think that the managers of the US economy have been more proactive in working to save the mortgage industry in the US, but at the end of the day arbitrage is the typical factor that levels the playing field around the world.  That means that the higher rates seen in the UK will eventually help to increase the rates paid in the US as well as investors in the US demand a better return on investment like the one they receive in the UK.

Figures compiled by personal finance website MoneyFacts and carried in the Daily Telegraph show that the average rate for a two-year loan has hit 6.64 per cent, up from 4.34 per cent two years ago.

The Press Association: Cost of fixed-rate mortgages soars

The reality is that in a global economy candles can not be burnt from the same end forever and in this the UK and US economies have been and are still tied at the hip in many forms.

Freddie Mac is working to buy up mortgages totaling about the same amount as were foreclosed in California last year, $15 billion.

Freddie Mac is lending a jumbo hand to a group of major U.S. banks, offering to buy as much as $15 billion in mortgages that used to be too big for its program.

On Thursday, Freddie Mac (nyse: FRE – news - people ) said it would purchase home loans of up to $729,000 from lenders including Wells Fargo, JPMorgan Chase, Citigroup, and Washington Mutual.
Freddie Mac Super-Sizes Its Program

This has been expected for a couple months now since the government cleared the way for Freddie Mac to take on these jumbo sized loans a process that mirrors a plan also allowing VA loan amounts to go higher as well.

In the past, a borrower that wanted to borrow more than $417,000 would have to get a primary mortgage for the first part of the mortgage up to that old max and then another for the amount over that paying a substantially higher interest rate.  Potentially, now Freddie Mac can make it easier for people to take out a loan or more importantly refinance with a federally backed loan as Freddie Mac now starts to purchase loans off the books of banks, enabling them theoretically to re-extend new credit to new borrowers.  That said, don’t run the printers out of ink yet, the big ‘if’ in this equation is the concept of re-extending the credit once the banks are bailed out by Freddie Mac.  It could be possible that Freddie Mac and the US government are just taking on bad loans from banks that could write good loans in the first place.

The sub prime mortgage scandal was definitely created in large part by mortgage brokers offering up shady deals, but they could not have acted in a vacuum. Someone had to underwrite those mortgages and securitize the portfolio, reselling it to investors via hedge funds. Well, FBI Director Robert Mueller and the FBI is still in the process of following the money working to trace the fraud back to the money that created that demand and enabled it to happen by not operating in a truly free market fashion.

“We are targeting accounting fraud, insider trading and deceptive sales practices. These investigations may well lead to other instances of fraud, from investment banks and private equity firms to hedge funds.” Subprime probe may lead to hedge funds, others: FBI

Mortgage fraud was possible in part because the people that should have been reviewing the mortgage brokers actions and the banks above them both turned a blind eye to what was really going on. In the drug world, this is part of the reason why the FDA is in place to test drugs, such as was done with lipovox reviews, and now many politicians including the Fed are lining up to set up controls that would do the same in the mortgage market.

Over the last seven years the Republican administration of George Bush and the Republican led Congress (up until 2006) were so bad at managing the nations finances that it was hard to conceive that anyone, anything or any other party could be worse.  Democrats seem to be working to prove that they are just as bad at helping Americans and the US economy as their Republicans cohorts on Capital Hill.

This week, the two sides are arguing over a Sub Prime bail out that seems designed to bail out no one, yet it will spend $300 billion dollars.

What it might do

1.  Give funds to local communities to go fix up empty foreclosed homes. 

Why?  Who knows, maybe it will give the mice and the looters something fresh to compete over.

2.  It will replace a borrowers existing mortgage with an FHA backed mortgage and will give the Federal Government partial ownership of your home. 

Why? Who knows, maybe the Federal Government hopes to get a foot in the door on legal grounds in case they want to perform a search or seizure of your property without a warrant with a warrantless wire tap.  The last thing the fed wants to do is go into the real estate business again having to comply with local ordinances and bylaws on maintenance and upkeep.  Wasn’t the United States set up in part so that people could get away from governments that owned all the land?

3.  It would require banks to write down the principal amount of a mortgage balance to recognize new home loan values in various areas. 

Why?  If you currently owe more on your home than it can be sold for in the market, financially you will have the incentive to walk away and leave the bank with the bad deal.  That increases defaults, drops property values further and creates more instability for all of your neighbors who might soon fall into the same problem.

What it will not do

1.  Allow Bankruptcy Judges to do what they used to do and negotiate better interest rates and principal amounts to avoid a total default and loss by the home owner and the banks.

2.  It will not help people facing foreclosure avoid foreclosure.  (But they will fix up your house real nice after you are kicked out by the local sheriff)

3.  It will not bail out speculators that gambled on the value of your home as collateral.  But it will back their remaining investments with an FHA guarantee so that they can take their money and run to another investment arbitrage opportunity, maybe something in grape seed extract commodity contracts.

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