RealEstateFinanceLaw

A Tribute to My Brother, Todd Romrell

2007-08-09T09:59:00.000-06:00

My older brother Todd passed away just a couple days ago after a long battle with cancer. Todd's family continues with his beautiful wife Cindy and their five children. I did a Google search for Todd Romrell and didn't find anything about my brother. In one sense, I think that's a nice tribute to Todd's quiet and unassuming family life. In another sense, it's a shame that more people won't know or don't know about his best qualities.

This will come as a shock to those who know me, but I didn't always get along with my brother. He was the oldest and the favorite (birth order seems to be an advantage in patriarchal families). He was the jock, the "peacemaker" and the religious exemplar.

For me, as the second born son, I happen to be a bit more confrontational and outspoken. I wasn't given as much attention, love, affection or praise, so I became more competitive and demanding. (As an aside, a great little article on second-born personality traits can be found here.)

I guess our personality differences might explain why, for example, I popped Todd in the face after my dad insisted that we stop fighting during a family road trip. It wasn't my fault...OK, yes it was. But that doesn't explain why he rammed my head through the wall during another fight. Yes, we fought just as much as any brothers, but that wasn't because we didn't love each other.

Two of my fondest childhood memories involve Todd. When we were both feeling a bit sentimental, we used to laugh about these two events in particular.

The first (in reverse chronological order) was when we were young teenagers spending some wonderful time at my grandparents' cabin in Island Park, Idaho. We loved to spend time tearing through the dirt roads on high-pitched little "yamahoppers". We'd explore as much area as those little gas tanks could handle. And on occasion, we'd race back to the cabin like motocross superstars!

Today was my day, I thought, as I rounded another dusty tree-lined corner ahead of my brother, knowing that just a few turns ahead was VICTORY! I laid on the gas and pushed that little engine as hard as I could. I could barely hear Todd's engine behind me as the air rushed past my ears. I was kicking up a cloud of dust as I flew through those corners. The dust was to my advantage as it blinded my opponent if he got too close.

As I rounded one of the last corners before reaching the finish line, the little motorbike jumped out from under me. I hit the dirt hard, but my helmetless head was spared a crushing blow. I could feel some road rash as a slid to a dust-covered painful stop. And then I heard Todd's engine at full throttle rounding the corner...I knew what was about to happen but I couldn't prevent it. As I lay there in the middle of the road, Todd flew around the corner and ran right over my outstretched legs.

I used to joke with Todd about aiming for my legs. It was payback, I teased him, for all the times I beat him at other sports (the irony, of course, being that he was a great all-around athlete). Come to think of it, he never denied running over me on purpose (smile).

He didn't finish the race. Instead he hopped off his motorbike and helped me limp all the way back to the cabin. My leg was broken (much to the dismay of my father, who insisted it was only a sprain) and I had to finish that summer in an itchy plaster cast. Yes, Todd helped me back to the cabin instead of leaving me stranded. But don't forget, he's the one who aimed for and broke my leg in the first place! (haha).

The second of my fond childhood memories was when I almost died. We were staying in a motel in Salt Lake City playing in the outdoor swimming pool. Todd and a few other boys were showing off, diving from the edge of the pool and having all sorts of fun. I figured it was my turn for the spotlight, so I stood backwards on the concrete edge of that motel swimming pool and announced my intention to do a picture-perfect back dive!

I pushed my little body into the air as high as my skinny legs could launch me. I rotated upside down preparing to pierce the water like an arrow. And then I crashed head first into the side of the pool, succumbing to gravity as well as the immovable hardness of the concrete edge. I sunk to the bottom of the pool unconscious and with a fractured skull. And that's when my brother pulled me to the surface and to safety.

We used to joke about how he "saved my life". I wish I could have returned the favor in his later years.

When Todd left for his mission to Japan I didn't give him an emotional goodbye. I honestly don't even remember if I woke up to see him off. But as soon as he was gone, I sobbed for hours. I was a cocky, competitive 17 year old and he was a pain in the butt...but I missed him terribly when he left. I still can recall the emptiness in my heart when he went away, knowing that it would be 2-3 years until I saw him again. I feel that same way today, only now it will be much longer before we can share another laugh together or reminisce over our childhood antics.

Todd's cancer was painful. I have no idea how much it hurt him, both physically and emotionally. I can only imagine what it was like to know for so many years that his days were numbered. He maintained a healthy, friendly, even loving attitude with everyone. He didn't complain excessively about his excruciating pain, and he didn't drug himself into oblivion. I admire how he wanted to be lucid and enjoy every last minute with his wife and kids, even if that meant nearly unbearable pain.

Todd's children are fortunate to see and feel his love. Todd and I didn't always agree on things, but I admire Todd for his peaceful nature and his commitment to family and religion. Todd was a great man in a lot of ways. He has a very kind spirit (for this lives on) and an exceptionally strong sense of family. To say that he had a strong heart would be an understatement, both literally and figuratively. His heart kept his earthly body alive far longer than medical science predicted. And his heart (soul, spirit, whatever you want to call it) will continue through his family as they (and as we) remember the time we spent with this wonderful man.

Todd, I am pleased to call you my brother. I'm sorry you're gone. I and so many others miss you already.

Obituary

Fannie and Freddie...the Gods Have Fallen?

2007-07-03T14:43:00.000-06:00

Fannie and Freddie may lose as much as $6.6 Billion!?!? Wow, the way these guys act, they can do no wrong! The companies can be difficult to work with, although if you're high volume, variances are easy to come by. In the end, it's difficult to comprehend why the companies aren't scrutinized more...and held responsible for their actions and their unworldly losses. See http://player.clipsyndicate.com/main/player?playlist_id=156&clip_id=1006993&cpt=8&

Look at the above video, then consider this report from Reuters from June 21 which reports that "Several of the top executives with mortgage finance company Fannie Mae will receive over $1 million each in bonuses under a plan announced on Thursday. Daniel Mudd, the chief executive officer, will receive almost $1.9 million worth of company stock while chief business officer Robert Levin will be granted roughly $1.74 million worth of stock for 2005 and 2006." See http://today.reuters.com/news/articleinvesting.aspx?type=comktNews&rpc=33&storyid=2007-06-21T213650Z_01_N21200582_RTRIDST_0_FANNIEMAE.XML

I guess million dollar bonuses really aren't but a drop in the bucket compared to billions of dollars in losses.

Back in the Saddle...and Home Sales Haven't Improved

2007-07-03T10:44:00.000-06:00

Lucky me. Been on the road selling my company's program in various states...and the response is very favorable. We're outside the box thinkers...so it's not for everyone (some people just can't see outside their boxes). I don't use this forum as an overt solicitation for business, so I won't say anymore about my biz. On to the news.

The BBC reported today that pending sales of existing homes in the US fell in May to the lowest level in six years. According to this story, the NAR says that sales fell by 3.5% in May to the lowest level since September 2001. The article also quotes Morgan Stanley economist Kevin Flanagan as saying "I do not see a bottoming in the housing market."

Any predictions on the timing of a turnaround. I know many of you will say it's regional...some areas are doing great and some are at rock bottom. Fair enough. But on a national scale when will we see relief? Flanagan is quoted as saying "there is not a light at the end of the tunnel." I don't buy that...but I'm not sure the light is so bright...yet.

Link to article: http://news.bbc.co.uk/2/hi/business/6266470.stm

Housing Starts...and Incentives?

2007-06-19T14:09:00.000-06:00

"The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) for June reported that builders' confidence in the market reached the lowest point in over 25 years." See link below.

No big surprise, since the housing market is causing a lot of anxiety. Additionally, the current mortgage market is contributing to builder anxiety. In fact, "NAHB President Brian Catalde said 'Builders continue to report serious impacts of tighter lending standards on current home sales as well as cancellations, and they continue to trim prices and offer a variety of non-price incentives to work down sizeable inventory positions.'"

More details and analysis here...worthy of a read, if you have the time: http://www.mortgagenewsdaily.com/6192007_Housing_Starts.asp

Are the current catalogue of incentives not working? What exactly are the 'non-price" incentives that ARE actually working?

Ameriquest's Founder to be Sued?

2007-06-19T13:06:00.000-06:00

Here's the summary: Attorneys have asked a federal court judge to amend a complaint against Ameriquest Mortgage Co. to include the company's founder Roland Arnall. The lawsuit, which is seeking class action status, alleges Arnall and Ameriquest scammed subprime borrowers into taking on loans and fees they could not afford. Formerly a leader in the industry, Ameriquest has virtually abandoned it subprime lending business amid rising interest rates and broadening competition.

Here's the article: http://www.latimes.com/business/la-fi-arnall19jun19,1,2815730.story?coll=la-headlines-business&ctrack=2&cset=true

And here's the WOW factor (old news...but still amazes me): "...the sub-prime lender agreed to pay $325 million to settle allegations by 49 states of misrepresented loan terms, hidden fees, puffed-up appraisals and fabricated borrower income statements..."

Media Words of Wisdom

2007-06-19T09:30:00.001-06:00

Love CNNMoney and all the other mass media outlets. They routinely hit the shock value of a story and leave off the more important stuff (like details and suggestions on how to...).

Anyway, today's CNNMoney reports that "At least 42 percent of major housing markets are in decline, with some projected to fall by double digits over the next five years." They also reported, with what I read as bullseye sarcasm, that "The National Association of Realtors has reversed its usually sunny outlook and is now predicting a 1 percent drop nationwide in existing home prices in 2007, the first such prediction in the four decades since NAR started tracking prices." Yes, it's true, the NAR is often myopic and overly sunny. But I guess sooner or later you can't paint a rosy picture when you're knee deep in fertilizer.

But here's what I liked about this article. It hit the nail on the head when it said "house markets are intensely local"...and said that real estate professionals should be abreast of many important indicators, such as inventory, DOM, Realtor feedback, Seller attitudes, etc.

Good article, and seemingly more balanced and helpful that most housing-market-doom-and-gloom articles. Check it out. http://money.cnn.com/2007/06/19/real_estate/housing_rebound.moneymag/

Foreclosure Perspective

2007-06-14T08:49:00.000-06:00

The recent news of dramatic foreclosure increases was bad news...but this article from CNNMoney.com seems to put things into perspective. When you look at the way the MBA presents it, it almost doesn't look that bad: "The Mortgage Bankers Association said that the rate of loans entering the foreclosure process was 0.58 percent in the first three months of the year on a seasonally adjusted basis. That's up from 0.41 percent in the year-earlier period. Meanwhile the percentage of loans in the foreclosure process was 1.28 percent of all loans outstanding at the end of the first quarter, an increase from 0.98 percent a year earlier."

The article suggests that the areas of particular concern are Ohio, Michigan Indiana, California, Florida, Nevada and Arizona.

Here's the full article: http://money.cnn.com/2007/06/14/news/economy/mortgage_foreclosures_deliquencies/?postversion=2007061410

Video News: Foreclosures WAY UP

2007-06-13T10:28:00.001-06:00

WOW! According to this report, foreclosures are WAY up! "RealtyTrac is reporting that May foreclosures are up 90% over the same month last year. California is up 350% over the same month last year."

Here's the link: http://www.cnbc.com/id/15840232?video=373996592

Stunning numbers that don't help the housing market...and rising rates don't help.

Half Cent Loan

2007-06-12T17:22:00.001-06:00

Creativity is one thing...but never being able to pay off a mortgage is another, isnt' it? But then again, home ownership is better than renting...right? And with real property, the usual story is appreciation, so perhaps this does make sense. In the UK, introducing the Half Cent Loan (50 years).

"...one company yesterday proposed an answer to the crisis hitting first-time buyers: a 50-year home loan." See http://money.guardian.co.uk/news_/story/0,,2101554,00.html for details.
It wasn't that long ago that Fannie started buying 40's. Is the Half Cent Loan coming to the states any time soon?

More Bad News for Mortgages

2007-06-12T15:01:00.001-06:00

From the AP: "Shares of banks declined along with the broader markets Tuesday, as concerns flared again that higher Treasury note yields could cause the Federal Reserve to raise interest rates. Higher interest rates could make it more expensive for both individuals and business to borrow money, reducing activity from mortgages to corporate takeovers."

Ugh! The slump continues! The full article: http://www.forbes.com/feeds/ap/2007/06/12/ap3814142.html

Affordable Housing and CheapHousePayments.com

2007-06-12T14:47:00.000-06:00

News released just yesterday says lack of housing affordability is one of today's biggest challenges. While my company doesn't offer subsidies or other government-sponsored affordable housing, we can help buyers save HUGE money for up to 24 months on the purchase of a home advertised through our program. This is great for new construction (use the savings to buy blinds, new furniture, save for college, etc.) OR for investors who want to see immediate cashflow!

Here's a great link to news on affordable housing concerns: http://player.clipsyndicate.com/main/player?playlist_id=156&clip_id=791505&cpt=8&http

Must Read on Market Conditions

2007-06-11T13:56:00.000-06:00

I highly recommend the following article. Here's the teaser paragraph:

"Two days, two economic forecasts; the first which we reported on earlier from the National Association of Realtors (NAR) showed a rapid deterioration in the confidence that association's economic advisors have in the near future of the housing industry. Now we have the June Economic Outlook from Freddie Mac. Freddie Mac's monthly offering always has a theme and it is more than a little disquieting that the motif for June appears to be 'not every house needs to be foreclosed.' This is really not an overstatement. The Outlook states that, in the subprime market, 1 in 13 homes are candidates for foreclosure."

Here's a link to the full article: http://www.mortgagenewsdaily.com/6112007_Subprime_Spillover.asp

Consumers Speak on Housing Market

2007-06-08T14:45:00.000-06:00

A very interesting article from Reuters on consumer opinion on the housing market. "Few US consumers expect any renewed strength in home prices until the middle of next year..." The article goes on to say that "credit conditions may well tighten after this year's crisis in the subprime mortgage sector for riskier borrowers" which will only exacerbate the housing market's rebound.

Interesting stats from the article: "Three times as many consumers in May expected home prices to increase instead of decrease in the next year -- or 39 percent against 12 percent. Over the next five years, nine times as many expected increases rather than declines -- or 66 percent compared with 7 percent."

The last line of the article, however, is important in evaluating the credibility of this information: "The survey did not say how many consumers were interviewed." So take it with a grain of salt.

Here's a link to the full article: http://www.reuters.com/article/economicNews/idUSN0832540220070608

Spillover...does Wall Street Count?

2007-06-06T15:27:00.001-06:00

In my last post about the housing slump continuing, I quoted from the Fed Chief saying (once again) that the spillover from the housing slump is not spilling over into other areas of the economy. Than along comes CNNMoney with a headline "Wall Street walloped, again" and an intro paragraph that reads "Stocks slumped Wednesday afternoon as worries about inflation, the housing market and rising interest rates gave investors a reason to bail out after the recent rally." I keep scratching my head...no spillover? It seems like the housing market and the lending market are both such huge parts of our economy, that problems cannot help but spill over into other areas of our economy. But then again, I'm just a country boy.

Here's the CNN article if you want to take a look. http://money.cnn.com/2007/06/06/markets/markets_0330/

Housing Slump Expected to Continue

2007-06-06T15:25:00.000-06:00

Since I work with builders and developers regularly, the "predictions" on the housing market (for what they're worth) are always of interest. Fed Chief Bernanke is now saying that the housing slump will last longer than previously thought, but that the slump is easing. In fact, just yesterday BusinessWeek.com reported Bernanke as saying "we have not seen major spillovers from housing onto other sectors of the economy". See http://www.businessweek.com/bwdaily/dnflash/content/jun2007/db20070605_705362.htm. So even though the slump is expected to continue, the Fed Chief is taking the "no spillover" approach.

That seems to conflict with much of the news over the last couple months...but conflicts in the news are nothing new. :)

Will the housing slump continue through 2007? Will the housing slump ease in the coming months as builders slash prices and inventory is reduced (and will that make matters worse moving ahead)?

There are so many variables at play. Interest rates. Loan programs and LTV ratios offered by major investors. Inventory. Foreclosure rates. Unemployment rates. And inflation in general. It all has an effect, so for any expert to make a bankable prediction would be no less than amazing.

Interest Rates Rising

2007-06-06T11:57:00.000-06:00

We all should send our friends in England a quick email message letting them know they're not alone and we understand their pain. Here's a headline from today's Guardian Unlimited: Housing affordability in further danger if interest rates rise.

Sound familiar? Here's the lead paragraph. "Affordability for first-time buyers may be squeezed even further tomorrow if the Bank of England's monetary policy committee decides to raise interest rates again." Most of the experts quoted in the article don't think rates will go up. What I found interesting, however, is that the same cause and effect is happening in the US. Every time rates go up, we lose a certain number of otherwise marginally qualified borrowers, which means fewer buyers, which means fewer sales which means higher levels of inventory won't drop as quickly, which encourages sellers to slash prices to move inventory which hurts the overall economy. Rinse and repeat.

Rediculousness in Regulations

2007-06-04T10:53:00.000-06:00

Maybe I'm too cynical, but the intro paragraph to this news story really make me scratch my head (please...no jokes about this story coming from Idaho, my home state...).

"COEUR D'ALENE, Idaho, June 1 (Reuters) - As regulators in Washington hammer out a final directive on how the mortgage industry should provide hybrid products, state regulators say the regulation must also address the ability of borrowers to repay loans on their homes."

Do we really need MORE regulations? It seems ridiculously obvious that a lender must address the ability of the borrower to repay the loan. But then you look at the subprime mess and wonder how many of the subprime folks actually focused about the borrower's ability to repay their debt as they sold exotics and Option-ARMS. Maybe regulation is needed to reign in the less ethical lenders, but then again many of the less credible ones are already out of business.

But then don't you wonder about the responsibility of the borrower? Doesn't the borrower ultimately have to be responsible to repay the loan that he or she willingly enters into? Some folks might say the government needs to protect the uneducated borrower...but where does that protection end? If a borrower doesn't understand the risk and obligation in obtaining a mortgage, will the buyer need government intervention to take care of the property, to make timely payments, to manage their bank account and control future borrowing (and spending)? Yes, protection from unethical and unscrupulous lenders is important, but borrowers, sooner or later, must understand what they're doing and take responsibility for their decisions. Presently most states have decent consumer protection statutes that can protect borrowers from blatant deception and grossly unfair practices...maybe that's enough.

I believe home ownership is a wonderful privilege and I would love to see everyone in this great country own their own piece of the American dream. But ownership comes with responsibility. Borrowing hundreds of thousands of dollars is not a "right"...it's a privilege that should not be undertaken lightly. The consequences of borrowing too soon or without adequate planning can lead to years of repercussions.

So how do we balance responsible lending with responsible borrowing? How much should we allow the government to regulate lenders who are willing to risk their money on potentially irresponsible borrowers (then again, don't we all pay when the system fails)? Is education the answer? Is market self-regulation the answer?

Here's a link the article: http://www.reuters.com/article/bondsNews/idUSN0132169320070601

Rich versus Poor?

2007-05-31T15:42:00.000-06:00

This article paints a very ugly picture pitting the ultra-rich against the almost-homeless. Apparently some hedge funds are attacking banks for trying to help defaulting homeowners stay in their homes. Here's my novice approach at explaining this. The hedge funds are anticipating a certain level of defaults due to the current housing and lending markets, and are buying mortgage bonds that at discounts due to the higher rates of default. If banks step in and offer fixes for defaulting (or almost-defaulting) borrowers, the hedge fund betting on the increased defaults might take a loss instead of a profit.

If that didn't make sense, try this: "Some hedge funds say they are concerned that banks that both sell the derivatives contracts and handle mortgage payments could be involved in a form of market manipulation. The funds fear that banks are making concessions on the underlying mortgages to avoid making good on derivatives contracts that pay off in cases of default."

Here's the full article for your analysis. Enjoy! http://www.ft.com/cms/s/3ae806a2-0fa6-11dc-a66f-000b5df10621.html

Oh! Canada in the lead?

2007-05-31T12:10:00.000-06:00

News about Canada's economy might not be too exciting, but here's what today's Bloomberg article reported: "Canadian growth surpassed that of the U.S. economy for the first time since the fourth quarter of 2005."

Why? You guessed it...the housing slump (as one of several factors). As reported, "The U.S. economy grew last quarter at a 0.6 percent annual rate, the weakest in more than four years, as housing slumped, the trade deficit widened and businesses reduced inventories."

Here's the full article: http://www.bloomberg.com/apps/news?pid=20601082&sid=a1dhkNV54dFo&refer=canada

And the Good News...(someone help me here)

2007-05-30T15:40:00.001-06:00

Freddie Mac's rate report shows that rates have gone up sharply...the largest one week move in at least the last 18 months. So for a struggling market with fewer qualified buyers (thanks to the subprime meltdown) and very high levels of inventory, this can't be good...

Where's the bright side? I know there's gotta be one, so I'm taking suggestions. :)

The details of the above numbers came from here: http://www.mortgagenewsdaily.com/5302007_Mortgage_Rates.asp

Spillover! Now it's even hitting Mexico!

2007-05-29T16:48:00.001-06:00

Not long ago, experts and pundits were suggesting that the subprime meltdown was contained. It's now widely accepted that the subprime meltdown has reduced the number of qualified and/or potential buyers, which means fewer sales. While this isn't the sole cause of the stalled housing market, it's definitely a contributing factor.

And now it's affecting Mexico! That's quite the ripple effect. From Bloomberg today: "The U.S. housing slump is squeezing Mexican migrant workers from Los Angeles to New York, where permits for new home construction are down 20 percent this year, according to the Census Bureau. That's reducing the pace of money transfers, the second-biggest source of dollars in Mexico after oil exports, and turning the peso into a laggard among Latin American currencies."

The full story: http://www.bloomberg.com/apps/news?pid=20601109&sid=aUg9vSpGzzWg&refer=home

Housing Market...More Bad News (Maybe)

2007-05-29T15:00:00.000-06:00

Today's housing news courtesy of Reuters is that analysts are assuming that the housing slump will last for another year and a half. This, of course, may or may not be true. The assumption is for the purpose of evaluating debt ratings, so perhaps a pessimistic attitude is necessary. However, the basis for the assumption remains the same: excess inventory and slowing (or reversing, in some areas) appreciation.

The quote of the day from this particular article: "'We're operating under the assumption that another shoe could drop (in the U.S. housing market) and become more severe,' Fielding said."

Wow...there's a lot of assuming going on there. My father warned me about assumptions. What do you think. (By the way, feel free to email me if you don't know what my father meant...LOL).

The article, which is definitely worth a read: http://www.reuters.com/article/bondsNews/idUSN2932898420070529

Not Just in America

2007-05-29T14:54:00.000-06:00

"High house prices and rising interest rates put the brakes on demand for mortgages from Britain's high-street banks, according to figures released today."

Sometimes it's interesting to consider that we're not in a bubble (and I don't mean a "price" bubble). The subprime meltdown has affected the real estate and mortgage markets in the US significantly. In Britain, they're dealing with their own mortgage-related issues...high house prices (sound familiar?) and rising interest rates (well...we've been there before...thank goodness that's not a huge issue compounding our already problemed markets).

The article: http://business.guardian.co.uk/story/0,,2090764,00.html

News for the Weekend

2007-05-25T16:02:00.000-06:00

It's safe to say, heading into the weekend, that the housing and mortgage markets are still in disarray. As reported by Reuters, mortgage apps are up. Good news, right? Not so fast...the news comes with this caveat: "borrowers are having a tougher time getting mortgages and lenders have tightened up underwriting criteria, particularly on credit scores and downpayments" (from Bob Moulton, president of Americana Mortgage Group in Manhasset, New York). Bummer.

Moulton goes on to say that "this small upward blip in mortgage applications quite honestly is nothing to get excited about. The whole overall trend is down. The number of sales is going to be down this year, the median home price is going to be down this year."

On the bright side, RBC Capital Markets' T.J. Marta says "the hemorrhaging is not under control." Of course, we heard something similar a few months ago when experts were saying the subprime mess was "contained" and would not "spill over" into other areas of the economy. That theory didn't hold much water.

Here's the smartest thing I read from this article: "One possibility, we think, is that marginal homebuyers, that is, people who think they may not get a mortgage at all or at least a mortgage on acceptable terms, are making multiple applications in order to boost their chances." That's from Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. Seems like a common sense theory, and I'll be in a month or two we'll see he's right.

Article: http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-05-23T154043Z_01_N23167587_RTRIDST_0_USA-ECONOMY-MORTGAGES-UPDATE-2.XML&pageNumber=0&imageid=&cap=&sz=13&WTModLoc=InvArt-C1-ArticlePage2

By The Numbers

2007-05-25T09:58:00.000-06:00

Two interesting stats were reported yesterday and today regarding new home sales and existing home sales. For new home sales, numbers jumped by 16.2 percent...but prices dropped significantly. For existing home sales, the numbers fell by 2.6 percent last month AND prices fell by .08 percent from a year ago. I heard some folks yesterday talking about the housing slump being over because new home sales were "taking off". However, slashing prices to stimulate sales doesn't really count for a "take off"...and in fact will have a lasting impact on the price of future sales. Add to that the stagnant numbers for existing home sales, and you can see the slump is still slumpin'.

For builders, developers and real estate professionals, check out my WannaNetwork page for info on how you can help stabilize the market and offer your customers a win-win-win solution to the troubled housing market. We have an incredible patent-pending program that "thinks outside the shell"...gotta see it to understand what I mean. It's worth a look.

We love to see a Win-Win-Win situation. If you're looking to buy a new home or investment property, look around our website at http://www.cheaphousepayments.com/. We have some outstanding properties advertised that can save you hundreds or thousands of dollars each month for up to 24 months! If you're a builder or developer, we can help you move your inventory through our online advertisements and the use of our patent-pending Payment Assistance ProgramTM. If you're a real estate professional, we invite you to work with us to help your clients (both buyers AND sellers) save money and see the results they want!

See...everyone wins with at CheapHousePayments.com! But don't let the name fool you. Remember, the only thing CHEAP is the payment!

Full articles can be found here: http://www.nytimes.com/2007/05/25/business/25econ.html?_r=1&oref=slogin and http://www.forbes.com/feeds/ap/2007/05/25/ap3758713.html

Home Prices and Credit Risk

2007-05-24T15:12:00.000-06:00

There is no shortage of news articles stating what seems obvious. For example, the AP reported today that "stagnant home prices are leading more borrowers with patchy credit histories to miss payments on their mortgages." That doesn't come as a big surprise, does it? And guess what loan types are to blame. You guessed it..."subprime"!

The article has some interesting statistics. In 2005, for example, home prices rose an average of 17% and default rates were at only 1.7%. In 2006, however, home prices went flat and defaults exploded...to 8.3%.

So here's the real problem. Many borrowers tapped out their home equity as their home's "value" shot up like a rocket. For borrowers who might have inadvertently (or ignorantly?) wandered into a less-than-desirable subprime loan (or even a plain vanilla ARM or option-ARM), the time to refinance may be right around the corner...but with no equity and no cash to pay the closing fees, what is a borrower to do?

Once again, the domino effect is hitting other areas of the economy. As more buyers default, there will be more foreclosures, which adds to the already-high inventory, which inventory won't sell as quickly because fewer buyers will qualify for the loans to purchase the excess inventory. Builders have been slashing prices (April new home sales supports this) to move inventory, which means someone gets a good deal, but Joe and Sally Buyer who purchased a neighboring property in 2006 are now upside down with their loan! Builders and lenders are laying off folks, which means less income, fewer potential buyers...or...more defaults due to lack of ability to service the loan. Much of this is my own speculation, but does it seem far from reality?

Here's the link to the AP article I referenced: http://www.forbes.com/feeds/ap/2007/05/24/ap3756033.html

Slow Housing Recovery

2007-05-10T10:42:00.000-06:00

It's nice to be validated. :)

So right after I posted the last article about Housing Market Costs, I get this tidbit in my email from Mortgage News Daily:

"According to many prominent economists, including former Fed. Chairman Alan Greenspan, the extraction of home equity wealth in recent years has propped up consumer spending. A sudden swoon in housing prices, they warn, could shut off this spigot, prompting a sharp cutback in spending and elevating recession risks.'With the growth of house price appreciation now stalled or even reversed, this has fueled fears that homeowners may face an inability to withdraw equity which could in turn undermine consumer spending. But, the data released on Tuesday shows that there is 'ample margin for taking out cash without running down home equity.'"

Housing Market Costs

2007-05-10T09:48:00.000-06:00

Driving to the office this morning, I was listening to CNN in my beat-up Ford pickup equipped with Sirius satellite radio (gotta have some amenities, right?). The commentator was discussing today's news about April's disappointing consumer spending numbers, which were lower than expected...and the expectations weren't even that high.

The commentator mentioned that two things might have contributed the disappointing consumer spending results. First was gas prices, which hits people in the wallet or purse. Second was...you guessed it...housing issues. The theory is that falling house prices (or the perception thereof) creates a psychological barrier to consumer spending.

I'm sure there's some truth to the psychological theory. But perhaps it's also that many Americans have tapped out their equity and realize that in a crunch, access to easy cash via refinancing is no longer an option. What do you think?

Foreclosures UP again

2007-05-09T11:21:00.000-06:00

From Ted Cornwell and Mortgage Servicing News Bulletin 5/8/07:

"If you wonder why politicians are up in arms about foreclosures, the most recent monthly data from RealtyTrac gives you an idea. In the first quarter of this year, more than 43,000 foreclosure filings were posted nationwide, according to the Irvine, Calif.-based online marketplace for foreclosed property. Those actions include default notices, auction sale notices and bank repossessions. That was up 35% from the first quarter of last year, and it meant that one of every 264 households nationwide was the subject of a foreclosure action in the first quarter. That was the highest rate of foreclosure activity since RealtyTrac started issuing its report two-and-a-half years ago."

Wester Regional Mortgage Broker Conference

2007-05-09T11:11:00.000-06:00

My company attended the WRMB conference this weekend along with one of our strategic alliance partners, WannaNetwork.com. The thing that struck me about the expo (about 150 exhibitors) was that there APPEARS to be no shortage of 100% LTV and subprime (or the new euphimism "non-prime") opportunities. The subprime market fell apart, but a lot of shops are still marketing non-prime opportunities. On the business side of things (for you broker folks) have things really changed that much? Are there still ways to get the difficult loans funded? Here's a link to the WRMB list of exhibitors, in case you're interested.

http://www.wrmlc.com/EXHIBITORS/2007_WRMBC_EXHIBITORS_PUB.ASP

Bigger Losses in Luxury Housing

2007-05-04T16:05:00.000-06:00

Hovnanian Enterprises, a luxury home builder, reported that its losses are "bigger than it had previously expected"...and guess why? "The subprime mortgage crises."

http://www.reuters.com/article/gc06/idUSN0426931520070504?src=050407_1317_FEATURES_subprime_mortgage_trouble

The losses it's suffering are significant. "The company expects a loss of 45 cents to 50 cents per share for the quarter, ended April 30"

Looks like the subprime market is still impacting other areas of our economy, including luxury homes. All that talk of "containment" seems a bit off the mark with the benefit of 20/20 hindsight.

Millions to Band-Aid Subprime Disaster

2007-05-03T14:12:00.000-06:00

Here's the latest news on the subprime cleanup front: "On Thursday Senator Charles Schumer (D-NY), chairman of the Senate's Housing Subcommittee introduced legislation to deal with a potential foreclosure crisis arising out of the subprime lending mess. In the legislation Schumer and co-sponsors Sherrod Brown (D-OH) and Bob Casey (D-PA) proposed that $300 million in federal funds and, Schumer said, 'hopefully even more private money,' would be channeled to community non-profit groups via the Department of Housing and Urban Development to boost refinancing programs to help homeowners prevent foreclosures. These funds, Schumer said, placed in the hands of community groups that specialize in foreclosure prevention 'will not only help hundreds of thousands of families save their homes, but it will save billions in spillover foreclosure costs. This seems like a cost-effective investment to me, and one that will help restore confidence in our shaky housing market.'"

Does that mean good old-fashioned responsible budget minded borrowers will be paying the cost of other less fortunate (or less debt savvy) borrowers?

Full story: http://www.mortgagenewsdaily.com/532007_Subprime_Mess.asp

Make sure you read the whole article, because the second part of the proposed legislation adds to an already overly regulated (but under-enforced?) industry. While the proposed legislation makes sense, it seems almost laughable that legislators are discussing adding anything to TILA without fixing the mess of problems TILA was intended to prevent. Here's one of the more common sense ideas: "Among the proposals is a standard for originators to assess a borrower's ability to repay a mortgage and holds lenders responsible for brokers and appraisers."

Yes, that sounds like a great idea, doesn't it? But there likely will be more gray areas than you can imagine. Definitions of terms won't add much clarity (think high cost loan calculations and definitions), and we'll have even MORE regulations to work through. It's like gas prices...add more compliance burden, and the cost per gallon/dollar will just keep going up.

Subprime Still Sour

2007-05-02T09:06:00.000-06:00

Check this out. Credit Suisse has been sued by Bankers Life Insurance because Bankers claims that Credit Suisse "performed no due diligence on the mortgage loans collateralizing the securities purchased by Bankers... Credit Suisse withheld material information on the true status of these securities, which, if properly disclosed, would have resulted in a substantial downgrade of the Moody's rating." Any guesses on what sort of loans they're talking about? My take (the short version) is that this is just another ripple effect of the subprime meltdown that will hurt our economy in previously unanticipated ways. What do you think?

Full article: http://www.financialnews-us.com/index.cfm?page=ushome&contentid=2447676333

Subprime Mortgage Securities Experience Pain

2007-05-01T09:00:00.000-06:00

"Pricing of collateralized debt obligation bonds laden with subprime mortgage securities is getting more perilous amid deep uncertainties over when ratings on the assets will be downgraded, money managers and Wall Street analysts said." From http://www.reuters.com/article/bondsNews/idUSN3045916020070501. It sounds boring, I know, but it's a big deal. How this all shakes out will determine how likely the subprime market is to make a revival or a second appearance. Of course, history repeats itself, so it's only a matter of time before we see a subprime boom. In my opinion, it's just a matter of forgetting the pain from this current fiasco.

Existing Home Sales Plunge

2007-05-01T08:54:00.000-06:00

It may come as no surprise that the subprime meltdown continues to have ripple effects in the housing market. Today's news: "Problems in subprime mortgages caused a sharp drop in home sellers being able to find buyers for their homes in March, according to a trade group report Tuesday that showed the battered real estate market was much weaker than expected." Full story: http://money.cnn.com/2007/05/01/news/economy/homesales/.

The story has a lot of good (but expected) information. For example, "'Although the weather improved in March, we're starting to see the effects of a decline in subprime lending and tighter lending standards,' said a statement from David Lereah, the chief economist for the trade group."

Also, the article reports that Centex, Pulte and DR Horton are all experiencing pain as the spring buying season hasn't kicked in to full gear. On a positive note, Lennar and KB Home both saw black ink from the most recent reporting period.

Ecomony Slowing?

2007-04-30T15:48:00.000-06:00

After a great month on Wall Street, the stock market has declined, suggesting to some experts that the economy may be faltering. As part of the cause, check this out: "Consumer spending slowed in March, a sign higher gasoline prices and a sagging housing market are chipping away at a mainstay of the expansion. Purchases gained 0.3 percent from the prior month, less than half the 0.7 percent increase in incomes and falling short of the average economist estimate of 0.5 percent."

Full article: http://www.bloomberg.com/apps/news?pid=20601087&sid=ar85Dkg.2nok&refer=home

On a similar note, here's another interesting finger-pointing article about the housing market. Guess who's to blame now...investors! "Demand for bonds, and investors' complacency toward risk, can be blamed for the record early delinquencies and defaults on subprime home loans, speakers at an industry conference in Miami said." See http://www.bloomberg.com/apps/news?pid=20601087&sid=aJSgUGiZSry4&refer=home

Conflicting Reports--Market Crash/Recovers (same day!)

2007-04-26T14:05:00.000-06:00

OK, someone help make sense of these two stories (not the details, just the the general trends).

Headline #1: U.S. Homebuilders Rally After Meritage Sees 'Stabilization'
The Highlight: Meritage Chief Executive Officer Steven Hilton said in a statement yesterday that "we are encouraged by some early signs of stabilization.'' While the Scottsdale, Arizona-based company reported an 81 percent drop in profit in the first quarter amid weak demand, Meritage forecast 2007 profit that exceeded analysts' estimates and said its cancellation rate improved. Full article: http://www.bloomberg.com/apps/news?pid=20601103&sid=a1NLq0kbOAiQ&refer=news

Headline #2: Homebuilders May Break Loan Covenants, Moody's Says
The Highlight: U.S. homebuilders are in jeopardy of violating their lending agreements in coming months because of a drop in sales, according to Moody's Investors Service. More than half, or 11, of the 21 builders that Moody's rates failed to generate more cash than they spent in 2006, analyst Joseph Snider in New York said in a report today. Homebuilders often have to promise banks that they will have twice as much operating revenue as interest expenses over a given time or the bank can demand immediate repayment of a loan, Snider said. Full article: http://www.bloomberg.com/apps/news?pid=20601087&sid=azlbZSOMfYgc&refer=home

Someone tell me why these two articles aren't inconsistent. Or should I stop reading the news? :)

Who's Responsible!

2007-04-26T13:20:00.000-06:00

I'm going to summarize an interesting article. Regulators are to blame for the subprime mess.

Hmmm. I guess that's true. Regulators seemed relatively unconcerned about the wildfire spread of exotic loans from the last several years. Now that a price is being paid, people want to point fingers. So who really is responsible for this mess? Is it the regulators? Well, without lenders and brokers to regulate, they wouldn't have much to do. Does that mean the lenders, brokers, investors, etc. are the real culprits? Was high volume, high revenue the crack for subprime lenders that ultimately destroyed them?

What do you think?

The article: http://www.reuters.com/article/ousiv/idUSN2648943420070426

WaMu, Wells Survive Subprime Scares

2007-04-25T10:14:00.000-06:00

Here's a well written article by Ted Cornwell of Mortgage Servicing News about the big-ones staying afloat as the subprime market drowns. http://www.mortgageservicingnews.com/newsletter/stories/cornwell20070424.html

Home Prices Falling

2007-04-25T09:59:00.000-06:00

Home prices fell in February, according to Standard & Poor's/Case-Shiller Home Price Index of 20 metropolitan areas. See http://www.reuters.com/article/economicNews/idUSNYD00006420070424.

Compounding the problem (or is it causing the problem?), the NAR reported that March sales of existing homes was "sluggish". My realtor friends think the NAR has done a wonderful job pointing out the obvious. The numbers from one article: 6.45 million existing homes sold during March 2007, down from 6.69 million sold during February 2007. See http://www.forbes.com/feeds/ap/2007/04/24/ap3643974.html

A related article from CNN Money reported that sales of existing homes saw its biggest one-month drop since 1989! One cause (as reported from the NAR) is "a hit from tighter lending standards in the subprime mortgage sector, which most likely made it more difficult for buyers without topflight credit to get financing to buy a home." See http://money.cnn.com/2007/04/24/news/economy/home_sales/index.htm?cnn=yes

Housing Market Continues to Struggle

2007-04-25T09:48:00.000-06:00

Spring has not alleviated the woes of the housing industry. From Monday's press: "Recovery of the U.S. market for new homes could take another year if trouble in the adjustable-rate subprime mortgage market spreads to other types of residential lending, credit-rating agency Standard & Poor's said on Monday."

Another year to recovery! That's going to hurt builders, which necessarily bleeds over into other areas of the economy. The gloomy news continues: "'We do not expect to see a recovery for most rated home builders until 2008, under the best of circumstances,' the rating agency said in a research note. 'In fact, a rebound could easily slide into 2009 if a subprime contagion spreads to the Alt-A and prime products.'"

Full article: http://www.reuters.com/article/bondsNews/idUSN2326950620070423

Suprime Losses Expected (it's ok to roll your eyes)

2007-04-25T09:15:00.000-06:00

Reuters reported yesterday that losses on "risky subprime loans originated in 2006 may climb to 6 percent to 8 percent of the loan principal, higher than previous forecasts". It comes as no surprise that this news is a result of delinquencies and early defaults from 2006 mortgages that are higher than in previous years.

Here's the full (but very short) article: http://www.reuters.com/article/bondsNews/idUSN2330015520070423

Industry News: Housing Permits, Mortgage Apps and Foreclosures

2007-04-18T11:21:00.000-06:00

First, "Builders appeared to have remained cautious about the housing market in March, pulling permits and starting construction on new houses in numbers little changed from February. The monthly data on new residential construction ... on Tuesday reported that permits for privately-owned housing units were issued in March at ... a scant 0.8 percent above the revised February figure of 1,532,000. This is 25.9 percent below the permitting rate in March 2006." See: http://www.mortgagenewsdaily.com/4172007_March_Housing.asp

At the same time, "Fewer people applied for mortgage loans last week, a lending industry group reported, as cooling home prices and higher interest rates kept home buyers off the market." See: http://www.forbes.com/feeds/ap/2007/04/18/ap3625812.html

If permits for new construction are not increasing, that ultimately might mean less inventory in an already inventory-heavy market. A good thing for the housing industry, right? A glut of homes drives prices down and costs builders a lot of money (both in carrying costs and discounts necessary to move property).

However, if mortgage applications are down as well, that means less existing inventory is being moved...which means the problems facing a weary housing market might continue for the foreseeable future.

Then add this news from CNN Money.com: "U.S. home foreclosures climbed in March, as subprime borrowers struggled to keep up with their monthly payments to lenders, real estate data firm RealtyTrac said Wednesday." See: http://money.cnn.com/2007/04/18/real_estate/bc.usa.economy.foreclosures.reut/?postversion=2007041817

Seems like the housing and mortgage industries are not quite out of the woods yet. What do you think?

Preemption Extends to Subsidiaries Says US Supreme Court

2007-04-18T10:16:00.002-06:00

Big news about preemption from the US Supreme Court! This is news that is sure to make Eliot Spitzer, New York's new Governor, spittin' mad! Siptzer, as NY's Attorney General, was an aggressive advocate for allowing the state to regulate banks operating in NY, even though the bank may have been a subsidiary of a national bank. The feds and the national banks, on the other hand, wanted the preemption doctrine to control, which would mean they could operate under one set of rules and regulations (federal law) versus state rules and regulations which vary dramatically from state to state.

The feds and national banks won.

From Tony Mauro of the Legal Times: "By a 5-3 vote in Watters v. Wachovia Bank, the Court found that the National Banking Act pre-empts state regulation of banks -- and that the pre-emption extends to their subsidiaries, which the Court said are 'equivalent' to the national banks themselves."

Consumer advocates say this is a bad decision and will hurt consumers because it takes away the state's power to protect its own citizens. On the other hand, national banks and their subsidiaries will be able to operate more efficiently and spend less on compliance costs if they have one set of rules and regulations to follow instead of up to 50. Does that mean national banks and their subsidiaries will pass the savings on to the consumer? That remains to be seen.

Full article: http://www.law.com/jsp/article.jsp?id=1176800654949

Fannie and Freddie Announce New Programs ???

2007-04-18T10:04:00.000-06:00

It's about time...

From yesterday's Associated Press, there comes a long overdue announement that the two big GSEs are "developing new types of loans to help distressed borrowers with high-risk mortgages keep their homes at a time of rising foreclosures."

That's great news! But I have a hard time understanding why it took so long. In fact, I'm curious why the GSEs haven't adopted or endorsed other programs already in the marketplace that could be extremely beneficial to struggling homeowners or marginal new borrowers? The Payment Assistance Program(TM) my company developed, for example, is a wonderful alternative to option ARMs or other higher-risk products. I met folks from Fannie Mae in Washington DC months ago to discuss the details. They were very welcoming, but they have not been very eager to embrace our program even though we address and overcome credit risk concerns. The silver lining is that they also have not "denied" our program. Perhaps we were, in some small way, a catalyst to their Johnny-come-lately announcement.

The full AP article can be found here: http://www.forbes.com/feeds/ap/2007/04/17/ap3621080.html

Foreclosures Double!

2007-04-17T11:39:00.000-06:00

Check out this news from today's washingtonpost.com: "The number of U.S. homes entering foreclosure doubled in the first quarter from a year earlier as property prices stagnated and owners struggled to refinance mortgages. Owners of 168,829 homes in 2007's first three months were notified that lenders had filed for foreclosure because of failure to pay loans or liens, up from 83,154 homes in 2006's first quarter, Foreclosures.com said. The firm's announcement came as the National Association of Home Builders/Wells Fargo index of homebuilders' confidence fell to the lowest level of the year." http://www.washingtonpost.com/wp-dyn/content/article/2007/04/16/AR2007041601636.html

Meanwhile, in California: "The number of mortgage default notices sent to California homeowners last quarter rose to its highest in nearly 10 years as home prices stagnated and rates on adjustable loans pushed higher, a report released on Monday said." http://news.monstersandcritics.com/usa/news/article_1292298.php/Mortgage_defaults_in_California_near_decade_high

And on the other coast: "In Massachusetts, foreclosure filings by banks and finance companies have nearly doubled in the past year, with an 87 percent increase in Bristol County, alone." http://www.thesunchronicle.com/articles/2007/04/15/news/news2.txt

More Spillover!

2007-04-13T11:09:00.000-06:00

Now GE is saying that the subprime fiasco is spreading to other types of mortgages. What happened to all that talk of "containment"?

"We're seeing some pressure in Alt-A loans as well," Jeff Immelt, GE Chief Executive said. "Subprime delinquencies started ticking up in the summer of last year, and Alt-A delinquencies started ticking up in the fall."

Full story: http://money.cnn.com/2007/04/13/news/companies/ge_call/

Headline: Housing Recovery May Be Held Back By Oversupply

2007-04-12T16:26:00.000-06:00

According to this story, housing inventory is at a 16 year high but this does not reflect the cancellation of new home sales contracts (ouch!). "It is far too early to decide that the housing market is out of the woods. The subprime mess may affect home sales if large numbers of buyers find out they can not qualify for a mortgage and foreclosures may dump more houses onto the market. Even if demand does increase, the remaining excess supply will hold back price appreciation and even lead to price declines in some local markets."

See http://www.mortgagenewsdaily.com/4122007_Housing_Recovery.asp

Follow that story with this one. "Mortgage rates around the country rose for a second straight week with 30-year, fixed rate mortgages averaged 6.22 percent this week." Well that doesn't bode well for reducing housing inventory. If subprime borrowers have fewer options, that's already one strike against a quick housing market recovery (after all, fewer potential buyers means fewer sales, doesn't it?). Strike two is where you have marginally qualified buyers...but when rates rise, those on the margins with an acceptable DTI ratio might become unqualified. The full story: http://www.businessweek.com/ap/financialnews/D8OF76205.htm

Subprime Reform; Home Builders Falling; Subprime Lenders Looking for Buyers...

2007-04-12T11:30:00.000-06:00

In no particular order:

1. "US politicians are drawing up a bill that could make it less attractive for Wall Street investment banks and other financiers to repackage risky mortgages into securities and then sell them to investors around the world." Isn't this good news? Politicians, who can't manage much of anything without making it a mess, are now thinking about dictating how Wall Street can do business. I suppose some regulation is in order, but it should come with a complete overhaul to our existing lending rules and regulations, including RESPA reform. If the idea is to protect borrowers, how about we start with the current foundation (TILA and RESPA) and make them a bit more user-friendly. Full story: http://www.ft.com/cms/s/39e30d7a-e863-11db-b2c3-000b5df10621.html

2. M/I Homes (MHO) reported today that "the number of homes it delivered in the first quarter fell 15 percent to 704, hurt by difficult market conditions as the housing sector continues to sag." Hmmm. I continue to see how the subprime meltdown has NOT impacted other sectors of our economy (read with sarcastic undertones). Full story: http://www.forbes.com/feeds/ap/2007/04/12/ap3605752.html

3. Another subprime lender up for sale. Buy now! According to Bloomberg.com "NovaStar Financial Inc., the subprime home lender whose stock has plunged more than 80 percent this year, announced it's formally exploring 'a range of strategic alternatives,' including a sale." This is a tough time to sell with other subprime lenders failing to attract buyers. Full story: http://www.bloomberg.com/apps/news?pid=20601103&sid=aQZJ58o_qa_Q&refer=us

Daily News Flashes

2007-04-11T14:55:00.001-06:00

What a day!

First, there is news that the subprime market crash is not going to spill over to other economic areas. Whew! What a relief...unless, of course, that assessment proves wrong. Here's the highlight of this article:

"It's the latest episode of housing hysteria," Snaith said. "It's a small segment of the overall mortgage market and its problems are not akin to a currency crisis where there is some contagion that just ripples through an economy."

By contrast, some argue that a systemic problem is in the making and government action is needed. A week after a coalition of civil rights groups called for a six-month halt to foreclosures on subprime borrowers, several Democrats in Washington called on Wednesday for the federal government to bail out troubled subprime mortgage holders.

Full article here: http://www.reuters.com/article/reutersEdge/idUSN1159729020070411

Then there's the NAR reporting that 2007 should result in a DROP in home prices for existing homes and a significant decline in new home sales (but a slight rise in new home prices...go figure). Here's that article: http://www.forbes.com/feeds/ap/2007/04/11/ap3602520.html

And then, this shocking news: RISKY LOANS ARE ALIVE AND WELL! Yikes! This report states that those rascally loans that have contributed (arguably) to increased rates of default and increased foreclosures are still available. They go buy "no-doc" loans (aka "liar loans") and "option ARMs." Full article: http://money.cnn.com/2007/04/10/real_estate/alta_alive.moneymag/index.htm?postversion=2007041016?cnn=yes

So relating back to the first point (subprime is contained), here's an article that states that "tighter lending standards...will cut into home sales even further and drive prices lower." Gosh, I'm so glad the subprime mess is contained...except for declining sales and dropping prices! Check it out: http://www.newsmax.com/money/archives/articles/2007/4/11/103242.cfm?MN=1&PROMO_CODE=3224-1&S=AL This news, of course, had its affect outside the direct housing market to building material suppliers, whose shares dropped today. See http://www.forbes.com/feeds/ap/2007/04/11/ap3603359.html

What a day. More contradictions and entertaining speculation. Thank goodness, when it's all said and done, the subprime mess is contained.

Finally, Truth from the NAR (sort of)

2007-04-10T18:50:00.000-06:00

It's amazing to read the spin from the NAR. They always find a way to say the housing market is strong! Check this out:

"[David Lereah, the chief economist for the National Association of Realtors] says we should expect a drop-off of subprime originations through 2008 which may mean that half of high risk borrowers will fail to secure loans. This, if it happens, will depress home sales. What he sees is more likely, however, is that these buyers will be serviced by a newly revitalized FHA and from lenders stepping into the breech to make loans meeting Freddie and Fannie standards and offering "fair and affordable mortgage options to subprime borrowers." He, like The Mortgage Bankers Association, the National Association of Mortgage Brokers and other advocacy groups have warned again overkill by regulators and Lereah does so as well, asking for responsible lending practices as opposed to practices that cause a credit crunch.

He warns we should expect that 10 to 25 percent of households that fit the subprime profile will be unable to secure a mortgage under today's stricter lending standards but that "many of these households will probably, over time, purchase a home when they have attained the financial capacity to do so... So the long-term health of the housing market will probably stay in tact (sic)." In the short term Lereah expects that home sales will fall by 100,000 to 250,000 annually during the next two years due to tighter underwriting practices."

Hmmm...well at least they're no longer saying the subprime mess isn't going to affect the housing market at all. But a drop in home sales of only 100,000 to 250,000? If 25% of households in the subprime market can't secure a mortgage, is that only going to result in 100k in lost sales?

Full article: http://www.mortgagenewsdaily.com/4102007_David_Lereah.asp

Wall Street Suits (not the custom-tailored ones)

2007-04-09T11:22:00.000-06:00

Here's a very interesting article about a lawsuit between ECC Capital Corp and EMC Mortgage Corp, a subsidiary of Bear Stearns. Seems there have been some complaints (to the tune of about $20Million) that mortgage values dropped...oh, and that Bear Stearns didn't act diligently to collect all payments due. Just allegations, mind you...

Full article: http://biz.yahoo.com/ap/070404/ecc_capital_bear_stearns_lawsuit.html?.v=1

National Spending Slows Down

2007-04-09T11:16:00.000-06:00

So what happens when housing prices fall? People can't (or won't) tap into their home equity, which reults in a slow down in consumer spending, which in turn hurts sales tax revenues from coast to coast. And what happens when new home sales decrease? That creates problems with unemployment in the construction industry, which in turn slows consumer spending. I see a patern emerging.

Check out this article from the New York Times: http://www.nytimes.com/2007/04/08/us/08housing.html?_r=1&oref=slogin

More "Spreading" Rumors

2007-04-09T11:09:00.000-06:00

The lead-in paragraph to this story says it all: "American Home Mortgage Investment Corp. shares fell as much as 19 percent after the company's loans attracted few bids from investors, fueling concern that losses at subprime lenders are spreading to higher-rated credits."

Of course, that goes against several experts' speculation that the fallout from the subprime meltdown is contained. Doesn't look like it.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aciLr5IR.NbU&refer=home

Confusion Abounds...Who Ya Gonna Believe?

2007-04-03T15:52:00.000-06:00

I always get a kick out of my Google gadget thingy that pops up news flashes. For example, I just saw an article titled "Stocks surge on home sales data, oil dip". Hmmm. Home sale data is looking good, huh? The article, citing the rosy-eyed NAR, states that the NAR's index for pending sales of existing homes rose in February...and was stronger than investors had been expecting. Well, that's good news. Full text: http://www.businessweek.com/ap/financialnews/D8O99NSG0.htm

Then within seconds, another article pops up titled "And Still More on the Subprime Fiasco". This article talks about preemption and increased regulation of mortgage lenders. If things are getting better, does Congress really need to get involved...or is that the usual pattern, to wait until something’s a mess and already fixing itself, then get involved? Full text: http://www.mortgagenewsdaily.com/432007_Subprime_Fiasco.asp

One thing I know from past experience is that the lending industry is already overly regulated. In fact, it's regulated to the point that borrowers are the ones getting hurt. Too many documents. Too many disclosures. Too much information that was originally designed to HELP the borrower. Truth in lending? Good faith estimate? These are just words that fail in practice. Is this mortgage meltdown actually good for the industry? Are the lenders and investors who SHOULD be heavily regulated because they can't operate with scruples being weeded out? Will we be left at the end of the day with the credible, honorable and customer-oriented lenders?

More Good/Bad News (Financing/Housing)

2007-04-03T09:32:00.000-06:00

The good news is that Accredited obtained financing from two lenders of more than $1 Billion. Accredited's stock prices rose significantly this morning on this news. However, some are sceptical that this amount will be sufficient to keep Accredited in business. See the full article here: http://www.bloomberg.com/apps/news?pid=20601087&sid=aVOIdoI8T17w&refer=home

The bad news is that the affects of the subprime woes are spilling over into other areas of the economy (big surprise). Accroding to the following article, the housing market is at least tangentially responsible for retail job losses. Check it out: http://www.newsmax.com/money/archives/st/2007/3/30/150759.cfm?MN=1&PROMO_CODE=3086-1&S=AL

HOME BUILDERS AND LOAN FRAUD

2007-04-02T12:32:00.000-06:00

The company for whom I work has a clearly defined philosophy. Disclose EVERYTHING! The programs offered by my company are admittedly outside the box, but they're also innovative and exciting and very user-friendly. But that means we raise some eyebrows and get questioned repeatedly. In the end, no matter who has done the questioning, we continue to operate within the plethora of applicable laws and regulations.

I guess that's what sets us apart from some of the creative and hushed deals that some builders have been accused of. Take a look at this article from USA Today. It details how some builders have used questionable lending practices to generate revenue and move inventory. http://www.usatoday.com/money/economy/housing/2007-04-02-home-builders-usat_N.htm.

Creative and aggressive thinking is what defines pioneers from the run-of-the-mill folk. But there's no excuse for cutting corners or committing fraud. I continue to tell our employees if we can't make our programs work within the confines of the law, we won't do it! We have some very gifted people at our organization, and with enough creativity and ingenuity, we can make things work as they should. We don't need the backroom deals or undisclosed terms.

The moral to the story is this: if you're a builder, call me. We can help move your inventory while keeping you on solid legal ground.

Subprime Infection Spreads

2007-04-02T11:54:00.000-06:00

The latest news on the subprime meltdown is that the affects are spilling over into other non-subprime areas. For example, according to an AP article earlier today, M&T Bank Corp. (a NY regional bank) said it's having problems selling some loans. "M&T Bank said its Alt-A loans sold for lower prices than the bank anticipated because the auction drew fewer bidders than expected. The subprime mortgage market, which this year has been wracked by a spike in payment defaults and falling home prices, appears to be hurting the rest of the mortgage market, the bank said."

How far will the affects be felt?

Here's the full article: http://www.businessweek.com/ap/financialnews/D8O8JQI80.htm

New Century Bankruptcy

2007-04-02T10:51:00.000-06:00

It comes as no surprise that New Century has filed for Chapter 11 protection. The bad news is that the company says it will fire 3,200 workers (54 percent of its workforce, according to the article below).

So the question of the day is this: What will happen to New Century in the long run? While you're formulating a response to that question, consider what the MBA said last week about housing activity: "It is unlikely that housing activity has bottomed... Leading indicators ...suggest that starts should continue to trend down in the coming months."

Here's the article regarding New Century: http://www.businessweek.com/ap/financialnews/D8O8IDSG0.htm

GSE Reform (for real?)

2007-03-29T16:56:00.000-06:00

From the House Committe on Financial Services, dated March 29, 2007:

Washington, DC - The House Financial Services Committee today passed H.R. 1427, the Federal Housing Finance Reform Act of 2007. The bill will overhaul the regulatory oversight of the government sponsored enterprises (GSE) of Fannie Mae, Freddie Mac and the Federal Home Loan Banks, and create a new, independent regulator with broad powers analogous to current banking regulators. In addition, the bill creates an off budget and non-taxpayer financed affordable housing fund, which will dedicate hundreds of millions of dollars for the construction, maintenance and preservation of affordable housing with the first year of the fund to be dedicated to the hurricane stricken areas of the Gulf Coast, and billions of dollars over the next five years for affordable housing nationwide. The bill, as amended, passed on a bipartisan majority of 45 to 19.

The Federal Housing Finance Reform Act of 2007 is the product of both bipartisan legislation in the 109th Congress and careful discussions and compromise with the Department of Treasury. The bill also comes after a series of legislative hearings on GSE reforms and proposals, where regulators and expert witnesses testified before both the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, and the full Financial Services Committee.

In addition, the Committee adopted amendments concerning the composition of the boards of the enterprises and of the FHLB’s, use of the Affordable Housing Fund and the Affordable Housing Goals, provisions to promote diversity at the agency and at the regulated entities, and clarifying authorities of the agency in determining capital and supervising the operations of the regulated entities.

More information for insomniacs: http://www.house.gov/apps/list/press/financialsvcs_dem/press032907.shtml

Housing Market WORST Ever?

2007-03-29T16:49:00.000-06:00

Tell me what you think of this: "The subprime lending market is going to get worse,'' said Jim Rogers, chairman of Beeland Interests Inc., who is selling short shares in Fannie Mae, betting on a price drop. "We've had many housing bubbles in America in the last couple of hundred years. This is going to be the worst.''

That's from an article addressing, among other things, HSBC's falling profits as second chance loans default. Here's the full article: http://www.bloomberg.com/apps/news?pid=20601102&sid=a04KFu4GTblE&refer=uk

Will this fiasco actually be the worst ever? I find that hard to believe, even though I'm not nearly as creatively-optimistic as the National Association of Realtors, who seem to fabricate good news from nearly any crisis (hey, my partner is a Realtor, so I can take some liberties here). What do you think?

More on New Century...

2007-03-28T13:59:00.000-06:00

It's almost expected to see bad news about New Century. Until the former subprime giant folds or files for bankruptcy protection, it's just more and more bad news. The latest: New Century today ended its relationship with Freddie Mac.

Details here: http://www.reuters.com/article/businessNews/idUSN2830619820070328

A Rise in Foreclosures...Really (insert sarcastic smiley)

2007-03-28T10:11:00.000-06:00

"In February, foreclosure filings in the U.S. totaled 130,786. That was down 4% from the revised January total, but it was up 12% from February of 2006. Moreover, RealtyTrac said that if the trend from the first two months of this year holds up, foreclosure filings in 2007 may be 33% higher than in 2006 for the full year."

And check this out...Nevada, Colordo and Florida topped the list, with Nevada seeing one foreclosure for every 278 homes...more than 3 times the national average!

So, once again, the foreclosures are adding to the problem, in that they increase inventory and lower market prices...and they lead to more restrictive lending guidelines which reduces the potential number of buyers. Add to that the still-high levels of existing and new inventory...oh yeah, and higher gas prices. It keeps on hurting!

See Ted Cornwell's article found at http://www.mortgageservicingnews.com/newsletter/stories/cornwell20070327.html.

Home Prices Worst in 13 Years!

2007-03-27T17:49:00.000-06:00

Single family homes in the U.S. depreciated in January from last year's numbers.

Here's the point: "The S&P/Case-Shiller composite index showed a drop of 0.7 percent from a year ago in the price of a single-family home based on existing homes tracked over time in 10 metropolitan markets. Growth hasn't been that slow since January 1994 when it dropped by 0.9 percent compared to January 1993, S&P said."

And here's the full article: http://www.newsmax.com/money/archives/articles/2007/3/27/092539.cfm?MN=1&promo_code=3039-1&s=al

Even More Housing Inventory!

2007-03-27T17:42:00.000-06:00

Here's a shocking theory: net home ownership in the U.S. will DROP by one million households! As if top-heavy new construction inventory and shrinking numbers of potential borrowers aren't enough for this beleagered market. Imagine adding another 1,000,000 homes.

Here's the full story: http://money.cnn.com/2007/03/27/real_estate/subprime_losses_spike/index.htm

Lenders Become Targets!

2007-03-26T15:53:00.000-06:00

Check this out: "As home prices soared in recent years, the mortgage industry produced a dazzling array of innovative and riskier ways for borrowers to surmount the affordability problem, especially in California. And a new generation of borrowers seemed ever willing to suspend common sense and overlook the fine print -- adjusting interest rates, prepayment penalties, the consequences of minimum payments -- to buy the house of their dreams, no matter how far beyond their means." From: http://www.sacbee.com/142/story/139395.html

That about sums it up, doesn't it? Well, the good news is that the market won't completely fall apart. It'll go through some pain, but the reality is that homes will still sell and buyers will still buy...just in smaller amounts for the time being. The companies that stand out are the ones who can make business work for themselves and their customers with creative thinking...but also with SAFE and SOUND business practices...for themselves and their customers.

CheapHousePayments.com (the company I work with) is an industry innovator. We don't lend money or broker loans, but we have devised several innovative products that actually HELP the borrower without costing the borrower...and there is no fine print to our program, so there are no surprises that turn the American Dream into a nightmare. We help reduce the borrower's net monthly mortgage payment, so the American dream can become a reality. Our program, however, does not affect underwriting (in other words, the borrower must qualify without our help).

You can find more information about our programs at www.cheaphousepayments.com. Normally I don't pitch my company here, but the reality is we're one of the few companies right now who is thinking of good solutions instead of spending our time and effort on damage control.

Subprime Shutdown in Idaho

2007-03-26T15:48:00.000-06:00

My office is located in the beautiful city of Boise, Idaho. So Idaho news is always near and dear to my...office. :) It looks like the good folks at the Idaho Department of Finance have reported that New Century and Home 123 Corp. have agreed to stop taking mortgage loan applications in the Gem State.

Here's a link to the full story: http://www.idahobusiness.net/archive.htm/2007/03/26/Two-subprime-lenders-no-longer-taking-applications-in-Idaho

Fannie Dumps New Century

2007-03-20T14:35:00.000-06:00

The latest in a wave of bad news regarding New Century and its imminent implosion: Fannie Mae just announced that it will no longer buy loans from New Century. Here's one article on the subject:

http://www.businessweek.com/ap/financialnews/D8O02TUG2.htm

Increased Inventory Means More Trouble

2007-03-20T10:30:00.000-06:00

More economic news in the housing market. "The February [housing] starts, while a big jump from January, were still 28 percent below February 2006 numbers, and were the fifth weakest reading since the beginning of 1998. Building permits, which generally are not as affected by weather as are housing starts, fell to an annual rate of 1.53 million from the 1.57 million pace in January. The drop was bit worse than economists' forecasts for permits, which are seen as a measure of builder's confidence in the market. They had looked for the permits to slip to only a 1.55 million rate. David Seiders, the chief economist for the National Association of Home Builders, said he doesn't believe that the downturn in home building has yet found a bottom."

Link to full article below.

So here's how I see it. Housing starts are up a little bit (but still off from year-ago numbers). do we really need more housing inventory. Defaults continue to rise. Foreclosures are increasing, even with Alt-A borrowers. That means we'll have more existing inventory on the market, as well as already-high levels of new construction. Add to that the fact that lenders are tightening standards and making 100% LTV and subprime loans more difficult to come by...which means fewer potential buyers. Doesn't look good. Am I adding things up wrong? Is the foregiving stock market an indication that things aren't as bad as it looks? Will the coming of Spring bring a needed renewal to the housing/lending markets?

http://money.cnn.com/2007/03/20/news/economy/housingstarts/?postversion=2007032011

Greenspan's Warning

2007-03-15T16:07:00.000-06:00

It just makes sense, does it? Former Fed Reserve Chairman Alan Greenspan is said today that "you can't take 10 percent out of mortgage originations without some impact". His comment suggests that there will be a ripple effect in the economy from the subprime woes, even through he said it was "hard to find any such evidence".

I happen to think Greenspan is right...there will be an economic effect felt beyond the mortgage industry. At the same time, however, there may be good news in other sectors of the economy that offsets the mortgage marketplace meltdown...so we may not see the negative effects because there are just too many variables that can swing the economy up or down, or both! What do you think?

Here's a link to the full article: http://news.yahoo.com/s/nm/20070315/bs_nm/usa_economy_greenspan_dc.

New Briefs

2007-03-14T16:51:00.000-06:00

Take a look at today's news:

1. Home builders are expecting sales to drop because of the subprime meltdown. See http://www.reuters.com/article/bondsNews/idUSN1428831020070314. Interesting quote from this article:

"Just because things are getting less worse, that means earnings are going up? No," said Alex Vallecillo, co-manager of of the Allegiant Mid Cap Value Fund, which sold its holdings in home builders about two years ago.

"They're perhaps going to be flat for a long time at a low level," Vallecillo said.

2. The Feds are going to start "punishing" subprime lenders. Doesn't this sound fun...more regulation: "Democratic Rep. Carolyn Maloney of New York, a committee member, is proposing legislation that would impose restrictions on banks and other mortgage lenders. They would be required, for example, to evaluate a borrower's ability to repay an adjustable-rate mortgage over the entire term of the loan, not just at the start, when much lower rates are in effect."

Full article: http://www.forbes.com/feeds/ap/2007/03/14/ap3517242.html

3. Not that conflicting news is anything new, but this article from the Association Press suggests that the housing market is stabilizing. See http://www.businessweek.com/ap/financialnews/D8NS53IG0.htm

4. But how is Wall Street really reacting? "Though default and foreclosure rates have only recently begun rising from historic lows, the report from the Mortgage Bankers Association unnerved investors because it showed that a record number of homes entered the foreclosure process in the fourth quarter. It also indicated that problems that had previously been limited to economically weak areas were cropping up in more vibrant places like California." See http://www.nytimes.com/2007/03/14/business/14lend.html?em&ex=1174017600&en=0ec0620b815e4b16&ei=5087%0A

5. And here's a summary of much of the news from the last week or so: http://money.cnn.com/2007/03/14/news/newsmakers/dodd_subprime.reut/?postversion=2007031414

That's just one day...and it's going to keep coming! What do you think? Is the worst over? Is the market set for a rebound?

Innovation or Greed?

2007-03-14T10:25:00.000-06:00

Is it innovation or greed that is driving the subprime market down? This article from Bloomberg news suggests that it's innovation...but what's the reason behind the innovation? Richard Wiles of Morgan Stanley is quoted as saying that the Australian subprime market "is much smaller and has experienced less higher-risk product innovation than in the U.S."

On one hand, the innovation is a way to bring in new business that doesn't fit older models. On the other hand, innovation is a way to make the American dream of homeownership a reality. But creating programs that could kill the American dream, such as "exploding ARMs" and other exotic products, smacks of greed. It ends up hurting the entire economy as people lose their homes, more inventory ends up on the market, lenders institute greater restrictions, etc.

Here's the full article: http://www.bloomberg.com/apps/news?pid=20601081&sid=aZoVcXwZGXhQ&refer=australia

Subprime Stock Shock

2007-03-13T14:08:00.001-06:00

OK, it can't be a huge surprise that problems in the subprime market are affecting Wall Street.

Take a look (from http://today.reuters.com/news/articleinvesting.aspx?type=hotStocksNews&storyID=2007-03-13T193014Z_01_N12321904_RTRUKOC_0_US-MARKETS-STOCKS.xml&WTmodLoc=InvArt-C2-NextArticle-2):

U.S. stocks dropped sharply on Tuesday, pushing the Dow down more than 200 points in its second-biggest drop of the year, as mounting losses in the subprime mortgage sector and weak retail sales caused investors to sell riskier assets.

The New York Stock Exchange instituted trading curbs at 3:04 p.m. (1904 GMT) as stock selling accelerated.

The Mortgage Bankers Association reported late payments on mortgages and foreclosures on U.S. homes rose in the fourth quarter to their highest level in years. The trend was driven by subprime borrowers, who have weak credit.

Shares of financial services companies with exposure to the mortgage market were among the biggest decliners. Bank of America Corp. (BAC.N: Quote, Profile , Research) fell 2.9 percent to $49.62.

Also, General Motors Acceptance Corp., the former finance arm of General Motors Corp. (GM.N: Quote, Profile , Research), said it would receive another $1 billion from GM and warned it would be hit by pressure from a weakening market for U.S. mortgages.

Shares of GM dropped 2.8 percent to $30.44.

Bad News Keeps Getting Worse

2007-03-12T10:28:00.001-06:00

Here's the first article that really paints an accurate picture of things to come in the Mortgage Lending industry. Here's a hightlight: "Hold on to your assets. The deepest housing decline in 16 years is about to get worse. As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor. Financial stocks also could extend their declines over mortgage default worries."

WOW! That's gonna be a lot of pain...and the affects will spill over into all areas of our economy. Have we set ourselves up for this pending disaster?

Here's a link to the full article: http://www.bloomberg.com/apps/news?pid=20601109&sid=ac7VCasUdPqM&refer=home

New Century Continues to Sink

2007-03-12T09:32:00.000-06:00

Here's the latest on New Century shares. They've been suspended. Here's why (at least in part): "On Monday, investors were concerned that the company did not have enough cash to honour repayments after it was told by creditors that it was in default of debt agreements.
Creditors include Morgan Stanley, Barclays, Bank of America and Citigroup, and they want New Century to buy back the mortgage loans they financed. Should New Century have to buy back all of its bad loans, then it would have to pay many billions of dollars. It currently has about $60m in cash." That's from http://news.bbc.co.uk/2/hi/business/6442063.stm.

I can only imagine what employees and sales representatives of New Century must be going through. The bad news about New Century is only part of the wave of bad news to sweep through the real estate finance industry, which will make obtaining similar employment for former New Century employees much more difficult.

1 Million Buyers Won't Be Buyers!

2007-03-09T16:51:00.000-07:00

This latest article details how the mortgage industry's practices, and the subsequent "tightening" of standards, is going to leave over ONE MILLION people from obtaining mortgages for new homes!

Here's my thinking. Ouch! 1 Million fewer borrowers. More-than-usual inventory on the market. Slowing appreciation (in many markets). Increased defaults and foreclosures (won't increased foreclosures also add to available inventory?). Something needs to be done to stop the bleeding!

My company has one answer...I'm sure there are others. I'd like to hear about it.

Here's the full article: http://www.reuters.com/article/bondsNews/idUSN0924059020070309

Cutting Jobs

2007-03-09T16:48:00.000-07:00

WMC Mortgage, the subprime arm of General Electric, is laying off 20% of its workforce because the company is realligning its resources "to be consistent with today's changing mortgage industry."

Is it even worth repeating the other reason? "Slowing home sales, higher funding costs and rising delinquencies have pushed more than 20 subprime mortgage lenders to scale back their operations over the past two months."

Here's the full article (it's a short one). http://www.forbes.com/feeds/ap/2007/03/09/ap3503562.html

Countrywide Stops 100% Financing!

2007-03-09T15:44:00.000-07:00

Countrywide stops no-money-down lending

The mortgage lender tells brokers to end offering the option of no down payment as delinquencies increase.

March 9 2007: 5:28 PM EST

NEW YORK (Reuters) -- Countrywide Financial Corp., the largest U.S. mortgage lender, Friday told its brokers to stop offering borrowers the option of a no-money-down home loan, according to a document obtained by Reuters.

Loans financing 100 percent of a home's value are among those leading to a sharp rise in delinquencies at U.S. mortgage lenders. Such mortgages below "prime" quality have resulted in the closure, sale or losses at more than two dozen mortgage lenders, analysts said.

"Please get in any deals over 95 LTV [loan-to-value] today!" Countrywide said late Friday in an urgent e-mail. "Countrywide BC will no longer be offering any 100 LTV products as of Monday, March 12."

Countrywide (Charts), along with lenders ranging from HSBC Holdings Plc (Charts), Europe's biggest bank, to NovaStar Financial Inc. (Charts) to New Century Financial Corp. (Charts) have reported rising delinquencies lately.

Home Prices: 7 Year Recovery?

2007-03-09T15:32:00.000-07:00

Read this compelling article on CNN Money about home prices. The eternally optimistic and "spin it our way" National Association of Realtors is stating that they "expect prices and sales to be modestly growing by June in most of the country." Hmmmm. What do you think? The director of housing economics for Moody's Economy.com says that it will take "until 2009 for prices nationally to reach the peaks hit in 2005. Take inflation into account, she said, and a full recovery could take more than 7 years." WOW! Not quite as optimistic as the NAR...

Here's the full article: http://money.cnn.com/2007/03/09/news/economy/home_price_slump/index.htm?cnn=yes

Feds Investigate New Century

2007-03-08T15:01:00.000-07:00

Check this out...hot off the press: "The troubles at New Century are the latest sign of the deterioration in subprime lending — until recently the fastest-growing segment of the mortgage business. The market has been struggling to contain the fallout from rising default rates and weakening home prices. Late last year, some smaller lenders started going out of business and last month several bigger companies, including New Century, started reporting problems."

This is only a small part of a good article on the federal investigation launched against New Century. It's worth a read...and your comments!

http://www.nytimes.com/2007/03/03/business/03mortgage.html?_r=1&em&ex=1173070800&en=ce70c3a7d9b9bfb3&ei=5087%0A&oref=slogin

Subprime Sinking

2007-03-08T13:31:00.000-07:00

There is visceral pain in the lending industry, particularly but not exclusively in the subprime market. Take a look at two recent articles, both courtesy of Bloomberg. First, there was a report that New Century Financial Corp. is the subject of a criminal probe and might not come out of it intact. http://www.bloomberg.com/apps/news?pid=20601087&sid=a6f3B98Wbzg8&refer=home.

Countrywide, meanwhile, is smiling as it says the subprime market is too crowded. The article quotes CFO Eric Sieracki as saying "We have a lot of subprime lenders out there for sale, and at the end of the day, their liquidations will be a great thing."The second article reports that David Einhorn, founder of Greenlight Capital LLC, just quit the board of New Century. The article reports that New Century shares "have plunged almost 90 percent since Einhorn joined the board last March, handing Greenlight a loss of about $140 million on its stake during his tenure." Ouch. http://www.bloomberg.com/apps/news?pid=20601087&sid=asiYkh.yMqYw&refer=home.

Is this only the beginning?

Feds Are Waking Up

2007-03-05T12:27:00.000-07:00

Joint Press Release

Board of Governors of the Federal Reserve System; Federal Deposit Insurance Corporation; National Credit Union Administration; Office of the Comptroller of the Currency; Office of Thrift Supervision

For Immediate Release; March 2, 2007

Agencies Seek Comment on Subprime Mortgage Lending Statement

The federal financial regulatory agencies today issued for comment a proposed Statement on Subprime Mortgage Lending to address certain risks and emerging issues relating to subprime1 mortgage lending practices, specifically, particular adjustable-rate mortgage (ARM) lending products.

The proposal addresses concerns that subprime borrowers may not fully understand the risks and consequences of obtaining these products, and that the products may pose an elevated credit risk to financial institutions. In particular, the proposed guidance focuses on loans that involve repayment terms that exceed the borrower’s ability to service the debt without refinancing or selling the property.

The statement specifies that an institution’s analysis of a borrower’s repayment capacity should include an evaluation of the borrower’s ability to repay the debt by its final maturity at the fully indexed rate, assuming a fully amortizing repayment schedule. The statement also underscores that communications with consumers should provide clear and balanced information about the relative benefits and risks of the products. If adopted, this statement would complement the 2006 Interagency Guidance on Nontraditional Mortgage Product Risks, which did not specifically address the risks of these ARM products.

The agencies request comment on all aspects of the proposed statement and are particularly interested in public comment about whether: 1) these arrangements always present inappropriate risks to institutions and consumers, or the extent to which they can be appropriate under some circumstances; 2) the proposed statement would unduly restrict existing subprime borrowers’ ability to refinance their loans; 3) other forms of credit are available that would not present the risk of payment shock; 4) the principles of the proposed statement should be applied beyond the subprime ARM market; and 5) an institution’s limiting of prepayment penalties to the initial fixed-rate period would assist consumers by providing them sufficient time to assess and act on their mortgage needs.

Comments are due sixty days after publication in the Federal Register, which is expected shortly.

http://federalreserve.gov/boarddocs/press/bcreg/2007/20070302/default.htm

SEMINAR NOTICE (it's early, I know...)

2007-03-05T12:00:00.000-07:00

I know it's early notice, but don't plan your summer vacation for August 7, 2007! I'll be a conference speaker during a day-long seminar in Boise. "Real Estate Transactions Made Painless and Efficient" is set for August 7, 2006 in Boise, Idaho. The agenda is still being finalized, but I'll be presenting on Real Estate Finance topics during the morning hours of the conference.

Check back for more information and a link to online registration. The conference is being administered by National Business Institute.

Jason M. Romrell

VP and Chief Legal Officer
CheapHousePayments.com, Inc.

"Of Counsel"
Angstman, Johnson & Associates, PLLC

Subprime Risks

2007-03-05T11:01:00.000-07:00

Subprime woes: How far, how wide

Problems in lending to home buyers and owners with less than top credit becoming big threat to the markets - and the economy.

By Chris Isidore, CNNMoney.com senior writer; March 5 2007: 1:03 PM EST

NEW YORK (CNNMoney.com) -- Lending to home owners and buyers without good credit has suddenly become a very bad business, and possibly a very big problem for the U.S. economy as a whole.

The sector is known as subprime mortgages, which pumped $640 billion into the economy through financing home purchases and refinancings in 2006, according to trade publication Inside B&C Lending. That's nearly twice the level of this kind of lending seen as recently as 2003.

But experts in the field see bankruptcies and a sharp decline in this type of lending in 2007, due to rising delinquencies and defaults by borrowers, and proposals to toughen lending standards and regulation. That's sending shares of some major financial firms sharply lower Monday.

"Everyone in the subprime sector this year is going to lose money," said Bose George, analyst with Keefe, Bruyette & Woods, a Wall Street firm specializing in banking and finance. "They're getting squeezed on all sides. Going into the year, we were looking for a decline of 15 percent, but clearly now that is far too low. It's now looking like a 25 to 30 decline."

The biggest drop came at New Century Financial (Charts), the No. 2 subprime lender according to Inside B&C Lending. Its shares lost more than half their value Monday after the company said in a filing late Friday that its outside auditor KPMG had informed it that it now believed there was substantial doubt about New Century's ability to continue as a going concern.

But other lenders in the sector also got hit, including Fremont General Corp. (Charts), which tumbled some 25 percent after it announced it would exit the subprime sector.

It's not just smaller banks and financial services firms that play in the subprime sector, thought.

Among the leaders in subprime mortgage lending in the United States are of the nation's biggest financial services firms, including units of HSBC (Charts), General Electric (Charts) and Citi (Charts).

Some economists say that choking off more than $100 billion in home financing will cause problems for real estate and home prices overall by keeping some buyers out of the market, and forcing some current homeowners to sell or face foreclosure.

"People who a year ago could have purchased a house with a subprime mortgage aren't going to be able to purchase," said Paul Kasriel, chief economist with Northern Trust in Chicago. "Increased foreclosures will mean more inventory on a market that already has a glut of homes for sale."

And Kasriel said the additional hit to real estate from the subprime meltdown is likely to mean serious problems for the economy overall.

"Housing has played a very large role in this expansion and one of the reasons it's played that role is there has been a change in the mortgage market," he said. "This has been a credit-induced housing boom that lifted other sectors of the economy and it's all in reverse now."

Home Flipper Gets Stung

2007-03-02T17:02:00.000-07:00

Homes: Stung by the slow market
Dave Corey has been flipping houses for years. But now he's stuck holding.
By Les Christie, CNNMoney.com staff writer
February 8 2007: 3:41 PM EST

NEW YORK (CNNMoney.com) -- Dave Corey has been flipping houses on the side for nearly 30 years, but the latest slump in the real estate market is taking its toll. His latest struggle: Unloading a ranch in Ocala, Fla., with three bedrooms, two baths and a two-car garage. He thought it would be a quick buy, rehab and sell transaction. Instead, it's been buy, rehab...and sit. For 10 months.

After paying $146,000 in January of 2006, he's now out of pocket $160,000 including closing costs and renovations, he said. The list price of $178,900 has drawn zero interest.

Before moving to Florida in the early 2000s, Corey's main income came from his used Saab sales and service dealership in Vermont. He sold out and moved south where he earned good money flipping houses at the height of the boom.

"I made $80,000 in the first four months of 2005 and didn't kill myself [working too hard]," he says.

A few years ago, Ocala, a small (under 50,000 population) central Florida city, was a hot spot for investors, mainly Northerners, according to Corey. Those buyers have flown back north. "I don't see where any new investors are coming in," he says.

Corey's plan had been to follow the strategy honed in Vermont. Describing himself as a "hands-on guy," Corey looks for places that are structurally sound but in some stage of disrepair or ones that need an upgrade. Houses owned by estates are often good, because the heirs don't want to live there; they just want to get the money out of the property quickly.

Sometimes, the places look like bombs went off in them.

"I took my wife, Sharon, to one of the first houses I bought down here [in Florida]," says Corey. "She went in and said, 'Oh gosh. Let's get out of here.'"

Corey had to convince her that was just what he wanted; a place that looked terrible but that had a good roof and a solid foundation.

He managed to find five or six houses a year like that and when he corraled one, he acted quickly. His schedule was to have a contract on them or close a deal within three months of the day he bought.

Corey got the current one directly from a builder so it didn't need much work. With this kind of home, all he does is upgrade some of the features and amenities.

But, by the time he was ready to sell, he could no longer get the price he wanted. "It sat for five or six months," he says "Nobody even looked at it."

And he stands by the remodeling: "I put it together so that I could live there myself," he says.

It's just that the market is super slow. "Inventory is so high, I heard they had 1,200 homes for sale in [a nearby subdivision] The Villages, it's very difficult to buy and sell," says Corey, "I haven't bought anything in 10 months."

Solution

Corey thinks he may have solved his problem, at least for now. He entered into a lease-with-an-option-to-buy transaction with a 30-something couple. They're paying $1,200 a month, of which $200 goes into the down payment principal. He's very pleased with the lessees; they pay promptly and he expects them to follow through on the buy option.

Still, he'd rather sell the home right away. ("It ties ups my money," he says.)

He looks forward to a time when the market starts to open up again and he can plunge back into the flipping business. By then, he thinks, Sharon might be ready to retire from her job as a middle school assistant principal. "Maybe we can do it as a joint venture," he says.

[If Corey advertised with CheapHousePayments.com, he could still list the property for $178,900 (assuming it would appraise for at least that amount), but he could then offer buyers up to $795.00 in payment assistance for 18 months through the CheapHousePayments.com program. And that's without increasing risk to lenders!]

Introduction from CheapHousePayments.com, Inc.

2007-03-02T15:57:00.000-07:00

There is a new kid in town...and the kid wants to save you money...or make you money. Just depends which side of the transaction you're on. CheapHousePayments.com (www.cheaphousepayments.com) has developed a unique patent-pending program that helps sellers sell faster and gives buyers an incredible incentive to buy! And we don't affect lenders profit margins at all!

In a nutshell, here's how the program works. Sellers (particularly those sitting on inventory and paying expensive carrying costs month after month) will pay CheapHousePayments.com an advertising fee. We post the property, photos and all, on our website. Buyers who want to have lower house payments for their first two years, will select property they like. After closing, CheapHousePayments.com will take a portion of our earned advertising revenue and put it in an escrow account for the buyer. Funds are 100% secure and are handled by a separate company. Payments are made to the buyer every month from this escrow account for up to 24 months. The result is lower net monthly payments to the borrower!

Here's the most wonderful thing about this program. We do NOT increase the lender's credit risk (we're not a lender, so we don't take your application or approve your loan). We do NOT increase the borrower's risk of default (because you're approved for the loan without consideration of our payment assistance). We do NOT artificially inflate the value of the property (because the seller needs to sell it for market value and a credible appraisal needs to support this).

This blog isn't about CheapHousePayments.com. I'm starting this blog because I believe CheapHousePayments.com can be a great solution for a frightening real estate finance market. There are news articles released every day that probably cause mortgage company executives to lose sleep...or lose years off their lives...or both. Certain players in the finance industry have created a terrible situtation with option ARMs, exotics, no doc loans, stated income loans and other creative financing. As these loans change from teaser rates to higher rates (or as buyers lose their ability to pay because they "accidentally" overstated their income), default rates go up and foreclosures increase. Buyers lose their homes. Sellers lose their security. Investors lose their investments (or at least the investments don't perform as well). The chain reaction is felt far and wide...and the effect touches our entire economy!

What are your thoughts?

Oh...and one more thing. If you take a look at CheapHousePayments.com and want to tell me it's "fraud"...just do me one little favor. Support your argument with something more than a blind opinion. Cite a statute or regulation (there are more than enough to choose from in this heavily regulated industry). CheapHousePayments.com's mantra is "full disclosure". We hide nothing. We are very careful with our contracts, and we're working very closely with some of the largest and most respected lending institutions in the U.S. We have our own legal department (of which I run). We also have very qualified outside counsel we associate with when necessary. We're here to help everyone win!