Aug 07
0

Understanding the Changing Lending Market

By | Sonoma County info | No Comments

It isn’t easy to keep track of a moving train, but I hope to assist you, the reader, with some information that crosses my desk about this ever changing market.

Today we find several articles from Investors Daily, the NY Times, Dallas News, and the WSJ.

Loan Standards Up as Defaults, Wall St. Hit Banks, Lenders (www.investors.com)
Investor’s Business Daily (08/07/07) P. A1; Stoddard, Scott
A drop in demand for mortgage-backed securities has caused a credit freeze that has prompted mortgage lenders to cease underwriting certain loans, take a closer look at borrower qualifications and hike interest rates on some products. Experts note that prime borrowers are finding it difficult to obtain financing; and the lack of credit could slow home sales even more, spark price declines and push up default rates. Inside Mortgage Finance publisher Guy Cecala states, “There’s definitely a backlash now in which investors are saying they don’t want to hold anything with a mortgage attached. Loans are going to be much harder to get and more expensive to get.” With interest rates on approximately $1 trillion in adjustable-rate mortgages slated to increase in 2007, the inability of borrowers to refinance into fixed-rate products could spell trouble. Some experts worry about the impact of the housing downturn on the economy, insisting the Federal Reserve needs to cut interest rates or Fannie Mae and Freddie Mac need to be given permission to purchase more home loans.
 

American Home Mortgage Seeks Chapter 11 Bankruptcy Protection
New York Times (08/07/07) P. C3 (www.nytimes.com)
American Home Mortgage Investment has filed for Chapter 11 bankruptcy protection, saying it suffered “extraordinary disruptions” as buyers abandoned the mortgage debt market due to the sluggish housing sector and the increase in loan defaults. The Melville, N.Y., company was unable to return up to $800 million that it had promised to creditors–which included Deutsche Bank, JPMorgan Chase and many other big names on Wall Street. American Home Mortgage, at one time one of the largest residential lenders in the country, was not heavily involved in subprime lending–unlike many of the other lenders that have filed for bankruptcy protection this year. In other news, Aegis Mortgagehas suspended loan originations, and National City’s mortgage unit said it will no longer originate home equity applications through brokers.

Where do mortgages lenders go to for their sub-prime loans now? Maybe the Demos have some direction for the market????

Democrats Raise Heat on Mortgage Overhaul
Wall Street Journal (08/07/07) P. A2; Cooper, Christopher (www.wsj.com)
Sen. Hillary Rodham Clinton, D-N.Y., is the latest presidential candidate to propose tougher measures to combat unscrupulous mortgage lending as part of her election platform. Clinton’s plan involves mandating new disclosure requirements on mortgage brokers and taking steps to limit their ability to dictate lending terms to clients. Central to her strategy is a measure that would force brokers to plainly state what their fees are and an obligation of full disclosure of monthly tax and insurance costsfor sub-prime mortgages. Several of Clinton’s rivals on the Democrat side also have proposed tougher rules for mortgage lenders–most notably former Sen. John Edwards, D-N.C., who additionally is championing the establishment of bailout pools to help homeowners who are on the verge of foreclosure.

Market Line writes this morning:

08/07/2007

We received unfriendly data today in front of the Fed meeting, as the Labor Department reported productivity rose at an annual rate of 1.8% which was less than forecast. In addition, labor costs reportedly increased at a 2.1% pace and were up 4.5% in the 12 months ended in June. This is significantly higher than the Fed is comfortable with, so I would expect this will reinforce their concern that inflation is still the number one problem. The focus, of course, is what the Fed will say about the turmoil in the mortgage and housing markets, and what, if anything they may do to help resolve the situation.

Information provided by Southern California Mortgage Exchange.

We shall soon see if Bernacke has any sage advise for our futures. Maybe we should all enter the reverse mortgage market since the “baby boomers” may represent the salvation of the industry!
 

Reverse Loans Moving Forward
Dallas Morning News (08/07/07); Moos, Bob (www.dallasnews.com)
Public education campaigns by AARP, the National Council on Aging, federal agencies and other groups are helping to increase interest in reverse mortgages among senior homeowners. The National Reverse Mortgage Lenders Association expects volume of more than 120,000 reverse mortgages this year, which would be a 57 percent increase from 2006. Although the reverse mortgage market is still in its infancy, with only 1 percent of senior homeowners having taken out the most popular offering–the Federal Housing Administration-insured Home Equity Conversion Mortgage–industry observers say business is starting to take off. The trade association projects that the amount of equity locked up through the mortgages will mushroom from $4.3 trillion this year to $37 trillion by 2030.
Well on that last note, off to lunch at the Royal China Restaurant and according to Molly Jackel…..http://www.santarosa.net/dining…I hope it is as good as she says. My review later!

Royal China
3080 Marlowe Rd., Santa Rosa, CA. Chinese
“This restaurant is so good in so many ways that it’s tough to know where to begin. Try the spicy string bean chicken, which is not saucy and sweet, but a drier, more savory version. The basil calamari is flash-fried, tender and perfectly cooked. Very solid wonton soup, hot and sour soup and pot stickers. Service is professional, and the décor is smart. Lunch and dinner, Sunday-Friday; Saturday, dinner only.” –Molly Jackel

Aug 06
0

What’s Happening in the Mortgage Lending Industry?

By | Sonoma County info | No Comments

The information below comes from the Mortgage Market Weekly. It gives a pretty down to earth explanation of whats going on in the market, why some programs are going away, and why some programs are getting more expensive. The good news is that it isn’t expected to last forever. If you take the time to read this, you will have a good enough understanding to pass it along to your borrowers or future borrowers, and then both you and they will understand what’s happening and be able to filter through the hype and inaccuracies the newspapers are spewing out.

Current State of Mortgage Financing…What’s Going On?

Anyone watching or reading the financial news over the last few days and weeks has seen a lot of angst and consternation over the state of the mortgage industry. In fact, one of the larger lenders in the US, American Home Mortgage, was forced to shut down operations last week. But why? What is happening, and most importantly, what does all this mean to you? Let’s unpack the definitions and details, so that you really understand the truth behind the headlines.

Over the past several years, many loans were made to homeowners with somewhat non-traditional or “non-conforming” situations, be it a poor credit history, inability to document income, or any number of factors that do not fit within the traditional “box” for home loans. These loans are often called “Sub-Prime”, or “Alt-A”, meaning that they were somewhat riskier in nature than A credit, prime, or traditional loans. Another type of “non-conforming” home loan is one where the credit and income might be perfectly fine, but the loan amount is higher than $417K, which is the current maximum loan that can be done using pools of money from mortgage giants Fannie Mae (FNMA) and Freddie Mac (FHLMC). If the loan amount is higher, it can certainly be done – it’s called a “jumbo loan” – but the end money comes from private institutions, not from the large government sponsored entities of Fannie and Freddie.

Most non-conforming loan product rates popped significantly higher in the last week. Here’s the scoop.

The end investor for Subprime or Alt-A loans will charge a premium for taking on a pool of these loans, because they know that traditionally, they might have a higher rate of default and delinquent payments within that risky pool. But lately, default and foreclosure has been on the rise – partly due to the fact that with credit tightening and a soft real estate market, many troubled homeowners are unable to refinance or sell in order to get out of trouble. So now, these end institutions are demanding a much higher “risk premium” for taking on these pools of loans, as they see the rates of default are climbing higher.

But since these institutions are purchasing these pools of loans sometimes months after the borrower has actually closed at a given rate, this increase to the risk premium means that instead of paying $101K for a $100K loan that will bear interest, they may only be willing to pay $95K for that $100K mortgage to account for the risk. Multiply that times thousands upon thousands of loans…and you have millions upon millions of dollars in loss for the company trying to sell the pool at a much lower price than they were expecting. This is called a “liquidity crisis”, and is exactly what happened to American Home Mortgage – there was no mismanagement, but they simply got caught holding too many “hot potato” loans, forced to sell them at massive losses…and eventually they had to make the decision to close the doors and stop the bleeding.

Further, even when a lender is able to take some losses, they may be subject to a “margin call”. This means that as their losses and risk premiums increase, the value of their loan portfolio decreases. As the value decreases, the credit lines that are secured by those portfolios begin to issue margin calls as the value of the asset that they are secured on is now diminished. This is exactly like margin calls in the Stock market. If you have a loan against a Stock that is losing value, you will get a “margin call” and need to pay down the loan, as the underlying Stock is losing too much value to be considered adequate collateral any longer. So for the big lenders, as their portfolio is losing value due to increased risk premiums and losses…the margin calls start coming in, and they are required to pay down their balances. In turn, this means that they have less availability to fund their new loans, which then exacerbates the problem.

In response to seeing this situation play out in the demise of American Home Mortgage, lenders of other non-conforming loan products increased their interest rates dramatically almost overnight to be better prepared – and likely over-prepared – for increased risk premiums down the road. Even though loans above $417K are not presently suffering from increased delinquencies like the Subprime and Alt-A loans are, these rates popped higher as well, because they are being purchased by smaller private entities that can’t afford to take on any margin of risk.

THE UPDATE FROM MARKET LINE

Market Line
08/06/2007Monday morning and no data for the markets to focus on, so bonds and equities are flat from the close on Friday. Last week we saw the treasury market rally further on a flight to quality bid, and for the first time in a couple of weeks we saw improvement in agency and government mortgage bonds as well. The focus today is on the Fed and their meeting tomorrow. Economists, investors and analysts are all waiting to hear what the Fed has to say about the recent events in the mortgage market and potential effects on housing and the rest of the economy. At this point it is doubtful we will see a decrease in the Fed funds rate, however, the post meeting comments will give us clues to their thoughts. As you may have expected, investors spent the weekend tightening guidelines and adjusting pricing. It is becoming clear that 100% ltv or cltv with less than full documentation of income and assets will be a thing of the past.

Information provided by Southern California Mortgage Exchange

So, now you have the “scoop”. Let’s hope that we can get through the next few months…..

Denise

Aug 04
0

What seems a crisis is also an opportunity…

By | Buyers, Financial news, RE Investing | No Comments

mirjamnew.jpg‘Mortgage crisis may prompt Fed to cut rates’ read more was an interesting article about a nice benefit of the current crisis in the lending industry. Should the Fed follow this advise we will see lower rates for ‘a-paper’ buyers.

Yes, the current crisis in lending will have a major influence in the current market, however, if you are an investor or are looking for a ‘good deal’, now is a good time to jump in and buy. With first time home buyers not being able to buy and keeping on renting, investment property will do well the coming years with better CAP rates than seen over the last years. Also the current glut of REO (bank owned) property gives a great opportunity for the sophisticated buyer. Since the purchase of a REO is not without risks, it might not be the best buy for the first time homebuyer, however they do make great opportunities for investors or even contractors who are not afraid and can deal with the risks involved. Just contact us for some great opportunities in Sonoma County.

Mirjam

Aug 02
0

What’s New?

By | Sonoma County info | No Comments

Update from Market Line

8/02/2007  “Well, there is not much data to focus on this morning, so the bond and equity markets are trading close to unchanged from the close on Wednesday. The real news is the continued tightening of credit and the repricing of risk, especially for pay option arms, home equity loans, and loans with less than full documentation. Remember, tomorrow morning the Labor Department will report on the number of new jobs created in July, which is currently forecast to be +130,000. And next Tuesday we have the pleasure of another Fed meeting. It is too bad these meetings are not public; I would love to hear the discussion regarding the housing and mortgage market. ” Information is provided by Southern California Mortgage Exchange

Let’s have fun!! Dinner tonite… Charlie Palmer, one of America’s leading chefs and owner of the highly acclaimed Aureole in New York, went directly to the source – Northern Sonoma County – for the finest fresh seasonal produce, gourmet food purveyors, and fine wines, to form Dry Creek Kitchen.

A labor of love from the start, Dry Creek Kitchen is located in the charming town of Healdsburg in Sonoma, California, just a short and scenic drive from San Francisco.

Dry Creek Kitchen is open for lunch and dinner and provides catering for Hotel Healdsburg.  Dry Creek Kitchen focuses on great and simple foods highlighting Sonoma County’s fresh ingredients with an ever-changing menu of homegrown, seasonal delights. Incredible products from local purveyors such as CK Lamb and Liberty Duck, plus numerous artisan cheeses from Redwood Hills and Cowgirl Creamery, among others, are key to the restaurant’s success. http://www.charliepalmer.com/dry_creek/home.html

During the week you can have a great meal for only $30 per person Prix Fixe and free corkage as long as it is Sonoma County wine. What a bargain….

Jul 29
0

Open this Sunday – 7/29

By | Sonoma County info | No Comments

mirjamnew.jpgYou are cordially invited to drop by my open houses this afternoon:

164 Cordoba way in Windsor: Open from 1:30 – 4:30 pm.  front-corner-market.jpg

Lovely home in the Foothills subdivision. I know you can find 4 bedroom homes that are cheaper in Vintage Greens in Windsor but drop by and visit the neighborhood, the difference will be clear: the Foothills is an eminent neighborhood. Walk to the community pool, the trails in Foothill park are superb, the fishing ponds are serene, etc. It’s a good life!

13 Feeney 13 Feeney Drive in Rohnert Park: Open from 1 – 4 pm

Great home on a convenient location. You will find pride of ownership in Mountain Shadows Square with more than 80% home ownership(this is what I have been told) -> this means that less that 20% of the homes are rentals. And drive through the neighborhood, you will know what I mean. The neighbors have lived there ‘forever’ and love living there. The location -close to shopping, golfing perfect commuter location- is surprisingly peaceful and quiet. Come by and find out for yourself.

Mirjam