Understanding the Changing Lending Market

By August 7, 2007Sonoma County info

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