Archive for July, 2007
Another Wave of Mortgage Underwriting Changes
Yesterday from First Franklin ..
First Franklin no longer allows loans at >95% LTV. This applies to all doc types. Loans at >90% LTV have a maximum loan amount of $500,000 and require a minimum 680 FICO. This applies to all doc types. 90% loans are not available for first time homebuyers. To qualify for >90% funding, borrowers must have owned a home during the previous 3 year period. The Stated Plus and Blended Access programs have been discontinued.
Today from Chase Home Equity
- Effective August 6, 2007, all stated income/stated asset home equity loans and lines are discontinued, except…
- Self Employed borrowers with 700 Ficos
- *Commissioned salespeople are considered salaried, not self employed
Today from Wells Fargo
- Alt-A Discontinued Until Further Notice
- Due to the appetite and demand for this product in the secondary market, we are not able to obtain pricing from our investors. Until we find out more, the rate sheets will not have pricing for this product. A newsflash will be going out soon regarding unlocked pipeline and loans locked that are not yet delivered.
- Thank you for your understanding during these market conditions. Please let us know if you have any questions.
Are you working with an experienced, full-time professional who is staying ahead of the rapid changes in the mortgage business?
read comments (3)According to Freddie Mac’s weekly survey, the 30 year fixed rate ended the week at an average in the Western U.S. of 6.67 at .6 points. That’s moving the right direction.
Beneath the Numbers
The Countrywide earnings announcement this week touched off a broad sell-off in equity markets around the globe as investors fled to the safety of bonds. CEO Mozilla’s comments sparked latent fears that the whole mess cannot be contained and is spilling over to affect corporate earnings, consumer spending, and liquidity in general.
As earnings deteriorate, corporate credit spreads—the difference between a corporate bond’s yield and the yield on a Treasury note of comparable maturity—have widened, reflecting investors uneasiness about the effects of the subprime problem.
Meanwhile, GDP, Michigan’s Consumer Sentiment survey, and core personal consumption expenditure—the Fed’s favorate gauge of inflation—all reported weaker numbers than expected. Consumer spending in Q2 was significantly weaker than in Q1.
What’s It All Mean?
There is hope for lower rates, and we may need that to stay ahead of the slowing economy as real estate takes a bigger toll on the consumer and corporate earnings than some were willing to admit previously.
Minnesota Overreacts to Mortgage Abuse
In one of the biggest overreactions to mortgage lending problems, the State of Minnesota has passed legislation outlawing stated income mortgages. On April 20, the state legislature passed House File 1004 and Senate File 988 aimed at limiting abusive home lending practices. But did they go too far?
Oops, I Think the Baby Was in That Bucket
Requiring that borrowers must now document income and assets for all loans on primary residences and 2nd homes, the law prohibits the use of any Stated Income, No Ratio, No Doc, & No Income/No Asset loan. In other words, the only way a borrower can get a loan after August 1st is to show pay stubs, W-2�s, tax returns, and bank statements.
This would make it impossible for many self-employed people, not to mention those with income from unseasoned second jobs, notes or child support/alimony lasting less than three years, to secure a home loan. See my previous post on 4 Reasons to Keep the Wage Earner State Income Loan for a better understanding of this issue. Dumb idea? Yes, I think so.
And That Ain�t All
Minnesota�s bill also bans all negative amortization loans as well as prepayment penalties on loans of less than $75,000. It establishes an agency relationship for mortgage brokers with civil and criminal penalties to go along with it. Now, we can discuss the merits of suitability standards and penalties, but before you decide whether this legislation actually protects consumers or just covers legislators� asses, read this:
California Consumers “Living on Fumes”
The humor of this mixed metaphor aside, the quote from Chris Thornberg of Beacon Economics points to a serious weakness in California’s economic outlook. Taken from Dale Kasler’s Sacramento Bee article today entitled Housing Clouds Economy, both writers question the strength of our job market and consumer spending set against the backdrop of falling real estate equity.
So far, economists seem to feel the real estate problem will remained contained. Seeping out from the cracks in this confidence however are some signs that the problem will spread. With credit use skyrocketing in the first half of 2007 and home equity evaporating, how long can the consumer continue to prop up the economy?
Family Opportunity Mortgage program
Through the years, I have helped many parents purchase homes or condo’s for college bound children. Because of the high demand for housing around college campuses, this has often proven to be a great investment.
Last year, my son lived in an 8 bedroom house near San Diego State University where he attended school and played soccer. Rent was $700 per bedroom! Do the math. That’s $5600 per month in rent! How’s that for positive cash flow while you wait for values to rise. I’ve seen appreciation cover the entire cost of the education.
Until now, however, parents have had to accept higher interest rates. That’s because very few kids have the job history or established credit needed to be an occupant borrower. Even when parents co-borrow, we’ve had to contend with stand-along (debt) ratios.
Sacramento Mortgage Rate Update: Schizophrenia
The 30 year conforming fixed rate mortgage ended the week at an average 6.73 with .6 points in the Western U.S. according to Freddie Mac’s weekly survey.
BENEATH THE WAVES
Peering beneath a placid surface, the water is pretty churned up. One week, retail sales are up and consumer sentiment is down, the next week sentiment is up and sales are down. Are people feeling bad and buying stuff anyway, or are they feeling good but not buying?
Unsold inventories are up. Are businesses optimistic about future consumer spending or did they overestimate sales? And what about the extra $53 billion that consumers spent on gas in the 2nd quarter due to price increases? Gotta have an effect, doesn’t it?
The PMI Mortgage Insurance Company has published its Summer 2007 Economic Real Estate Trends. For Sacramento area home owners, the news is not good.
While PMIs previous model was tuned for the rapid appreciation of the first half of the decade, the revised model gives more weight to current price trends, area volatility, and the increased use of unfriendly variable interest rate products. While the inputs have been updated, the output is the same:
a risk index that predicts the likelihood that home prices in a given metropolitan statistical area will be lower in two years.
How does Sacramento stack up? How about 9th among the top 50 MSAs in the nation, and a 56% probability of lower prices in 2009.
Buying the Puppy: the Classic Mortgage Mistake
Awhile back, Jim Cronin introduced me to the metaphor, jumping the shark, a very funny phrase with lots of useful applications. Not sure know how I missed that one, but Happy Days just wasnt a show I watched much.
However there is another metaphor I use when cautioning clients about some of the adjustable loans available today. Its borrowed from a friend who breeds Akitas. I advise them to buy the dog, not the puppy.
Puppies are irresistible. Theyre cute and small and helpless. But sometimes they become adult dogs their owners were not prepared to love.
The same is true for a mortgage. The entire sub prime meltdown was caused in part by loans that start their lives like little puppies, with 1% start rates and really small monthly payments. But later those loans turned on their owners, morphing the dream of home ownership into a nightmare.
Where a mortgage is concerned, its crucial to understand how the loan will behave when its fully grown. Make sure you can live with the consequences and the trade-offs of the low start rate. At least then, if you like what you see, go ahead and buy the puppy.