The Fit Just Started Hitting the Shan [UPDATE 10:20 PDT]...
By mbecker908 Posted in Economy — Comments (74) / Email this page » / Leave a comment »
DISCLAIMER: THIS POST IS BASED ON RUMORS ON THE MORTGAGE STREET SINCE ABOUT 5:30PM PDT. They come from VERY good sources though.
1. Countrywide shut down their Correspondent Lending Division this afternoon.
Background... Countrywide is the largest loan servicing company in the US. They acquire the loans they service (servicers are the folks you make your mortgage payments to) generally in three ways. First, they have their own retail operations, buildings with "Countrywide" on the door. Second, they fund loans in their name from thousands of individual brokers. Third, they buy the servicing rights to loans underwritten to their guidelines and funded by mortgage banks (like mine). Retail loans and brokered loans go directly to Countrywide, bypassing their correspondent group. Mortgage banks fund loans using "warehouse lines" (like a big credit line) and ship the loans to the servicers.
Loans funded by mortgage banks typically take several days to clear to the servicer. Apparently Countrywide just turned off the switch on their correspondent group and stopped receiving loans this afternoon. If you are a mortgage bank and have loans destined for Countrywide on your warehouse line, you may well be in deep dodo. The vast majority of mortgage banks do not have the ability to service loans, so they have to sell them off. And in situations like this they get sold off at a discount.
There are two levels of immediate fall out from Countrywide's action. First, there will is the potential for huge fallout with large mortgage banks who are correspondent with CW. Second, there is the potential for major upheavals with warehouse lines. If large banks can't clear their lines, the line providers may reduce or eliminate other banks lines as a result. That will cause serious ripples for the medium and smaller banks.
One major mortgage bank, headquartered in my backyard (and not mine) made a stealthy announcement late today that they were shutting down their operations including all company owned - but not necessarily their licensed - retail operations. This bank is one of the largest privately held mortgage banks in the country and will directly and immediately impact about 5,000 employees.
The mortgage bank in question is First Magnus Financial, the retail outlets are Great Southwest Mortgage, Charter Funding and several smaller regional outlets. With respect to the retail outlets, the company owned branches are closed, the licensed branches are technically still open, but there are questions about how they will continue to operate because First Mag does all of their administration, compliance and payroll.
See a local article here...
There will be more to come, but it's about to get really ugly in my business. My number one hope and wish is that the feds stay the hell out of it and let the market shake out and solve the problems. And there will NOT be a quick fix here.
More to come...
the paragraph is a tad short on detail, but my GUESS!!!!! is that they've pulled down their warehouse line to fund operations which could have triggered a shutdown of their correspondent division because they don't have the funds to draw down their correspondent loans.
It appears that they shut off the correspondent draw downs shortly after the wire cutoff times yesterday. It will likely take at least a couple of weeks to see the problems this will create in the mortgage market.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
may be at risk. Let's hope for the best.
*but he's Bush's poodle, so that's all right.
having been absent from there for about five years. Bush, who received no credit for growth and prosperity, will now receive the blame for the abysmal mismanagement of real estate lending and portfolios.
Liberals will see no contradiction, proof that they're smarter than everyone else.
"a man's admiration for absolute government is proportinate to the contempt he feels for those around him". Tocqueville
You don't think we deserve any of the credit for this? What about loose monetary policy, building the boom and bust?
If you bought a home thinking it would appreciate 35% a year forever, your an idiot.
Markets are not fair, nice or in any way shape or form kind. The surest signs that they are due for a shakeout is when the newsies start to tout how well they are doing and running front page stories about the profits.
John Q Public needs to be aware of this and willing to act accordingly. Thats life.
______________________________
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
Is that if Ron Paul were in charge, you could invest all your money (and then some) in magic beans, moon crystals, or tin foil futures and still make a killing. With Ron Paul you just can't lose!
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
but the word "fair" is kind of subjectively defined nowadays. I'm no expert, so I won't pretend to be able to quote Adam Smith, but doesn't the premise of the "invisible hand" ensure market "fairness?" While I agree that they are not nice or kind, I guess I feel that if you educate yourself, markets are the ultimate purveyors of fairness.
"Fair" is what my wife attempted with Christmas presents when the kids were little.
Markets are "force driven". If you understand the forces, you may be able to capitalize on them and profit. If you don't you most likely won't.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
nothing to do with this.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
The simple pattern is always repeated: loose monetary policy leads to loose lending standards. We see it every cycle. It has EVERYTHING to do with this.
I'm not casting my limited supply of pearls before what seems to be an unlimited supply of swine.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
There are so many fees built into mortgages that lenders and others seem to make out like bandits no matter what. One of my favorite examples is needing to update your title policy if you refinance. Sometimes they'll discount it, but what the heck do you need it at all for if they did it right the first time? And the lenders are applying virtually nothing to principal in the early years other than down payment (if any). Somebody makes boatloads off dough off mortgage payments.
So what's behind all this latest nonsense? Is there a good deal of fraud involved, where loans are tendered for more than the value of the asset? If so who is perpetrating that? If so, who is involved - lenders, real estate people, ...? Or were loans made that you could tell wouldn't be paid back? These "interest only" loans seemed like a real scandal from what I've read.
Lastly, were honest borrowers really stupid in some respects? When interest rates were so low, people buying homes should have been set for life. Sure when there injuries or job losses that may wipe some people out, but for example why would anyone with half a brain buy an adjustable rate mortgage when interest rates were at the bottom? I got one in 1984 when rates were high and something like 8-7/8 yr 1 / 10-7/8 yr 2 / 12-7/8 yr 3 let me get in, build some equity, and then refinance a couple years later after real rates dropped. Then I refinanced to a 15-year lower rate mortgage and was able to build equity much faster.
Where is all this going wrong?
1. Title insurance... Easily the most irritating fee in the process. That's why there's a title insurance company on every street corner in every US city.
2. Fraud... With respect to loans for more than the value of the property, you've got to have the real estate agent, the mortgage loan officer (not necessarily the broker or banker), and the appraiser involved. It's not that difficult to detect, since these default almost immediately and those involved are pretty easy to catch. Other kinds of fraud are much more difficult to detect and catch.
3. I/O loans and ARMs... At the end of the day, most people rent their house from the bank and have no intention of EVER paying it off. It is not "home" it is simply an asset. For most people, their objective is to own as "much house" as they can possibly swing and interest only loans and ARMs helped them to get into "more" house.
Personally, I don't think a big house payment (which I think is stupid) is anywhere near as dumb as the car payments I see every day. The number of car leases that are near or over $1,000 a month is just astonishing. And then we've always got revolving charge cards...
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
People are pretty amazing. Ever tell anyone that you're on a 15-year note or paying extra principal each month and really are trying to eventually pay off your house and have them respond, "Then what will you use as a tax deduction?" ARGHH!! We've created a horrible mentality. I always feel like saying, "Have I got a deal for you! You give me as many dollars as you want, and for each one I'll return 28 whole cents to you. When do you want to start?"
You start with the 28 cents, but any return you can earn on that borrowed money needs to be factored in as well. If you aren't paying off your mortgage because you just want the tax deduction and are sticking all the proceeds in your mattress, yes... that is a bad deal. If you can make a decent return by investing the money or if you use the money for a purchase you would otherwise finance through a non-tax deductible loan, it makes sense to keep the mortgage.
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
'Have I got a deal for you! You give me as many dollars as you want, and for each one I'll return 28 whole cents to you.'
Is that not the purpose of the Social Security system :)
...a long habit of not thinking a thing wrong, gives it a superficial appearance of being right...
---Thomas Paine---
I'll help you buy an asset that goes up between 3-7 percent a year and lets you avoid another 5% in costs. In addition a third of what I charge you to help the government will give you back.
Sound like a better deal ?
______________________________
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
I am not sure. I am too tired to even do this bit of basic math right now.
...a long habit of not thinking a thing wrong, gives it a superficial appearance of being right...
---Thomas Paine---
You lose your ability to pay that note.
Then your tax write off becomes an anchor and you are a slave about to get a financial whippin' from the master.
Sure, as long as you guarantee me that the value will appreciate at 3-7% a year, otherwise, it is a sucker bet.
Way to many overvalued areas of the country now, particularly urban areas.
Nobody remembers the last housing bust?
As to your point #3, when I was in the business, never in the mortgage department as I was a branch manager, the average life of a mortgage loan was 8 years.
with some of the statements he's passing off as "fact", they are immaterial. The crux of his article I absolutely agree with:
One of my axioms is the market is rational and the government is dumb. Let the market find a rational solution to the subprime mortgage correction on its own.It is not the proper place for government to bail out lenders who made wrong bets or homeowners who made investments they could not maintain.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
...a long habit of not thinking a thing wrong, gives it a superficial appearance of being right...
---Thomas Paine---
The idea that the federal government is dumping money into rebuilding a city that is largely built below sea level and is located on the coast is freaking crazy.
And then there's flood insurance.
I am a completely dispassionate conservative.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
federal flood insurance is probably dumber. Federally subsidized flood insurance makes it possible for people to develop property that has a virtually 100% chance of being underwater with virtually no financial risk.
It just irritates me even more than rebuilding the Big Easy.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
I always felt that the whole flood plain insurance thing was ridiculous.
There are those who look at things the way they are, and ask why ... I dream of things that never were and ask why not. - Robert Kennedy
and then there are flood plains. My problem (well, OK, one of my problems) is that flood insurance in Arizona costs the same as flood insurance on the coast of Florida. I would be OK with it if they would get the damn fed out of it and make it market based pricing by location. Of course that wouldn't be "fair" since only rich people could afford to live in flood zones in coastal regions because of the high premiums.
But then again, I don't give a rip about "fair".
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
is that it allows the insurance companies to ignore home owners who DON'T live in a flood plain. If you don't live in a flood plain then obviously it is an act of god that flooded your basement/home.
There are those who look at things the way they are, and ask why ... I dream of things that never were and ask why not. - Robert Kennedy
You can still but flood insurance even though you don't live in a flood plain to protect yourself from that eventuality. You will, however, get stuck paying the one-size-fits-all price that the feds set for FI rather than a market based priced based on risk where you live.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
A minor quibble - I would offer that the market is rational in the long term. The market can be quite irrational in the short term.
The second paragraph I absolutely agree with.
can be very irrational in the short term. But it corrects VERY quickly if the govt stays out of it.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
The market is unerringly rational. However that doesn't mean that it is predictable or easily understood.
It also doesn't mean that wild economic swings and punitive assaults on the economically ignorant don't happen. They most certainly do even if it is in a very rational manner.
There are those who look at things the way they are, and ask why ... I dream of things that never were and ask why not. - Robert Kennedy
I don't agree with you that the government should stay out of the matter.
While most of you Righties don't like to admit it one of the most important roles the Federal government performs these days is to act as a shock absorber of financial crisis. But lessening the blow of financial shocks it reduces the risks of hard core financial downturns.
There are those who look at things the way they are, and ask why ... I dream of things that never were and ask why not. - Robert Kennedy
Mike Gamecock DeVine @ The Charlotte Observer
www.race42008.com
www.hinzsightreport.com
www.theminorityreportblog.com
"One man with courage makes a majority" - Andrew Jackson
I don't know about this particular crisis to say that the Feds need to get involved.
Personally I think the bigger issue that the Feds need to get involved in is regulating interest rates on credit. There once was a time when anything over 10 points over prime was considered usurious. Today, 10 points over prime is the nominal rate that credit card companies charge.
There are those who look at things the way they are, and ask why ... I dream of things that never were and ask why not. - Robert Kennedy
But let their be no mistake, that while the market is superior to big guv reg and control, some is necessary, and we are flawed human beings that can panic, despite the very small % of loans involved and the even smaller % of the total economy. If panicy human beings cause a crisis that threatens the economy overall and the self correcting measures already built in can't arrest it, then it is the duty of the federal govenment to step in and do what it takes.
In fact, if such a crisis were to occur, Bush would face a test that would probably effect the 08 outcome even more than the more, and more importantly, could effect the near term future health of the US and the world.
Yes, Hawk, on this we toatally agree.
Mike Gamecock DeVine @ The Charlotte Observer
www.race42008.com
www.hinzsightreport.com
www.theminorityreportblog.com
"One man with courage makes a majority" - Andrew Jackson
Truth be told I am much more concerned about 10 years from now than I am about right now.
There are those who look at things the way they are, and ask why ... I dream of things that never were and ask why not. - Robert Kennedy
So I discussed it with Franz. He says you're WAAAAAY wrong. Don't mess with him, he bites.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
I have seen the Franz reference many times but I missed the genesis of it.
There are those who look at things the way they are, and ask why ... I dream of things that never were and ask why not. - Robert Kennedy
just not paying attention to have missed me.
The fuzzy guy and his wonderful bride, that Mrs908 person, live with me and serve me. She is wonderful. Fuzzy's a pain in the butt but he pays for my dog food stuff so we tolerate him.
I'm probably running for President. I'm one heck of a lot smarter than any of those other bozo things who are running and I'll be a good President. The wonderful lady will be the First Lady Person and we'll find fuzzy something to keep him busy. We'll get him a new pooper scooper or something. And instead of that embarrassing "Barney Cam" thing the Bush guy does with Barney, we'll do a "Fuzzy Cam" on the fuzzy guy for Christmas. It'll be a real hit, he really does dumb stuff.
Hope this clears up the "Franz reference". I don't want to have to explain it again. Makes me want to bite something helpless. Where's fuzzy?
Grrrrrrrrrrrrrrrrr. Woof.
Franz' 11th Commandment: If anybody messes with you, kill them and eat them invite them to a State Dinner at the White House.
Have you seen the recent Dilberts?
http://www.dilbert.com/comics/dilbert/archive/dilbert-20070811.html
There are those who look at things the way they are, and ask why ... I dream of things that never were and ask why not. - Robert Kennedy
It's late here and I was lazy.
Trimmed for aesthetic purposes
There are those who look at things the way they are, and ask why ... I dream of things that never were and ask why not. - Robert Kennedy
See, I knew you had worthwhile comments to add about SOMETHING!
This sounds pretty big. Where do you think things are headed from here? I take it this is your industry.
I don't know if you'll get your way regarding the gov't staying out of it. We love to intervene, especially when lots of people are at risk. It's so politically expedient.
I comment on what I know about. I rely on those whose opinions I respect (read: blackhedd) on for specifics on subjects like economics and the market. I also pay no attention to people who refuse to deal with specifics on their proposals, like RonPaul™. And try as you might, you can't make Paul's foolishness into concrete proposals any more than you can make his sitting on his butt for the last twenty years into an accomplishment.
That said, it's pretty unclear exactly where this will all shake out. In general, here's what's likely to happen.
1. Rates on "prime" loans are going up. Historically, they will still be "low", but will be whined about as "high" because of where they've been for the last few years.
2. Credit requirements and income/asset documentation requirements will become significantly more stringent.
3. High loan-to-value transactions will become much more difficult to process. You're gonna have to have to have some kind of down payment to buy a new house.
4. More borrowers chasing fewer "Alt-A" loan products and sub prime products will drive the pricing on those loans WAY up. (Example, I'm looking a deal that I could have done at 90-95% ltv at a rate of around 9% (and made money on it) six months ago. Today, the deal will go down at 85% ltv and at almost 12% and I make next to no money.
5. Housing prices in "hot" markets will likely continue to fall because of the availability of mortgage money.
6. Refinance transactions will be much more difficult because of the reduced ltv's lenders are willing to loan and the high ltv loans in place now, combined with falling values.
If the feds stay out of the way, things will probably shake out in about 4-6 months and begin to stabilize in the mortgage industry. Housing will take longer, probably an additional 12 - 18 months. All based on my best guess (which is usually pretty bad). I'm pretty sure Franz knows exactly what will happen, he just hasn't chosen to tell me yet.
If the feds get involved, I have no clue where we end up, but the shake out will likely be a decade.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
I have my loan with countrywide, will I even notice ?
______________________________
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
This effects people like me, and people who are looking for a new loan.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
______________________________
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
There are those who look at things the way they are, and ask why ... I dream of things that never were and ask why not. - Robert Kennedy
If you are listening to the newsies (on FoxNews right now) expounding on how you can't get a loan unless you've got a big down payment and how jumbo loans are just a thing of the past...
She doesn't know her a$$ from a hole in the ground.
If you've got good credit (700+) you can still get 100% financing at good rates on either fixed or arm loans. And you can do it stated income/stated assets, meaning we only verify employment.
The newsies seem to be bent on creating a mad stampede to somewhere they have no idea about.
If any of you have specific concerns or questions, feel free to contact me via the contact link. I won't try to sell you anything.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
points were what asmall percentage of total loans were of the risky sub-prime type byt that investors don't know what companies are holding bulks of them.
Mike Gamecock DeVine @ The Charlotte Observer
www.race42008.com
www.hinzsightreport.com
www.theminorityreportblog.com
"One man with courage makes a majority" - Andrew Jackson
Roughly 10% of mortgages are subprime. About 2% of all mortgages are currently in default - probably 2/3 of those will cure the default, 1/3 will go to foreclosure.
There are two distinct problems right now. Subprimes and "A" paper arms are first group. Both are written as a fixed rate for a period, then they adjust. Subprimes are typically fixed for either 24 or 36 months, "A"'s for 36 or 60 months. In both cases, given the current value of the various mortgage indices, the rates will adjust up by at least two percent. That equates to an increase in the fully amortized payment of $370.00 per $100,000 loan amount.
People with subprime loans expect to be able to refinance into an "A" paper loan when their fixed term (and corresponding prepayment penalty) are up. People with "A" paper arms usually plan on refinancing as well.
The second "problem" enters stage right. Real estate prices have leveled off or dropped and the lenders are lowering the LTV that they will lend so some home owners, even and especially those who've been responsible with their mortgage obligations, are unable to refi because of the value of their home. They are saddled with increased mortgage payments, are unable to refi, and may not be able to sell because they are upside down on their home. BOOM.
So, bottom line, while the bulk of the problem may be subprimes, if you've got an $800,000 ARM and can't refi when it begins to adjust, you will be looking at an increase of almost $3,000 in your mortgage payment. And, since we now buy houses (not "homes", we view them as investments not nests) the same way we buy cars - "What's the monthly payment?" - an adjustable that bumps a couple of points will wreck your cash flow. You will have to dig into your cash reserves every month to make your house payment. Oh, how silly of me. I forgot. You don't have any cash reserves! (Not aimed at "you" GC).
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
Mike Gamecock DeVine @ The Charlotte Observer
www.race42008.com
www.hinzsightreport.com
www.theminorityreportblog.com
"One man with courage makes a majority" - Andrew Jackson
ε comes to mind. Math nerds will understand that, but for the rest of you let's just say I'm guessing this must be a pretty small percentage of loans.
I find our consumer credit markets to be usurious and far too unregulated.
Then again I see somewhat of a ironic paradox that the people least likely to be able to pay back their loans are the ones charged the highest interest rates, and thus even less likely to pay back their loans.
There are those who look at things the way they are, and ask why ... I dream of things that never were and ask why not. - Robert Kennedy
Higher interest rates for loans more likely to default are necessary for the loan to be on average as profitable as a higher quality loan at a lower interest rate - more profit on the loans that do get paid back to make up for the losses on loans that don't get paid back, otherwise it's not worth making loans to those more risky borrowers.
Even so, some lenders were apparently too optimistic about their borrowers and are going to get burned, and that's necessary market discipline to make future lenders more careful about how they lend to.
The people being charged those high rates wouldn't have credit at all if lenders were limited to charging whatever rate you think is proper. That may sound OK to you, but it won't sound OK to people who are in that position and need that credit. There are always alternatives to legal lending institutions who aren't bothered by usury laws for those that are desperate enough.
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
credit card rates, auto rates or subprime mortgage rates. The rates and programs I have a real problem with are "payday loans".
These guys make Vito look like Mother Teresa. For an example of the finance charges see here...
Bottom line, you can borrow money for two weeks until your next payday and the interest on your loan works out to about 460%. That's right, four hundred sixty percent. The example I've linked to is not intended as a shot at that particular company, they are typical of the industry.
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CongressCritter™: Never have so few felt like they were owed so much by so many for so little.
It's just the next logical step of fiscal mismangement once people start using one credit card to pay another... but I don't think it's the place of government to take people by the hand and teach them sound budgeting.
Like anything else, they can serve a legitimate need. It is a better alternative than losing your job because you can't get to work and can't afford repairs to your car, or bouncing checks because you accidentally over drafted your checking account. Those overdrafts will add up to a heck of a lot more than 460% in a hurry.
I don't think the role of government is to be mommy, where you have to ask permission before you engage in a voluntary agreement to borrow money from someone.
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Underlying most arguments against the free market is a lack of belief in freedom itself. - Milton Friedman
And it ain't just the Payday Loan companies. When our oldest went off to college in CA, we opened an account with Wells Fargo since they had a branch here and also were in CA. They have screwing stupid people down to a fine art! Their fee structures are nothing short of predatory and when you're dealing with a kid who thinks a debit card is an unlimited supply of money, they're more than happy to let them just keep on overdrawing the account and slap $30 fees on every tranaction.
In Vino Veritas
Dayummm, it sounds like I should help the payday biz with a little competition and do my part to reduce the interest rates down to about 459%.
Ask not what you can do for your country, ask what your country can do for you. Washington Elected Elite
funds rate not cut (yet)
...this being the credit thing, in terms of your story?
The Fuzzy Puppy of the VRWC.I've been usurped!