The Great Loan Blog

RSS Feed Homepage

Articles: 1, 2, 3, 4, 5, 6

Waiting for the FED to refi? Your loan options might be gone.
2008-01-15 23:58:00
If your mortgage is more than 3 years old, it's really likely that your mortgage rate is higher than it needs to be. It may be time to refinance. Don't wait for the FED to drop rates as we often hear from fence sitting clients. As you can clearly see from the chart the FED has little if any influence on mortgage rates.Relative to any point in time since August 2005, mortgage rates are extremely low. If your mortgage is being professionally managed for you, your loan officer has already called you to start the refinance process. If he hasn't called, it may be time to find a new loan officer. But besides low rates, though, there's another major reason to check in with your loan officer.In a down market, product innovation stops and the process of contraction begins. Mortgage lenders are constantly eliminating "fringe" mortgage products .Now, "fringe" is a non-specific word because its definition changes constantly. What was "fringe" in 2005, for example, is somewhere in the nightm...
More About: Loan , Options , Waiting

What will happen to jumbo loan rates in 08?
2008-01-12 05:32:00
Broadly, jumbo loan mortgage rates fell in 2007. It's befuddling because there are two major reasons why mortgage rates should have increased in 2007:The U.S. dollar took a precipitous decline against world currencies, devaluing mortgage bondsInflation ran beyond the top of the Fed's comfort zone for most of the year, devaluing mortgage bondsWhen mortgage bonds get devalued, there should be less demand for them. But that wasn't the case. If mortgage rates are lower now than they were a year ago, it means that demand for mortgage bonds must be higher.There is an inverse relationship between the demand for mortgage bonds and mortgage rates. As demand increases, mortgage rates fall. As demand wanes, mortgage rates increase.So, in 2007, mortgage rates fell because global investors' desire to hold U.S. mortgage bonds outweighed their desire to sell them -- despite the constant drag against their value.We can hypothesize that mortgage rates would have fallen much, much more had the do...
More About: Loan , Rates , Jumbo

ARMs, I have one. How do they work?
2008-01-04 19:36:00
Possibly one of the most popular, yet misunderstood forms of alternate financing is the adjustable-rate mortgage. Usually referred to as an ARM, its popularity with borrowers is due to a lower interest rate than a fixed-rate jumbo loan. It is popular with the lenders because the ARM shifts the risk of interest rate fluctuations to the borrower.Although borrowers would rather have the security of a fixed-rate loan provided the rate is not too high, the ARM has maintained its popularity in the market despite competitively priced mortgage loan rates.An ARM is a loan that allows the lender to adjust the interest rate so it reflects fluctuations in the cost of money more accurately. However, with an ARM, the borrower is the one who is affected by interest rate movements, not the lender. If interest rates rise, the borrowers payments also go up - if the rates fall, the borrowers monthly payments will drop along with the declining rates.HOW AN ARM WORKSThe borrower’s interest rate is det...
More About: Work , Arms

LIBOR: London's calling and your rates will be higher.
2007-12-26 21:10:00
It's that time of year -- the news media is unleashing a horde of year end/year ahead stories on the public in an attempt to digest recent history and put it into a context that sheds some light on the road ahead. These stories can provide an opportunity to step back and look at the big picture, but they're also a newsroom staple because there's usually a dearth of news over the holdidays.That's not the case this year, where the forces tearing apart credit markets aren't taking time off for the holidays. Bear Stearns Companies Inc. this week reported its first quarterly loss ever, thanks to $1.9 billion in writedowns on securities tied to subprime loans. But stocks were up sharply today, in part because consumers weren't afraid to go Christmas shopping in November. While Americans were getting out their credit cards to buy gas and cheap imported goods, countries that have been making a good living exporting oil and manufactured goods to the U.S. have been busy buying stakes in...
More About: Calling , Higher , Rates

Credit Crunch Didn't Kill The Homeownership Dream.
2007-12-23 11:21:00
So you heard that loans are harder to get. But, you still want/need to buy a home. Is there any program that you can qualify for a home with little or no down payment?Lots of them. We may not be talking number of grains of sand on the beach or drops of water in the ocean, but there are more ways to get get into a property with no down payment than most laypersons would believe.Many loan officers would have you believe that it is a hard loan or that takes something special to get 100 percent financing. It doesn't. In 95 percent plus of all cases, that's just setting you up for three points of origination, setting them up to ask you for referrals, and trying to get you to not shop around. Nor is it a difficult loan to do. As long as you meet the guidelines, 100% financing is routine. Many lenders are begging for these loans, even today. When I wrote the original article, I talked about how in my humble opinion, some of these lax underwriting processes were setting the lenders up for...
More About: Credit , Dream , Crunch , Kill , Homeownership

Sanity returns to mortgage lending.
2007-12-18 19:13:00
While each day seems to bring more bad housing-related news, there is still money available at reasonable rates to finance the purchase of a home or refinance the loan on an existing home -- for the right borrowers.Rather than exiting the market, lenders have simply retooled their guidelines, turning their backs on riskier lending as they actively court qualified buyers. Banks still need to make loans if they want to make money. The key is in the creditworthiness of the borrower. If you can prove income and have good credit, there should be no problem for you. We're just going back to sane underwriting. Prove that you make the money to qualify for the house and pay your bills on time, and you will qualify for the loan.It's a shift, lenders want to see employed people, pay stubs, they want to see assets in the bank and FICO (Fair Isaac & Co. credit rating) scores of about 650, 660 and up. Over half the population has scores in that range. With jumbo mortgage loans, we have a lo...
More About: Mortgage , Lending , Mort

FED Matters Little in Housing Meltdown.
2007-12-12 02:52:00
Well, you’ve probably heard by now that the Fed lowered rates by .25. So what does that mean? A couple of points to think about:1. What the Fed lowers is the shortest of the short term rates and it typically helps home equity loans but doesn’t matter much to mortgage rates.2. Why did they lower rates? Because the financial markets are hurting and they needed to at least appear to help out the economy and the markets. Just this week (and it’s only Tuesday at 5:00) we’ve seen UBS announce $10 BILLION in writedowns (losses) and Washington Mutual announced $1.4 billion in write downs, laid off 3150 people and said, (I’m paraphrasing,) “We expect industry-wide volume in 2008 to be off 40% from 2006.” Both banks sought additional investments to shore up the balance sheets this weekend. UBS went to the Singapore Sovereign Wealth fund and an middle eastern investor for 10 billion and WAMU did a preferred stock offering at 2.5 billion. That shows you the degree of financial str...
More About: Housing , Matters

Mortgage Bailout Cost Will Hit Everyone
2007-12-04 21:09:00
Yesterday, Mrs. Clinton wrote the Secretary of the Treasury about her bailout plan. This whole idea of freezing mortgage rates and foreclosure bailouts is bad medicine with unbelievable side effects. The equivalent to taking a drug to treat your fever but it gives you cancer a year later. We need to let free markets work. Flush out the people who can't afford their homes and took out loans that they could never pay. Otherwise, the housing crisis that is now a credit meltdown will last much longer. Who would want to lend money to homeowners or other borrowers for that matter knowing that the government stepped in and altered the terms of millions of mortgages during the meltdown? Borrowers with less than perfect credit were given rates and terms much better than they otherwise would have received because the investors/banks were counting on the reset to make up for a teaser rate that didn't compensate for the credit risk of a non-prime borrower or high loan to value mortgage. Witho...
More About: Mortgage , Cost , Bailout , Mort

Home Prices Show Record Decline
2007-11-27 17:22:00
In Sept S&P/Case-Shiller Home Price Index fell 4.9% y/o/y, the biggest drop since the data began in 1988 -- but in-line with expectations. It's the 9th straight month of declines. Lower house prices will help to clear out excess inventories (a lot much more than rate cuts).Here's the money quote from Shiller:"The declines in the national figure are notable for two reasons. First, the 3rd quarter decline, at 1.7%, was the largest quarterly decline in the index’s 21-year history. And, second, the year-over-year decline posted its second consecutive record low at -4.5%. Consistent with prior 2007 reports, there is no real positive news in today’s data. Most of the metro areas continue to show declining or decelerating returns returns on both an annual and monthly basis.All 20 metro areas were in decline in September over August. Even the five metro areas that still have positive annual growth rates -- Atlanta, Charlotte, Dallas, Portland and Seattle -- show continued decelera...
More About: Show , Record , Prices , Cord

Countrywide:Sorry you can't afford it.
2007-11-21 04:07:00
Obviously, you are well aware of the credit crunch and the impact it has had thus far on the once roaring real estate markets. I say it's just the tip of the iceberg. Over half the loans in CA in 2006 were NEGAM or interest only. That is a small window into the loans that pushed the bubble further and will lead to a larger, more protracted collapse than anyone anticipates. Those days seem like ancient times in the mortgage world. Countrywide announced this today:As you may be aware, federal regulatory agencies have issued joint guidance which impacts the qualifying methodology for non-traditional mortgage products. This guidance was designed to better address risks associated with non-traditional mortgage products that offer interest-only and/or negative amortization payment features and to better support the needs of those borrowers who might not understand these types of risks. In an effort to further align our lending strategy with this guidance, effective Monday, November 19, 2...
More About: Sorry

Recession and possible depression. Can I get some prozac with that?
2007-11-16 11:34:00
Finally the "recession" talk is making headlines. The only thing right now that drives me wild is that there is still a discussion that the US will face a recession.... If the US would use a more "realistic" formula I assume that the recession is already here.... The clearest sign might be that Starbucks reported the first decline ever in customer visits. Hmm, five dollar coffee is a necessity right? Watch for 7-11 to pick up all the old Starbucks customers who downgrade. The good old substitution effect. Take a look at the warnings we have seen from Coach, Kohl's, JC Penny, etc. They are all reporting sharp drop offs in traffic YOY. Walmart is reporting various signs of consumer downgrading as well. But Ferrari is sold out for the year. So at least the rich are still doing well. I know you were worried for a minute that we were in serious trouble.IN 1929, days after the stockmarket crash, the Harvard Economic Society reassured its subscribers: “A severe depression is outside the...
More About: Depression , Recession , Some

Fired: Heads roll as Mortgage Bets Collapse.
2007-11-09 19:19:00
This has been a dramatic week on Wall St. We have seen multi-billion dollar losses disclosed from almost all global banks. CEO's at Citigroup and Merrill Lynch have been sacked because of mortgage losses and unacceptable risk management. The shoe dropped when the $100 billion dollar M-LEC super conduit that CITI and other banks were working to setup with the US Treasury dept stalled. I wonder why. Heard in the back alley of Wall St,"Psss, hey I have a box here of mortgage paper that we modeled to be worth $20 billion. Would you loan us money against it? We are a little low on liquid cash because we are investing so much in these great mortgages. Oh no, you can't look inside, but trust us we have more PhDs calculating the value of these holdings than any other bank. We are CITI after all." The idea was to package all the junk mortgage paper in a massive pool and have other banks buy the paper. The problem continues to be that everyone is valuing the paper according to some rocket s...
More About: Collapse , Mortgage , Roll , Fired , Bets

FED Cuts, housing continues downward spiral.
2007-10-31 23:51:00
At 11:15a PST the FED announced a small rate cut of 0.25% this produced an immediate rally in stocks and a sell off in bonds. Most mortgage rates rose as the FED statement indicated that they were concerned about inflation. I know I see it throughout the everyday economy. Have you bought gas or groceries recently? Inflation is the enemy of the lender as it destroys the value of the money they receive over the life of the loan. The dollar fell following the announcement and oil spiked to a record high. Oil is traded in dollars so as the value falls relative to other currencies the price per barrel rises in general. Gas prices should follow suit in the coming days.How does this matter at all to housing? Well, I would expect rates to remain somewhat range bound throughout the next few weeks. Any additional confessions of major losses by world banks on mortgage paper would result in a flight to quality that would push high quality mortgage rates down. In other housing news that is sure ...
More About: Housing , Cuts , Conti

Falling home values=NO refinance options for millions.
2007-10-26 00:47:00
The collapse in home values is proceeding at an ever increasing pace. Sites such as Irvine Housing Bubble, Sacramento Area Blog, and Phoenix Flippers Blog highlight the collapse of values in the last year. Especially, within the last three months we have seen a big drop in appraised values. You say home prices aren't dropping much? Well, investors/banks don't care if Joe Six Pack has a home on the market for $800k as a comparable value for a person refinancing. What matters is what has sold in the last month and the amount of foreclosures moving prices in that micro market. This is causing severe problems for solid money good clients with perfect FICOs, documented income and reserves. The higher the loan to value, the higher the mortgage interest rate, and often mortgage insurance is required. Mortgage loans are not being done at 100% loan to value above 417k on single family homes. Folks with jumbo mortgage loans resetting in the near future should carefully examine their financi...
More About: Home , Options , Millions , Refinance , Values

Countrywide REO goes from 13k to 195k?
2007-10-23 18:27:00
A developing story "scandal" started this morning when investors/realtors noticed that Countrywide on it's REO search site noted 180k more properties listed across the country. The new additions state that no broker has been assigned. I checked a few CA listings and they are indeed foreclosed properties. Check it out yourself Countrywide Foreclosure Blog.Is this the disclosure that breaks the Countrywide balance sheet to have Bank of America come to the rescue?Mortgage Insider dishes it straight on housing and the mortgage market.
More About: Goes

Pain or Pleasure:Two Charts.
2007-10-23 05:34:00
I present for your viewing pleasure or pain depending on your position in this market the latest mortgage reset chart and the foreclosure time table.Remember that the foreclosures that are on the auction block or listed on the local MLS have been in process for many months. Word on the street is that lenders are trying to delay foreclosures in the "HOPE" that the borrower will be able to begin making the payments again. Seldom happens. The bulk of foreclosure filings won't occur in my informed opinion until 2009. The big resets of ALT-A(above subprime but below prime) occur in the period of 09-11. This will be very interesting, as these folks will reset to full market rates or if they are smart they would have refinanced their mortgage before the market rate reset.We live in an instant society, unfortunately this slow unwind of Candyland prices will take years. Every bubble cheerleading pundit wants to say, "It's over and we go up from here." How long in your infinite wisdom will ...
More About: Pain , Charts , Pleasure , Char

Market Falling, Banks failing? The end?
2007-10-20 03:10:00
NO. But it helps to catch your eye with a dramatic title. Enjoy the Doors "The End"Does any of the financial meltdown effect you? Or is it just a curious event on Wall St? Enjoy your weekend.Mortgage Insider dishes it straight on housing and the mortgage market.
More About: Market , Banks

Market Meltdown benefits the SOLID borrower.
2007-10-19 21:45:00
With the large drop in the US stock market and the bank losses over the last few days we have seen a massive drop in mortgage rates for our clients. The loans with the biggest investor demand and best price improvements are for "money good credits." Low loan to value, high income, strong FICO and ample reserves. It is a flight to quality across the board. Investors in treasurys and mortgage backed securities only want the filet mignon. The ground beef they purchased from New Century, Ameriquest and these exotic NEGAMs are a causing Montezuma's revenge all over the bank balance sheet. They only want the rock solid risk scenarios because Wall St is in a state of fear as global financial firms one after the other come to the confessional with massive multi-billion dollar loan losses. Remember these are loans that started having trouble over six months ago that are in foreclosure or sold off as non-performing to another institution. From all the evidence we have seen these write offs a...
More About: Market , Benefits , Solid , Soli

Countrywide Buying America?
2007-10-17 22:49:00
Countrywide has been doing very well recently in executing their plan to own all the homes in America . As you can see from the chart the growth of their real estate owned portfolio is impressive. I know they must be anxiously awaiting the wave of subprime loans resetting so they can get those keys. A well placed source at Countrywide stated that 70%+ of the subprime folks that are calling in to refinance can't refinance because they are upside down or can't afford the new risk adjusted rates that are between 8-12%+ for a 5/1 ARM. We are running a contest to see where the readers think the Countrywide REO portfolio will end by year end. We will be giving away a copy of Devil Take the Hindmost:A history of financial speculation by Edward Chancellor and a copy of The Black Swan:The impact of the highly improbable by Nassim Taleb. To participate please send your best guess to mrmortgage at thegreatloan.com. If you would like to be added to the Mortgage Market Report include that in yo...
More About: Buying , Countrywide

September Southland home sales lowest in more than 20 years
2007-10-17 02:58:00
September Southland home sales lowest in more than 20 yearsby Real Estate Analyst John Karevoll-->October 16, 2007La Jolla,CA----Home sales in Southern California plunged to the lowest level in more than two decades, as financing with "jumbo" mortgages dropped by half. The median price paid for a home dropped sharply as a result, a real estate information service reported.A total of 12,455 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in September. That was down 29.9 percent from 17,755 for the previous month, and down 48.5 percent from 24,195 for September last year, according to DataQuick Information Systems.Last month's sales were the slowest for any month in DataQuick's statistics, which go back to 1988. The previous low was in February 1995 when 12,459 homes sold. The September sales average is 25,258."Some of last month's drop was part of the longer-term slowing trend, but most of it was due to mortga...
More About: Sales , Years , September

Realtors moving offices to Candyland?
2007-10-16 22:04:00
Below for your enjoyment is a collection of article headlines posted today from various news services. Can you spot the one that's from Candyland? The mythical place where everything is great. The roads are paved with chocolate and the sky is full of rainbows. LinksBuilder confidence hits 22-year lowTreasury Secretary urges action on housing downturnBernanke: Housing will continue to drag U.S. economyArticles:California Home Prices Predicted to Fall for First Time in 10 Years California median home prices are predicted to fall next year for the first time in ten years, according to a a recent forecast released by the California Association of Realtors (CAR). CAR is predicting that in 2008, the median price of a resale home in the state will drop 4 percent to $553,000 and sales will fall another 9 percent in addition to the 23-percent plunge that is predicted for this year. Riverside, San Bernardino and the Central Valley counties are experiencing the steepest declines, the forecaste...
More About: Moving , Offices , Dylan

My Mortgage:I'll take care of it later.
2007-10-14 02:23:00
We often see this with foreclosures or clients that waited too long to refinance. Humans are built to remember the recent past with the greatest clarity. Not withstanding those folks with alzheimer's who live in brighter time in their mind's eye. Maybe homeowners have bubbleheimer's. The bubbleheimers remember the housing boom and falling interest rates. They completely forget the past housing bubbles various areas have experienced let alone the multidecade collapse Japan experienced. Millions think their houses are worth a kings ransom, that rates will always be the same or less than their current rate, and that financing will always be available on very attractive terms. This is proving all wrong for millions of people. This crosses all income brackets and home values. I have seen multimillion dollar homes serially refinanced till they have little or no equity. When prices are soft, homeowners can't refinance and a sale would result in a check required from the seller to close...
More About: Mortgage , Care , Mort

Why bubble home values may decline for years.
2007-10-12 02:04:00
This is a weighted chart of home values in Irvine, CA which is a thriving high job and income growth area of South Orange County,CA. Many law firms, accounting, biotech, and tech companies have offices in Irvine. By way of Irvine Housing Bubble Blog you can clearly see the individual distressed homeowners. I think Irvine is a good community to consider in terms of its broad mix of housing. You have entry level starter homes/condos and you have luxury developments approaching $3M.In a classic credit crunch the weakest borrowers are hit first. I think we have seen that wave in the last year and the subprime/ALT-A credits will continue to unwind and result in an increasing pace of foreclosures over the next two years. The larger concern would be the wave of ALT-A and prime loans resetting to market rates over the next few years. Millions of homeowners purchased or refinanced with 5Y interest only ARMs between 01-04. These loans were at rates of 4-6%. Depending on loan to value, credit,...
More About: Home , Years , Values

Where will mortgage rates be in the coming years?
2007-10-10 00:18:00
I often get this question from clients. Luckily, we just hired a mystic to forecast the mortgage interest rate climate for you. Previously, he worked for the local news in the weather department. So you know he must be rock solid with his forecasts. Seriously, no one knows. But, you can make an educated guess as to the overall direction. I would venture to say that mortgage rates and interest rates in general will be higher in the coming years. We are coming out of a period of Fed rates not seen since the 50's. Global investors are very unhappy with the falling dollar. This destroys their USD based returns. We have exported a large amount of debt both public and private. We saw the ten year reach 4.50% range recently which would usually have jumbo mortgages around 6.25% and conventional mortgages in the 5.75% range. This didn't happen as I believe investors/banks see a lot more risk in mortgage paper and will demand higher rates for the risk that has exploded in the last year. The...
More About: Mortgage , Years , Rates , Mort

The rich are different:Luxury Market Alive and Well.
2007-10-09 09:54:00
NY Times has an excellent piece about the luxury market here:$6 Million for the Co-op, Then Start to Renovate
More About: Rich , Luxury , Market , Alive , Well

The rich are different:Luxury Market Alive and Well.
2007-10-09 09:54:00
NY Times has an excellent piece about the luxury market here:$6 Million for the Co-op, Then Start to Renovate Mortgage Insider dishes it straight on housing and the mortgage market.
More About: Rich , Luxury , Market , Alive , Well

Jumbo Mortgage Market Improves.
2007-10-09 06:41:00
Fannie Mae put out a research piece highlighting the spread in the jumbo market vs the conforming "government guaranteed" paper. As you can see that the spread widened to about 1% and now is drifting down. The reason for the improvement is the market is repricing risk and we have seen improved jumbo mortgage rates especially for money good credits. These are the lower loan to value,higher FICO, and solid income loans. We continue to see higher rates for high loan to value scenarios. Most lenders/investors aren't doing 2nd's above 80%. WAMU and Indymac are out of this market. The market currently believes we will see a substantial decline in prices in the bubble areas so they aren't lending for risky loans. Scenarios above 80% on traditional jumbo lending require mortgage insurance from GE, AIG, etc. The monthly cost varies based on risk but can be $200-800 a month depending on loan balance and whether they agree to pledge their first born. All of the subprime jumbo mortgages are ...
More About: Market , Mortgage , Improv , Jumbo , Prove

Jumbo Mortgage Market Improves.
2007-10-09 06:41:00
Fannie Mae put out a research piece highlighting the spread in the jumbo market vs the conforming "government guaranteed" paper. As you can see that the spread widened to about 1% and now is drifting down. The reason for the improvement is the market is repricing risk and we have seen improved jumbo mortgage rates especially for money good credits. These are the lower loan to value,higher FICO, and solid income loans. We continue to see higher rates for high loan to value scenarios. Most lenders/investors aren't doing 2nd's above 80%. WAMU and Indymac are out of this market. The market currently believes we will see a substantial decline in prices in the bubble areas so they aren't lending for risky loans. Scenarios above 80% on traditional jumbo lending require mortgage insurance from GE, AIG, etc. The monthly cost varies based on risk but can be $200-800 a month depending on loan balance and whether they agree to pledge their first born. All of the subprime jumbo mortgages are ...
More About: Market , Mortgage , Improv , Jumbo , Prove

The loans from 06 and 07 are the worst performing in history.
2007-10-05 01:25:00
Moody's released a report highlighting the various vintages of subprime mortgages and their default characteristics so far. It shouldn't be a mystery to any of my readers that the worst loans were done right before the bubble popped. The reason being is that these were the last available buyers ("greater fool theory") or the most banged up refinance loan scenarios. The market had scraped the bottom of the barrel to approve people that wouldn't have been able to get a loan but the lenders were letting bad loans fund just to keep the volume up and maintain market share. Lenders who are now out of business which number over 161 according to our friends at the Implode-O-Meter would send daily emails and faxes to brokers advertising how crazy their programs were. It was a game of one upmanship. They then pass the loans to the investment banks like Lehman, Goldman Sachs, etc where they were packaged into billion dollar mortgage pools. The "lenders" didn't really care and the investmen...
More About: History , Loans , Perform

The loans from 06 and 07 are the worst performing in history.
2007-10-05 01:25:00
Moody's released a report highlighting the various vintages of subprime mortgages and their default characteristics so far. It shouldn't be a mystery to any of my readers that the worst loans were done right before the bubble popped. The reason being is that these were the last available buyers ("greater fool theory") or the most banged up refinance loan scenarios. The market had scraped the bottom of the barrel to approve people that wouldn't have been able to get a loan but the lenders were letting bad loans fund just to keep the volume up and maintain market share. Lenders who are now out of business which number over 161 according to our friends at the Implode-O-Meter would send daily emails and faxes to brokers advertising how crazy their programs were. It was a game of one upmanship. They then pass the loans to the investment banks like Lehman, Goldman Sachs, etc where they were packaged into billion dollar mortgage pools. The "lenders" didn't really care and the investmen...
More About: History , Loans , Perform