Archive for October, 2008

The Housing Crisis – Obama and McCain

October 17, 2008

Fast-forward to 4:55 on the timer to hear Senator Obama’s remarks concerning the housing market.

 

 

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.

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Choices with Wachovia (or citi? or wells fargo?)

October 16, 2008

There are a lot of reasons that the US economy is in the mess that it is currently in — bad mortgages, corporate greed, bad accounting practices, strange accounting regulations, more corporate greed, individual greed, more bad mortgages, etc.  As Senator Obama stated last night in the Presidential debate, as a country (collectively and individually) we must stop living beyond our means [editorial note: he probably wasn’t addressing himself, at least I would hope not . . . for most of us, $4.2 million would be tough to live beyond, although I am sure I could make a run at it]. 

If you have read some of my past posts on the MTA loan (also known as the Pick-a-Payment loan by Wachovia, branded by some as the Option-ARM, or a PayFlex loan, or a PaySelect loan (which by the way were all cute-branding names meant to under-advertise the loan for what it really was — a negative amortization adjustable rate mortgage), if you have read them, then you know that the MTA loan was the ultimate loan for consumers to live beyond their means. 

Banks and mortgage lenders took in huge amounts of these loans partly due to the catchy branding mentioned above, partly because consumers were jumping at the idea of having twice the house for half the payment and partly because mortgage brokers were doing these types of loans in droves.  If you have a mailbox, or an email address or internet access you probably saw an advertisement claiming that you could get a $250,000 mortgage for only $650 per month?  Too good to be true?  No, actually it was true (if you were willing to take on an adjustable rate mortgage with negative amortization).  Not too good to be true . . . but too risky to be good.

These option ARMs with negative amortization — which means if the consumer decided to make the lowest monthly payment (the minimum payment, which likely did NOT cover the monthly interest on the mortgage), the difference would be added to the loan amount.  So, essentially, if only the minimum payment is made each month, the loan balance will slowly and steadily increase.  Combine an increasing loan amount with a decreasing property value and you have yourself a banking/accounting nightmare.  Now the bank’s collateral that was once an asset (a house that is worth more than the mortgage owed) is now a liability (a mortgage with a balance more than what the home is worth).

A few months ago, I wrote a post discussing Wachovia’s decision to no longer offer these types of loans to consumers — the spokesman for Wachovia stating that they want to make sure that “consumers have the right products to meet their needs,” which trust me, I know, really sounds like the opposite of canceling the program.  Check out my post for what I think the spokesman really meant to say.  So after knowing what I know, you can imagine my surprise when I walked in to my local Wachovia Bank branch last week and saw these brochures laid out on every counter.

“Get something you never expected from a mortgage” . . . negative amortization.  Whoops, nope, sorry, I read that wrong.  I meant “Choices.”  I guess the marketing folks are probably right.  You really can get something you never expected from a mortgage: some negative amortization and maybe even a new mailing address to send in your mortgage payment to Citi . . . or is it Wells Fargo?    

 

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.

More about telling the collective you, “so”

October 2, 2008

Again.  The Mortgage Meltdown.  The Credit-Crisis.  The Bailout Plan.  (The bailout plan?  Never heard of it . . . OOoooooohhhhh, the RESCUE-plan, yes, now we are on the same page).

So, here are some revisits on “the Mortgage Blog”:

August 8, 2007 — Times . . . they are a’changin’.  ” . . . stated income loans and Alt-A financing is changing . . . probably disappearing.  These loans used to make sense for self-employed, hard-to-document income borrowers.  But credit guidelines that can only be explained with the fictitious word “coo-coo-roo-koo” and bad advice from loan officers have made these no-ratio, no-income, and stated-income loans (I think) a thing of the past.”  Some companies continued to do these types of mortgages up until September 2008 (again coo-coo-roo-koo).

August 30, 2007 — Is the (mortgage) sky really falling?  “For the borrower with above-average credit (a credit score over 700) and at least 5% to put down as a downpayment, who is looking to finance $417,000 or less (the cutoff between a conforming Fannie Mae/Freddie Mac conforming loan and a non-conforming or jumbo loan), almost NOTHING has changed.”  THIS IS STILL TRUE TODAY, OCTOBER 2008 DESPITE WHAT YOU HEAR ON T.V.  “Crazy but true, the figurative teaching of the first day of mortgage school applies more so today than ever — much better than any computer-credit-score-loan-performance-predictor model.  Ah, the good ’ole 4 C’s of the mortgage underwriting process:  capital (do they have funds for a downpayment and reserves to pay back the loan); credit (will they pay back the loan); capacity (can they pay back the loan) and collateral (what if they don’t pay back the loan).” 

November 13, 2007 — What has NOT changed in the mortgage business.  ” . . . and the US Government is angry because they didn’t (and apparently still don’t) understand the full implications of saying ridiculous things like, “everyone deserves a decent place to live that they can call their own.”      

July 3, 2008 — Wachovia Executives (possibly) take advice from “the Mortgage Blog” (but not likely).  “After writing about the risks of the MTA loan at the end of 2006 here on “the Mortgage Blog”, only a short two years later, Wachovia apparently agrees with me, and this week announced that they will no longer offer their “Pick-A-Payment” Option ARM to consumers.”  “What about all the great marketing with lots of smiling people and different color doors where you can pick the payment you want??? ”  “What the spokesman for Wachovia probably MEANT to say is this . . . While in the past we offered the option ARM program as a way to provide payment flexibility to our customer-base, in light of the current market conditions, this product is no longer a wise risk for the bank and it’s quite probable that it is no longer a wise risk for consumers.  In addition, due to fears of declining value markets (by the way, “the mortgage blog” by Jeffrey Pinkerton provided some great insight into this as well as a very funny video), the negative amortization feature of the option ARM program puts the bank in a miserably risky situation should a borrower continue to only make the minimum payment (not covering the monthly interest), hence the loan balance increasing, while at the same unfortunate time, the value of the home (our collateral) decreasing.  Not to mention, that this was not a good program for most consumers — also highlighted by Mr. Pinkerton in his blog. (end of what I think the spokesman meant to say).”

Ahh, now that I have gotten that off my chest, I can move on to the matters at hand.  What does the $700 billion bailout plan (oops, sorry, rescue plan) mean to you “average Joe homeowner”?  What does it mean for being able to get mortgage financing in the future (long term and short term)?  What is the LIBOR index, why did it jump up 0.7% last month, and why does that matter to me?  The answers to those questions and more honest, professional, sometimes humorous mortgage advice coming soon.

 

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.