More Changes Coming in the Mortgage World

The mortgage industry has taken a pummeling for the past two or three years, some of it rightfully so.  The pendulum has swung so far that guidelines and regulations exceed the early 1990s when no wiggle room for any exceptions to the guidelines existed.  Determining if a loan would perform has no bearing on whether a loan will be approved or not. 

If you have no job, good credit, $2 million in the bank and are looking to refinance a $200,000 loan on a $500,000 property, your application will be denied.   I do not exaggerate. 

Consumers have taken the brunt of the changes instituted by Washington on the banking and mortgage industries.  Our Federal government wants to save us from ourselves.  They have limited consumer choice from several perspectives: variety of products, sources of products and the death of the mortgage brokers.  The big banks lobbies have managed to structure the new laws so that small banks and mortgage companies cannot survive. 

The biggest blow came from the FHA.  HUD won’t allow FHA mortgage originations from brokers.  This means that as a consumer you can’t go to a broker and let them shop your FHA loan anymore.  If you apply with a bank and they decide to raise their rates and you haven’t locked in, you no longer have a broker that can negotiate on your behalf or move your application elsewhere to provide an alternative for your loan.

The last time I checked, we live in a capitalist society.  As part of the Financial Reform Act, mortgage loan officers’ compensation will be limited as of April 1, 2011.  The caps on compensation are low enough to force many of the better loan officers out of the business.  Does anyone tell Footlocker how much they can make on a pair of sneakers?  Most of our legislators have no idea how these changes will affect consumers or the markets. Any time Washington interferes with free markets, bad stuff happens.  Remember how expensive it was to fly when airfares were regulated?

On the positive side, rates remain extremely low.  Affordability for housing remains at 40 year lows.  Go buy a house!

What a Roller Coaster in This Week’s Mortgage World

We’re having more fun than ever this week.  20 basis point swings in the 10 year treasuries helped keep things interesting over the last two days.  I thought that my refi pipeline was going bye-bye.  Many economists believe that rates are headed upwards with the end of the Fed’s mortgage purchase program.  I think the jury’s out on that one.  There are so many moving parts in the secondary market right now, rates may not move as much as many people think.  First of all, we have the US government getting ready to buy non-existent equity in houses that are underwater.  Also the government has announced intentions to purchase poorly performing servicing portfolios from lenders.  The government still participates in the mortgage business, but in a different way.  Some of these new programs can have the effect of  stabilizing rates by keeping the real estate and mortgage markets steady.

Allowing lenders to forgive negative equity in people’s homes, could reduce the number of foreclosure filings, stabilizing prices.  Keeping inventories of unsold foreclosures off the market may encourage potential sellers to bring their homes to market.  One of the biggest impediments to improving the resale market has been a lack of real sellers.  Many homes are on the market, but not many of them are for sale.  I have never understood why a real estate sales person would put hard work into a listing that won’t sell because it’s overpriced or undesirable in some way.

While we’re on the subject of rates and the markets, Greenspan said today that the sell off in the treasury market is only the beginning.  That rates are going to continue to rise, putting a damper on the real estate markets.  This is the same guy that thought that ARM products make sense for most borrowers and that companies wouldn’t take risks that would jeopardize their future viability.  I know that Mr. Greenspan is much smarter than me.  But, I do question some of his opinions.

That’s all for now.  Thanks for reading.

Housing News, Anything but Rosey

Interesting statistics have been coming from the people that keep track of stuff.  I say that because where do those numbers come from?  Who has time to count that stuff?  The Northeast U. S. has been batthered by snow.  A foot in our front yard the second week in February and then two feet 10 days later has put a damper on the market.  Things were really humming along and last Thursday everything stopped.  The head of the National Association of Realtors and Kevin Otteau, a consutant, both independantly stated that the market has not died.  It may feel that dead but it’s still got a pulse.

HUD continues to want to end their broker channel. Consumers once again will have their choices restricted when shopping for mortgages.  HUD is lazy and doesn’t want the extra work of monitoring brokers.  So, let’s count the ways that borrowers are being helped:

1. Borrowing costs have gone up because of extra fees imposed by Fannie Mae and lenders because of the extra man hours in every loan due to new, inane regulations
2. Fewer places to shop for a loan
3. New and confusing disclosure documents that require about 10 extra signatures in every application
4. No loan products available for anyone that doesn’t meet Fannie Mae guidelines.

Are we having fun yet. And I’m just getting started.

Has the Fed’s Rate Increase Affected Mortgages?

In a word no.  The Fed raised the discount rate by .25%.  This is the rate the Fed charges banks for emergency loans.  The discount rate does not affect prime or any of the other benchmark rates that impact mortgages.  Additionally, the Fed has gone to great lengths to assure the public that they do not intend to tighten credit or the money supply.

Many economists believe that the economy has begun to recover with very little or no chance of a double dip.  Inflation remains tame.  With low inflation and an improving economy, anyone contemplating a home purchase should be in the market now.  Rates continue to hover about 5% and home prices are at 2003 levels.  It’s time to get off the fence and jump in.  Most experts also agree that mortgage interest rates will be in the 5.5% range for most of 2010.  Get in now before those rates go any higher.

Many of the real estate agents I have spoken with have said that 2010 is starting off worse than 2009.  I have only spoken with one person that’s having a better year this year than last.  I believe that part of her success can be attributed to special circumstances.  Some new listings have started to arrive and they appear to be priced to sell.  One of the biggest obstacles to improving this real estate market is sellers’ reluctance to list their homes.  Sell high, buy low, but they missed that train.  The equity that they lost they never had, but they still feel entitled to it.  For most sellers, the equity they thought they had was a paper gain.  They never cashed it in. Many of these potential sellers  bought their homes for less than they could sell them for now. 

The mortgage markets continue to tighten.  FHA announced higher down payments for lower credit scores and increased fees for mortgage insurance premium.  In addition, HUD has imposed an HVCC type system for ordering FHA appraisals.  Once again tightened guidelines and new legislation will have a negative effect on consumers’ pocketbooks.  How can our legislators continue to pass laws regulating an industry they don’t understand?  We have started to charge our borrowers higher fees because of these new requirements.  Processing time has increased  by several hours on every file.  In addition, our investors have subjected our loans to more QC and compliance checks during underwriting because nobody wants to face the fines and penalties for not complying with the new regulations.

We’re having a lot of  fun here.  Until next time, thanks for reading.

It’s been a Roller Coaster in the Mortgage Business

Keeping a deal together has never been more difficult! I have loans that teeter totter on the precipice before deciding which way they’ll go.  And I say it that way because loans take on a life of their own depending on the underwriter, the program and the investor.  The loan to value, credit scores and income have no influence on the level of scrutiny on the loans.  One refinance has a $150,000 loan on a $700,000 appraised value with 7% debt ratios, $2 million in the bank and 800 credit scores.  The investor has questioned the employment, the income and whether the borrowers’ second home is actually a second home or an investment property.  Thank goodness the borrower has patience.

The markets continue to move sideways.  Economic news continues to be negative.  Yesterday, I read an article that stated that job losses were higher by 500,000 than originally stated in 2007.  If that information had been made public, the meltdown would have been much worse.  The public sentiment remains mostly negative.  I have attended a few networking events where some of the attendees have said that they feel some thawing.  That is few and far between.

People need to contact their Federal legislators to pressure them to back off on some of the mortgage regulation.  Tightening lending standards and regulations on lenders further than they already have will not stop the bleeding.  Most of the delinquent mortgages and short sales date to occurences prior to the housing melt down.  We can’t stop that from happening.  Rather than encourage home ownership and mortgage lending, most current policies have the opposite effect.  Underwriting standards no longer consider the viability of the loan.  People that have demonstrated the ability to pay their bills, save money and live responsibly should be able to procure a mortgage loan.  I have to turn away borrowers every week that fall into that category because they won’t get approved for a loan. 

I keep trying to find something positive in the industry.  I’m not having much luck.  True, we’re still in business, have a pipeline and continue to close loans, but it’s no fun! 

Thanks for reading.

A Challenging Year in Real Estate and Mortgages

This year is shaping up to be one of the most challenging in our industry for a variety of reasons. The most compelling may be a total lack of direction and confidence in the markets, equity, bond, real estate and manufacturing. Many experts continue to predict a double dip in the equity and real estate markets this year. Employment continues to show weakness and no one can predict a strong rebound.

Many professionals in our industry have been experiencing a strong purchase market. Hopefully that trend will continue even though the tax incentive ends soon.

HUD and Congress have amended RESPA and have threatened to change requirements for FHA approved mini-eagle brokers. The changes to RESPA have added layers of regulation and disclosure requirements to mortgage applications, causing delays and added expense for borrowers. Everyone should expect delays and confusion in the process as each lender interprets the ambiguities in the regulations differently. Additionally the new Good Faith Estimate is confusing and cumbersome. Borrowers have already complained about this document. It’s illogical and hard to interpret.

Most of the regulations introduced by the regulatory agencies have produced many unintended consequences, mostly negative for the consumer. Consumer choice has been reduced because the cost of complying with the new laws makes the process too expensive for small mortgage companies to stay in business. Real estate appraisers have been put out of business because the appraisal management companies now receive the majority of the fees for appraisals. In addition, the management companies have raised the fees for appraisals and are controlled by the large lenders such as Wells and B of A. This is only the tip of the iceberg. As the variety of outlets for mortgage loans continues to dwindle, the lack of competition will cause higher rates and fees for consumers.

None of the architects of the new laws bothered to consult with any experts actually involved with mortgage lending. Most people who make their careers in the mortgage business are honest and hard-working. We saw trouble on the horizon, but were powerless to stop the juggernaut. The pendulum has swung too far. Write your congressmen and senators to take back your consumer rights!

The Real Estate Market and the Prognosticators

I’ve read a lot of contradictory information over the last two weeks.  I have read that the momentary rise in interest rates has occurred because of low trading volume and not because rates are necessarily on the way up.  I’ve also read that our economy has begun to recover much more quickly than Europe and our rates are headed upwards before Europe’s.  The Fed has said that they will keep rates near zero for the forseeable future with little or no inflation threat.

On the real estate side, some ”experts” have said that we’re in for a double dip because foreclosures continue to flood the market diluting existing inventory.  An article in the New York Times this weekend quoted several north Jersey real estate agents that indicated that housing prices are going up and the market’s hot.

 I’M SO CONFUSED!!!!

What we’re witnessing is a market that is volatile and doesn’t know where it’s headed.  Nobody knows where rates or prices will move in the near term.  The mood of the markets remain uncertain and lack confidence.  Unemployment continues to weigh on everyone’s mind.  One thing’s for sure, the markets have to get better, eventually.  I know that I haven’t said anything definitively, but neither has anyone else. And many of those other people know a lot more than I do.

Now let’s talk about the new RESPA requirements.  RESPA stands for Real Estate Settlement Procedures Act.  The new requirements call for a Good Faith Estimate (GFE) that exactly matches the HUD-1 settlement statement that the borrower  receives at the closing, a nearly impossible task.  This new rule has caused lenders and providers to disclose over estimated closing  costs because lenders and brokers don’t want  responsibility for paying borrower’s underestimated closing costs.  In addition certain features in the new law discourage borrowers from closing loans with brokers and small mortgage companies.

Other good stuff that’s coming down the pike from Congress and HUD will cause further pain for consumers and mortgage professionals.  You can be sure that the complexity of the new disclosure process has already begun to cost consumers more money.  Mortgage lenders now need individuals designated to ensure compliance with the new laws to avoid problems with HUD or the banking departments.  Real Estate professionals and consumers should be up in arms over these new regulations.  WRITE YOUR CONGRESSIONAL REPRESENTATIVES AND COMPLAIN LOUDLY!!!

Rates Move Higher for 2010

Generally, I’ve noticed more positive sentiment emanating from the business community over the last month.  That positive mood has started to migrate into news reports and economic statistics.  Good financial news causes higher rates.  Also, the bond market generally looks six months ahead.   This may be a good sign for 2010.  Even though rates may be higher, lower unemployment and a positive mental outlook can help keep the real estate market moving forward.

Now for the bad news, many economists have predicted a double-dip for 2010.  They feel that the end of the government tax credit for home buyers along with more foreclosures flooding the market will cause home prices to decline and slow down the resale market.  The key word for the beginning of 2010 is volatility.  No one can predict the direction of the markets nor has any credible authority stepped up to give an opinion.

One thing is for sure, rates will change.  The economy will eventually improve.  The new wunderkind on Wall Street will make the same mistakes again, 1987 as compared to 2007.  Just keep your seat belt on for the ride because it’ll be bumpy.

The End of the Mortgage Broker

Beginning on January 1, disclosure requirements for closing costs will change.  Certain closing costs on the Good Faith Estimate (GFE) must exactly match the HUD-1 settlement statement issued by the attorney at the closing including yield spread premium.  Therefore, a broker must know exactly how much he’s earning on the loan at the time of application.  He can’t estimate his disclosed profit and then make less than disclosed at closing.  If the broker earns less than he had disclosed on the GFE then the difference must be paid to the borrower.  In other words, if the broker discloses 1.5% yield spread and then earns 1.25% because he’s agreed to give the borrower a break on the rate, then he has to pay the borrower .25% of the loan amount at closing.  Money he never earned.

Congress wanted to do away with yield spread premium and institute some sort of flat fee arrangement.  That is essentially what they’ve done while making the disclosure process confusing and onerous.  Between new disclosure requirements and tightened underwriting, the process of providing mortgage loans has become much more expensive than in the past.  In an effort to save people from themselves, our legislators have increased the cost of procuring credit for consumers.  Banks and mortgage companies will have to increase fees to pay for the extra manpower required to comply with these new regulations.  Lenders have to remain cautious about compliance because fees for violations will cost $10,000 per occurence.

The new disclosures have sent brokers and small mortgage bankers out of business in droves.  They are signing up as loan officers with banks or becoming net branches of larger institutions.  Choices for consumers have dwindled dramatically.  In Lancaster County, PA, 2 years ago there were 48 brokerages.  Now only 7 remain.

So, let’s review.  Compliance and regulation for the mortgage industry has increased to unprecedented levels.  Outlets for procuring mortgages have disappeared at an alarming rate. The cost associated with the mortgage application process has increased dramatically.  Overall, I’d say our legislators have done a great job of fixing the mortgage mess.  Write your Senators and congressman to complain.

Lots of New Mortgage Stuff!

First of all the big banks have nearly successfully made it impossible for brokers to do business.  The RESPA laws state that the initial Good Faith Estimate issued to a borrower at the time of application must match the HUD-1 settlement statement at closing exactly or the broker must reimburse the borrower for any cost overruns.  This includes the way that yield spread premiums are disclosed.  If a broker reduces the profitability on a loan by reducing the rate for the borrower, the broker must refund to the borrower money that he has never earned.  Who thinks of these things?  I believe that the big banks have lobbied congress to make changes designed to put brokers out of business.  Consumers continue to take the brunt of much of the new legislation designed to protect us from ourselves. 

I have successfully closed thousands of loans as a broker.  My borrowers send their friends and family to me.  I have real estate agent referral sources that have been sending me business since 1991.  Most brokers do business the way I do, honestly and ethically.  The mortgage industry is our livelihood.  We can’t afford to jeopardize our careers. 

Executives at most of the major wall street houses and the large banks did not view their sources of income the same way.  As Mr. Greenspan pointed out before the U. S. Senate several months ago that he could not envision the executives of these companies making decisions that would endanger their future existence.  Now these same institutions are trying to regulate mortgage brokers out of business for their own convenience.  And our legislators go along for the ride.  I have no faith in our government these days.

On the positive side, the market in northern New Jersey remains robust.  We have seen transactions in price ranges from $190,000 to $1,000,000.  We continue to do refinances at a comfortable pace as well.   We usually see a lull beginning in the middle of December, no lull this year

Fannie Mae, Freddie Mac and Ginnie Mae continue as the major source of funds for residential mortgage loans.  The mortgage-backed security market has not been attracting private investors.   With tightened guidelines and the total lack of any common sense underwriting, risk levels for mortgage defaults for new mortgages should be at all time lows.  Affordability indexes remain near multi-decade lows.  Home prices can’t go much lower.  Now’s the time to buy both real estate and the underlying loans for 1 to 4 family homes.  The commercial side is a different story.  When the government stops subsidizing the secondary market, rates should increase by a half of a percent.

This week Amtrust Bank was effectively put out of business.  We have been spoiled over the last few months because the rash of bank closings had subsided.  We can’t lock loans with Amtrust and have a pipeline that can’t close even though they’ve been sold to The New York Greater Community Bancorp.  This has caused a great inconvenience to us and some of our borrowers.  Amtrust has been a valued business partner and a company where we have closed hundreds of loans.