Volcker Says Fixing ‘Broken’ Mortgage Market Should Be Priority

September 23, 2010, 3:48 PM EDT

Sept. 23 (Bloomberg) -- The U.S. mortgage market is “absolutely broken” and changing the government’s role in housing must be a top priority, said former Federal Reserve Chairman Paul Volcker, an adviser to President Barack Obama.

There is “no ready-made, practical alternative” to the government’s role in the mortgage market through Fannie Mae and Freddie Mac, Volcker said in prepared remarks at a banking conference today in Chicago. Creating a new framework for the private mortgage market “is a matter of first priority,” he said.

The U.S. financial system has yet to be repaired, he said. “We know parts of it are absolutely broken like the mortgage market,” Volcker said at the 13th Annual International Banking Conference held at the Federal Reserve Bank of Chicago.

U.S. regulators are implementing the most sweeping overhaul of financial oversight since the Great Depression. Signed into law by Obama in July, the rules were prompted by a credit crisis that triggered the collapse of Lehman Brothers Holdings Inc. and pushed the U.S. economy into a recession.

The regulatory changes, named after their principal authors, Connecticut Senator Christopher Dodd and Massachusetts Representative Barney Frank, give the government authority to unwind failing financial firms that may threaten the entire system, impose new rules on derivatives markets and create a consumer-protection agency at the Fed to monitor everything from home loans to credit cards.

Backing Change

The law includes limits to investments by commercial banks in private equity or hedge funds, known as the “Volcker Rule” because of Volcker’s advocacy for the change. Under a measure that may not take full effect for as long as a dozen years, banks can invest in private-equity and hedge funds, though they will be limited to providing no more than 3 percent of the fund’s capital. Banks also can’t invest more than 3 percent of their Tier 1 capital.

Volcker said the legislation regarding the Volcker Rule, though it did not go as far as he would have liked, is a positive step. “By and large the philosophy is embedded in that legislation and we’ll see whether it gets embedded in legislation in other countries,” Volcker said.

The use of derivatives has “far exceeded any pressing need for hedging in real markets or financial markets and has become a kind of speculative instrument,” the 83-year-old former central banker said.

The conference was attended by policy makers such as Bank of Thailand Governor Tarisa Watanagase and Jose De Gregorio, president of Chile’s central bank, and officials from the International Monetary Fund, including Jose Vinals, director of its monetary and capital markets department.

Tame Inflation

Volcker is chairman of the president’s Economic Recovery Advisory Board. As chairman of the Fed from 1979 to 1987, he raised interest rates to as high as 20 percent to tame inflation, triggering a recession.

Earlier this month at a separate conference in Calgary, Volcker said the U.S. and European economies may take years to rebound from the recession, while emerging countries such as China are undergoing “remarkable” growth.

“It’s going to take a long time to repair the basic disequilibrium in the economy,” Volcker said today.

--Editors: James Tyson, Kevin Costelloe

To contact the reporters on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net; Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

Vacation Home Sales Rebound
When the housing market started to head in the wrong direction, vacation homes led the way.  Since they were not the borrower's primary residence, these properties were dumped on to the market first.  So, it is great news that we can now see a reversal in that trend.

The National Association of Realtors reported that vacation home sales jumped 7.9 percent from 2008 to 2009 in their 2010 Investment and Vacation Home Buyers Survey. The big news is that 90% of the vacation home purchasers were buying the property as a true vacation home and not for investment purchases.  Previously, wild speculative buying of vacation properties for the purpose of selling it again in the future was a large reason for the collaspe in that market segment.

Additionally, 70% of the purchases were for single-unit non-attached structures.  The median transaction price increased from $150,000 a year ago to $169,000.

Positive Job Growth
Friday's Unemployment Rate was unchanged at 9.7% for the third month in a row.  But we did have some very exciting news within that report: For the first time since the financial crisis began, we experienced Job Creation!

Yes, Non-Farm Payrolls increased for the first time as we added 164,000 new net jobs.  This shows that private sector job creation is underway which is what will continue to lead us into stronger demand for housing.  As people return to work, consumer confidence naturally rises and helps to stimulate demand for housing.

What Happened to Rates Last Week:

Mortgage backed securities (MBS) lost -103 basis points last week which caused 30 year fixed rates to increase for both government and conventional loans.  Our worst mortgage rates were on Friday after the release of the Unemployment Report which showed positive job creation for the first time and pressured mortgage rates.  We also felt the sting of the Federal Reserve ending their $1.25 trillion mortgage backed securities purchase program.  This removed the single largest purchaser of MBS from the market place.

What to Watch Out For This Week:
The following are the major economic reports that will hit the market this week.  They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages.  I will be watching these reports closely for you and let you know if there are any big surprises:

Date  ET  Release  For
5-Apr  10:00  ISM Services  Mar
5-Apr  10:00  Pending Home Sales  Feb
6-Apr  14:00  Minutes of FOMC Meeting  
7-Apr  10:30  Crude Inventories  3-Apr
7-Apr  15:00  Consumer Credit  Feb
8-Apr  8:30  Continuing Claims  27-Mar
8-Apr  8:30  Initial Claims  3-Apr
9-Apr  10:00  Wholesale Inventories  Fe

They are the inspiration to our work day! 

The beaurocrats in banking and government that is. These little harbingers of "rules" often produce little but create incredible amounts of busy work for lenders and borrowers. They are the Department of Motor Vehicles and they are handbook and cubicle gods.

They drive up the cost of an organization substantially and often undermine the morale. These small minded men and women create disharmony by bringing to light the shortcomings of the "system" while showing everyone how only they can "cure" the problem. Their number one job is to keep the system broken so that they continue to get a paycheck.

Hey thats what they're here to do right? Protect their jobs and turf? Look how well they protected us from Madoff and the financial crisis!  

They are brilliant at worming their way through the system, finding a safe job in some office in the background as a gatekeeper and making work for themselves to feed off the system.

We are your friends because we protect you from yourselves.

The Armies of Weasels Have Begun Sharpening Their Pencils.

 

The Federal government, led by a few very brilliantly self-serving politicians such as Connecticut Senator Christopher Dodd and Mass. Representative Barney Frank, seem by all accounts to have been in cahoots with the mortgage banks and the Agencies of Fannie Mae and Freddie Mac.

To this day, these public officials continue to tip the cards toward the big banks all the while placing the blame for the current market on mortgage brokers.

We can't underestimate the damage these are self serving individuals may cause. In the name of public good they create laws that do just the opposite. I credit these brilliant minds that show you what's not in their left hand yet conceal their surprize in their right hand.

Senator Dodd is lying to the public, scapegoating mortgage brokers in order to create laws and regulations that clearly stack the cards in favor of the banks.

"(AP) — Two influential Senate committee chairmen were told they were getting special VIP deals when they applied for mortgages, an official who handled their loans told Congress in closed-door testimony. Democratic Sens. Christopher Dodd and Kent Conrad had denied knowing they were getting discounts when they negotiated their loan terms."

The former CEO of Countrywide, Angelo Mozilo has been charged with civil fraud per the AP. The Countrywide Mortgage owner, along with two other exCountrywide executives were charged by the Securities and Exchange Commission, per an SEC spokesman.

Mozilo was accused of illegal insider trading, related to his dumping of Countrywide stock just prior to the financial crisis. After the collapse of Countrywied and between 2002 and 2007 Mozillo raked in hundreds of millions of dollars in salary and stock options even when he knew the company was originating toxic loans that were bound to fail. Countrywide also entered into 1000's of real estate brokerage joint ventures under DBA in order to capture home purchase transaction leads from "in-house" Realtor relationships.

Mozillo has defended risky loan programs like adjustable rate mortgages and option arms claiming they created homeownership. 14 year olds should be able to buy cars because it promotes mobility.

Florida Attorney General Bill McCollum said he had obtained a federal court order remanding his lawsuit against Mozilo back to Broward County Circuit Court. The suit alleges Countrywide put borrowers in misleading or unaffordable loans of which Mozilo should have been clearly been aware.

Why is Just Mozillo being sued? We have thousands of mortgage executives that promoted fraud and are still doing so.

Realestateloans.com rocks!

Since the Home Affordable Program was launched more than one million borrowers have refinanced and 50,000 plus loan modification have been extended to qualifying borrowers. Helped by the low rates from the Treasury buying of Fannie Mae and Freddie Mac mortgage backed securities (which was part of the original Homeowner Affordability and Stability Plan). 

“In just over two months, the Make Home Affordable program is up and running, helping our economy recover and making a difference in the lives and livelihoods of thousands of American homeowners,” said Treasury Secretary Tim Geithner. Geitner also talked about further programs to help struggling homeowners: “Today we are announcing a new program component to help homeowners obtain modifications in areas suffering from home price declines.  If a modification is not possible, we are also announcing steps to encourage the quick private sale or voluntary transfer of property, which will save homeowners money"

Coming programs expanded for qualifying borrowers unable to complete a modification will be able to pursue a short sale or deed-in-lieu of foreclosure through a streamlined process. Mortgage lenders will receive so called “home price decline protection incentives,” compensation payments based on recent home price declines intended to promote modifications.

The Home Affordable Refinance program ends in June 2010, while the loan modification program will run from now until December 31, 2012.

Fourteen servicers, including the five largest, have now signed contracts and begun modifications under the program.  Between loans covered by these servicers and loans owned or securitized by Fannie Mae or Freddie Mac, Home Affordable Modification participants now account for more than 75 percent of all loans in the country.

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Read the entire article by clicking on the paragraph.

So it's time to admit it: We're fools, protagonists in a kind of gruesome comedy about the marriage of greed and stupidity. And the worst part about it is that we're still in denial — we still think this is some kind of unfortunate accident, not something that was created by the group of psychopaths on Wall Street whom we allowed to gang-rape the American Dream. When Geithner announced the new $30 billion bailout, the party line was that poor AIG was just a victim of a lot of shitty luck — bad year for business, you know, what with the financial crisis and all. Edward Liddy, the company's CEO, actually compared it to catching a cold: "The marketplace is a pretty crummy place to be right now," he said. "When the world catches pneumonia, we get it too." In a pathetic attempt at name-dropping, he even whined that AIG was being "consumed by the same issues that are driving house prices down and 401K statements down and Warren Buffet's investment portfolio down."

What a great deal, where can I get a hundred of these? There are a lot of lenders currently offering zero point zero fee deals in order to get their phones to ring.

I don’t mind the offer as much as I do mind the lies that come with the advertising. Some lenders actually say that companies charging loan fees are predatory, which isn't really true. Yes, some do overcharge on fees. These advertisers also say "we make enough money on the interest of the loan that we don't need to charge fees". To a lay person that makes perfect sense. The reality is that most mortgage companies don't make their money off of interest earned during the life of the loan. Most loans are sold to the secondary investor market and it's usually the final investor that makes the interest. Mortgage companies most often make their money on fees earned when they originate the loan, rarely on the interest earned over the life of the loan.

" Buyer beware" because the offer sounds good in a 30 second commercial spot. Allow me to explain what a zero point zero fee deal is and how it works. First though, I have to ask: Is the loan zero origination points and discount points? Is it free of lender fees or are all fees included – lender, title and closing fees?

Depending on which lender you speak to and how much they are exaggerating the offer, the deal can mean anything. The beauty of this offer for the mortgage company is that it makes the person hearing the enticement think they just found the best deal on earth. Any lender can offer this type of fee structure, most choose not to because these loans are a come-on and usually impractical.

When borrowers call in on these types of loan offers, which is the number one reason for offering them in the first place, to get people to call, they find that the rate is so high, that paying fees and points is the only way to get a rate that makes sense, with a payment that is affordable.
It all works like this: The lender offers a zero point zero fee deal, the buyer calls in to "catch" the offer, and after taking a long application the lender makes a quote. It's usually a rate the borrower will not take, but at least now the mortgage company has an application and a live body on the phone.

These types of loans have worked well in the past when rates were dropping fast and people were carrying interest rates above eight percent. Most borrowers today, unless they need cash, have an adjustable or Subprime loan, are doing pretty well.

Typically, the zero point zero fee quote consists of a rate high enough that the eventual investor on Wall Street will pay the lender a large "premium" to the mortgage company. A large enough of a premium, that the mortgage company can make a decent profit, while being able to pay for the borrowers closing costs. It's the high premium rebate offered by the secondary investor markets that make this deal possible. Premiums are offered on mortgages with above market interest rates. An above market rate is palatable if the borrower is going from 9% to 6.5%.

Example: Say I was a Subprime borrower in 2007, my credit score has gone up over the last twelve months or so, and now I qualify for a conventional loan, I might benefit. The spread between Subprime and a conventional loan is usually two to three percent at any given time. If you find that you can do a zero point/zero fee loan and lower your rate by two percent or $200 a month, then it works. If not, and you want a lower payment as most people do, then paying points and fees will likely be what you end up doing.

Paying points and fees aren’t a bad thing if you plan on keeping the home and can offset the fees over time with a lower payment. Zero points and fees may also be beneficial if the rate decrease is large enough and the idea of not increasing your loan amount makes sense. Remember, fees financed will have a compounded cost effect over thirty years of amortization.

Look at the math from a couple of angles and work with an ethical loan consultant to find the right solutions.

I love blogging, its one of the coolest activities I can do while relaxing on the couch with a good glass of wine. Rather than watching mind numbing TV or worrying about work, I can write, develop my thoughts, and get things off my chest. Its ultra cathartic.

Reading blogs is lots of fun too. There is something that I opined when I read a certain blog related to the housing market colapse: This blogger and many of these people that write about housing, are renters. 

I just finished reading a very popular blog that seems to be promoted well. I was disappointed to read that this particular "real estate housing crash" blogger was a renter and that he couldn't afford a home. It seems this blogger let his hair down a little too much when he said that he can't wait for houses to be more affordable because he was tired of renting a matchbox apartment and was visiting open houses.

He was shopping for a house but wanted to buy it his way- 50% off. Probably so he could make a little upside cash also just like all the speculators he writes about. I didn't get the feeling he really cared about the state of the economy as much as he was concerned about what was in it for him- sad little man.

The moral of the story? Even the worst "housing crash bloggers" want to own a home.

 

 

No the title isn't a play on my name, its my current sentiment on the future of our housing market and country. I am more hopefully today than I've been in the last year that things are moving in the right direction politically and financially. The Senate has reduced the pork in the stimulus bill and has sent it back to the House for ratification. The bill should be ready for the president to sign around the 18th of February. It was supposed to be ready by the 16th.

For us in the housing industry, the best thing about the stimulus bill is the generous tax incentive for home buyers- $15,000 generous to be accurate. Any home buyer that has thought about homeownership in the last year must be getting excited about the opportunity. If they aren't, they probably would do better to keep renting. 

We've come a long way in a short time. If you remember, November 2008 was a horrible month and we all felt that the financial world was going to implode. That was just 90 days ago and now people on my team and some of my customers are starting to exhale.

Of course, we're not out of the woods yet but even with all the problems we face my money is still on the U.S.

 

 

List of lenders that have imploded since 2007. Thank you Lender Implode Meter!

326. SunTrust Mortgage - FHA Wholesale
325. New South Federal Savings Bank - Wholesale
324. First Federal - Wholesale
323. 21st Mortgage - Wholesale
322. J.B. Nutter & Co. - Wholesale
321. Realty Mortgage Corp. - Wholesale
320. Homebridge Mortgage Bankers - Refinance.com
319. 1st Republic Mortgage Bankers
318. Superior Mortgage Corp - Wholesale
317. Wall Street Financial Corp - Wholesale
316. Fairfield Financial Mortgage Group
315. Chase Prime - Wholesale
314. Sunshine & Madison Mortgage Corp
313. Liberty One Lending
312. Frontier Investment Co.
311. BankUnited - Wholesale
310. Solstice Capital Group - HSBC
309. MortgageIT
308. HCL Finance Inc. - Wholesale
307. LIME Financial Svcs. - Wholesale
306. Mortgage Network Inc. - Wholesale
305. Fortes Financial - Wholesale
304. HSBC Mortgage Corp. - Wholesale
303. CBRE Realty Finance
302. Franklin Bank, SSB
301. Mortgage Lion, Inc. - Wholesale
300. HMS Capital, Inc.
299. American Sterling Bank - Wholesale
298. CTX Mortgage Co. - Retail
297. Equity One Commercial
296. Coldstream Financial Svcs.
295. Banco Popular North America - Wholesale
294. Ace Mortgage Funding, LLC
293. E-Loan
292. Gateway Bank, F.S.B. - Wholesale
291. First Call Mortgage Co.
290. Downey Savings and Loan - Wholesale
289. Prospect's Metrocities Mortgage - Wholesale
288. ComCor Mortgage - Wholesale
287. Chevy Chase Bank - Wholesale
286. Washington Mutual - Retail and Warehouse
285. Hometown Commercial Capital
284. Mid Atlantic Capital LLC
283. Kemper Mortgage, Inc.
282. Liberty Mortgage Funding Co.
281. Freddie Mac
280. Fannie Mae
279. Pacific Community Mortgage, Inc. - Gold Reverse, Inc.
278. Homecomings Financial, LLC
277. Thornburg Mortgage
276. CSB Mortgage
275. Carteret Mortgage Corporation
274. Accredited Home Lenders, Lone Star Funds - Wholesale
273. Western Residential Mortgage
272. Liberty Home Lending
271. Equipoint Financial Network, Inc.
270. Ideal Mortgage Bankers, Ltd. - Wholesale
269. Silver State Bank - Wholesale
268. Irwin Union Bank & Trust Co. - Wholesale
267. SunTrust Bank Equity Wholesale
266. Wachovia Mortgage, FSB - Wholesale
265. Lehman Brothers SBF
264. IndyMac Bancorp
263. Mortgages Ltd.
262. Wilmington Finance - Wholesale
261. Accredited Home Lenders, Home Funds Direct
260. Assured Lending Corp. - Wholesale
259. Homewide Lending Corporation
258. Vanguard Mortgage & Title, Inc.
257. Chase Home Equity - Wholesale
256. Chase Subprime - Wholesale
255. Evergreen Investment & Carnation Banc
254. Casa Blanca Mortgage/Shearson - Wholesale
253. Guaranty Bank - Correspondent
252. Citi Residential Lending
251. Montgomery Mortgage Capital Company
250. E*Trade Wholesale Lending
249. Shearson Financial Network, Inc.
248. American Bank Mortgage Group - Wholesale
247. AmeriBanc Corp.
246. Washington Mutual - Wholesale
245. Century Bank, F.S.B. - Wholesale
244. Diversified Mortgage, Inc.
243. National Wholesale Funding
242. Centennial Mortgage and Funding, Inc./Award Mortgage
241. Fidelity Home Mortgage Corp.
240. LMI Funding, Inc.
239. Millennium Mortgage - Wholesale
238. Origen Financial, Inc. (Correspondent)
237. CitiMortgage - Home Equity Wholesale
236. Bear Stearns Residential Mortgage
235. East West Mortgage Co. of VA
234. New Vision Residential Lending
233. Washington Savings Bank, F.S.B. - Wholesale
232. Macquarie Mortgages USA Inc.
231. Global Mortgage, Inc.
230. Unique Mortgage Solutions (UMS, LLC)
229. First Franklin - Merrill Lynch
228. First National Mortgage Sources
227. Resource Mortgage (Wholesale)
226. KH Financial
225. Lydian Mortgage
224. OMG Wholesale Lending
223. Saxon Mortgage (Wholesale)
222. Beazer Mortgage Corp.
221. Allpointe Mortgage (Broker Program)
220. Popular Warehouse Lending
219. Allied Lending Corp. (Wholesale)
218. BF Saul Wholesale Lending
217. Community Resource Mortgage
216. Lehman/Aurora Loan Services
215. Residential Mortgage Capital
214. Maverick Residential Mortgage
213. Countrywide Financial Corp.
212. First NLC Financial Services
211. First American Bank (Wholesale)
210. Soma Financial
209. National City Corp. (Wholesale)
208. Heartland Wholesale Funding
207. Homefront Mortgage Inc.
206. PNC Bank H.E.
205. Family First Mortgage Corp.
204. First Fidelity Financial
203. BSM Financial
202. 1st Choice Mortgage
201. Wescom Credit Union
200. Coast Financial Holdings/Coast Bank
199. WaMu (Subprime)
198. First Madison Mortgage
197. Southern Star Mortgage
196. TransLand Financial
195. Secured Bankers Mortgage Company (SBMC)
194. ComUnity Lending
193. Delta Financial Corp
192. BayRock Mortgage
191. Empire Bancorp
190. Option One - H&R Block
189. Citigroup - FCS Warehouse
188. Charter One (Wholesale)
187. Wells Fargo - Home Equity
186. Paul Financial, LLC
185. Webster Bank (Wholesale)
184. Fieldstone Mortgage Company
183. Tribeca Lending Corp. (Wholesale)
182. WAMU Comm. Correspondent
181. Marlin Mortgage Company
180. Countrywide Specialty Lending
179. UBS Home Finance
178. MortgageIT-DB (Retail)
177. Edgewater Lending Group
176. ResMAE Mortgage Corp.
175. Citimortgage Correspondent (2nds)
174. AMC Lending
173. Liberty American Mortgage
172. Exchange Financial (Wholesale)
171. FirstBank Mortgage
170. Bank of America (Wholesale)
169. Diablo Funding Group Inc.
168. Honor State Bank
167. Spectrum Financial Group
166. Priority Funding Mortgage Bankers
165. BrooksAmerica Mortgage Corp.
164. Valley Vista Mortgage
163. New State Mortgage Company
162. Summit Mortgage Company
161. WMC
160. Paragon Home Lending
159. First Mariner Wholesale
158. The Lending Connection
157. Foxtons, Inc.
156. SCME Mortage Bankers
155. Aapex Mortgage (Apex Financial Group)
154. Wells Fargo (various Correspondent and Non-prime divisions)
153. Nationstar Mortgage
152. Decision One (HSBC)
151. Impac Lending Group
150. Long Beach (WaMu Warehouse/Correspondent)
149. Expanded Mortgage Credit Wholesale
148. The Mortgage Store Financial
147. C & G Financial
146. CFIC Home Mortgage
145. All Fund Mortgage
144. LownHome Financial
143. Sea Breeze Financial Services
142. Castle Point Mortgage
141. Premium Funding Corp
140. Group One Lending
139. Allstate Home Loans / Allstate Funding
138. Home Loan Specialists (HLS)
137. Transnational Finance Wholesale
136. CIT Home Lending
135. Capital Six Funding
134. Mortgage Investors Group (MIG) - Wholesale
133. Amstar Mortgage Corp
132. Quality Home Loans
131. BNC Mortgage (Lehman)
130. First National Bank of Arizona
129. Chevy Chase Bank Correspondent
128. GreenPoint Mortgage - Capital One Wholesale
127. NovaStar, Homeview Lending
126. Quick Loan Funding
125. Calusa Investments
124. Mercantile Mortgage
123. First Magnus
122. First Indiana Wholesale
121. GEM Loans / Pacific American Mortgage (PAMCO)
120. Kirkwood Financial Corporation
119. Lexington Lending
118. Express Capital Lending
117. Deutsche Bank Correspondent Lending Group (CLG)
116. MLSG
115. Trump Mortgage
114. HomeBanc Mortgage Corporation
113. Mylor Financial
112. Aegis
111. Alternative Financing Corp (AFC) Wholesale
110. Winstar Mortgage
109. American Home Mortgage / American Brokers Conduit
108. Optima Funding
107. Equity Funding Group
106. Sunset Mortgage
105. Nations Home Lending
104. Entrust Mortgage
103. Alera Financial (Wholesale)
102. Flick Mortgage/Mortgage Simple
101. Dollar Mortgage Corporation
100. Alliance Bancorp
99. Choice Capital Funding
98. Premier Mortgage Funding
97. Stone Creek Funding
96. FlexPoint Funding (Wholesale & Retail)
95. Starpointe Mortgage
94. Unlimited Loan Resources (ULR)
93. Freestand Financial
92. Steward Financial
91. Bridge Capital Corporation
90. Altivus Financial
89. ACT Mortgage
88. Alliance Mortgage Banking Corp (AMBC)
87. Concord Mortgage Wholesale
86. Heartwell Mortgage
85. Oak Street Mortgage
84. The Mortgage Warehouse
83. First Street Financial
82. Right-Away Mortgage
81. Heritage Plaza Mortgage
80. Horizon Bank Wholesale Lending Group
79. Lancaster Mortgage Bank (LMB)
78. Bryco (Wholesale)
77. No Red Tape Mortgage
76. The Lending Group (TLG)
75. Pro 30 Funding
74. NetBank Funding, Market Street Mortgage
73. Columbia Home Loans, LLC
72. Mortgage Tree Lending
71. Homeland Capital Group
70. Nation One Mortgage
69. Dana Capital Group
68. Millenium Funding Group
67. MILA
66. Home Equity of America
65. Opteum (Wholesale, Conduit)
64. Innovative Mortgage Capital
63. Home Capital, Inc.
62. Home 123 Mortgage
61. Homefield Financial
60. First Horizon Subprime, Equity Lending
59. Platinum Capital Group (Wholesale)
58. First Source Funding Group (FSFG)
57. Alterna Mortgage
56. Solutions Funding
55. People's Mortgage
54. LowerMyPayment.com
53. Zone Funding
52. First Consolidated (Subprime Wholesale)
51. EquiFirst
50. SouthStar Funding
49. Warehouse USA
48. H&R Block Mortgage
47. Madison Equity Loans
46. HSBC Mortgage Services (correspondent div.)
45. Sunset Direct Lending
44. Kellner Mortgage Investments
43. LoanCity
42. CoreStar Financial Group
41. Ameriquest, ACC Wholesale
40. Investaid Corp.
39. People's Choice Financial Corp.
38. Master Financial
37. Maribella Mortgage
36. FMF Capital LLC
35. New Century Financial Corp.
34. Wachovia Mortgage (Correspondent div.)
33. Ameritrust Mortgage Company (Subprime Wholesale)
32. Trojan Lending (Wholesale)
31. Fremont General Corporation
30. DomesticBank (Wholesale Lending Division)
29. Ivanhoe Mortgage/Central Pacific Mortgage
28. Eagle First Mortgage
27. Coastal Capital
26. Silver State Mortgage
25. ECC Capital/Encore Credit
24. Lender's Direct Capital Corporation (wholesale division)
23. Concorde Acceptance
22. DeepGreen Financial
21. American Freedom Mortgage, Inc.
20. Millenium Bankshares (Mortgage Subsidiaries)
19. Summit Mortgage
18. Mandalay Mortgage
17. Rose Mortgage
16. EquiBanc
15. FundingAmerica
14. Popular Financial Holdings
13. Clear Choice Financial/Bay Capital
12. Origen Wholesale Lending
11. SecuredFunding
10. Preferred Advantage
9. MLN
8. Sovereign Bancorp (Wholesale Ops)
7. Harbourton Mortgage Investment Corporation
6. OwnIt Mortgage
5. Sebring Capital Partners
4. Axis Mortgage & Investments
3. Meritage Mortgage
2. Acoustic Home Loans
1. Merit Financial

 

Refinancing a property can be done for many reasons: Take cash to pay bills, buy another property, lower a payment or interest rate, change a loan program from variable to fixed, etc..

 

I'm going to talk a little about the process and some of the nuances to refinancing.

Most of our discussions are applicable to residential real estate loans, and refinancing, as this is 90% of current market activity.

Ok, so what's underwriting. Underwriting is the process of looking at all of the features of a borrower's loan, and making a judgment about the loans credit worthiness.

A loan consultant will interview a borrower, collect as much information as they can up front, match the loan applicants credit picture to a lender that is most interested, then submit the packaged file to the lender's underwriting department for approval ( or conditional approval ). Conditional approval essentially means the loan is approved but some important items need to be cleared. Examples of such items would be: Judgments, pay down some debt, submit 2 months current bank statements, clarify a component of the appraisal, clear title insurance of a lien, prove income, etc..

The first step in the process is to take an application from the borrower and pull the borrowers credit report. The loan consultant will reconcile what the borrower has claimed on the loan application with the credit report, making corrections if necessary.

Mortgage credit reports are a little more advanced than regular credit reports, hence the additional cost. These credit reports not only show balances and payment history on all open accounts, they also show fraud alerts, judgments, tax liens and lots of other things. If a borrower is trying to hide something, most often the credit report or title insurance policy will uncover it.

With the refinancing credit report and income information in hand, the loan consultant will calculate how much of the borrowers gross monthly income is applied to all revolving, installment and obligatory debt. If the debt total falls into a comfortable range, usually 40% of income, the first set of tests are passed: income, credit and debt.

The loan consultant will now look at how much the client has saved in their checking, savings and retirement accounts. This is used to calculate reserves and is a component of financial strength. If a borrower gets in trouble financially, can they ride it out with these savings reserves? Not required but usually banks like to see six months of "Principle, Interest, Taxes and Insurance" reserves when making a loan.

Once the borrower qualification stage is passed, the lender will order an appraisal and title insurance policy. Often the appraisal and Title Policy is ordered immediately to avoid delays in the process. The appraisal cost can range from $300 to $600 depending on the type of property and location. The appraisal is usually paid up front and is non-refundable. A title insurance order is only paid if the transaction closes. Title insurance policies vary from state to state but often are regulated by the individual state's department of insurance.

Appraisals are important for obvious reasons. They will show the value and features of the property, and define it's marketability. Underwriters place a heavy burden on property appraisals. The appraiser assigned will review the area, construction costs, the property, the market conditions and other similar "sold" properties in detail to determine a value. Some borrowers think that if they order an appraisal from the "right" appraiser, this will cure a problem. That may be the case in 1 in 10,000 cases but more often it leads to fraud.

While the appraisal is in the works, the title insurance company sends the lender a "Title Preliminary Report" which describes the liens, easements and other obligations attached to the real estate in question. Sometimes, if a borrower owes people money or has a tax lien, these items will show on the title report. These items must be cleared or paid off before the transaction can close. The title closer can, sometimes have these items taken care of through the closing process. Occasionally these items have been reported in error. Often this happens when borrowers have a common name: John Smith for instance.

After all of the items are in, and the package is complete, the conditions met, it's time to draw ( create ) the final loan documents. The Title closer usually does this and asks the borrowers to come in and sign all the necessary papers. After the papers are signed, borrowers have three days to rescind the transaction- It's the law.

After the rescission period is over, the Title closer will ask the lender to fund the loan. The proceeds are disbursed to the borrower, all old lenders which are owed money, and the paperwork is recorded with the county recorders office.

The transaction is pretty much done. The steps to funding are detailed and usually take 30 - 45 days. We recommend paying attention to all documentation, keeping everything organized and locking your rate as soon as you can. Pay attention to this component because rate locks are a big point of contention. YOU ARE RESPONSIBLE FOR MAKING SURE TO LOCK YOUR RATE. Mortgages are financial instruments like CD's or stocks and they will, do and must fluctuate daily.

The rate today will not be the same tomorrow regardless of what anyone tells you. Rate estimates DO NOT mean a thing until they are LOCKED. That's part of the problem with rate quotes- they never hold water.

Often times borrowers will take a rate quote, delay getting paperwork in to the lender and then get angry when the rate quote does not hold. Borrowers can't play their hedge and keep the rate too.

Should I use a broker or a bank? I've worked at both and I prefer brokers. Brokers can shift your loan file to the bank with the best rates or underwriting guidelines that most suit the borrowers needs. If a bank doesn't like your file they will cause problems and changing course at that time is a huge hassle. Also, some banks have gotten so bogged down with overhead that their rates or fees are excessive. AN ETHICAL and SMART broker will do better at finding the smoothest path for your transaction.

 

A must see video produced by the Wall Street Journal. This home was an obvious case of fraud but still passed the quality control process, went all the way through funding and to the investors. The loan officer and appraiser should be thrown in jail for what they did. 

Video

Deed

Tax information

 

Residential units for income, What a great idea, I wish I would have thought of it! Most home shoppers in the market for a place to live typically seek single family residences (homes). That's ok because single family residences are a safe investment. They are easy to maintain, easier to sell than units and appreciate at a good clip. If I had a family to house and find a home for, I'd probably go to a single family residence. However..

If I was interested in long term financial security, I'd also look at units. "Units" is a term used in the mortgage and real estate business to describe anything that has more than one residence per tax parcel. The units don't have to be attached, though most are, but there has to be two or more properties on the parcel. Two units are called duplexes, three are called triplexes, four units are called four units (gotcha) sometimes they are called quads too. Properties above four units are no longer considered residential properties, they are considered commercial. Remember, up to four units is residential and five units and above are considered commercial. This point of diffrentiation is important because of financing restrictions on commercial properties above four units.

Again, I think rental units are a great starter property. Most homeowners hate the idea of collecting rents and maintaining a property, but the experience isn't all that bad if you buy the units in a nice area and SCREEN SCREEN SCREEN your tenants. The trick is in the screening. Everyone that rents from you must have a credit report run on them. You can do this by joining an apartment association and subscribing to a credit reporting agency. You can also ask the loan officer that arranged the financing on your property to run your reports as a favor. Credit reports and careful screening will eliminate many of your problems.

Purchase mortgages for RESIDENTIAL units are fairly easy to come by, I should say much more easily than commercial loans but not as easy as single family residences. The reasons are obvious, units are generally less desirable to the open market than single family residences. Don't get me wrong, the market will absorb units if they are in good shape, it's not all that hard to get rid of them. The downside is that people looking to buy these properties typically want cash flow, which isn't always available with small units. Usually, units will require a larger down payment in order to qualify or "cash flow". FHA, VA and some special financing programs will offer very low down payment options with a bit higher rate, making them easier to obtain.

Mortgage borrowers will find that they can use a portion of the future rent to qualify for the loan. Some lenders won't allow this if the property buyer hasn't had rental experience. Find another lender that will. Not all the income will be allowed to be used for qualification. Lenders will allow for 75% of the market rent to be applied for qualification purposes. The remainder of the 25% is an paper offset for expenses and vacancies, very commonsense.

If you are a single person or dink, residential units may be a great alternative to a non-income producing single family residence. With your first property, it may be wise to go units because you can treat it as an owner occupied residence to take advantage of lower down payment programs. Once the property becomes deemed as an investment, the underwriting will get stiffer.

You can have a place to live while offsetting your mortgage payments with rent.