Chase To Move Back Into The Jumbo Market (Tentatively)

Chase is leading the way in making a move back into the Jumbo Loan Market. They are requiring that applicants for these loans have a Chase Checking account because their research shows that mortgage holders that are checking account customers are less likely to default.

JMO:

I'm encouraged that the big banks are acknowledging that a market turnaround will require that we revitalize the jumbo loan market. It is plain to see that without jumbo financing, home prices are trying to find the conforming loan limit as their value.

Banks Get Picky About Credit Cards

This is a very interesting article. The implications of this are far reaching.

JMO:
We've created a number of conveniences with credit cards. By making credit cards harder to qualify for, and less affordable you will see more consumers returning to a cash/debit card payment method. This will do several things including changes to rental card and hotel policies and rates. It will also cause consumers to save more, live within their means and in turn spend less. Remember, if we're not spending we are not "stimulating the economy". When you acknowledge the BILLIONS if NOT TRILLIONS of dollars that are spent using credit cards you can imagine what a 10-20-30% decrease in usage will do to our economy.

Shutting Down Fannie/Freddie?

Last Week Taylor, Bean & Whitaker and Now Moody's Reports...

The two giant players in the US home loan finance market share a ‘bleak’ near-to immediate-term outlook as losses continue to mount, according to Moody’s Investors Service. Regulators may begin to wind down government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac within the next 18 months, Moody’s said Monday in a global banking analysis report. Source: National Mortgage News.

JMO:

If this is true (I will continue to research), then it signals a significant lack of confidence in the mortgage/real estate market on the part of the Gov't (current owner of Fannie/Freddie). Some of the key questions are. How will mortgages be issued/serviced/sold in the future. These are interesting times...

Report Says That Nearly Half Of Homes In The U.S. Will Have Negative Equity By 2011

Deutsche Bank believes that nearly half of all mortgages will have negative equity by 2011, meaning that they will be worth less than the amounts owed on them. This certainly coincides with the statistics presentd by JMO in our blog post on July 14th (REO's expected to increase an ADDITIONAL 150% IN 2009).

JMO:
This only addresses that nearly 50% of homes will have negative equity. It does not estimate of those properties how many will become short sales, foreclosures and deeds-in-lieu. Of additional concern is how many purchasers of homes in the last year will find themselves in this same "underwater" position. If you are intending on holding onto or acquiring property, please make sure you have a long-term (10 yrs or more) strategy in place that will allow you absorb the "paper loss" you will take.

Loan Modification Success Stories

National City:

1. Negotiated a 2nd mortgage from $148,000 to $35,000
2. Wrote off a $200,000 2nd mortgage when homeowner proved that there was -0- equity

Wachovia:
Reduced the principal balance $40,000 and lowered the interest rate by 1.5%. The homeowner is self-employed and unable to prove any income.

JMO:

We are starting to see progress with the banks in their motivation to work with homeowners on modifications and short sales. If you are trying but, not having success please contact me....robin@proequitymanagement.com

REO's expected to increase an ADDITIONAL 150% IN 2009

The Center For Responsible Lending projects 2.4 million foreclosure starts in 2009, including 1 million already completed. And real estate-owned assets are on the way up again since most of the foreclosure moratoria have been lifted. States, including Michigan, Arizona, Washington, Nevada, Oregon and New York, are seeing REO activity spike, according to RealtyTrac, which reported a total of 65,017 properties in REO for May. Full Story

JMO:

We are starting to see more REO activity in both CA and AZ. In a related article we are also hearing that companies are ramping up hiring in their loss mitigation departments and upgrading technology to better equip themselves to make bulk decisions.

Geitner Urges Banks To Improve Loan Modification Process

In this letter to key banks Treasury Secty Tim Geitner is urging key banks to increase staff, appoint liaisons, streamline the process and increase the number of loan modifications.

JMO:
It' s simple. Someone in Washington finally realized that the problem is not being solved by helping everyone EXCEPT the homeowner. Nearly a trillion dollars given to banks and insurance companies and the credit crunch is still worse than ever. Gov't acquisition of Fannie/Freddie, and too many "foreclosure moratoriums" to keep count and the housing crisis is getting worse. People who can afford to pay their mortgages are making the financial decision to "walk away" .... I heard that the that the Discovery Channel is in production on an episode call "When Good Homeowners Go Bad!".

First Homeowners Now Banks Are Walking Away

I found this article on banks walking away very compelling. Apparently, banks are giving some homeowner a "head fake" on the foreclosure process and are not actually completing the foreclosure thereby leaving the homeowner with the taxes, upkeep etc even after the homeowner has vacated the property.

JMO:
Wow! where to do I start? there are so many interested aspects to this story.

1. If the bank hasn't foreclosed, why can't the homeowner take possession of the home again?
2. Is this an opportunity for tax lien investors to go in and scoop up properties?
3. Will this motivate homeowners to destroy / gut their property prior to vacating?

I think we will need legislation that requires notification of the final disposition of foreclosure procedings. I've read hundreds of "Notice of Trustee Sales" documents and I cannot find anywhere where the homeowner is notified that the bank may elect NOT to complete the process and the homeowner could remain responsible for taxes, HOA and upkeep or that the may have the right to regain possession of the property. This is going to turn into something BIG if someone doesn't close this loophole very soon.

Barney Frank May Be On To Something!

Barney Frank is recommending that we use the dividends from the financial institutions that received TARP funds to support a "TARP For Main Street" program that would provide financial assistance with mortgage payments to those that are unemployed.

JMO:

I like that Barney Frank appears to be focused on the plight of the homeowner. I can't help but wonder how much more effective this might have been if we had allocated more of the $750 Billion towards this initiative, rather than $2 Billion?

In/Out Bankruptcy In 40 Days

In what appears to be some sort of record General Motors (GM) has emerged from Bankruptcy.


JMO:
It will be interesting to see how their new "customer-centric" approach translates to satisfied customers and increased car sales. I am cautious about their comment that they are going to be able to repay $50 Billion in just over 6 years and still remain viable. I'm sure more information will surface later.

New FICO Credit Scoring System

Three NEW FICO Credit Scores Hit the Market

The Fair Isaac Company have announced that they will be releasing three new credit scores based on their new FICO 08 model.

1. The FICO Mortgage Score
The FICO Mortgage Industry Score is designed to help mortgage lenders improve credit decisions for both current and future homeowners. Introduced by FICO and Equifax, the score delivers significantly greater assessment of mortgage repayment risk — up to 25% or more for key population segments, compared to the base BEACON score. The score aids servicers in earlier identification of borrowers at risk, mitigating the incidence and high cost of foreclosure.

2. The FICO Auto Score
FICO have also introduced another industry-specific credit score for the auto industry. According to Tom Quinn, vice-president of scoring at FICO, the new scoring model "will identify 5 to 15 percent more potential delinquencies… For the overwhelming majority of consumers, the auto industry score will be relatively close to the [generalized] FICO score," says Quinn. "There is a percentage of the population that will be different. And that’s why lenders have opted to use the other [auto industry] score."

TransUnion has already made this score available immediately to lenders, while Experian and Equifax are planning to follow suit later in the summer.

3. The FICO Bankcard Score
The third scoring model is specifically for the credit card industry, officially named the FICO Bankcard Industry Option. This does the same kind of things are the Mortgage and Auto industry versions, by taking your credit file and first scoring it by the "broad-based" risk scorecard system, and then by one of two industry-specific overlay scorecards — one for files with derogatory information on any type of account, one for files without. This overlay adjusts the credit bureau scores up or down. The resulting score is scaled to match the same "good versus bad" odds as the broad-based risk scores.

These three options are generally greeted with positive comments from consumer experts. The tweaking of the current "classic" FICO score can only help lenders make more informed decisions when underwriting loans.

JMO:

As I've mentioned in past, we were due for some sort of credit reform or change to the scoring model. By separating the credit score into 3 modules there is a way to extend credit to those that may have lost or walked away from a mortgage but remained current on all other obligations. This is actually a good plan...I will keep everyone posted.

Oh No...Not Again!

July 2, 2009

By Paul Muolo

Dan Phillips, former CEO of FirstPlus Financial, give me a call: apparently the 125% LTV market is back! And guess who's driving it? That's right: Fannie Mae and Freddie Mac. Late this past week, the Obama administration loosened eligibility standards on the Making Home Affordable program, which allows "at risk" consumers to refi into GSE-backed loans. When the program was first introduced the LTV cap was 105%. Now it's 125% - based on current appraisals. All kidding aside, I hope the program does, in fact, save some borrowers from foreclosure - especially given Friday's unemployment report, which revealed that U.S. companies shed 467,000 positions in June, driving the jobless rate to a 26-year high of 9.5%. If laid-off workers looking for full-time jobs (but working part time) are factored into the numbers, the unemployment rate is really 16.5%. Mortgage servicers can ponder what might happen to their delinquencies in the months ahead if the White House's "shovel ready" works projects don't start hiring soon. Meanwhile, financial service companies soon will begin reporting second-quarter earnings, which will give us clues (hopefully) as to whether the nation will see an economic turnaround in the second half - or whether that's just wishful thinking on the part of economists who are working under the belief that "this thing has to turn around soon." As for FirstPlus, that publicly traded firm collapsed in the late 1990s. The "private sector" high LTV loan that blossomed last decade was based on two government-backed mortgage programs: Title I and 203(k). The original idea behind the programs was to give borrowers money to fix up their homes in the hope that once the repairs/upgrades were done, the house would be worth, say, 100% of the loan amount or even better. It was a nice little grassroots idea that allowed inner city urban pioneers to buy beat up old row houses and fix them. The problem with the program: investors began to use it. And once the private sector got involved, well, you can read a book or two about it. Question: Which investment banking firm (among others) was backing FirstPlus? Answer: Bear Stearns, which is now the property of JPMorgan Chase...

JMO:

With 125% loan to values coming back (they were big in the mid/late 1990's), we are, once again, banking on unrealistic appreciation in the real estate market. The reason the original "125" market fell apart is because homes weren't appreciating and lenders were stuck with loans that exceeded the value of the property (sound familiar?!). If properties don't appreciate by a sufficient amount (plus commissions and closing costs) homeowners will never be able to sell, unless they can negotiate a short-sale, otherwise, just like they did in the 1990's they will just walk away from the property...wait! isn't that what they're doing right now? Big Question: 125% of what? current loan amount, current fair market value???. Another thing to keep in mind....current tax code only permits you to write off mortgage interest on balances up to the value of the property so a portion of the interest paid on these 125 loans will not be tax deductible.

Blame Game Is Not Proving To Be The Best Strategy

Bill Proposes to Place Moritorium on HVCC

The National Association of Home Builders and National Association of Realtors have joined the National Association of Mortgage Brokers in panning the new appraisal code implemented by Fannie Mae and Freddie Mac two months ago... The feelings are running so high that the petition circulating to end the practice has over 35,000 signatures according to HousingWire. It sounds like Congress is listening. Now The National Mortgage News reports that two Congressmen introduced a bill last week to place an 18-month moratorium on the rules.

JMO:
First the economic crisis was blamed on subprime borrowers. Then it was blamed on the credit crisis. Then it was blamed on the mortgage brokers. Then it was blamed on the appraisers. Well, borrowers with A-Paper credit are defaulting on homes at an alarming rate..strike one. Banks were given nearly a trillion dollars in TARP funds to stimulate credit, it never happened...strike two. Banks that operated as direct lenders (not mortgage brokers) have just as many bad loans on the books as anyone else...strike three. The new HVCC (Home Valuation Code Of Conduct), is proving to be cumbersome and time consuming and poorly managed and is at risk of being placed on moratorium....strike FOUR? Two simple solutions: 1. raise the FHA/Fannie/Freddie loan limit to $1 million for a period fo 24 months. 2. create a fresh start, easy to understand, credit scoring system. As consumers we should be able to design our score to an EXACT number based on our behavior. These two fixes can be implemented almost immediately, and will stimulate both purchase and refinance business. More to follow on that subject later....

American Are Saving More...

The Savings Rate...

Personal income was up more than expected in May. The 1.4% rate of growth was more than four times the expected rate of increase. Personal spending also increased by 0.3% and that is good news because additional consumer spending will help the economy recover. Taking a closer look at these numbers, we see that income is rising faster than spending. Why? Personal saving as a percentage of disposable personal income was 6.9% in May, an increase from the 5.6% increase in April. The savings rate was the highest level in more than 15 years, going back to December 1993. Savings is increasing and that is good and bad news.

The bad news is that a higher savings rate will curtail spending and will delay the onset of the recovery. Most economists are expecting negative growth for the economy in the second quarter, but better than the recently revised negative growth rate of 5.5% we experienced in the first quarter. There is also a flip side of the coin. One reason the recovery is slow to happen is that banks do not want to lend to consumers who do not have a great financial record. For example, there are many who would like to purchase a home today but can't because of tighter qualification standards. More savings will mean that there will be more consumers who will qualify to borrow in the future. So what will hurt the economy in the short-run will actually be good for recovery in the long run. Therefore, go out and spend a little. But don't forget to save for the future.

JMO:

One big reason the savings rate is up is consumers cannot buy on credit as easily which gives them available funds for savings/investing. The big flaw I see in our economic system is we promote spending and buying on credit and then we penalize the consumer for it when things go wrong. If we required a certain amount of liquidity before consumers were allowed to purchase items on credit we could have the best of both worlds. i.e.would need 10% of vehicle purchase in available funds prior to auto financing (could still get 100% financing). 5% for homes. This would decrease the default rate as well as apply pressure to retailers to make the products more affordable. Honestly, does it make sense that a new Lexus Hybrid is the same price as a 3bd/3ba home in a very nice area of Phoenix, Arizona? Where are our priorities as consumers?