What this week’s news means to you as a mortgage holder

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I’ve been asked by many people that I know over the last day or two “What does all this news mean?” In my previous posts I’ve highlighted just some of the avalanche of news about the crumbling mortgage financing industry. There are many more stories of note that I have not mentioned, more out of sheer exhaustion than anything else: Opteum, GMAC, Silver State, American Sterling Bank, etc. are all players that are either in or are going to be the news or will slowly withdraw from mortgage lending with out a peep.

So now that it’s a Saturday morning and I can catch up here is my take on what this means for a variety of people.

If you are a homeowner with an Adjustable Rate Mortgage:

Please, go home, pull out your mortgage note and look at when your mortgage is set to adjust. There are over $1 trillion worth of mortgages set to do so this year. If you don’t have your note call the number on your mortgage statement and ask for the terms of your loan. You’ll want to know the first adjustment cap (percentage that your rate will change), what that will mean to your payment and when the subsequent adjustments take place and how much your rate can max out at for your loan (life cap). Look at that new payment very closely and see if you can afford it in your family’s budget. A quick guess says it will be unaffordable.

Second, know your credit score and your mortgage payment history. If you have bad credit or have been late on your mortgage recently you’ll want to investigate getting in to a slightly higher rate fixed loan so that you won’t be in a bind from a big adjustment to your payment. Take some small pain now to avoid being unable to make your mortgage payment. Call up someone you trust in the industry and see what the costs (short and long term) would be to do so. REMEMBER: it has to make sense to you. Don’t do it without weighing the costs and benefits of the transaction.

Third, do it soon. With all of these companies going out of business, of guidelines being tightened there are going to be fewer options for you as a consumer. This decease in competition means that you’ll have to pay a higher rate (reducing the benefit to you). Also likely, if you have poor credit, you will be locked out of the market altogether. The program that you once qualified for will not even exist any more. This is not a fear or scare tactic, its simply an extrapolation from the news that the largest players in subprime lending are cutting programs, toughening guidelines and/or closing-down/pulling-out altogether.

If you don’t you’ll end up with an ARM that is adjusting – and that is the true definition of a blown mortgage.

If you are a broker or correspondent mortgage seller:

Now is the time to do the following: 1. look at your banking relationships. Do you have any small/niche banks that you broker to? How big is your pipeline with them? Are you going to be adversely affected by one or more of them closing down or exiting a particular niche of mortgage offerings? You should definitely read any news about all of your banks you can find. Now is also the time to try to establish relationships with some of the larger banks where even with a shakeout there should be some stability. You don’t want to be in a position where you are trying to fund a percentage of your pipeline and the bank at the last minute says “sorry.” It only makes you look bad – and can make your life very difficult with unhappy customers. Don’t be blindsided by this.

2. Pull out all of your broker and/or seller agreements that you signed when you got setup with your existing investors? Remember those? The ones you signed without reading just to get some loans over to them in time to fund them for the month? Yeah, those. Pull them out – read them. Pay particular attention to the section on early payment defaults (EPD). Know what can trigger a repurchase with each bank and what can trigger a premium recapture. Understanding these agreements can allow you to be prudent in which loans you send to which investors. If you are concerned about any of the language in an agreement QC a percentage of the loans you sent to that investor to see if you can identify any potential problems that would be triggered with the enforcement of that agreement.

If you are a loan officer or similar:

Know your investor guidelines. Learn new products. Adjust your marketing to focus on higher quality loan opportunities with lower loan to value amounts and higher credit scores. Stick to full documentation loans. Learn what benefit is to new customers and how to mitigate tough situations that borrowers may find themselves in. If you can’t see benefit in a loan application, give it to a co-worker who may see a benefit to the borrower. Only by knowing products and guidelines, along with providing compassionate service coupled with expertise will you be able to navigate your customer through the current mine-field of the industry to a successful mortgage that will be the antithesis of the blown mortgage – the mortgage that we are all winners with.

To people in our industry – remember when you make a good loan you do a lot of things. Primary number one you help someone and put them in a good place for the future in managing their home. Second, you get good karma. Third, you protect yourself and business from loan repurchase, regulatory action and more. It’s the true triple win. It’s the only way to do business.