Archive for September, 2007

MAX FEES - This One’s for You

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It’s been a while since I’ve had a “Why I hate my industry” but here’s one that may become my #1, all-time “WIHMI” king. Let me recount the story for you all.

Recently, driving home from work on the 5 freeway in South Orange County I was passed by a large blue pick up truck, with big wheels, a lift kit, custom exhaust, etc., and as they blazed by me I noticed their personalized California license plate: “MAX FEES”. Seeing as one of the favorite refrains of “top producing” loan officers echoing around the bars of Orange County over the last few years has been the term “MAX FEES”; I’m going to guess that this person is in the mortgage industry. Even if they are not they are an embarrassment to any industry. To flaunt arrogance (or is it stupidity) with a personalized license plate that champions taking advantage of people borders on the absurd.

But, I’m going to bet that this person is in the industry; and if they are, they are a terrible human being. They have reached a level of depravity that is nearly unthinkable. To the owner of that truck - are you proud of the fact that you rip people off for a living? Are you so proud of your ability to lie and to pressure a family in to signing for a toxic loan while wiping out their home equity that you go and order a CUSTOM LICENSE PLATE COMMEMORATING YOUR ACHIEVEMENT? I mean, seriously - what is wrong upstairs? What made you think that getting a license plate that says MAX FEES on it was a good idea?

It’s not a mark of pride - it’s a mark of shame. It’s a scarlet letter - that license plate is the physical manifestation of the wrong that has been perpetrated on the American public by people in the mortgage industry. It is the definition of all that I hate in the mortgage industry. Whoever is driving around with that license plate, MAX FEES, can’t call themselves a professional; unless they consider themselves a professional rip-off artist. What a joke.

Seeing that car on the freeway made me furious that there is someone in the mortgage industry that can so brazenly show-off their thievery; it made me sick to my stomach.

If there is one reason why I started Blown Mortgage it is to diffuse the power of those who choose to use their position for harm instead of for benefit. MAX FEES if you are still working in the mortgage industry your time is coming; if you’re not good riddance - I hope karma kicks your ass.

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New Mortgage Terms Glossary Now Available

A project that I’ve meaning to get to for a long time now is finally live on the site. I’ve created a Mortgage Terms Glossary of some of the more common terms used in home lending and mortgage. I’ll continue to grow the list as I revisit the project. You can get to the mortgage term glossary by clicking on glossary in the header navigation.

I hope that prospective and current home owners and mortgage holders find this a valuable resource to understand the world of home lending.

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A Bail Out is Still a Bail Out by Any Other Name

Here is this week’s email to our list subscribers sent out yesterday; if you’d like to receive additional Blown Mortgage commentary sign up for our email list here. Please note that if you get our posts via email you are not necessarily signed up for our email list (two different things - technology is not always user-friendly).

Less than a month ago George W. Bush, outlining his position against a government-sponsored bail out of the housing and mortgage markets, proclaimed “It’s not the government’s job to bail out speculators or those who made the decision to buy a home they knew they could never afford.” It was a strong stance that earned plaudits from those who chose not to gamble in the housing market, and economists who were concerned that government intervention would only prolong the well-detailed over-valuation of American real estate. But was it a ruse? It appears so. For a bail out by any other name is surely still a bail out. And what we have seen over the last 3 weeks since Mr. Bush’s aphorism against the greed and irresponsibility that fueled this speculative bubble can only be surmised as a bail out indeed.

There has been little fanfare, and zero talk of a “comprehensive package” which is often the hallmark of a government-scripted rescue; but Congress cannot be accused of being insouciant when it comes to housing, there in bits and pieces can a bail out scheme be seen forming, as clearly as a figure in an artfully-crafted mosaic.

A quick scan of the items that have arisen since Mr. Bush’s proclamation shows this unheralded patchwork assistance program being swiftly and quietly ushered in to law.

The launch of FHASecure - a program of seemingly little consequence that, even by the government’s estimates, may only help a quarter-million of those 14 some-odd million home owners who hold subprime adjustable rate mortgages. FHASecure allows homeowners who have missed a mortgage payment (or many, many more) to refinance their home in to an FHA-insured home loan at a low, fixed rate with no teaser rates or complicated amortization and rate change features.

While 250,000 may benefit from this program, it is hamstrung by the fact that the largest contingent of homeowners staring down the barrel of foreclosure live in states, such as California, Nevada and Florida, where FHA loan limits (which are currently 80% of conforming loan limits - the maximum amount being $362,760) are unable to help a large percentage of those at risk. With FHASecure in place the government has drastically loosened traditional FHA underwriting guidelines (guidelines which dodged the euphoric distortion of the last half-decade) for people who made poor financing decisions in recent years.

The increase of federal loan limits. FHASecure is limited because loan sizes in high foreclosure states are many times the current allowable maximum loan size for FHA-insured loans. Further, loans that can be bought by Fannie Mae and Freddie Mac (the government sponsored entities, GSEs) are also capped at $417,000 (for most states). In a move that is clearly designed to help improve the effectiveness and reach of FHASecure (and yet to be announced related programs) politicians at every level are calling for loan limit increases. No less than the “Terminator” himself sent letter to Congressional leaders articulating his views on the “irrelevance” of government loan limits to the California housing.

The Govenator is not the only one pushing; Senator Schumer is not only pushing to allow Fannie and Freddie to buy more mortgages, but to also increase their loan limit caps (and FHA as well). His legislation hit the floor a scant 11 days after President Bush’s missive.

The forgiveness of debt relief incurred in short sale home transactions. Currently, homeowners who sell their homes at a loss that cannot be covered by cash out of their assets is covered by the lender in the process of a short sale. This debt forgiveness is no favor from the lender however; as homeowners receive a 1099 reporting the forgiven amount lost in the short sale to report as income on their year-end taxes. Talk about a double-whammy; not only do homeowners lose their house (if it was ever theirs to begin with via 100% interest only financing) but also are rewarded for trying to extract themselves from potential foreclosure with a nice, healthy hit to their yearly income. This may be about to change as the House Ways and Means Committee just passed H.R. 3648 Mortgage Forgiveness Debt Relief Act of 2007 - unanimously. This act keeps the debt forgiven for mortgage-related losses from appearing as income at tax time. A welcome development for those people currently decorating their front yard with ‘For Sale’ signs in a desperate attempt to extricate themselves from a less-than-desirable situation.

More on the way. We have legislation in the works to allow bankruptcy courts to rework mortgage debt for personal bankruptcy cases, $1 billion in assistance pledged by presidential-hopeful Hillary Clinton, dollars allocated for debt and financing counseling, and many more polemical and effervescent ideas - some will surely stick and fall under the unspoken rubric of a federal bail out of home owners.

Mr. Bush, your posturing was a nice, if thinly veiled try. It seems to be a running theme of this administration to use a strong aphorism to gloss over the actual facts of the matter. Your strong words offered a glimmer of hope to the responsible and reasonable amongst you and your colleagues constituencies, but the actions of Congress clearly show that politicians are racing ahead to bail out homeowners.

The goal is clear: come to the aid of gamblers who left all their money on the come line and crapped out. Whether you ever utter the words bail out or not, the government is in full rescue mode; under the sleepy watch of American press and the public eye. When the new legislation is assembled piece by quiet piece, a large safety-net will have been crafted by. Crafted in total disregard of the near 70% of voters who favor no bail out, the government is piecing together another ill-begotten subsidy.

We should not be surprised though. The American government has always come to the rescue of those who fall out of the market’s favor. Farmers of cotton receive subsidies north of 80% for each bale of cotton sold; no less than the automotive, savings & loan and airline industries have been completely bailed out in the last three decades; dictators and suppressors of freedom receive billions in US government hand outs to help further American interests. If the proletarian homeowner can’t get in line for a hand out with those regulars, what good is their government to them? The US government continues to play with state-sponsored socialism in situations where it benefits them the most; and this year its all about looking good for elections. Joe America is going to be looking at the world (and ballot) through the lens of the bay-window of their McMansion ; and whomever helped keep him there the longest is going to get his vote. It’s time that we call horse a horse; the government has stepped in and the dole-line is beginning to wind down the block. Whether 70% disagree or not,the gears of this bail out are grinding quickly and roughly. A common theme in America gets a new-century refrain: those that gamble win. Why not take one more roll of the die when you’ve got the greatest enabler of all time in your back pocket - Uncle Sam?

What do you think?

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A brief history of your Blown Mortgage Scribe, Part 4

A lot of people ask me about my background and how and why I am in mortgages. Most people want to know why someone in the mortgage industry has a web site like Blown Mortgage. I guess its a little weird having a site that is primarily focused on the negative aspects of the industry in which I work. So with out further ado, for those of you that care about who is writing this blog please enjoy this autobiographical article that should shed some light on who I am and why I write Blown Mortgage.

Part 1
Part 2
Part 3

Part 4 - Today

PART 4

A Sea Change

After reaching some exceptional heights (we were named #4 in the nation Spring of 2006 in wholesale delivery for one of the largest mortgage companies in the world) we noticed a change.  It really began in the summer of 2006 and picked up speed in the fall.  Our consultants weren’t closing sales, complaints began to rise from our customers, and we experienced some of our first losing months as a company.  We had brought in some business consultants who hastily advised us to bring in management to run the ship so that we could focus on other things.  It turned out that by disconnecting we basically amputated the soul of the company from the operations.  People lost focus as to what New Day was all about.  They focused on themselves – with fewer loans closing they needed to maximize their take.  A horrible situation.

After a few months of watching this happen we decided enough was enough.  We went back to small.  We went back to basics.  We fired those that weren’t with the program; and took the responsibility back in to our own hands.  It was the best move we ever made.  Instead of being a mediocre medium-size enterprise we are now a small, sophisticated consulting group that wows customers.  I have finally reached the ideal.  We now deliver exactly what we promise.

As the industry shifted we refused to be caught up with loan buybacks and unsustainable business expenses and cut our losses quickly. And while we did experience some financial pain we are far better than the 150 companies gracing the Implode-O-Meter’s site (and countless brokers that are now doing something else).

Blown Mortgage

Blown Mortgage started after the New Century debacle.  It was started because I was tired of hearing from my employees all the stories of people being duped in to crappy mortgages.  I was tired of hearing about the bait-and-switches, the fraudulent CPA letters, the made-up W2’s, the forged rescission pages – everything.  I was tired of losing people to companies that chose lying over honest competition for a customer.  I would hear “they loved us and what we had to offer but went for a lower rate,” and knowing that the better rate was non-existent tried to determine the best way to eliminate that problem for our staff.

Blown Mortgage turned in to a way for me to highlight our skills as mortgage professionals with out being a sales platform.  Blown Mortgage took on a life of its own, and has become successful in the blogosphere partly for refreshing honest content (I think anyway) and more importantly being in the right place at the right time.  Will people care about mortgages in 4 years like they do today?  There may not be as much scrutiny or press coverage about them; but they will always be an important part of our economy and the American Dream of home ownership.  I hope that Blown Mortgage is there to continue to educate homeowners about the pitfalls of our industry; and how they can avoid getting stuck with a bad mortgage.  Of course, only time will tell.

I’ve written more about why Blown Mortgage is here in an interview I did, that you can read here for the rest of the Blown Mortgage back story.

Today

After 3 years we are in some respects back to where we started; in others we have come a very, very long way.  The mortgage industry is at a crucial stage – the uncertainty and fear in the markets is unprecedented.  The daily changes, lender failures and news make for an incredibly rocky ride.  Yet, we are extremely grateful for where we are today.  We are consultative experts who provide our clients insight and planning when dealing with their mortgages.  We are FHA approved and put people in to good loans based on sound common-sense underwriting.  We have matured as a company and as individuals.

I have learned that the ideal is there – that you can deliver on exactly what you promise; as long as you have the right people operating in the right framework.  We have that now and I am proud to own a mortgage company that is different – finally.  As the road gets tough we are confident that the money we invested in our licensing and FHA approval, along with our ability to truly deliver exceptional service will in turn serve us well.

Thank you for reading my story and for reading Blown Mortgage.  It truly is an honor to me.

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Jim Cramer “Don’t You Dare Buy Now … You’ll Lose Money”

Cramer defends himself against a demand of a New Jersey based Realtor group to retract his Today Show comments about not buying homes right now. His gift of aphorism is brilliant for our day and age of 2-second sound bites. Of course a New Jersey Realtor group had to complain that Mr. Cramer was inaccurate because “It is a buyer’s market” - which just makes me laugh.

Someone at these Realtor associations should put up a sign to stop and think before sending anything to the press; they just look really, really ridiculous.

Most of the Realtors I have met personally are smart, savvy, experienced, friendly, funny, dynamic and fun to be around. It is amazing that quality people allow themselves to be led by a bunch of monkeys.

Enjoy the video:

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Countrywide Wholesale to Eliminate all Subprime ARM Products Tomorrow

According to our account resources, Countrywide Home Loans will eliminate all subprime ARM loan products tomorrow for their wholesale partners; leaving only the 15, 20 and 30-year fixed mortgage products available for brokers. This follows on the heals of Angelo Mozilo’s statement that Countrywide is “out of subprime” and marks a massive 180 from an industry built on short-term adjustable rate mortgages for people with less-than-perfect credit histories.

This change eliminates the remaining ARM products such as the 5-year, 7-year and 10-year fixed ARMs that were available after the company moved (along with the rest of the industry) a couple of months ago to eliminate the short-term 2-year and 3-year ARMs that made up the majority of loans written in the subprime market for 2005 & 2006.

This change affects the wholesale channel on the subprime side only - no word if it affects the Full Spectrum retail arm of Countrywide. It’s just another sign of the ongoing atrophy of the wholesale origination market and a clear symptom of capital markets investors fear of short-term subprime mortgages.

This is just a wild guess - but those 30-year rates are going to suck, big time.

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Patrick of Patrick.net Interview on the Housing Crisis

In this edition of the Blownmortgage.com interview series we speak with Patrick, the founder of Patrick.net. Patrick.net is one of the original housing web sites that decided to stop listening to the spin-doctors in the NAR and started looking for truth in the over-valued housing market of San Francisco. The site took off and now receives thousands of visits a day by people looking for news on the housing and mortgage market outside of the mainstream media.

In this interview we discuss the humble beginnings of Patrick.net as well as where housing prices are going, why you can’t trust the NAR, and what impact fraud will have when combined with the upcoming wave of ARM resets. We also talk about Patrick’s unique real estate dating service - a novel approach to the idea of finding a home. A fascinating interview with one of the pioneers of tracking the housing bubble.

Music licensed under the Creative Commons license, The Streets of Miami performed by Dokapi.

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This Just In: subprime defaults worsening, sky still blue

Well hold the presses!  Wouldn’t you know - subprime defaults continue to increase!  Somebody, tell your friends - the terribly underwritten subprime loans brought to the market courtesy of New Century, Fremont, and the rest of the imploded subprime cartel continue to sour by the day.  Bloomberg reports:

Late payments and defaults among subprime mortgages packaged into bonds rose last month, according to data for loans underlying benchmark ABX derivative indexes.

After August payments, 19.1 percent of loan balances in 20 deals from the second half of 2005 were at least 60 days late, in foreclosure, subject to borrower bankruptcy or backed by seized property, up from 17.5 percent a month earlier, according to a report yesterday from Wachovia Corp.

Prepayment speeds for the loans slowed, suggesting it’s more difficult for borrowers to sell their homes or refinance, according to another report by New York-based analysts at UBS AG. Record levels of delinquencies and defaults on subprime mortgages are worsening as home prices decline and interest rates on loans adjust higher for the first time. As lenders tighten standards, borrowers are finding it harder to refinance into new mortgages with lower payments.

The “reports showed the first inkling of the impact of shutdown of subprime market,” the UBS analysts led by Thomas Zimmerman wrote late yesterday. “In our opinion, the full impact is yet to come.”

Thank you Mr. Zimmerman for the aphorism that should be echoing around our country “…the full impact is yet to come.”  For every talking head that calls bottom please, someone please, send them to Mr. Zimmerman or any one of the sane people who have the ability to analyze data and make rational assumptions based on fact.  Sorry for the exasperation, but if you had to spend your day listening to people make up stories about why we’re at the bottom of the market with out anything but opinion to back up their fallacies you’d be exasperated too.

When do you think we’ll see bottom?

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Countrywide Lays Off at Full Spectrum Group

According to now-former employees, Countrywide went through another round of layoffs at the (soon to be former?) Full Spectrum Group this morning which is the big subprime retail arm of the mortgage giant. It affected employees hired within the last 3 months and didn’t have tenure in the group. This affected several of the Southern California Full Spectrum branches although the numbers of people let go are currently unknown.

If you have any information on the size of the layoff please let me know. This seems to be right in line with the Countrywide layoff plan, and Mozilo’s comments that Countrywide “is out of subprime.” If they’re out of subprime and they have both subprime and a prime retail origination divisions, some one has to go.

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Update: I changed it from Specialty Lending Group to Full Spectrum, SLG is the wholesale side, Full Spectrum is the retail side for Countrywide Subprime.

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Fremont General May Lose $80 million of “Life Line” Funding

Fremont General, who pulled the plug on their subprime mortgage unit back in March under scrutiny from the FDIC, said today that a deal worth $80 million in cash to the beleaguered S&L is off as their billionaire investor has backed out. Neither party specified the reasoning behind the last-minute cancellation of the deal; but the company is working on securing financing from other sources.

From Yahoo! Business News:

Shares of Fremont fell as much as 23.6 percent.

The group led by billionaire investor and former thrift executive Gerald J. Ford had agreed to buy preferred stock and warrants in Fremont, for an initial 16 percent stake.

Fremont, though, said that “in light of certain developments pertaining to the company” and its Fremont Investment & Loan unit, the Ford group was not prepared to invest. The company did not identify the developments.

Santa Monica, California-based Fremont said “it does not necessarily agree” with Ford’s position, but is in talks concerning a revised $80 million investment. It said there is no assurance an agreement will be reached.

I’m going to have to agree with Ford on this one.  The company is still under regulatory scrutiny, exiting the business of subprime lending does not exonerate them of findings from past business activities.  Further, the uncertainty surrounding the banking and credit industries makes a failing bank less attractive.  We’ve seen numerous deals reworked in light of the mortgage backed securities market capitulation.

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