Comments on: Higher mortgage rates, part of the solution http://blownmortgage.com/2007/11/28/higher-mortgage-rates-part-of-the-solution/ #1 Free Home Loan Modification & Debt Relief Help For US Home Owners - Truths, Facts & News About the Mortgage Industry Sat, 07 Nov 2009 02:53:18 -0700 http://wordpress.org/?v=2.8.3 hourly 1 By: The Mortgage Guy http://blownmortgage.com/2007/11/28/higher-mortgage-rates-part-of-the-solution/comment-page-1/#comment-7406 The Mortgage Guy Thu, 29 Nov 2007 15:57:28 +0000 http://blownmortgage.com/2007/11/28/higher-mortgage-rates-part-of-the-solution/#comment-7406 Morgan, there is no question that hunger for yield (greed in essence) led to the purchase of bad paper. However my point is if the ratings agencies and risk departments accurately rated the paper as risky, much less bad paper would have been bought. The agencies and risk departments sugar coated these mbs. That is why they became a popular investment vehicle. I'm not a securities analyst but I could tell you that a portfolio of mortgages consisting of 100% (no collateral) financed first homes to borrowers with 580 credit scores (people with spotty repayment histories) who weren't required to prove the ability to repay the loan is a risky portfolio. It's not rocket science. It's common sense. Yet the ratings agencies stamped these securities as ok for human consumption. Had the ratings agencies and risk management departments of lenders and investment firms done their jobs properly and called these securities for what they were/are, then the securitization of risky, default prone mortgages would not have proliferated to the point of threatening the entire U.S. economy. Everyone can point their finger at the originators for being the bad guys. Not me. I can see who the real bad guys are and they are the people charged with rating the risk aspects of securities. These people were the enablers for the entire industry. Morgan, there is no question that hunger for yield (greed in essence) led to the purchase of bad paper. However my point is if the ratings agencies and risk departments accurately rated the paper as risky, much less bad paper would have been bought.

The agencies and risk departments sugar coated these mbs. That is why they became a popular investment vehicle.

I’m not a securities analyst but I could tell you that a portfolio of mortgages consisting of 100% (no collateral) financed first homes to borrowers with 580 credit scores (people with spotty repayment histories) who weren’t required to prove the ability to repay the loan is a risky portfolio.

It’s not rocket science. It’s common sense. Yet the ratings agencies stamped these securities as ok for human consumption. Had the ratings agencies and risk management departments of lenders and investment firms done their jobs properly and called these securities for what they were/are, then the securitization of risky, default prone mortgages would not have proliferated to the point of threatening the entire U.S. economy.

Everyone can point their finger at the originators for being the bad guys. Not me. I can see who the real bad guys are and they are the people charged with rating the risk aspects of securities. These people were the enablers for the entire industry.

]]> By: Morgan http://blownmortgage.com/2007/11/28/higher-mortgage-rates-part-of-the-solution/comment-page-1/#comment-7362 Morgan Thu, 29 Nov 2007 05:39:17 +0000 http://blownmortgage.com/2007/11/28/higher-mortgage-rates-part-of-the-solution/#comment-7362 The mortgage guy - I think that leaving the investor as the bag holder is a disaster and is a major reason why the secondary market and debt markets have completely dried up. The risk has been sliced and diced a million ways to keep passing the risk on (in theory) but in the end it still lands squarely in the investors lap. If the investor has all the risk but little to no chance of recouping losses (via foreclosure, higher mortgage payments, etc.) then they have little upside or reason to participate. When that happens there isn't any money available and the money that is available becomes much more expensive. But let's not exonerate the investors entirely. In the search for ever-higher yield the offered their money to riskier and riskier products, essentially creating the subprime mortgage market. As more people saw those yields they threw their money in too, driving down rates and increasing liquidity (and subsequently driving down returns for investors) to the riskiest sectors. With out the investor hunger for yield and the cash to leverage for that yield subprime mortgages never happen, NINJA loans don't happen, option arms don't get so reckless - with out the money and the competition for the return none of this problem happens. The mortgage guy – I think that leaving the investor as the bag holder is a disaster and is a major reason why the secondary market and debt markets have completely dried up. The risk has been sliced and diced a million ways to keep passing the risk on (in theory) but in the end it still lands squarely in the investors lap. If the investor has all the risk but little to no chance of recouping losses (via foreclosure, higher mortgage payments, etc.) then they have little upside or reason to participate. When that happens there isn’t any money available and the money that is available becomes much more expensive.

But let’s not exonerate the investors entirely. In the search for ever-higher yield the offered their money to riskier and riskier products, essentially creating the subprime mortgage market. As more people saw those yields they threw their money in too, driving down rates and increasing liquidity (and subsequently driving down returns for investors) to the riskiest sectors.

With out the investor hunger for yield and the cash to leverage for that yield subprime mortgages never happen, NINJA loans don’t happen, option arms don’t get so reckless – with out the money and the competition for the return none of this problem happens.

]]> By: Ann http://blownmortgage.com/2007/11/28/higher-mortgage-rates-part-of-the-solution/comment-page-1/#comment-7352 Ann Thu, 29 Nov 2007 02:50:12 +0000 http://blownmortgage.com/2007/11/28/higher-mortgage-rates-part-of-the-solution/#comment-7352 I think that rates today..if higher would only make the situation worse..the cost of housing in many areas has risen so high that even with a 20-25% drop it will still put it out of the reach of many buyers(example home in Fl that sold 6 year ago for 95K now sells for $240K. A 20% drop would not make it affordable to many FTHB when including taxes of $4,800 and insurance of $3,000). The problem is having higher standards when it comes to loans. Making sure that no matter what broker works on the loan there are across the board standards that a buyer must be able to meet in order to receive funding. Those standards can vary somewhat according to what type of loan the borrower gets, but the verification must say that at that moment of time,based on the information provided the borrower CAN and DOES qualify...including the adjustment of a rate that starts out with a lower rate and moves higher...Some may argue that is already being done..and to some extent it is...but it needs to be done in such a way that "bad" brokers cannot alter the system and if they do, there are serious consequences to pay..including mandatory jail time... Rates of course, should apply, up or down, to the level of risk involved. I think that rates today..if higher would only make the situation worse..the cost of housing in many areas has risen so high that even with a 20-25% drop it will still put it out of the reach of many buyers(example home in Fl that sold 6 year ago for 95K now sells for $240K. A 20% drop would not make it affordable to many FTHB when including taxes of $4,800 and insurance of $3,000).

The problem is having higher standards when it comes to loans. Making sure that no matter what broker works on the loan there are across the board standards that a buyer must be able to meet in order to receive funding. Those standards can vary somewhat according to what type of loan the borrower gets, but the verification must say that at that moment of time,based on the information provided the borrower CAN and DOES qualify…including the adjustment of a rate that starts out with a lower rate and moves higher…Some may argue that is already being done..and to some extent it is…but it needs to be done in such a way that “bad” brokers cannot alter the system and if they do, there are serious consequences to pay..including mandatory jail time…

Rates of course, should apply, up or down, to the level of risk involved.

]]> By: Chris http://blownmortgage.com/2007/11/28/higher-mortgage-rates-part-of-the-solution/comment-page-1/#comment-7351 Chris Thu, 29 Nov 2007 01:10:46 +0000 http://blownmortgage.com/2007/11/28/higher-mortgage-rates-part-of-the-solution/#comment-7351 Er. Of course I didn't think about how that will affect the appraisal process and how it will affect the value of neighboring homes. Then again, as an appraiser, we do tend to give less weight to a home that was sold under duress, or as a foreclosure. But, given the number of homes that are distressed (default, impending foreclosure), it is unrealistic to think that these won't be affecting the market value of homes in the vicinity. I check my address on this site (http://www.foreclosureradar.com/) and came up with 20 homes in my immediate area that are either in default or are already in the foreclosure process. 20! I don't know how accurate that is, but it is definitely scary. Now I'm just rambling... Er. Of course I didn’t think about how that will affect the appraisal process and how it will affect the value of neighboring homes. Then again, as an appraiser, we do tend to give less weight to a home that was sold under duress, or as a foreclosure.

But, given the number of homes that are distressed (default, impending foreclosure), it is unrealistic to think that these won’t be affecting the market value of homes in the vicinity. I check my address on this site (http://www.foreclosureradar.com/) and came up with 20 homes in my immediate area that are either in default or are already in the foreclosure process. 20! I don’t know how accurate that is, but it is definitely scary.

Now I’m just rambling…

]]> By: Chris http://blownmortgage.com/2007/11/28/higher-mortgage-rates-part-of-the-solution/comment-page-1/#comment-7350 Chris Thu, 29 Nov 2007 01:01:10 +0000 http://blownmortgage.com/2007/11/28/higher-mortgage-rates-part-of-the-solution/#comment-7350 You may be on to something here, but it has to be tied in to other factors as well. Rob Dawg has a point, but it will only work in areas with stable or positive appreciation (are there even any left?), or in cases where the good borrower sees an investment potential. Higher rates MAY staunch the bleeding now. Together with better, MUCH better underwriting processes (I had a long comment on that in an earlier entry that I accidentally deleted before posting), tighter controls in the appraisal review process, and IF you can somehow package these higher rates in a program attractive enough to be worth a 2nd glance to a prospective home buyer, then there might be a chance? It still doesn't do a thing about the huge increase in foreclosures and defaults now. But here's a thought: You know those stores that are closing and putting out SALE signs at 90% off? Well, maybe these lenders need to expand their foreclosure departments, start foreclosing on all the bad loans to these speculators, flippers, etc. and firesale the hell out of these homes. Attach the higher rates programs to these homes that are being sold at way under market value then you just might have prospective buyers lining up again. Maybe. Just a thought hehe. You may be on to something here, but it has to be tied in to other factors as well. Rob Dawg has a point, but it will only work in areas with stable or positive appreciation (are there even any left?), or in cases where the good borrower sees an investment potential.

Higher rates MAY staunch the bleeding now. Together with better, MUCH better underwriting processes (I had a long comment on that in an earlier entry that I accidentally deleted before posting), tighter controls in the appraisal review process, and IF you can somehow package these higher rates in a program attractive enough to be worth a 2nd glance to a prospective home buyer, then there might be a chance?

It still doesn’t do a thing about the huge increase in foreclosures and defaults now. But here’s a thought:

You know those stores that are closing and putting out SALE signs at 90% off? Well, maybe these lenders need to expand their foreclosure departments, start foreclosing on all the bad loans to these speculators, flippers, etc. and firesale the hell out of these homes. Attach the higher rates programs to these homes that are being sold at way under market value then you just might have prospective buyers lining up again. Maybe. Just a thought hehe.

]]> By: Rob Dawg http://blownmortgage.com/2007/11/28/higher-mortgage-rates-part-of-the-solution/comment-page-1/#comment-7349 Rob Dawg Thu, 29 Nov 2007 00:42:03 +0000 http://blownmortgage.com/2007/11/28/higher-mortgage-rates-part-of-the-solution/#comment-7349 Half the story. We need lower and higher rates. In other words rates that accurately reflect risk and not fee schedules. The very best potential borrowers are not borrowing because they deserve better rates and don't want to pay exorbitant fees. The risky would be borrowers are pestering the system looking for low prices that don't make sense. Everyone looses. The mortgage industry is in grave danger of getting what it asks for. Face it, the mortgage industry made mistakes and now is successfully lobbying for a mulligan. The price of insulation from current losses may well be disgorgement of future profits. Half the story. We need lower and higher rates. In other words rates that accurately reflect risk and not fee schedules. The very best potential borrowers are not borrowing because they deserve better rates and don’t want to pay exorbitant fees. The risky would be borrowers are pestering the system looking for low prices that don’t make sense. Everyone looses.

The mortgage industry is in grave danger of getting what it asks for. Face it, the mortgage industry made mistakes and now is successfully lobbying for a mulligan. The price of insulation from current losses may well be disgorgement of future profits.

]]> By: Bill Lyons http://blownmortgage.com/2007/11/28/higher-mortgage-rates-part-of-the-solution/comment-page-1/#comment-7348 Bill Lyons Wed, 28 Nov 2007 23:26:32 +0000 http://blownmortgage.com/2007/11/28/higher-mortgage-rates-part-of-the-solution/#comment-7348 I 100% agree. Greenspan has said in a recent interview that was the one thing that he could not control because of global pressures. He said long term rates needed to happen but didnt b/c of the global economy I 100% agree. Greenspan has said in a recent interview that was the one thing that he could not control because of global pressures. He said long term rates needed to happen but didnt b/c of the global economy

]]> By: The Mortgage Guy http://blownmortgage.com/2007/11/28/higher-mortgage-rates-part-of-the-solution/comment-page-1/#comment-7344 The Mortgage Guy Wed, 28 Nov 2007 20:43:02 +0000 http://blownmortgage.com/2007/11/28/higher-mortgage-rates-part-of-the-solution/#comment-7344 I disagree with the need for higher rates and that the lack of them is what caused our woes. What was needed were hawkish ratings agencies and risk management departments. It was their stamp of approval that allowed the proliferation of the risky products that plague us today. They erroneously assessed the risk aspects of these loans, giving subprime mortgage backed securities too safe a rating. This allowed for the securitization of mortgages that should have never been securitized. Or at the very least, securitized and priced properly for the risk. Securitization opened the flood gates for these subprime, problematic loans. I do agree much needs to be done about the state of securitizing mortgages. It's an issue that isn't even being talked about let alone addressed. The last thing we need is to leave the investor holding the bag. Which is what rate/payment freezes and impairing the foreclosure process essentially does. Something we are seeing and hearing a lot about today. There is no way to build confidence in these securities if you are crapping on current investors. I disagree with the need for higher rates and that the lack of them is what caused our woes. What was needed were hawkish ratings agencies and risk management departments. It was their stamp of approval that allowed the proliferation of the risky products that plague us today.

They erroneously assessed the risk aspects of these loans, giving subprime mortgage backed securities too safe a rating. This allowed for the securitization of mortgages that should have never been securitized. Or at the very least, securitized and priced properly for the risk. Securitization opened the flood gates for these subprime, problematic loans.

I do agree much needs to be done about the state of securitizing mortgages. It’s an issue that isn’t even being talked about let alone addressed. The last thing we need is to leave the investor holding the bag. Which is what rate/payment freezes and impairing the foreclosure process essentially does. Something we are seeing and hearing a lot about today. There is no way to build confidence in these securities if you are crapping on current investors.

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