Blowing the Lid Off the Mortgage Industry
If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
We’re back with another edition. Same t-shirt, full-color. Work with me as I learn video editing! Today’s update - Fannie, Freddie and AIG losses and a potential major shift in underwriting guidelines as the GSE’s that would make broker-ordered and in-house appraisals unacceptable as documentation for conforming loan home values.
We’re bringing back the Mortgage Market Minute. In this video I talk Case-Shiller, Countrywide eliminating option arms on the wholesale side, and Wells Fargo whacking LTV’s in California.
Bear with us as we get back up to speed and stay tuned for more video from Blown Mortgage.
Wow, what a day yesterday ended up being. The Dow had over a 600 point swing and the 10 year bond had a 20 basis point swing in one day. So what’s my take on it?
A couple of thoughts:
1. The swing is in large part a reaction to the Fed’s surprise rate cut on Tuesday. The markets went from saying, “Wow, we must be in some deep trouble if the Fed felt they couldn’t wait until next week!” to “Whew, the Fed is going to save us!” That sparked the big rally.
2. See the article from www.money.cnn.com about the risks for a recession in 2008. I think it lays out a pretty clear case that the risks for a recession are pretty large and that “things are different this time.” What’s different? The credit problems that are facing the financial markets are going to make it harder for us to spend our way out of this downturn.
As I’ve watched the markets for the last 20 years, I’ve seen many “sharp turns” in the markets. Any time I have, I’ve asked the question, “Has anything fundamental changed that would cause this change? Were there any economic reports that alter the picture substantially? In this case, I don’t see that there is. The only thing that has changed is that the Fed has “increased” their efforts to help by cutting rates, and a large portion of the market doesn’t believe that it will make enough of a difference.
So what does this all mean? I take it to be the fluctuations of a volatile market and my assessment that we’re going to see gradually deteriorating conditions and gradually lower rates (with some blips) for the the near future.
It’s the fourth inning of a nine inning ballgame, in my opinion.
I just got this e-mailed to me. I wish I could be as confident as they are. What do you think?
Also, what do you think the “incorporating critical policy assumptions” means?
| “NAHB’s housing forecast (incorporating critical policy assumptions) shows systematic improvements in home sales by the second quarter of 2008, improvement in housing starts by the third quarter, maintenance of low levels of manufactured home shipments throughout 2008, and modest declines in the real value of residential remodeling next year. In this forecast, Residential Fixed Investment continues to contract through the first half of 2008 but posts modest growth in the second half of the year.”This is an excerpt of The Seiders’ Report -December 21, 2007- which has been published at HousingEconomics.com. Please make sure you are logged-on when you access this report.Also, look in this report for the Executive-Level Forecast.Not yet a subscriber? Free samples are now available.Subscribe Now!
Sincerely, Editor HousingEconomics.com -News and Alerts |
|
Click here to unsubscribe |
1201 15th Street NW, Washington, DC 20005-2800
The total in Billions of dollars that Morgan Stanley has written down their loan portfolio already in the fourth quarter. Ouch.
Read the story here.
To put a total number to it, that’s $9,400,000,000.00. Lot’s of zeroes behind it.
Okay, Chris had his say on what he thinks for 2008, so it’s my turn. Then we’ll see what happens (No pressure, Morgan!)
Reality Land is where we need to be. The hard thing to figure out is, in the third inning of a double header, where’s the game going to end up. Before I tell you my view of where the market is heading, let me tell you a couple of things first:
1. My business is up about 32% compared to last year.
2. My phone is still ringing.
3. My biggest closing month this year will be December.
and I’ve been preaching reality land to my referral sources and customers all year, so I don’t want to hear anything about having to be a Lawrence Yun wannabe to succeed in today’s market.
Okay, here’s where I think we’re going to be in 2008:
1. One of the “BIG 2″ won’t exist at the end of the year. Whether it’s bankruptcy or more likely a “forced marriage” I don’t know, but they won’t both be around. It wouldn’t surprise me if neither one of them is around. I think Bank of America is drooling over the possibility of getting their hands on all of those Countrywide customers……
2. Interest rates will remain stable and drift lower throughout the year. I’m talking mortgage rates not what the Fed controls. I’m also talking conforming, fixed rate loans with a downpayment of at least 5% or more.
3. Home sales (both new and existing) will be down substantially, more so in the areas that saw a larger percentage of their loans as subprime, Alt A, and jumbo loans. The same for house prices. Down substantially, but more so in places that saw dramatic increases. From 2000 to 2005, my brother (in Sacramento) made more on appreciation than he did in salary. He isn’t any more.
4. Fannie Mae and Freddie Mac will own a much larger share of the market. However, because of the problems they are having, the rates won’t drop as much as the economic fundementals would allow for. Additional risk based pricing adjustments will be put in place to reflect the realities of the marketplace and those will offset some of the drop in rates.
5. There will be a number of “forced marriages” of struggling banks and mortgage companies in 2008. Those who didn’t play in the subprime world will remain healthier than those who did.
6. I’m going to disagree with Chris on the actual percentage, but I think there will be a significantly smaller number of people selling real estate, building homes, writing mortgages, appraising homes and doing title insurance in 12 months than there are now. Chris said 75% less, I’m thinking 50% is a more accurate number.
7. While I believe there will most likely always be a place for honest ethical professional mortgage brokers (like Chris and Morgan), I do believe that the job losses will be higher on that side of the “fence” than on the retail side (where I hang out). Why? Because the rules will tighten and because as the market gets more difficult 2 things will happen: 1) Customers will get more scared of working with “that mean evil mortgage broker” (sarcasm please!) and opt to work with “the bank” and 2) More lenders will see the built in customer base at a bank as a way to hang on and survive.
8. There will always be houses selling and prices will NOT fall so far that the average buyer can pay cash for them. So there will be people needing mortgages. The number of options for people with less than spectacular credit (read credit scores under 680) will be severely limited. The low downpayment loans will only go to people with very good credit (above 700), conservative debt ratios, and some actual cash in the bank left over after closing.
9. Full Doc Only - enough said?
10. The need for not just competent, but excellent mortgage professionals will remain strong and potentially grow stronger as the year progresses. People who know what’s going on, people who can help their clients and referral sources navigate their way through seismic shifts in the credit markets. People who read www.blownmortgage.com!
The long and short of it, it’s going to be challenging year. It’s going to be a year where not everyone survives in the industry, but frankly if we aren’t in a refi boom year, not everyone should survive. The industry is primed for a weeding out. It’s going to be a year where advice, counsel, and information are going to be crucial.
I’m excited about 2008. I think it’s going to be an opportunity for the top professionals to shine and an opportunity to help those who do buy and sell do so wisely in a tumultous market.
So, what do you think?
I just got this from the Wealth Management Group at my bank…..
An announcement at 9:01am eastern from the Fed that it is working in conjunction with the central banks of England, Canada, Switzerland and Europe to hold several special auctions over the next 60 days to inject liquidity into financial markets by holding auctions to that would buy a “wide variety” of short-term fixed income securities (…this is something the Fed did after 9/11 to inject liquidity into financial markets). Further, the Fed said it may make this a permanent program.As a result, the fixed income markets are responding by greatly lowering the yield differential between Treasuries and spread product (i.e - lower borrowing rates for institutions) - and - stock market futures are rocketing higher (i.e - the S&P 500 Futures going from +14 prior to the announcement to currently at +30).
What a 24 hour period…
For our clients, we would say that the Fed perhaps accelerated the implementation of a program that they had been developing for some time - given the market’s reaction to their action and statement at 2:15pm yesterday.
This action is good news to unfreeze credit markets and lower borrowing costs. This is good news for the economy and financial markets are reacting in like manner.
Expect a huge surge in stocks on the open - with Financials likely leading to the upside - despite many pessimistic individual reports from banks this morning. European markets have turned moderately higher on the news. We will then see how markets react this afternoon…
Very interesting times…but good news that this Fed - while a perplexing group - seems to be back to supporting the credit markets, and as a result, the economy.
I asked him what he thought that meant for mortgage rates and he said he thought it would improve them relative to the Treasuries…..
Well, you’ve probably heard by now that the Fed lowered rates by .25. So what does that mean? A couple of points to think about:
1. What the Fed lowers is the shortest of the short term rates and it typically helps home equity loans but doesn’t matter much to mortgage rates.
2. Why did they lower rates? Because the financial markets are hurting and they needed to at least appear to help out the economy and the markets. Just this week (and it’s only Tuesday at 5:00) we’ve seen UBS announce $10 BILLION in writedowns (losses) and Washington Mutual announced $1.4 billion in write downs, laid off 3150 people and said, (I’m paraphrasing,) “We have no clue what 2008 is going to look like.”
3. Will what the Fed did today help matters at all? I think the best way to describe it is sort of like putting a Mickey Mouse band aid on a 6 inch gash in your arm. It doesn’t hurt, but it really doesn’t do much. The business world will benefit from cheaper borrowings (since prime is dropping) but the big problem in the economy (housing) won’t really be impacted.
4. Did the market like what it got, ahh, that would be a resounding no. Sort of like a little kid crying to his Mama, the Dow dropped almost 300 points in less than 2 hours.
Have you ever tried to push a string across the table? It’s hard to get it to move unless you are pulling it, isn’t it. Well, that’s sort of what The Fed is doing. They are using the tools that they have to try to save the market, but the tools that they have aren’t what the market needs, so they aren’t able to be very effective.
If you want to read what the Fed said, copy this into a browser and check it out……
http://www.federalreserve.gov/newsevents/press/monetary/20071211a.htm
Ouch - in my previous positions as a loan officer for smaller community banks, I sold a LOT of loans to Washington Mutual (including the one on my own house!). Check out this article for details, and also check out what Housing Wire has to say about it here. Here’s my take on it:
1. Washington Mutual is making some drastic moves in a time where the market is changing dramatically. It’s a life saving effort, and it’s one that they have to do. Will it work? I don’t know. Is it enough? I doubt it, I think we’ll see more from them in the future.
2. If Washington Mutual is feeling that much pain right now, what is happening over at Countrywide right now?
3. For years, Washington Mutual was one of the major forces in the wholesale and correspondent lending fields, at least in my neck of the woods (Western Michigan). I think we should all go back and take another look at Morgan’s post “Dead Man Walking” because at shortly after the market closed today another nail got pounded in the wholesale lending industry’s coffin.
4. A friend of mine who is an appraiser told me today about new rules that Countrywide has come out with that appraisers have to follow. Let’s just that calling them “restrictive” is being nice. In a soft market, being able to meet their criteria is very close to impossible.
Hang on to your hats, it’s going to be a wild ride!
I get paid to assist people with their mortgage. Let’s get that out of the way at the beginning. Without splitting hairs, I have to sell people on why they should work with me as opposed to someone else. But what is truly strange in this market is that I also have to sell people on why they should refinance NOW. The reason is because more and more I hear my potential clients saying that they are going to “hold-off for now” because “rates are going to go down even lower.”
My job would be so much easier if I had the crystal balls that these people have stuffed away in their basements. Oftentimes I will ask them if they know how many children that I will have or if I can expect a full-head of hair at 60. It would be much easier for these people to answer my questions instead of looking at the birthrates or genealogies of my family. Heck, let’s just throw the question out to the random guy Jim from Gardena, CA who told me this morning that, “Bush will lower the rates because he is already in a mess in
Iraq.” Zoiks!!! Remind me not to invite him to the Christmas party or let him baby-sit my nephew!
Maybe we should look at the history of Conventional 30-year rates instead of speculating on them like horses at the Del Mar Racetrack? The only guy I knew who bet on horses for a living actually lived in his van (and still does not surprisingly). Did you know that since 1971, in only 3 calendar years did 30-year Fixed Conventional loans average below 6%? To make that point even clearer: out of 432 potential months, only 28(!) of those months averaged a below 6% Monthly 30-year Fixed Average. Right now you can get close to a 5.5% 30-year Fixed Conventional Loan (obviously cash-out and LTV can adjust this). What rates are people waiting for?
In addition to the rates being at historical lows, home values are plummeting as discussed in detail on these very same pages. So, let me get this straight: sit tight, wait for your neighbor’s house to foreclose and kill your home’s value, and then hope that rates go down another .5%. How does that make sense? What if rates do go down another .5%? On a $300,000 loan that saves you exactly $93 a month, or about $1,200 a year. No small amount mind you, that is a substantial sum. But guess what? The odds of those rates returning are about as good as the odds at your local casino. Actually, we’d all probably do pretty well at the casino with our knowledgeable soothsayer Jim from
Gardena.
Graeme isn’t really an angry guy. Occasionally he uses sarcasm to get his point across, but overall he is as happy-go-lucky as they come. Graeme can be reached at gbrown@brownrammortgage.com or www.brownrammortgage.com
|
Morgan Brown writes Blown Mortgage tracking the latest news on the mortgage mess. The goal - to keep you informed so you don't get a blown mortgage. Friend Me:          |
