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NAR’s Yun Spews Same Ole Bulls***t

Published by

Morgan

at May 15, 2008 in Real Estate Musings.

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Larry Yun of the NAR spin-machine is back at it today saying that recession “isn’t in the cards - no matter how you look at it” and calling for home prices to recover across the country in the second half of this year. How this guy is a high-level economist at the leading trade organization representing homebuyers and sellers is beyond me. Good thing not too many people outside the Realtor pale take him seriously.

From the NAR’s release of Yun’s economic and housing forecast (excuse me while I puke):

“There are many reasons for people to get into the housing market today, and very few reasons not to. With the plentiful supply of homes for sale at affordable prices, interest rates approaching 40-year lows, and the strong track record of housing as a good long-term investment, conditions
are ripe for buyers,” he added. “Those are the facts, plain and simple.”

As for a recession, it’s not happening, Yun said. “A slowdown, yes, but the definition of a recession is two consecutive quarters of negative GDP growth. It’s not in the cards - no matter how you look at it.”

Larry, as for the plain-and-simple facts do you care to comment on the graph below? How does this tidal wave of resets in a negative equity environment fit in to your ‘08 recovery? How do tightened underwriting guidelines and the elimination of high-LTV purchase loans and limited documentation loan types fit in? Now everyone buying needs 10-20% (I’m generalizing here) down and fully documented income and we’re supposed to see a “swift” recovery? Come on!

Someone in Congress should haul this guy in front of a Senate committee and make him testify to this BS under oath and then jail him for perjury, seriously.

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The Story the Press Should be Telling

Published by

Morgan

at May 14, 2008 in Real Estate Musings.

Here’s a story the press should be covering more: housing affordability is rocketing back towards sustainable levels. Below is a graph from the NAR on housing affordability and you can see as the market tanks homes are becoming more affordable than they have been at any point in the last 4 years. They’re also b-lining for a return to more historically affordable levels such as during the 1990’s.

We’ve seen 7 straight months of improvement and here’s hoping for more. While it sucks as a homeowner to see your value tank hard (trust me I know) it is the only hope for the housing market recovery that everyone is trying to eyeball right now. Only affordable homes that naturally increase demand will stop the free-fall. It doesn’t take rocket science to figure this out but the sooner we can get to that affordability the level the sooner the bottom will begin to firm up.

When we talk about the market plunging here at Blown Mortgage we don’t do it to lament the end of the good times - we do it to celebrate the (hopefully) near return of sane and sustainable growth in the market based on sound economic fundamentals. The press should cover the affordability issue more closely - it’s the one thing I’m really cheering for here and is the silver lining of the carnage currently in the market.

The text in the box says:

February reading of 135.2 was above January’s 131.3. These readings indicate a family with the February median gross income of $59,967 could afford a maximum mortgage balance of $209,711 which is higher than the median house price of $193,900 for February. As this graph shows, the decline in house prices over the last 12 months has improved affordability.

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David Lereah poster boy for the housing bubble says it will get worse

Published by

Morgan

at May 7, 2008 in Real Estate Musings.

For the eternal optimists your boy David Lereah, your ace-in-the-hole, your go-to expert who predicted a “soft-landing” and wrote the book “Why the Real Estate Boom Will Not Bust” is saying that we’re in for a lot worse. So stop looking for a bottom. It must be tough when your hero, your clutch hitter finally gives up the fight. Who do you turn to? Lawrence Yun? He doesn’t have the panache, the swagger, the publishing credits!

Quick, somebody, find me someone with a pulse who thinks we’re in better shape now than we were 3, 6, 9 months ago. Please. The pumpers are defecting like crazy. David freaking Lereah is seeing the light?!?!

David Lereah for President. A man that can flip-flop this effectively deserves a sacred seat in Washington.

Pardon my rather churlish response to his whole mea culpa. I just find it rather fascinating. Any way. Dr. Housing Bubble did a great write-up on this very phenomenon. So here is a taste and be sure to check out the rest of his commentary.

“We’re not at the bottom,” he says. “[People] want it to be near the bottom, but we’re not there yet. The leading indicators are still very bad. Pending home sales are still in bad shape. Mortgage applications are low … There’s still supply out there in abundance … This thing is going to get worse before it gets better.”

That’s quite a turnabout from the view he articulated in his book, first published in 2005. There he argued that the solid economy, strong demographics (including immigration and aging boomers), and a lean supply of homes should lead prices to continue rising for years to come. “Today’s real estate market is the result of rational decision making based on supply and demand conditions,” he wrote. “With today’s economy, home owners are in no danger of experiencing a widespread fallout of home prices.”

“[I] just didn’t realize the scope, the extent, the magnitude of the loose underwriting-not looking at incomes and wages, just providing so many mortgage loans based on [expected] future price appreciation rather than the creditworthiness of the borrower,” Lereah says. “That got so out of hand, and none of us realized the magnitude of it until it was too late.”

We’re taking nominees for the new poster boy. Feel free to suggest your write-ins in the comments.

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If you bought in 2006 its 50/50 you’re underwater

Published by

Morgan

at May 7, 2008 in Real Estate Musings.

Zillow posted some interesting analysis today in which they claim that 50% of all home buyers who purchased a home in 2006 are now in a negative equity situation - underwater. That’s a mind-boggling stat don’t you think? It’s a coin flip really if you’re ahead or buried. Well probably not a coin flip as it is most likely self-selecting for the folks that stretched on financing in bubblesque territory.

To wit from Inman News on the 90% of the 2006 crop of Las Vegas home buyers who are upside down:

In the Las Vegas metro, about nine out of 10 homeowners who purchased in 2006 owe more than their home is worth.

From Zillow and their take on the housing market:

Conditions continued to worsen in Q1 as U.S. home values continued their slide down with the Zindex posting a 7.7% year-over-year decline, the sharpest decline we’ve ever seen in our data, which extends back to 1996. Not surprisingly, the market decline brought with it increasing rates of negative equity, with one out of two homeowners who purchased during the national market peak in 2006 currently “underwater” on their mortgage, or owing more on their mortgage than the home is currently worth. Even more alarming is the finding that almost 45% of homeowners who purchased last year (2007) are already underwater on their mortgages, a fact that drives home the rapidity of the market depreciation.

Here’s a great graph that represents the percentage of negative equity home owners by year purchased. 2007 was the wrong year to be buying as well.

Of course, the analysis is based on the Zestimates so you have to take it with a grain of salt; but nevertheless it does point to some interesting insight for those folks looking to time the market.

From the looks of the graph it seems clear to me that we are way to early in to this thing to be calling bottom and for pointing out bargains. Nearly a third of buyers from this year (!!) are already underwater which doesn’t inspire a ton of confidence to run out there and try to find a “bargain.” Let’s duly trot out the all real estate is local refrain to placate the glass half-fuller’s but still is it an astonishing reality to anyone else that half of all home owners are underwater who purchased in 2006/2007?

And what does that mean to those markets? How long are the folks who stretched at the top of the market who are now upside down going to stick it out? How many more foreclosures are we going to see out of that ‘vintage’ of home owners? It does not portend a speedy recovery.

As I’ve said in the past don’t worry about missing this real estate bottom. As long as you’re not dead you’ll be able to spot it and take advantage of it. If you’re shopping for a home take your time if you value your money.

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Seniors Banking on Reverse Mortgage’s Stuck Without Cash

Published by

Morgan

at May 5, 2008 in Mortgage Musings and Real Estate Musings.

Back as the credit crunch was picking up steam wholesale account reps would parade in to our offices touting the saving grace of our brokerage - reverse mortgages. As a FHA-approved lender we were eligible to write reverse mortgages for seniors who had lots of equity, little cash, and no other assets to live off of (for the most part). These wholesale reps were excited because their banks had just opened up a new wave of products called “jumbo reverse mortgages” which went far beyond the lending limits of the FHA-insured Home Equity Conversion Mortgage (HECM) for high-value areas such as California.

The siren call was the same - these loans were expensive and property-owners strapped for cash had little opportunity to extract equity in any other way. The jumbo reverse mortgages were the best solution and represented a hefty payday in times that were clearly becoming more lean and more mean as the credit crunch got into high gear. Jumbo reverse mortgages allowed homeowners who lived in expensive homes to tap large amounts of equity to support their retirement by either pulling out a lump sum of cash, taking a monthly stipend or opening up a line of credit. Without a monthly payment these loans are attractive to retirees looking for additional income.

Jumbo Reverse Mortgages Disappear Rather Quietly

But as the credit crunch has accelerated and the market for residential loan products dried up reverse mortgages became less attractive to investors. With property values declining and inflation increasing the risk profile of a “jumbo” reverse mortgage became too severe for banks. Specialists in reverse mortgages such as Financial Freedom quietly pulled the plug on their jumbo reverse mortgages back in March to little fanfare at the time. More recently Bank of America, UBS and Credit Suisse did the same.

The elimination of these products makes complete sense from a lender’s perspective. With housing prices dropping like a rock in water in the most highly-priced areas (such as California) the jumbo reverse mortgage were no longer a good bet. Lenders were more likely to end up with an undervalued asset at the maturation of the loan.

Unfortunately it has crippled retirees who were banking on home equity to make it through retirement.

Seniors banking on their house find themselves stuck

Seniors in California and other high-value areas who held on to their home as their primary retirement vehicle have been completely upended by the declining housing market, tightening underwriting guidelines and the elimination of jumbo reverse mortgage products. Many who were banking on their home and a reverse mortgage loan have found their borrowing capacity with the reverse mortgage to has been filleted - and those looking for the biggest loans are staring at the prospect of a very small reverse mortgage with very little cash as a result.

To add insult to injury retired seniors have seen traditional financing options dry up as loan availability to retired persons has reverted to fully-documented income loans which with large property and loan amounts in California are unrealistic, nay unattainable, financing options. Further, in this market they may be unable to sell their home for anywhere near the value it held just a few short months ago completely eliminating all access to equity in their home.

Seniors are Victims Here?

It’s hard to say that seniors who put all of their eggs in one basket are the victims in this case. Just as one who owns all their stock in one company - these seniors either bet wrong or didn’t pay attention to the fact that they weren’t diversified. It does pain me though to see seniors who are house poor not able to convert asset they are sitting on in to capital in any way, shape or form.

An instructive lesson?

The inability of seniors to obtain these jumbo reverse mortgages does go to show that equity in your home is not anything you really ever own. It is simply a measure of the current market and nothing more. Products are ephemeral, guidelines and value too. It will be interesting to track what happens to these seniors suddenly shut out from their retirement capital. These years suddenly don’t look so golden.

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Is Bank of America headed towards principal reductions?

Published by

Morgan

at April 30, 2008 in Economy, Mortgage Musings and Real Estate Musings.

Reader Paul (big hat tip to him) pulled a key comment out of the B of A press release issued earlier this week that addressed Bank of America’s efforts to help homeowners keep their home. The comment, burried at the bottom of the release was:

“We will continue to work with distressed borrowers to match the customer’s repayment ability with the appropriate loss mitigation option, including loan modifications, forbearances, repayment plans, lower rates and principal reductions,” McGee said. “

Paul thought it was absurd that no one pressed McGee on the last point which was “principal reductions.” This, he argued correctly, is a massive change in policy for the industry, as banks have been fighting tooth and nail to make sure that court-ordered principal reductions (cram downs) aren’t enforced from the bench.
The Implications of a BofA-led Principal Reduction Effort Would be Staggering

If Bank of America is truly making principal reductions a part of it’s “home-saving” playbook it would have incredibly wide-spread implications across not only the banking industry but the housing market and general economy.

As Paul mentioned, the press didn’t have a chance to grill him on this point and I agree with him that McGee needs to be held accountable for what he said and to outline in greater detail just what role these principal reductions are playing (or will play) in BofA’s loan modification process.

Bank of America, if they are making principal reductions even a trivial part of their options in keeping homeowners put they will set a precedent which will inexorably alter the housing market. Think of the ramifications of this action.

First of all, Bank of America’s adoption of this policy would make it essentially an industry-accepted practice overnight. Lenders of all types would gladly follow their lead in an effort to keep their REO rolls from growing exponentially. Why wouldn’t a lender take a $25,000 principal reduction if it keeps the mortgage current than risk the pain and headache of foreclosing for a property that might only sell for 50% of the current note?

The Ultimate Moral Hazard

Homeowners who are struggling with their payments due to myriad reasons (from fraudulently overstating their income to a resetting option-arm to death of the primary wage earner) will see principal reductions to keep them in their home. The homeowner next door in a comparable home will not see that relief as long as they continue to make their payments on time.

Homeowners are rewarded for feigning problems with their mortgage payments to get the reduction. It’s a less-painful version of mailing in your keys. Go down 60-days on your mortgage and get a nice chunk of your loan balance forgiven.

A Good Homeowner Gamble?

The argument that the mere idea of a damaged credit score is enough to keep full-balance folks paying right along while their neighbors get gifted $50k loses credibility in the current environment. If I’m a homeowner (which I am) and I’m current on my mortgage (yes, again) and I’m seeing all of the bail out plans and changes being made and I see Bank of America add principal reductions to their loan modification tool kit for delinquent borrowers I might start to think that there is going to be some government intervention on future credit as a result of this mess too.

Think about it - with all of the changes to save homeowners who are losing their homes and going down late on their mortgages the government will surely want to address future credit opportunities for those bailed-out. They may even be thinking of a way to help folks who suffered a foreclosure or late payments by a “resetting ARM” be distinguished in credit scoring from those who faced bankruptcy or late payments on consumer debt.

If I’m a homeowner who is seeing principal reduction around them I might trade $50,000 in debt forgiveness for a couple of years of higher interest-rate costs. Heck a back-of-the-envelope calculation might show that it’s worth it even without changes to current credit scoring methods and the laws governing same.

Is Once Enough?

Do you only get one shot at the reduction? Blown Mortgage regular Ann had this to say about the principal reduction path:

The question I have is what types of loans are going to be modified? Teaser ARMS? MTA’s? Also how do you modify? Based on True income when it was a liar loan? Principal Reductions in a declining market..does that mean that a year from now when the price goes down another 10% are those borrowers going to expect more? What about the average Joe next door, who isn’t a “troubled” borrower and now has a principal balance of $300K..while his neighbor had 50K forgiven and now has principal balance of $250K?

Seems to me there is no end in sight…

And that’s another major challenge. What happens to the neighbor who takes the write-down now, and then sees his neighbor take a write-down in six-months that is double the amount forgiven to him? Does that neighbor sue Bank of America for an additional reduction?

Where do Second Mortgages Fit In?

The questions keep going. What about second mortgages? Where do those fit in? Does Bank of America forgive debt on the second first or keep the higher-rate (mostly unsecured) second debt and reduce the principal on the first? How does that get figured out.

What did McGee Mean?

In the end Paul is right - what is Bank of America really considering with these loan modifications and principal reductions as they mentioned in their sweeping press release about homeownership. Did they “misspeak”? Were they only pointing to the options available in the entire universe of home-saving? It’s a question that needs to be drilled down on and Bank of America needs to be held accountable to what they said for the sake of all participants in this market.

What do you think?

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The lights are on but nobody’s home…

Published by

Morgan

at April 28, 2008 in Real Estate Musings.

New figures out today show that home vacancies are at an all time of 18.6 million. Market Watch has the details:

Putting further downward pressure on home prices, the number of vacant homes in the United States increased by 1 million over the past year to a record 18.6 million, according to government data released Monday.

The vacancy rate for homes usually occupied by the owners rose to a record 2.3 million homes from 2.2 million in the fourth quarter and about 1 million more than was typical before the housing bubble burst.

Analysts say the housing market won’t recover until the glut of vacant homes on the market can be worked down.

With underwriting guidelines continuing to tighten, unemployment up over 5% and housing prices tanking - this excess inventory only points to one direction for housing prices - and it ain’t up.

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Turn back the clock: the BS from 2004-05

Published by

Morgan

at April 25, 2008 in Economy, Random Thoughts and Real Estate Musings.

A Blown Mortgage reader sent me a copy of a report published in 2004-2005 titled America’s Home Forecast: The Next Decade for Housing and Mortgage Finance (pdf) that portends the continued growth of the US housing market between 2004-2013 at an annualized rate of 5-6% depending on supply/demand issues. This report is a great read to remind us of all the BS that got thrown our way as we approached the crest of the bubble.

We should have known better when we take a closer look at the authors of the report:

Published by the Homeownership Alliance

Written By:
David Berson - Chief Economist, Fannie Mae
David Lereah - Chief Economist, National Association of Realtors®
Paul Merski - Chief Economist, Independent Community Bankers of America
Frank Nothaft - Chief Economist, Freddie Mac
David Seiders - Chief Economist, National Association of Home Builders

See any pumpers on that list?

Out of the 64-pages of bubblicious BS this below is my favorite segment:

No sign of a national home price bubble
There has not been a single year over the past half century in which the national average home value has declined in the U.S. (see Figure 18). This is a period that has included periods of both severe recession and high mortgage rates, or both (as occurred during 1981-1982 when the unemployment rate exceeded 10 percent and mortgage rates reached 18 percent). In fact, the last sustained drop in national average home values occurred during the Great Depression, when the unemployment rate hit 25 percent. With the national unemployment rate below 6 percent, mortgage rates low and economic growth improving, the likelihood of a decline in home prices at the national level is quite remote.

Figure 18
U.S. Home Prices Have Grown Every Year Since 1950
Annual Growth in Nominal Home Values

What do you think - how did we think that the roller-coaster would keep going up?

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Zillow Mortgage Launches - How do you rate?

Published by

Morgan

at April 2, 2008 in Marketing, Mortgage Musings, Mortgage News/Insight and Real Estate Musings.

Zillow launched its mortgage product tonight and from my review of the platform seem to have taken a major step in the right direction when it comes to leveraging the internet to provide consumers with quality mortgage options without the treachery that is online lead generation. I had a sneak peak at the platform and I’m duly impressed at the way Zillow has put consumers in control of the transaction right from the start.

You’ll see the new Mortgage Marketplace as a new tab in Zillow’s home page navigation and there are two paths once you get to the marketplace, either as a lender or as a borrower. If you remember about a month ago Zillow started taking lender applications to prime the system to be ready for this day. I made a big deal out of the vetting that went in to the application process and I’ll go in to detail now about why that was such a big deal. The lender side isn’t that sexy, so let’s talk about what the Zillow Mortgage Marketplace means for the consumer.

Accurate information without the hounding

The paradigm-shifting change at Zillow is the separation of the consumer’s contact information from the loan information. This gives the consumer total anonymity when soliciting mortgage quotes which is something that must sound like music to consumers’ ears. With this one move Zillow has eliminated a MAJOR pain point for borrowers shopping online for a mortgage.

The number one complaint we received from internet-based leads was that they had been hounded to death on the phone for business. I knew of a lady who lost her job because her office line rang incessantly after she filled out a lead on lowermybills.com. People turn off their phones, unplug their home phones and generally do whatever they can to avoid be hounded to death once their information gets out on the internet.

Zillow allows them to 100% control the interaction by getting custom mortgage quotes by providing their scenario in a standard pre-qual format (their interface is pretty similar to a typical online prequalification form you’d see elsewhere - Zillowfied of course) minus their personal information. Zillow has made it a bit more user-friendly by helping people estimate their credit scores through a series of questions and have also made the mortgage product choices easier by eliminating some of the more exotic programs from the quote options.

Once a consumer submits this anonymous quote lenders in the system can “bid” on the quote. They can quote rates, fees and terms that are submitted with a brief introductory paragraph from them as well as their picture and a link to their profile page. The principal and interest payments are automatically calculated by Zillow based on the loan program, term and fees and the taxes and insurance are estimated based on property records (Zestimate?) so that there can’t be any manipulation of those numbers.

Consumers are presented these quotes as they arrive and when they find one they like they can choose to contact the lender directly and share any additional information they choose to at that next step. They are never bothered by unsolicited phone calls or emails.

The Originator Rating

In addition to the quotes that they receive that come packaged with an intro paragraph, easy-to-understand terms and pre-calculated payments the originators submitting the quote carry ratings with them of 0 to 5. These ratings are calculated based on consumer feedback after dealing with the originator. The ratings have nothing to do with fees or loan terms and everything to do with the process of working with that lender. So if there were changes in the loan, or things seemed shady or uncertain consumers can rate that originator poorly, and vice-versa.

Loan originators who feel wrongly scored can rebut the poor score and all of it is kept with their profile to provide consumers the clear picture of who they are dealing with. They can now determine whether they want to work with the person with the lowest rates and fees and a low rating, or pick someone with a higher rating that has higher fees.

I think this is a great step towards providing transparency for consumers and an easy-to-understand scoring system that allows them to make choices in a difficult decision-making environment. Of course, Zillow will have to police the marketplace and eliminate offenders on both sides of the wall, ensuring that slanderous consumers don’t blackball innocent lenders and vice-versa; but the step is a positive one and one that should help consumers in their quest for an honest, straight-forward (non-blown) mortgage.

Originators get transparency too

In addition to the consumer getting multiple, anonymous offers the originators who are submitting the offer can see all of the other offers that the consumer has received and who has submitted those offers. This is a great tool for originators to use as market intelligence - they now know who and what they are selling against. They can talk intelligently about the universe of offers that the consumer has without having to sell without any information about what or who they are competing with. I think this will be a big help in letting originators determine what customers they quote, how they quote and their overall strategy towards leveraging this platform.

The Code of Conduct

In addition to the upfront vetting that Zillow performs on originator-applicants Zillow has rolled out a Mortgage Marketplace “Code of Conduct” for all parties involved. The code calls on consumers to be law-abiding, honest in their disclosure of income, credit and other material qualification criteria, and fair and reasonable in their rating of originators. Originators are called on to be law-abiding, upfront, to stick to their original quotes as long as material facts don’t change from beginning to end, and to respect consumer’s in the marketplace regardless of what the consumer ultimately decides to do.

Zillow will of course play ombudsman in its sandbox and will bounce originators and consumers who use the marketplace in ways that Zillow deems unacceptable to a healthy environment. This is at their sole discretion.

Here are the highlights from the Zillow Code of Conduct, you can read the whole thing here:

Principles for Lenders

Stand behind your quotes
Don’t provide lowball loan quotes and teaser rates to intentionally draw in a borrower and then “readjust” your quote. We alert borrowers that the anonymous nature of Loan Quotes prevents an initial quote from being a binding Good Faith Estimate; however, we expect you to stand by your quote if the information provided by the borrower is accurate.

Disclose all terms of the deal
Be upfront and transparent with various rates and fees so that borrowers will regard you as a trusted lender. Do not hide details of the loan in fine print; our loan quote form is designed to easily identify these costs. Be ready to answer questions and walk borrowers through each step of the process. Helpful lenders will get good ratings on Zillow, leading to more business down the road.

Obey the law
Discrimination in mortgage lending is prohibited by the U.S. Department of Housing and Urban Development’s (HUD) Fair Housing Act and the Office of Fair Housing and Equal Opportunity actively enforces those provisions of the law. The Fair Housing Act makes it unlawful to engage in the following practices based on race, color, national origin, religion, sex, familial status or handicap (disability):

Refuse to make a mortgage loan

Refuse to provide information regarding loans

Impose different terms or conditions on a loan, such as different interest rates, points, or fees

Discriminate in appraising property

Refuse to purchase a loan or set different terms or conditions for purchasing a loan

No spamming
If you have made contact with a borrower and things didn’t work out, please be professional and end your contact with that person. Do not add their contact information to your promotional lists or provide their contact information to others unless you specifically ask for the borrower’s permission first.

Principles for Borrowers

Accuracy, accuracy, accuracy
Be accurate when filling out mortgage loan requests, particularly when you estimate your credit score. Lenders will prepare quotes based on the information you provide. If you submit information that is not accurate, you will get loan quotes based on inaccurate information and the quote will likely need to be readjusted.

Rate/review mindfully
You may rate any lender you’ve contacted through Zillow Mortgage Marketplace. However, your rating for a lender with whom you’ve closed a loan carries more weight because you experienced the full extent of the lender’s service. So, please rate thoughtfully so that others can benefit from your feedback.

If you contacted a lender, but did not close — Your rating should be based on how responsive a lender was in providing a quote and follow-through during the process; it should not be based on the quote received.

If you contacted a lender and closed a loan with them - Your rating should be based on how responsive a lender was in providing a quote, finding the right loan for you, the rate and terms for the quote and follow-through during the closing process.

Report questionable or unscrupulous behavior
While Lender Ratings is one of the most valuable tools you can use to rate the quality of a lender, we also want to know if you encounter any questionable practices by any lender. Contact Zillow Customer Support by e-mail at mortgagesupport AT zillow.com so that we can quickly respond if necessary. Also, if you feel you have been subject to discrimination, file a complaint with the U.S. Department of Housing and Urban Development (HUD).

Be informed and responsible
There are scores of tools at your fingertips to help you evaluate the loan offers you receive from various lenders. We have assembled many of these in our Help Center. Take advantage of these and weigh your options and long-term implications before signing up for particular loan.

Will originators use it?

The first question that came to my mind is would a high-quality originator use this? I can’t imagine a Brian Brady spending his days blindly filling out GFE’s to ghosts who may or may not work with him. It is feasible that a consumer gets upwards of 20-30 offers on a quote or more (it’s not restricted). What is going to make Brian Brady use his time for a small chance win when he has a million other strategies that will result in higher close rates? Knowing Brian he will find a way to succeed with this platform, leverage administrative resources of find a way to leverage this marketplace; but what about those who are good but don’t want to fire shots in the dark?

I think that’s the big question to be answered as this marketplace evolves. Are the consumers getting lower-quality originators because the good ones don’t want to play consumer roulette with GFEs? It will be interesting to see how it plays out as the marketplace evolves.

A big step in the right direction

The online “lead” model has been broken since its inception and has caused irreparable harm to not only countless consumers but to the image of the industry as a whole. People who bought and sold private data across convoluted networks of lead brokers abused people’s trust that the lead form they completed would be a great offer from 1 of 4 lenders. This clearly has not worked. Zillow puts the power in the consumer’s hands. Now they can shop from hundreds of offers at their discretion from behind the Zillow wall of privacy which is certainly a step in the right direction; now the question is - will the best in our industry use it?

What do you think?

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4 out 5 homeowners in my state used stated income

Published by

Morgan

at April 1, 2008 in Mortgage Musings and Real Estate Musings.

So that’s comforting. According to mortgage data made available by the federal reserve bank of New York 4 out of 5 homeowners in my zip code state who secured their property with an Alt-A loan used stated income to qualify for their mortgage. Actually it’s 83%. And 72% of the loans are ARM loans. That is a jaw-dropping statistic, is it not??? Luckily only about 3% are due to reset in the next 12 months. So we’ve got some time until the bottom drops out of my zip state.

This is the problem people. 80% of folks in my typical state, California, zip code bought their home with stated income. Max out the loan limits, offer modifications, expand FHA, make Fannie and Freddie buy more and leverage their capital. Guess what? It doesn’t matter! Folks in these areas can’t afford their homes. Unless you are planning on forgiving the mortgage debt you are not going to save folks from these exploding mortgages, period, end of story.

So, h ow many people stated their income in your zip state?

Update: Thanks to commenter Robert for pointing out that these numbers are for the state, not just my zip code. While I’ve been accused of using that fact to “spin” my story (also in the comments) I believe it is far scarier that the entire state is built on stated-income loans and not just an outlying, over-priced zip code in Orange County. Now I’m truly convinced that we’re in for much more pain. If 4 out of 5 people are using non-traditional mortgage products and 3 out of 4 people are using ARMs what are they going to qualify for when those ARMs reset and the universe of non-traditional loan products is infinitesimally smaller.

P.S. If you’re a mortgage originator this could be the ultimate farming tool. Check out ARMs due to reset in the next 12 months. Get farm packs from title in those zips with >75% reset rate and cross your fingers people have equity. Free marketing advice - just like that. You’re welcome.

Hat tip to Matt at Inman for the link.

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