The following post is from a friend of mine in the mortgage business. Lisa Fleck is a Certified Mortgage Planning Specialist, and welcomes your comments. – Guy
It has been a crazy week in the lending world. Every morning there are new surprises and changes to available programs, underwriting requirements, and qualifying parameters. As I am sure you have all heard, and hopefully didn’t experience, American Home Mortgage and their wholesale counterpart ABC Conduit stopped funding loans on Monday morning citing a merger. Yesterday both companies ceased operations after filing for bankruptcy protection in the morning, laying off over 7000 employees. As a result the 10th largest retail mortgage lender has closed its doors.
The question then rises, how could this have happened if this is primarily an A paper and Alt-A lender. Simply put, lenders provide the opportunity for investors to “buy into” mortgage backed securities. These securities are sold to large investment houses, such as Merrill Lynch, with protections built in (reps and warrants) for the investors. Should a certain percentage of the portfolio fall into default or foreclosure during a set time period the originator of the security is required to “buy back” a percentage of the security. With the increase of delinquencies in the sub prime, 2nd mortgages, and Alt-A products (see below chart), this trigger was hit for American Home Mortgage and they suffered what is called illiquidity, meaning instead of their money going to funding new loans they had to take their liquid assets and buy back bad debt. Obviously, this isn’t good for business and AMH and ABC are where they are today because of it.
How does this affect you and your ability to sell homes and what can be done about it. Firstly you must realize that the days of easy credit are gone and that it is more important now than ever to work side by side with your lender to make sure that your clients can conservatively qualify. The mortgage planner with whom you work is just the messenger to the changes resulting from a national problem. Wholesale lenders are crossing huge numbers of creative and aggressive programs off their rate sheets and are creating options in an attempt to keep things moving in a positive direction.
If you have borrowers who are credit challenged, you now need to realize that their options lie with government loans. The 1st time home buyer bond programs can help but because these programs come with income limitations and all have to be full doc, once the clients are qualified you need to impress upon them that they need to move quickly. These programs count every penny of income and there is no flexibility if they end up being 10.00 over the maximum allowed income. Also, in most cases these loans are underwritten with government programs. The important thing here is to realize that as these government programs end up carrying the weight of the sub prime market their guidelines will tighten as well. We have already seen this dramatically with the My Community program.
AB 440 is still an ominous cloud hanging over the head of home buyers, lenders, realtors, and title companies in the state of Nevada. This bill requires that a lender cannot ”knowingly or intentionally make a home loan to a borrower, including, without limitation, a low document home loan, no-document home loan, or stated document home loan, without determining, using any commercially reasonable means or mechanism, that the borrower has the ability to repay the home loan.” With this new statue going into effect on 10/1/2007 again it is a matter of urgency for your clients who are self employed, and have to use a stated income product to purchase a home, to move quickly to take advantage of the great inventory and the current programs which may disappear in 60 days.
I see in the near future the ability to still do 100% financing but only for an owner occupied full doc loan. Any stated income loans may require at least a 75% LTV and I wouldn’t be surprised to see investor loans only going to 80% LTV and being required to be full doc. A number of lenders have eliminated fixed 2nds, only local retail banks are still do stand alone 2nds, sub prime is a thing of the past (except for govies) and Alt-A is struggling to hold on.
I know that this all sounds like doom and gloom but in reality it is a natural part of the economic cycle. I have attached a link to a Business Weekly article, Credit is tightening – And that is fine. http://www.businessweek.com/magazine/content/07_32/b4045030.htm
An option for your current listings would possibly be to have the seller not lower the price but instead offer a buy down that that the buyer can use when qualifying for a loan. How does this help? It really is a win-win situation. The seller still receives the same net proceeds however the value of the property and the surrounding neighborhood is maintained, the client is pleased because the home sold at a higher price, the buyer is given additional funds to “buy down” the interest rate thereby increasing their ability to qualify for a loan, and the buyer also is able to claim the buy down as a deduction on their taxes in the year in which they buy the home.
This is a time for calm heads to work together to weather the storm, which is now being projected to last through 2008 and possibly into 2009.
I realize that there is a lot of information here as there is a lot going on in the markets. I would welcome the opportunity to speak with those of you who are interested in learning more and working together on solutions to advise our clients to act while they still can and counter these issues as much as possible. Please feel free to call us at any time.
Best wishes,
Lisa Fleck, CMPS
Lisa Fleck, C.M.P.S.
Senior Mortgage Planner
The Fleck Group
Lake Tahoe Mortgage Corporation
660 Sierra Rose Drive, Suite #A
775.823.8410 [Main]
775.823.8402 [Fax]lisaf@laketahoemortgage.net
www.thefleckgroup.net
Reno Ignoramus
Guy, with all due respect, you could have known this months ago from reading the posts of people like BanteringBear and Lindie and others. Your friend Lisa really is about 6 months behind the curve here. This is not news to anybody who has been paying attention. Six months ago I posted that there was no way the melt-o-down was going to stay contained to subprime. About a week ago I suggested that even prime high FICO debtowners are going to eventually give up paying their $500,000 mortgage on their $375,000 house.
The suggestion that the solution is for sellers not to lower their price but to offer a buy down instead is one of the most blatantly self-serving statements I have ever heard. This one rivals when Angela, another loan broker, suggested that buyers ought to be wary of paying too little lest they help bring down values in their new neighborhood. The mortgage brokers here are now 2 for 2. Lisa clearly understands that rates are going up. The Fog Up a Mirror Loans are vanishing, and it’s going to be a whole lot harder for her to make a living. Her suggestion: keep prices high, so borrowers have to borrow more, and she makes a bigger commission. (So would realtor too, right?) How nice for the buyer. It apparently is lost on Lisa that a higher purchase price for the buyer means higher taxes and higher insurance for as long as he owns the house. A loan can always be refinanced if rates drop. A purchase price is forever.
Lindie
This is nothing new. This is just more REIC spin-jive. Just one more way the REIC tries to keep the band playing as the Titanic goes down.
A rate buy down is no different than all the other so-called “incentives”, like a gift card to Home Depot, a 5 day cruise to Mexico, or a used Durango in the garage. They are all just come-ons. Fools are getting harder and harder to come by.
Guy, don’t you wonder why people like Lisa didn’t send out emails to realtors in 2003 and 2004 and 2005 warning them against the perils of putting their clients into suicide Voodoo Supreme loans? You know, the very loans that are failing in historical proportions, which is causing all the problems Lisa now laments about. Ahh, the commissions just must have been too good.
You can dress it up any way you want, but what letters like this from brokers like Lisa really are is capitulation. And their keep the band playing efforts like rate buy downs are doomed to fail.
SkrapGuy
I inherited a house in Reno earlier this year. I didn’t want to live in it, or be a landlord. I wanted to sell it. It took me 5 months to sell. Here’s what I learned. Buyers don’t give a crap about incentives. Not for a resale house. If you are a seller and you want to sell your house, lower the damn price. Price is all buyers care about. I’ll say it again, price is all buyers care about.
BanteringBear
Lisa Fleck posted:
“An option for your current listings would possibly be to have the seller not lower the price but instead offer a buy down that that the buyer can use when qualifying for a loan. How does this help? It really is a win-win situation. The seller still receives the same net proceeds however the value of the property and the surrounding neighborhood is maintained, the client is pleased because the home sold at a higher price, the buyer is given additional funds to “buy down” the interest rate thereby increasing their ability to qualify for a loan, and the buyer also is able to claim the buy down as a deduction on their taxes in the year in which they buy the home. ”
Add Lisa Fleck to the list of “Brokers to NOT do business with”. She is yet another fine example of the seedy types who have infiltrated the industry. Has anyone asked Lisa why the buyer would WANT to pay more? Is this lost on her? She must be having breakfast with Cheech and Chong. I cannot for the life of me imagine what in the hell she’s thinking when posting this nonsense. Her level of desparation is palpable. Time for Jaded, or GreenNV, or whoever he is, to find out how many homes this shill is holding. Unbelievable. More to come when I have more time.
Bob
RE “…take advantage of the great inventory and the current programs which may disappear in 60 days.”
Ha, That would be a miracle if the inventory disappeared in 60 days!!
Green NV
Call me Ishmael. Jaded is Diane’s name for me when posting, Green NV is me commenting, and REdiggerdog is for stuff that is too hot for this site. Confused? I play one other character on this board!
I try not to call out specific individuals, but Lisa does not appear to be a “sinner”, at least not in Washoe County.
I was following along and admiring her advice and accumen until the fatal “buy down” comment. This coming from a Certified Mortgage Planning Specialist (CMPS)? More like certifiable. But then I found this little pearl of wisdom on the CPMS site, their advice to new home buyers:
“Don’t be scared by “Housing Bubble” misinformation. For the last four years, the national media has been scaring potential home buyers with continuous chatter about a so-called “housing bubble”. For the last four years, the national media has been wrong. It is always wise to base your decision to buy or not to buy on fact, not emotional hype. CMPS professionals help you evaluate conditions in your local real estate market to determine whether there is indeed a housing bubble in your local market. The data they can evaluate for you includes: local housing inventory, local unemployment rate, speculation and other factors that can help you make intelligent choices about whether to buy a home.”
Don’t blame Lisa – blame the Kool-Aid.
Grand Wazoo
Let me summarize Lisa’s rather windy post for those of you who don’t read the whole thing:
1. In the good old days, the fact that you couldn’t actually afford a certain home didn’t mean you couldn’t buy it – you just had to lie about your personal financial condition.
2. It will be slightly harder to continue doing this in the future, but we’re here to help.
smarten
From the Fleck Group, About Us, Web Site:
“Lisa [Fleck, C.M.P.S.] joined Lake Tahoe Mortgage in February of 2004 bringing with her 5 years of industry experience.”
“Samantha Read [C.M.P.S.] joined Lake Tahoe Mortgage Corporation in November of 2003 after graduating…with a Bachelor of Science in Finance.”
“Karina [Johnson, Mortgage Planner] decided to work in the mortgage industry because of her passion for helping people gain control of their financial success.”
These people haven’t been in the industry long enough to have ever lived through a mortgage crisis, yet we’re expected to take advise from these seasoned professionals?
I’m surprised she didn’t suggest the ole 120% financing solution with kick-backs to all concerned – it’s a win, win, win, win situation!
SkrapGuy
Lisa and Samantha and Karina are no doubt just like the Sellsius gurus. They could not realize what a speculaive bubble looks like if they were standing in the middle of it. They have never seen values go down, so they blame “the media”. What a freaking joke. They, too, were also in middle school the last time we were in a deteriorating market as bad as this one. Guy, to the extent your credibility is attached to the people you invite to post, I encourage you to investigate a little bit more carefully.
RenoWannabe
A good discussion about the mortgage situation is on this website:
Investorsinsight.com
Well worth reading just to see what the predictions are for next year.
Guess we’ll be waiting even longer to buy that house in Reno.
Lindie
Grand Wazoo, I am still laughing. You absolutely nailed it.
The blame it on the media tripe pretty much indicates the professionalism and the level of “expertise” of these people. Did these people complain in 2003 and 2004 and into 2005 when the media ran its weekly stories about some flipper making a killing? Did these people complain in 2003 and 2004 and 2005 when the media ran its weekly stories quoting the local REIC spokesperson telling us how you better buy now or get priced out forever because they are not making any more land and you can’t ever lose money on real estate? These people were more than delighted when the media portrayed their shill pieces as news.
MikeZ
RE: buy downs and liars’ loans
Sigh. How many more underqualified home owners do we need? How many more future foreclosures does the industry need to create before this insanity stops?
What the heck happened to ethics in real estate and finance?
STOP PUTTING PEOPLE INTO HOUSES THEY CANNOT AFFORD!
I'm Not Your Piggybank
After private emailing with Diane, I’ve been looking for an opportunity to join the blog. I’m another Reno wannabe who wannad-to-be a couple of years ago but refused to buy into the hype. We still wannabe Reno residents (retirees) but those prices still need to come down! I completely agree with SkrapGuy that what buyers like us want is lower prices, not incentives. My husband and I plan to sell our house, add a little more from our savings (yes, real savings) and pay cash for our house. Thus, Lisa Fleck’s ideas about incentives to buyers to help them get a mortgage mean nothing to us. As all of our older friends have retired and moved away, each has purchased their retirement home (mostly in Florida and Arizona) for cash — our generation doesn’t want to have mortgages. We’ve saved all of our lives, lived beneath our means, and we thought that that would equate to being able to afford a little bit nicer house at retirement. Instead, we watched the arrogant developers and “scalpers” ruin the market for the majority of us. When my husband was transferrred from our hometown nearly 20 years ago, we moved to an area that was twice as expensive and was in the midst of a hot seller’s market. We were so dumb that we didn’t know what that meant — only that we had to spend twice as much money to get the same size house that we had left. One year after we moved here, the developers moved in and started building thousands and thousands of homes. It was eight years before we would have been able to break even on our house. Now, after 20 years, not only has our house not even doubled in value, but prices are starting to decline. We’ve not buying into that hype again! Tell the “scalpers” to lower their prices!
stjoe
Obviously, too many people have forgotten Santayana’s saying: Those who cannot remember the past are condemned to repeat it.
How many realtors, mortgage brokers operating today remember 18% treasury notes, 20% home mortgage rates, and the like? I do.
Old timers with any sense of financial history saw real estate in the past few years for what it was: a bubble.
Each bubble plays out in its own ways. Maybe it will be a gentle deflation or maybe a sudden burst. But no matter how it plays out in the end, expect to find “blood in the street.”
Gee its funny to live in an interesting time.
SJ
BanteringBear
stjoe:
I would like to point out that one didn’t have to be an “old timer” to realize that this housing bubble was nothing but a speculative circus, with home prices destined to crash. To be sure, a lot of old timers were in on the sham. I’m in my 30’s but was not, by any means, fooled by the lies and shenanigans of the industry et al. I have friends in their 20’s who are very keen on it as well, and who currently wait patiently for prices to fall significantly. Those who deny the existence of the bubble, and who are also responsible for it, transcend all age groups. I’ve read countless reports of retirees going “all in” on real estate with their entire life savings, only to find themselves on the verge of losing everything. If an argument was to be made for who was most culpable, the “old timers” running Wall Street would shoulder the blame. Let’s be smart about this, and realize it has nothing to do with age.
Grand Wazoo
Spoken like a true flipper there, Derrick. Very impressive.
MikeZ
RE: “unfortunately It sounds like NONE of you made 1 play on the housing market in regards to overpriced, overbloated stock prices in respect to nearly all the homebuilders…. What a shame.”
You assume too much.
Not everyone here suffers from the same need to brag to strangers about their success, as you do, Derrick.
smarten
Derrick wrote: “sound like pretty smart individuals when it comes to the RE market yet you lack the motivation or knowledge to truly take adavantage of that and turn it into REAL profits…”
I haven’t been contributing to this blog that long, but I was under the misimpression [according to Derrick] this was not only a real estate blog, but one concentrating on Reno/Sparks real estate in particular. Furthermore, I didn’t realize we were supposed to limit our postings to “profiting” from real estate. Sounds to me like Derrick belongs on someone else’s selling stocks short blog.
What does going short on national real estate stocks have to do with the fundamentals of real estate in general; Reno/Sparks real estate in particular; and profiting from Reno/Sparks real estate in particular, particular?
I for one am tired of hearing this youngster’s repeated self-adulation insofar as his stock market acumen is concerned. Furthermore, I have to keep reminding him of his own words which he continues to ignore: “I’ll listen to your investment advice when you’re rich.” Since Derrick has admitted that’s NOT him, why does he keep spouting off about how savvy he is when it comes to the stock market?
I think he’d make more money selling his Spanish Springs house short and then he would have something productive to contribute to this blog.