Today will go down in the history books for years to come, as the day the United States Government stepped in and took over operations of Fannie Mae and Freddie Mac, which hold nearly half of the mortgages in the United States. Treasury Secretary Henry Paulson noted in a press release today that all avenues were looked at and the United States Government's decision to move forward in the manner chosen was the best viable option.
So, who and what does this affect?
The Common Stock Holder
If you own common shares of stock in Fannie Mae (FNM) or Freddie Mac (FRE), your stock will essentially be worthless in the coming days. The after-hours market and opening of Wall Street on Monday morning will rear its ugly head on many a portfolio across the United States.
Every Single United States Taxpayer
Every time you walk or drive by a new foreclosure that hits the market from this point forward, it's a coin flip that your hard earned tax dollars will be used to sustain the losses on that home. A sea of adjustable rate mortgages originated between 2004 and 2007 are still out there. Adjustable rate mortgages which will "reset" to payments that will add to the stress of household budgets across America.
Your November Vote
Billions of dollars in losses are expected on mortgage defaults in the near future. With the Government's Sunday decision, this should now become a core topic of debate within the Presidential Election. I'm interested to hear how McCain and Obama suggest lowering taxes to the American public, while new credible studies suggest 1 out of every 9 homes across the United States is behind on their mortgage payment or currently in a foreclosure. America is facing a large challenge with many variables coming into play. Variables such as:
Increasing Energy Costs
Increasing Food Costs
Increasing Unemployment
Declining Value of the United States Dollar
And Now, Foreclosure Losses Passed Onto the American Taxpayer!
We must challenge our next leader to answer tough questions in an economic climate that could put us back into a "Great Depression".
We are hearing about the shutdown of wholesale mortgage operations at Wachovia, with a Press Release due out at 1:00pm EDT. This morning, we received the following:
"Wachovia wholesale is shutting down today. Press release at 1PM."
"All us reps were told this morning by top managment that wholesale will be completely shutdown by August 31st and a conference call will be this afternoon. All reps were called Sunday afternoon on the east coast...both Portfolio and marketable products."
The info is coming in from various sources including tipsters, forum members and outside sources - many of whom are (or were) Wachovia employees. We have no detailed information at this point on the number of people who will be affected.
An email sent to brokers by one AE says:
"Good Morning just wanted to let you know that we learned last night that today Wachovia will announce its closing its Wholesale division.
There will be a conference call at 1 pm and I will send out a follow up to that call."
From their web site: "Today's Wachovia was created when First Union Corporation acquired the former Wachovia Corporation and changed its name to Wachovia." That merger occurred in September of 2001; some may also recall First Union's acquisition (and subsequent shutdown) of then-subprime-giant "The Money Store" just a year prior. Many analysts and pundits have pointed to Wachovia's acquisition of Golden West Corporation, parent holding company of World Savings Bank in Oakland, CA in October of 2006 as a cause for recent woes over their $120 billion portfolio of Pay Option ARMs, referred to as "Pick-a-Pay" or "PAP" loans.
Wachovia Corporation will be announcing their second quarter earnings tomorrow, 2008-07-22
Should this happen, there are thousands of jobs across the United States that will be lost and will play its part in reshaping the Mortgage Broker industry as we know it today.
There has been a lot of talk the past week and a half on Wall Street and through the United States Government about "solvency" issues that Fannie Mae- the Federal National Mortgage Association- and Freddie Mac may be experiencing, the "what if's" were they to collapse without the Government "bailing them out" and the impact it would pose on the existing status of our economy and housing market.
But before we go into those topics....
Who are Fannie Mae and Freddie Mac?
According to the "About Us" page of Fannie Mae's website, "Fannie Mae was created in 1938, under President Franklin D. Roosevelt, at a time when millions of families could not become homeowners, or risked losing their homes, for lack of a consistent supply of mortgage funds across America. The government established Fannie Mae in order to expand the flow of mortgage funds in all communities, at all times, under all economic conditions, and to help lower the costs to buy a home." You can learn more about Fannie Mae at: www.FannieMae.com
According to the "About Us" page of Freddie Mac's website, "Freddie Mac is one of America's biggest buyers of home mortgages, is a stockholder-owned corporation chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership and rental housing." Essentially, they do the same thing as Fannie Mae.
These two entities are unique in that Fannie Mae (FNM) and Freddie Mac (FRE) are openly traded on the New York Stock Exchange, run like a publicly traded companies and held accountable to their stockholders, HOWEVER, the companies are unique in that they are "government-sponsored enterprises", established by federal law. This unique business structure allots each company "special privileges" in a sense that profits are redistributed through stockholders, but potential losses are passed onto the tax payer! Fascinating...isn't it?!
Both companies are highly regulated on the risks they can take on and hold nearly half of the mortgages owned in the United States!
"Solvency Issues"
Problem:
The major issue brought to the table with regards to Fannie Mae and Freddie Mac revolves around "solvency issues".
By standard accounting principles, it has been claimed that Fannie Mae and Freddie Mac are "insolvent".
I looked up the definition to insolvent on Dictionary.com and here is what I found:
In*sol*vent
-adjective
1.
not solvent; unable to satisfy creditors or discharge liabilities, either because liabilities exceed assets or because of inability to pay debts as they mature.
On July 14th, The Federal Reserve opened its lending window to Fannie Mae and Freddie Mac to head off any short-term funding problems and on Sunday, July 13th, Treasury Secretary Henry Paulson outlined a number of immediate steps Congress can take to bolster investor confidence in the two government-sponsored enterprises.
The Treasury secretary and Fed Chairman Ben S. Bernanke made statements recently that they are trying to prevent a collapse of the companies that would exacerbate the worst housing recession in 25 years and deepen the U.S. economic slowdown.
-Rate Volatility Meter-
Medium-Rates will take a few increases or decreases through the week, with movements of 0.25%-0.375% within a given day.
"Short Sales" are a hot topic right now, as homeowners, homebuyers, real estate professionals and lenders simply can't avoid them in today's real estate market. Existing homeowners are calling their lender to see if a short sale is the right "exit-strategy" for them, with little money left to make the mortgage payments. On the flipside, homebuyers are calling lenders daily to find out what financing options are available to purchase one.
Lets start with a good definition of a short sale, as people often mix the concept up with a foreclosure, REO, etc...
Short Sale: The sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes.
Like anything else...there are some great deals out there and there are some really bad ones...Simple logic should tell a perspective homebuyer that if the homeowner was unable to make their mortgage payments, they probably weren't keeping up with the maintenance on the home. In big red letters, each short-sale on the market should read, BUYERS MUST PERFORM THEIR DUE DILLEGANCE AND MOVE FORWARD WITH CAUTION. DON'T ASSUME ANYTHING!
Everyone wants a great deal. And yes, there are some GREAT DEALS out there! I've been looking to purchase a secondary residence in Southern California. Homes that were selling for $550,000-600,000 at the peak of the market 1-2 years ago are now in the $275,000-300,000 range! Certainly things will turn back around and many will stand to do well from a long-term perspective in real estate. Again, I emphasize long-term. Once we get out of the market we are currently in, things will once again rebound. Why? History always repeats itself. Home prices simply need to catch up with the times.
I've personally walked through well over 200 short sale properties in the past few months. After seeing enough of them, you get to see the good, the bad and the ugly. Ugly to where the house would be a great movie set for the next Arachnophobia movie, where you swear it was a homicide scene at some point before you entered. Appliances and fixtures missing...all the way down to the toilets!
In between the search though, there are some real gems!
As people call me to get pre-qualified to find out "how much home they can afford on a short-sale", I note the following items below, as a short-sale transaction can run differently than your normal home seller/home buyer transaction.
Typically, short sale properties are sold "as is" and without warranties from the bank currently holding the mortgage. Banks do this to remove themselves from disclosing anything pertinent to the property, which could ultimately be a problem. Why? They were the lender...not the homeowner. As such, there could be things wrong with the property that they are unaware of and don't want to be held liable for problems down the road. This is why I highly recommend hiring a great inspector to look at the home from head to toe once you have narrowed your search down to 1 or 2 properties. Foundation problems, structural damage, water/mold damage and so on can be very costly to fix.
When dealing with a short sale, don't expect the bank to respond quickly. Every bank is different. You would think the bank is taking a loss and would want the bad loan "off their books" as soon as possible. It's not that the bank doesn't. However, banks are simply inundated with short sales right now. I've talked to bank representatives that have hundreds of files in and around their desk. How does one decide which file gets picked up in the course of a day? I recommend having a great real estate agent that will "go to bat for you" and will be on the phone with the bank first thing in the morning; to make sure your offer and file get looked at over the sea of others. I've seen a direct correlation between clear lines of communication and closed deals as opposed to poor communication and deals that never happen. As such, I can stress the importance of working with a great real estate agent and lender that will help you through the process.
"Low-Balling" the bank's approved short sale asking price can be a no-no. I have several clients that have put offers in for HIGHER than the banks approved short sale asking price, only to not hear from the bank for over 2 months! Yet perspective homebuyers think they can "low-ball" a bank and put an offer in lower than the approved selling price, feeling the bank "won't pass it up" because the bank must be desperate to sell the home. Many times, I have seen otherwise. Remember, banks are essentially throwing money at bad money. They are already taking a loss. If the bank is looking through hundreds of files and choosing which ones deserve the most attention...where will your file and offer lie?
Finally, if the home needs rehabbing or fixing up, I tell people to consider the cost of doing so in relation to other homes on the market which are "turn-key" and ready to move into with little or no money needed.
Are you looking to refinance a home in Chico, California?
If so, feel free to give me a call!
My name is Scott Gormley, Broker/Owner of Oak Valley Mortgage and I thank you for considering Oak Valley Mortgage to represent you in one of the largest decisions of your life! We offer home purchase,refinance and debt consolidation services throughout all of California. I graduated from California State University, Chico, with a degree in Business and Marketing. I was the 2006 Chairman of the Chico Association of Realtors Affiliate Committee and I have been committed to our community through fundraisers and events in appreciation for what Chico offers in return, a great lifestyle. I've written weekly articles for over 2 years in the Enterprise Record's "North Valley Real Estate Guide", labled "Mortgage News" and I've written monthly articles for the past 2 years in Inside Out Magazine. If you are looking for a straightforward, no hassle Mortgage Broker that tells you how it is, keeps clear lines of communication throughout the purchase/refinance process and believes in building a foundation of business built on referrals and positive experiences...look no further! I can't stress the importance of working with a reputable company that is "in tune" with the daily (and even hourly)underwriting guideline changes currently taking place at banks and financial institutions, to give you the greatest opportunity for a successful transaction during these changing times in the real estate industry. Feel free to look around our website and contact us with any questions you may have. There is a lot of valuable information within our website that will benefit potential home buyers, home owners, investors and real estate agents. I am committed to providing the best service available to our clients. Oak Valley Mortgage's mission is simple: To build a strong base of repeat clients, built on positive experiences and referrals.
Are you looking to purchase a home in Chico, California?
If so, feel free to give me a call. I have a great network of local real estate professionals to help you through the home purchase and loan process.
My name is Scott Gormley, Broker/Owner of Oak Valley Mortgage and I thank you for considering Oak Valley Mortgage to represent you in one of the largest decisions of your life! We offer home purchase,refinance and debt consolidation services throughout all of California. I graduated from California State University, Chico, with a degree in Business and Marketing. I was the 2006 Chairman of the Chico Association of Realtors Affiliate Committee and I have been committed to our community through fundraisers and events in appreciation for what Chico offers in return, a great lifestyle. I've written weekly articles for over 2 years in the Enterprise Record's "North Valley Real Estate Guide", labled "Mortgage News" and I've written monthly articles for the past 2 years in Inside Out Magazine. If you are looking for a straightforward, no hassle Mortgage Broker that tells you how it is, keeps clear lines of communication throughout the purchase/refinance process and believes in building a foundation of business built on referrals and positive experiences...look no further! I can't stress the importance of working with a reputable company that is "in tune" with the daily (and even hourly)underwriting guideline changes currently taking place at banks and financial institutions, to give you the greatest opportunity for a successful transaction during these changing times in the real estate industry. Feel free to look around our website and contact us with any questions you may have. There is a lot of valuable information within our website that will benefit potential home buyers, home owners, investors and real estate agents. I am committed to providing the best service available to our clients. Oak Valley Mortgage's mission is simple: To build a strong base of repeat clients, built on positive experiences and referrals.
Conforming Home Loan Limits in Orange County, California have temporarily increased from:
$417,000 to $729,750 until December 31st, 2008
Do you fit into the box of what banks are looking for?
Here's the checklist. If you can answer yes to all these questions, call me!
You're currently in a mortgage rate at (or set to go over) 6%
You have 700+ Mid FICO® scores
All borrowers have a stable job history for the past 2 years
The property is an owner-occupied, single family residence
You have a minimum 20% equity position in the property
You have the ability to provide full documentation of income & assets
You have no mortgage lates in the past 12 months
You want a better mortgage
Sound Demanding?
It is, but it's worth it!
As Non-Conforming rates climb over 8% for a 30 year fixed and continue to rise, now is the time to take advantage of the "Economic Stimulus Package" and get into a great 30 year fixed rate.
This is a MUST READ for MORTGAGE BROKERS...Nationwide!
THIS IS ALSO A CALL TO ACTION FOR ALL MORTGAGE BROKERS ACROSS THE US!
First off, DO NOT allow Politicians, The MEDIA and others to discount what we do as Mortgage Professionals. We bring value to the table for each of our clients on a daily basis. Many of us could create a lengthy list over the years of the people we have helped in times of need and desperation. We help our clients make sounder financial decisions on the largest investment the average American will EVER MAKE, their home and mortgage.As in any industry, a few bad apples can spoil the bunch. Many of us know that the Mortgage Companies and Brokers referenced in the media are not around anymore, leaving the "true professionals" to pick up the pieces of a tarnished industry. Meanwhile, the puppets in Washington that have no business dabbling in economics continue to disregard what is in the general public's best interests...
Make no mistake about it, with regards to Consumer Financing...
Knowledge = Power
Ignorance = Poor decision making and allows for greed and corruption to exist.
Are we not noticing that our way of making a living as Mortgage Brokers is changing before our eyes, in light of the finger pointing and the "who is to blame?" game for the woes of the mortgage, lending and housing industries, respectively?!
The consumer sentiment and crying of the media have led to irrational decisions, lobbying and the "BIG BOYS", I.E; major U.S. Banks, gaining the much desired power over consumer mortgage financing options.
Just when we think that lenders can't tighten any further, a huge announcement by the conforming agencies and the Attorney General of New York was made last week that will serve to complicate the origination of mortgage business across the United States significantly.
As Mortgage Brokers, when we bring our clients to a major lender, that lender will esentially be a competitor for our repeat business already. According to Fannie and Freddie, we will soon (probably 3-6 months out from now) have to go to the lender and have them select the appraiser for our borrowers. This not only means you may not be able to switch lenders without additional costs...the lender could now control data that puts them in position to capture the loan. They are just one step away to their domination plan and removal of Mortgage Brokers all together. Why? Less competition for the banks and Mortgage Brokers to explain financing options to ignorant and falsely led consumers by TV ads and the such will lead to larger profits off of consumer ignorance. In other words, GREED!
Might I remind you of the infamous slogan that led many consumers across the US into bad decisions...
Lost another loan to ???!!!
The Appraisal changes come in light of the finger pointing and "who's to blame game" for the woes of the mortgage and real estate markets. The theory is that Mortgage Brokers will not have influence over "hyped up values" on homes, which leads to a "falsified market." Ummm...I've never influenced my Appraisers to "come into value" on a clients file with a false number. In fact, none of my Mortgage Broker collegues have EVER imposed values of "what a home should be worth!" to an appraiser. Why would each state have licensing requirements for Appraisers if they are not to be trusted to begin with? Regardless of who orders the appraisal of a home, the following will ALWAYS hold true...
There will always be bad mortgage brokers...as most of us know, those "fly-by-the-night", "make a quick buck" individuals are long gone...
Appraisers are always trying to gain the business of someone, regardless of it being a bank or a Mortgage Broker.If a particular Appraiser that the bank chooses seldom "comes into value" to make the loan work, will the bank continue to lose loans or will they find someone else? Hmmm????
Where is the National Association of Mortgage Brokers on this topic?
Such a large group with the influence and power make our voices heard...or not...
What is the "liquidity crisis" and why does it exist?
Across most of the country, Fannie and Freddie currently purchase loans of $417,000 or less from lenders, and repackage these so-called "conforming" mortgages into securities sold to investors. Investors generally trust that these securities will be repaid, in part because they are backed by the government-sponsored entities, so there's been little interruption in consumers' ability to obtain conforming loans at low rates. Until the Economic Stimulus Package was signed into law, loan amounts over $417,000 were typically held onto as "portfolio loans" by banks or sold off as mortgage backed securities to Investors and Wall Street as "Jumbo Loans." Investors and Wall Street have recently gotten a sour taste in their mouth, experiencing higher than normal levels of default, due to poor underwriting practice, risky loans and a weakening real estate market. The result has been the "liquidity crisis" we are currently experiencing, whereby Investors and Wall Street have virtually put a halt on the purchasing of mortgages over $417,000, explaining why interest rates are currently so much higher for consumers on "Jumbo" loans. Typically, rates are a quarter of a percentage point higher on "Jumbo" loans, but are now roughly 1.625% higher for a 30 year fixed.
The "Sleeping Tigers ", waiting to pounce on the Mortgage Industry
Sleeping Tiger 1
Sleeping Tiger 1 consists of a percentage of bad "jumbo" mortgages(over 90 day delinquent),which are currently sitting on the books of banks with loan amounts over the existing conforming loan amount of $417,000, that will ultimately be sold to Fannie Mae and Freddie Mac under the new Economic Stimulus Package of 2008 (HR5140). The Economic Stimulus Package of 2008 is a bill, which President Bush created and signed into law on February 13th, to help the "liquidity crisis" we are currently experiencing in the mortgage industry, allowing banks to sell loans from "high-cost housing areas" to Fannie Mae and Freddie Mac at the higher loan amounts (up to $729,750) through 2008, to "free up" capital and write new loans.
Several banks approved and funded loans in the second half of 2007, intending to sell the loans off to Wall Street to "free up capital" for new loans, while retaining the rights to "service the loan", by collecting a percentage of the monthly mortgage as a profit. However, once the majority of Wall Street investors pulled the plug on purchasing "jumbo" loans, the banks were stuck with them! I don't care what bank you are and how much money you have on hand, when it comes down to it, the banks only have so much money of their own to lend out on real estate.
Then came the abundance of foreclosures and short-sales...
The foreclosure process is very expensive. Some sources have estimated it to cost banks upwards of $50,000 to go through the process, in addition to the losses anticipated by receiving less money than is actually due on the property. By no means does the bank want to take and hold property. Their business is that of making worthy investments that return interest on their activities.
I have spoken to several homeowners across the United States having not made a mortgage payment on their home in several months, without even a hint of danger, negativity or the placement of a Notice of Default from their lender! You would think they would be going through the foreclosure or short-sale process right now, but that isn't the case. Why?
Here is my theory...
If a bank has a bad mortgage that is "sitting on their books" with a borrower living in the home that hasn't made the mortgage payment for 3-4 months, and the President has just signed into effect the Economic Stimulus Package, which will now allow Fannie Mae and Freddie Mac to purchase mortgages that were originated as far back as July 2007...why would the bank want to place a notice of default on the borrower, making the file look bad, when they can simply sell off the mortgage to Fannie Mae and Freddie Mac to "free up capital" and remove their hands from a bad loan?
The result is Fannie Mae and Freddie Mac purchasing loans that are now backed by the government-sponsored entities. What happens if they had no idea the file was bad and now they are stuck with a bad loan? That's right...It's you and me, Mr. and Mrs. Taxpayer, which will ultimately need "subsidize" and "bailout" their problems!
Think its farfetched theory? I don't think so at all, but only time will tell.
Sleeping Tiger 2
In a great Bloomberg.com article, written by Bob Ivory, Joe Lents is a "homeowner" in Florida that that has a $1.5 million Washington Mutual mortgage against his property and Mr. Lents hasn't made a mortgage payment since 2002! The bank placed a notice of default against him from the outset and Mr. Lents took the bank to court, contesting that, "he doesn't think the bank holds a valid lien against the property." The judge requested original documentation from the lender to uphold Washington Mutual's claim, but WAMU has been unable to provide the original documentation requested by the court. Many other judges across the United States have been inundated with such issues as well, with many courts siding with the homeowners until the banks prove they hold a valid debt against their properties. To this day, Mr. Lents remains in the home, not making mortgage payments.
What went wrong? As I've mentioned in past articles and referenced the "Mortgage Implosion" website, over 260 lenders have gone out of business since 2006. In the midst of selling notes between each other and poor clerical practices, it should be interesting to see how "sleeping tiger II" plays out in the court systems across the U.S., as delinquent homeowners make desperate attempts to keep the roof over their head while behind on payments. According to Rick Sharga, executive vice president for marketing at RealtyTrac Inc., the Irvine, California-based seller of foreclosure information, 1.5 million homeowners will enter the foreclosure process this year, with half of them actually being repossessed by the banks.
Are you wondering what is going on with the expected increase in the Conforming Loan Limit set to take place through the " Economic Stimulus Package" signed by President Bush last month?
A chock full of information was released today as to how the "Economic Stimulus Package" and increase in Conforming Loan Amounts for "High Cost Housing Areas" will be implemented into the banking system, which will affect banks offerings to consumers.
If you are wondering what areas HUD has distinguished as "High Cost Housing Areas" within your state on a county by county basis, check out this link (put in the state, without a county for all state results). Please note that the FHA limits have already increased and loans are being accepted using the new limits.
Projected dates of limit increases for Fannie Mae:
Fixed Rate Mortgage 30 and 15 Year...April 1st, 2008.
5/1 LIBOR Arm, Fully Amortized and 5/1 LIBOR ARM I/O...May 1st, 2008.
(These are the dates given by Fannie Mae, individual lenders may vary as to when they will have the Conforming Jumbo programs available to their brokers)
The new matrix for loans accepted by Fannie Mae with the increased limits (Conforming Jumbo Loans) can be found here.
Fannie Mae Guidelines for implementation can be found here.
There are some key things worth mentioning...
Single Dwellings Only (SFR, Condo, PUD)
Manufactured Homes are NOT ALLOWED!
Full Documentation Loans Only
45% Max DTI Ratio Allowed
Existing 2nd Mortgages must be re-subordinated
Cash-Out is NOT ALLOWED (Only minimum to pay existing loan, closing costs and max $2,000 out)
Full 1004 Appraisals Only
Loans must be uanually underwritten for now
Lender Paid and Borrower Paid Mortgage Insurance will be allowed
If you have a home in California on an Adjustable rate mortgage over the existing $417,000 Loan Limit and you would like to take advantage of a "Jumbo Conforming Loan" to save you from the high cost of financing on existing "Jumbo" pricing, feel free to give me a call. We'll go through your individual scenario to see if refinancing into a "Conforming Jumbo Loan" makes sense for you!
