Mortgage Times

[Adam in CO]

Mortgage Market News for the week ending April 27, 2007


Mortgage Investors Focus on Inflation


Concerns about higher inflation outweighed signs of slower economic growth last week, and mortgage rates finished modestly higher. With the exception of the March Durable Orders report, last week's economic data indicated weaker than expected economic growth, which was favorable news for mortgage markets. Economic activity typically results in inflation, so a slowdown in growth will usually reduce the pressures leading to higher inflation. Unfortunately, inflation has remained above the Fed's comfort level in recent months, and last week's economic data contained few indications that it will decrease in the future.

The most highly anticipated economic report last week was Gross Domestic Product (GDP) for the first quarter of 2007. Against a consensus forecast of 1.8%, GDP grew at a slower 1.3% rate, down from 2.5% during the fourth quarter of 2006. The core PCE price index rose at a 2.2% annual rate, while the Employment Cost index increased at a 3.5% annual rate. The Fed would like to see inflation drop below the 2.0% level, and this data showed that inflation was still higher than the desired level, despite the weakness in economic growth.

The data from the housing sector also indicated weaker economic growth. The biggest surprise came from March Existing Home Sales, which showed an unexpectedly large decline. Inventories climbed, while median prices declined slightly from one year ago. The March New Home Sales report also fell short of expectations, although median prices jumped. Despite the recent troubles in the subprime mortgage market and these Home Sales reports, both the National Association of Realtors and the National Association of Home Builders continue to forecast higher levels of housing market activity for the second half of the year.

Also Notable:

GDP grew at a slower 1.3% rate during the first quarter of 2007, the weakest quarterly growth since Q1 2003
March Existing Home Sales showed an unexpected decline to 6.12M annual units, below the consensus of 6.50M
The Case-Shiller twenty city home price index was 1.0% lower than one year ago, but the index has gained 31% over the past three years
The Dow Jones Industrial Average pushed to a new record high above the 13,000 levelAverage 30 yr fixed rate: Last week:-0.07%This week:+0.05%Stocks (weekly): Dow:13,127+184NASDAQ:2,556+32

Week Ahead

The first week of each month generally contains the highest concentration of major economic reports, and next week will be no exception. The always important monthly Employment report will be released on Friday of next week. As usual, this data on the number of new jobs created and the Unemployment Rate will be the most highly anticipated economic data of the month, since the health of the labor market is perhaps the single biggest factor in the performance of the economy. Early estimates are for about 100,000 new jobs in April, after the surprisingly high 180,000 seen in March, and investors will be closely watching the level of wage inflation as well.

The Fed's preferred inflation indicator, the Core PCE price index, will come out on Monday. In addition, the two major national manufacturing indexes, the Chicago PMI and the ISM, will be released on Monday and Tuesday, respectively. The Pending Home Sales index, a leading indicator for the housing market, also appears on Tuesday's schedule. Thursday may be a big day as well,
with reports on Productivity and ISM Services. A lot of economic news is on tap for next week!

[bparker]

Forclosers are going crazy any comments on those? As in are we about to see one hellova investor market for the lard lord markets?

[Steve - SanJose]

Foreclosure activity in Bay area is still low, but some parts of the country must be getting hit hard.

[RubHer Yellow Ducky]

Foreclosure activity in Bay area is still low, but some parts of the country must be getting hit hard.

MIAMI / FT. LAUDERDALE

[Adam in CO]

The foreclosure market in the Denver metro area has slowed some, but is still a definite hot spot. At least it's not Detroit.

I would not want to comment on the real estate market, as that is not really what I know and study. I can say that it is still a buyer's market and that most of our clients looking to exercise a "buy low, sell high" investing principal have been investors or landlords. The changes in the finance realm should increase the rental market, too.

It's a good time to be the financier. :)

[bparker]

Yea i know it depends on the area in which you live... as in Texas was recently listed on the on top10 realestate hotspotes in places Dallas, Auston and Houston made the top 10 list...

I hope we dont see a down turn here as we have alwasy pretty much escaped the others that have occured in the past..

[mikejr]

I specialize in marketing foreclosures in the western PA area and the foreclosure rate keeps climbing. We've gotten the attention from investors from all over the country buying up the foreclosures in the area. In general foreclosures are up all over the country.

From what we can see the high foreclosure rates are due to very liberal lending guidelines on the prime and subprime origination market. Normally the foreclosures (f/c) are in the bad neighborhood and in the low value properties. In the past 12 months we've seen more high end homes coming into f/c and onto the market.

Many of the high end f/c are interest only and ARM loan products which tend to have increasing payments.

I've seen people getting loans to buy houses that couldnt afford to buy a stick of gum on time. These same people never make a single payment and go into f/c in months.

Sure there are other reasons for f/c that include job layoffs, declining values in the area, death or illness of a spouse etc... but in my opinion its the lenders themselves that are to blame for lending money to people that dont have the ability to repay it. I've seen origination appraisals that appraised a home worth $30K at nearly $100K just to make the loan work.

We've seen loans with silent 2nd mortgages that fraudulently induce the primary lender into the loan thinking they have an 80% LTV when in fact they are in a 100% LTV position since that 2nd mortgage is never recorded and is bogus.

This commentary is not meant to attack anyone in the lending industry, but merely my observation of the state of the f/c industry in the US.

[Steve - SanJose]

That's a few of the worst case scenarios for sure.

[Adam in CO]

I'm sorry, I fell out of my chair, hit my head, and have been unconscious for some time. It appears that we're actually having logical dialogue on the Elcova site.

I think that fraudulent lending, or even irresponsible lending (brokers, lenders, title companies, everyone) has led a major piece of the foreclosure market in the US. I see a few clients from time to time that have been victimized and stuck two or three or even five years later when someone finally tells them to call me. In fact, I am testifying Monday to the Colorado House Business Affairs Commitee with a client who was defrauded by the broker, lender and title company on his transaction. You would not believe how many people allowed this type of predatroy lending to go on. With a senior citizen, no less. It ended up costing him his house, his borrowing power, and a ton of dough. Senate Bill 249 focuses on a very blanket-like regulation over most involved parties. The state has also been very big on appraisal fraud and the FBI has opened a separate mortgage fraud office in Denver.

Denver, however, is also truly struggling with a real estate depression. The real estate in this metropolitan area has been very predictable to big public works projects. Our last great boom was when they announced our big highway development project with commuter trains called T-Rex. It has been completed and fully operational since November. Before that we build this great, big, shiny new airport to the tune of seventy-ga-jillion dollars or something ridiculous. It is a beatiful facility, and the real esate was HOT.

All we need is for someone to build us a fancy new something, and we're golden!

[mikejr]

Yup appears we're having a logical intelligent conversation on here.

It is amazing the things we've seen, and i've talked to appraisers that have flat out told me, we get pressure from the lender to make the deals work....ie....fudge the appraisal to make the loan.

Some of the worst are the deal that involve mobile homes, in the past quarter, I have had two foreclosures that were double wide mobile homes but on the origination appraisal they said they were single family detached with FULL foundations. Both of these were on piers with skirting around the base.

It appears to me that the sub-prime industry is the worst for fraud and fudging things. We've had broker's call us and ask us to "doctor" up the price in the multi-list so they could get their deals to work. When I told them it was fraud, they had the balls to tell me....oh we do this all the time...its ok...no one gets hurt. My response was fraud is fraud no matter how you try to spin it or sugar coat it.

I am a licensed individual and make a very good living at what I do, aint no way i am going to risk it over a commission on a deal.

What do you do Adam that you are testifying?

[bparker]

Wow!! Thats outrageous! Now I think I can see what really going on here. I guess I should be safe and happy with any market correction as the house I bought last year; I was able to get it for about 35k under appraisal value and we used an independent appraiser.

[Adam in CO]

I own a real speculation and finance firm in Denver. Lots of real estate invesments and mortgages, etc., but it really has nothing to do the Senate hearing today.

I was approcahed by a sub-committee member who asked how many clients I have that had been burned over the years (a lot) and if any of them would testify and it led to whether or not I would testify, so I am. On a number of bills, actually.

It should be an interesting afternoon.

Scheduled for HBAL 1:30 Monday 30th, it is
1:30 p.m.
Room 0107 Business Affairs & Labor
SB 085 Massey--Protect Consumer Real Estate Transaction
SB 203 Marshall--Mortgage Broker Licensing
SB 216 Marshall--Mortgage Loan Fraud Acts Practices
SB 256 Madden--Uninsured Motor Vehicle Insurance
SB 249 Rice--Real Estate Title Escrow Settlement Serv
SB 123 Kerr A.--Regulate Conveyances & Mechanics
(for action only)

[mikejr]

Well enjoy the testimony at the hearing, i'd be curious to hear how it went. I've never done anything like that before.

We own a real estate brokerage along with several other ancillary business that support the brokerage. Its a great business, we are some of the few in this world that love what we do...well most days anyway.

Update me on those hearings...

[Adam in CO]

It went very well, thank you. They passed the bills we were in support of and declined on the ones we weren't. There will be actual, formal licensing, nt just registration for all mortgage brokers, with no exemptions for Jan of 08. They did legislate well into the evening and had us sitting in very stuffy chambers all afternoon, but it was worth it.

[mikejr]

Adam

Well you got to experience something that a very few americans actually get to do. Thats really cool. Its kinda neat to see how government work, and even more so when it works in ones favor of things that one supports.

I know the realtor organization has a huge lobby contingent that supports things that are pro real estate.

We just had a call from a person that lost their home to foreclosure in 2005, they bought another house in 2005 just prior to their eviction and now they are trying sell the home they bought in 2005 as they are in foreclosure again! We never represented them in the sale or purchase so i am not sure what sort of financial dance they did to get into this house just so soon after a foreclosure, but i do know it was a b/c lender.

One thing i do know is that these people should have never been approved for a loan. They are in foreclosure now and have filed bankruptcy. It is truly amazing to me how people can get money lent to them.

[usetosellhummer]

This happend with autos a few years ago. special financing/leases and incenties to get into cars. many of the paper houses for risky buyers are gone. The ones that remain require no more then 80% carry and or Dealer backing or assistance if payments are not made. GMAC lost so much money on their smart buy they had to quit doing them in NM. The lenders are willing to help anyone overextend themselves in every way and us consumers are stupid enough to do it, well me anyway.
Whats next? weekly payments on a new home with builder F&I?

[Adam in CO]

How does someone get a loan that quickly after FC? That's amazing.

[MarineHawk]

Yup appears we're having a logical intelligent conversation on here.

You're right. Damn! We need some AEs to ride in like the cavarly and derail this thing before it gets out of control!

[mikejr]

well i've started to see some loan terms going out as far as 40 years new instead of the gold standard 30 year loan. Seems like lenders are coming up with new products to allow people to "afford" buying a home.

Look at the interest only loan products. Those are great, but when people use them to buy a house in an appreciating market which suddenly goes in the crapper, they now have a principal balance over what the property is worth....they need to sell for whatever reason....and cant...they just owe too much....so the property goes to f/c.

As to how a person can get a loan when they just got f/c on I havent a clue. I know this particular person put about $20K down, so maybe the b/c lender felt it was a good risk. I havent a clue. I've always protected my credit rating like it was the launch codes to a nuclear missle. There are people out there that could give a crap less about what their rating is.

You know i've always wondered what the repo rate was on vehicles. I would guess it has to be high. When I go in to buy a vehicle, there is no income verification, they ask what i make and check credit and I sign my name hand me the keys and off i go. Now the probability of someone with perfect credit defaulting is slim, but i wonder how many people with less than perfect credit walk in...sign and drive home with a new car?

[mikejr]

MarineHawk....not sure we can derail this logical conversation train here....its rolling fast.....LOL

[Adam in CO]

I have lenders offering 50, yes fifty, year amortization schedules on their loans. Please understand that while this is a great alternative to interest-only loans, as some principal is being applied, they still all have 30 year balloons.

[Agriv8r]

we have a few lenders doing 96 months on HUMMERs

[mikejr]

its amazing that they offer a 50 year am on a loan. We're going to have 100 year am loans before you know it just so people can afford to live in a house....its crazy!

What kinda of rate are they charging on a 96 month hummer loan?

[usetosellhummer]

got a job?
no credit, slow credit? even BK
We can get you into a home and new car!
no money down and easy terms

[MarineHawk]

What kinda of rate are they charging on a 96 month hummer loan?

NFCU = 7.0%
http://www.navyfcu.org/rates/lease-frameset.html

[mikejr]

not a bad rate on a truck, thats a long time to be paying for it though. wow.

I just say an article in our Realtor trade mag that said the foreclosure rate on one particular type of loan is 14%, how can these companies that lend money and take these hits stay in business.....i think it goes to show you just how much money the banks are making!

[Adam in CO]

not a bad rate on a truck, thats a long time to be paying for it though. wow.

I just say an article in our Realtor trade mag that said the foreclosure rate on one particular type of loan is 14%, how can these companies that lend money and take these hits stay in business.....i think it goes to show you just how much money the banks are making!

14% is low for these lenders. They get a good percentage of their money back through the forclosure process and they need the remaining losses for Uncle Sam on the rest, anyway.

[mikejr]

i know that most of the f/c we do are on subprime loans and they get pounded on them. If i were to hazard a guess i would say the banks are recouping about 50% of the unpaid balance and even less once they factor in f/c costs, property preservation/management and eviction costs.

We've been seeing more and more high end homes going to f/c now. i've got a few million in high end home inventory right now when in years past we'd maybe have one or two a year.

[Adam in CO]

i know that most of the f/c we do are on subprime loans and they get pounded on them. If i were to hazard a guess i would say the banks are recouping about 50% of the unpaid balance and even less once they factor in f/c costs, property preservation/management and eviction costs.

We've been seeing more and more high end homes going to f/c now. i've got a few million in high end home inventory right now when in years past we'd maybe have one or two a year.

50% hurts. I'd bet it's more like 70% here.

[mikejr]

we just had a file recently that the bank just deeded over to some investor. The unpaid balance was about $50K, we had the property on the market for $20K and the unpaid taxes were $17K. This client wont close a deal with a negative proceeds so they just deeded it over to someone. So in this case, they lost 100%.