Cash in the Bank

Fannie and Freddie aren't as interested in post-closing reserves, but with a jumbo mortgage (over Fannie and Freddie's loan limit of $417K), you'll need plenty of money left after you close. That's just how it is nowadays.

Some jumbo mortgages require as much as 18 months of the monthly payment be held in reserves after the closing. Post-closing reserves isn't money that is spent, or even drawn on in any way, it's money that is shown to the underwriter in order to prove that a borrower has enough cash after the closing to pay the payment even in the event of income loss. This reserve could be made up of IRA accounts, 401K accounts, cash value of life insurance policies, CDs, checking, savings, pretty much anything that is liquid. Equity in the property doesn't count, nor do non-liquid assets such as jewelry, cars and boats.

At a minimum, jumbo mortgages are requiring 12 months of the payment in reserves in order to qualify. In this mortgage market, cash is king.

Fed Rate Cut, Why Not My Rate?

The recent Fed rate cut to 4.75% is more directly related to the interest of Home Equity Lines of Credit as they are generally tied to Prime (currently 7.75%). Since Prime floats 3% above the Fed Rate there is a direct relationship between the two.

Counter-intuitive though is why the 30 conforming (Fannie and Freddie) fixed mortgage interest rate has gone up a bit since the most recent Fed rate cut. The bellwether for the conforming fixed rate is the 10 year treasury bond yield. That has been increasing as investors have been selling off bonds the last few days. The reason for the sell-off is that investors worry that the Fed rate cut might kick-start inflationary pressures.

So, despite people's wish for the opposite, the Fed rate cut has negatively impacted mortgage rates for the short term.

Dodos and Edsels

No Doc and No Ratio mortgages are becoming harder and harder to come by. Chase has eliminated both of these documentation types. These loans do not perform. That means these loans were being used to put borrowers into homes with payments they could not and do not pay. Banks don't like to loan money to people who don't pay their payments, so these mortgages are gone. No Income Verification and Stated Income / Stated Asset Alt A mortgages still exist.

Johnny Cash, Nine Inch Nails and David Bowie

Watching YouTube the other day, it dawned on me that the artists who created the videos I watched are mostly self employed. We've all been hearing about daily, hourly, minute by minute guideline changes by lenders lately, so I thought I'd chime in.

Now all No Income Verification loans are only available for the truly self employed. If you are salaried at your job, then this isn't the mortgage program for you. Also No Ratio, No Doc, and other Alt A lending programs are going to be limited to homeowners only. If you are a first time home buyer, you will probably not qualify for this programs either.

Credit score is King these days too. An excellent credit score will still enable home buyers to qualify for most of the programs out there, those will less than perfect scores should be prepared to apply for full documentation mortgages, thus limiting them to buying properties they can really afford.

Fed Cuts Discount Rate to Save Countrywide?

National Mortgage News writer, Paul Muolo, says in an article that there was a run on a Countrywide branch in Pasadena, CA the other day. He goes on further stating that Bernanke & Co. cut the discount rate to give a hand to Countrywide with its 16% market share through its $1.4 trillion mortgage servicing portfolio (8.9 million homeowners). Countrywide also owns a thrift with $60 billion in liabilities.

I guess the thinking is that Countrywide needs the rate slash to borrow money to continue it's operations as it's downfall would be a psychological blow that Americans won't be able to handle.

Mortgage Market Craziness

The feds are trying to provide some liquidity to the mortgage market (maybe even accepting those pesky mortgage backed securities as collateral) while the market has priced a 55% change of a rate cut into it. Meanwhile, Homebanc files for bankruptcy, Washington Mutual and Countrywide are on the ropes, and all bank stocks are dropping on fears of everything from mortgage market illiquidity to dwindling investment banking fees.

It's an interesting time to be a loan officer out there looking to build his book of business. I think this is an excellent time to establish myself and someone who is still in the game, who works for a lender who can close and fund (very important) the loan. It's a time to gear up and make those calls to possible referral sources that I've been putting off. To work with developers whose preferred mortgage broker may not be able to close the jumbo loan.

I think I'll be able to increase my book of business during this shake out.

No Longer a Mortgage Broker

Now that I work for JPMorgan Chase Bank, N.A. I'm no longer a mortgage broker.

I just made the move a week ago, so I've been watching the news with interest as American Home Mortgage locks out it's employees (heard they did that, don't know for sure) and then shuts down completely laying off 7000 people.

Also Greenpoint Mortgage has stopped originating Jumbo (loans over the conforming limit of $417K) ARMS. That is a major part of my book of business here in Manhattan. Wells Fargo slashes it's Alt A programs, as does Wachovia. Wells Fargo's Alt A cutback only affects Mortgage Brokers, while Wachovia ditches Alt A lending altogether. Alt A mortgages are those in which the borrower falls between prime and subprime, but the borrower are closer to Prime borrowers, so this really hurts the homebuyer, who might be a small businessman, shop owners and the like.

Accredited's clean bill of health is pending.

Top brass at Bear Stearns says the secondary debt market is the most volatile it has been in 22 years. While Indymac's Chief Executive emailed people saying the mortgage-backed bond market is "very panicked and illiquid", driving Indymac's stock price down.

This next few months are going to be a roller coaster ride for us in the mortgage business, especially those of us on the front lines as we find out hour by hour what types of loans we can originate and what types are no longer available.

Culpepper v. Inland Mortgage Corp. YSP is still legal

The manner in which mortgage brokers are paid by lenders is called Yield Spread Premium. A ruling by the 11th Circuit Court of Appeals has reaffirmed its position in a 12-year-old legal battle that lender-paid fees to mortgage brokers are proper unless consumers can prove the amount is excessive.

Here's the court documents from the 1989 case.

Fed Rate to Stay the Same?

Some 20 economists recently surveyed by Securities Industry and Financial Markets Association, believe short-term rates will hold steady at 5.25% for the next seven quarters. Some of these same economists also believe oil is going to be at $50 a barrel next year. (currently $70 a barrel.)

Once again Mortgage Brokers are the culprit

Andrew Cuomo, the New York State Attorney General is probing the appraisers to find if they are the root cause of the subprime disaster. Two big Manhattan based appraisers signed statements saying they were improperly pressured by mortgage lenders and brokers. The pressure was based on them not getting any more business from that lender if they were didn't inflate the value of the property.

Why would anyone want to work with someone who wants them to act unethically? Now appraisers want to point the finger at other parties. In effect cutting a deal with the AG's office. Also in the Bloomberg article, Y. David Scharf, the attorney for Mitchell, Maxwell and Jackson (my favorite appraiser) dropped the word "lender" from his statement to focus entirely on the little guy - mortgage brokers. He emailed this statement for the Bloomberg article, "It is clear to me that the targets of the investigation are mortgage brokers along with anyone else who exerts any form of economic pressure on appraisers." He wouldn't want to upset big bad, powerful lenders would he?

I guess the next step is for mortgage brokers to point the finger at the real estate professionals, who will point the finger at their buyers, who will point the finger at the developers, who will point the finger at investors, who will point the finger at....blah, blah, blah.

Of course there a mortgage brokers AND lender loan officers AND appraisers AND real estate brokers AND the consumers themselves who have a vested interest in the rising values of real estate the past few years. To keep these people out of the real estate industry is a must. Those who engage in unethical behavior should be warned, those who commit crimes should be punished. There's no question about that.

What gets me about the statements that these two appraisers is their implied complicity while covering their asses while pointing the finger elsewhere. That's what needs to stop.

Our Name on Toast

Recently I've been working on forming my own mortgage brokerage and real estate brokerage with my business partner. It's called The Metropolitan Group.

Check out our name on toast.

Get your name on toast at Your Name on Toast

Keep Your Life In Balance, Ethics Will Follow

A 2007 Deloitte and Touche USA LLP Ethics and Workplace survey shows a strong relationship between having an excellent life/work balance and positive ethical behavior. Additionally it showed that management and supervisors who offer positive reinforcement for ethical behavior have a major impact on their employees as well.

If you are dependent on your job for all of your psychological needs you may be leading yourself to a dangerous place regarding your self worth, and where you fit in the world at large. This can become especially dangerous and lead to unethical behavior with there is an ethical dilemma that has a major impact at work. Those whose entire lives are tied up into what the position on their business card reads, may not make the most ethical decision or take the most ethical action, if they think it will result in a negative at work.

There is also an interesting note on job dissatisfaction. The survey found that 60% of those surveyed believe that job dissatisfaction is a leading reason why people make unethical decisions at work.

Disclose, Disclose and Re-disclose

Federal Reserve Chairman Ben Bernanke recently addressed a Federal Reserve Bank of Chicago Conference focusing his comments primarily on the sub-prime mortgage market. Chairman Bernanke said "in my judgment, effective disclosures should be the first line of defense against improper lending. If consumers are well informed, they are in a much better position to make decisions in their own best interest." The Chairman also noted that he does not expect significant spillovers from the sub-prime market to affect the rest of the economy or the financial system. To view Chairman Bernanke's speech, click here http://www.federalreserve.gov/boarddocs/speeches/2007/20070517/default.htm

Those Troubling State Income Mortgages

In a recent statement, Comptroller of the Currency John C. Dugan said he is increasingly troubled by the growing use of unverified "stated income" in sub-prime lending. Dugan argued that stated income (1) presents too great a temptation for misrepresentation and, in its most extreme form, outright fraud; (2) undermines transparency; and (3) is not a safe and sound underwriting practice. Dugan also said that he believes the federal agencies should address this practice in their pending guidance. To view the OCC press release, here http://www.occ.treas.gov/ftp/release/2007-48.htm or to view Dugan's remarks, click here http://www.occ.treas.gov/ftp/release/2007-48a.pdf

Reverse Mortgages for Purchases

Generally thought of as a refinance only transaction, reverse mortgages are also available to qualified borrowers for a purchase transaction. This can be very handy for those who are age appropriate and want to downsize or relocate. No mortgage payments on a new house isn't a bad thing.

AmTrust Mortgage Eyeballing Coop Loans

AmTrust Mortgage (formerly Ohio Savings Bank) is looking to make a play for the New York City cooperative mortgage market. They have been FNMA approved to lend against coops for a long time, but only recently decided to try to wrap their heads around getting into this line of lending.

They've hired a top dog who formed Citibank's coop lending and asked Jonathon Miller to push out some numbers on the size of the market (about 5 Billion USD), so perhaps they are getting comfortable with this property type.

Interesting for those of us who have been doing coop mortgages for years to see a lender making baby steps into this robust market.

Reverse Mortgages for Coops

Bank of New York Mortgage (owned by Everbank now since Chase and BNY did an asset swap) has introduced a jumbo reverse mortgage product for coops. They are one of 2 lenders offering this niche product. The other is Indymac's Financial Freedom (though I couldn't find any information about that on their site).

Tomorrow I attend a workshop about reverse mortgages on coops, so I will know more about them and how they work.

One thing that comes to my mind with these mortgages is: Is there really that much liquidity in the market that institutional investors are willing to just sit on a loan for x number of years without collecting any payments until the loan is due? That's incredible to me.

Pay mortgage payments with your credit card

American Express announced that you can now pay your mortgage payments with your American Express card. They've teamed up with RBC Mortgage (owned by Royal Bank of Canada) and American Home Mortgage to have your mortgage charged directly to your credit card, once they've originated it.

I'm sure this is just one of many partnerships to pay your mortgage this way. I think Citibank also does the same thing with its credit cards too.

Go get those miles and take a trip, or wallow in more debt at a higher interest rate, the choice is yours Ms. American Consumer.

What 2007 is shaping up to be

The Cooperator has some ideas on what 2007 will bring. Only one surprise- housing prices will rise nationally while NYC housing prices decline. Seems that everyone here in New York City is expecting the good times to keep on roaring ahead, so this prediction by Davis Stiff, Fiserv’s chief economist, will come as a shock, and probably piss some people off.

For more on this check it out here.

Deal Killing Mortgage Broker

Helping a friend sell an apartment (I'm a licensed RE Broker as well as a Loan Officer) in the Riverdale section of The Bronx has been interesting.

By interesting, I have an opportunity to hear what my competition is telling their clients. Today was interesting. I had an appointment with a prospective buyer to show her the apartment in the listing below. She called today and canceled. The Washington Mutual loan officer with whom she is working told her that a 20% down payment was too much.

Perhaps the prospect doesn't have the money. That would be understandable, one needs about $66,000 to buy this apartment ($44,000 down payment and $22,000 in post-closing reserves). That's a lot of money.

But if the loan officer actually did tell her that putting 20% down on a property is foolish, then the mortgage industry has not learned from their mistakes. Since when is it a problem to actually have some equity in your home?