Goodbye Countrywide and Goodbye to their step brother Indy Mac.

The Federal Reserve stepped in and took over Indy Mac bank on Friday.

http://www.latimes.com/business/la-fi-indymac12-2008jul12,0,6071779.story

This comes as no shock to members of the mortgage industry as recently Indy Mac announced it was ceasing its retail mortgage operations.

http://theimbreport.com/?p=161

So why do I call Indy Mac Countrywide’s step brother? For years Indy Mac mirrored all the lending programs that Countrywide created, almost to the point where unless you looked at the login page when you were visiting their site, you could not tell the 2 companies apart. There were times when Countrywide would announce a change in a program or guideline and within hours the same change would be announced at Indy Mac. From an originators standpoint, it was comical how the two companies mirrored each other.

When Countrywide was hammered last year and the Fed stepped in to rescue them (see previous posts) Indy Mac started to take on a life of their own. They for the first time were the first of the two companies to change programs and products reducing their exposure and tightening their lending practices. It was because of these efforts that they managed to last as long as they did. If it were not for comments made by Senator Schumer http://blownmortgage.com/2008/07/08/indymac-bank-run-caused-by-senator-comments/ they may have managed to right their ship and avoid the Fed taking them over.

So why does the Fed rescue one company and take over another? Stock penetration and price. If Indy Mac would have had the numbers of shareholders that Countrywide had world wide or even Bear Stearns, they would have been rescued as opposed to taken over.

For Questions or comments, please contact Chris Scheer at 314.223.9824 or cscheer@cornerstonestl.com.

We are on the cusp!

Undeniably the stock market has become a Bear market. That means that the Dow industrial average is down more than 20%. Sooner or later, those investors are going to start to move to safer investments. What are safer investments you ask? Well I am going to suggest that Mortgage Backed Securities are safer investments. For the last 12 months, this investment has been out of favor with everyone from institutional investors to foreign investors. As housing prices have fallen drastically on both coasts the middle of the country has done a good job of holding value. The Countrywide Mortgage debacle has turned a corner and is now Bank of America’s problem. The Fed has not had to rescue any more mortgage companies for the last 30 days. Second quarter earnings are being reported this week and by now all the major companies have figured out that they cannot hide the losses from the mortgage mess, so those will be dealt with in these reports.

That leaves us with mortgage backed securities in position to be an attractive investment again; especially the Ginnie Mae government loans. With over 70% of all loan applications that I am taking right now being for FHA or VA loans, I am confident that most other successful originators are doing the same. This will create a huge supply for these investments and the hawkers of these securities will have the product to sell and most of these properties will not be those that are going into foreclosure but being bought out of foreclosure by people who have the means and desire to make their mortgage payments. Sooner or later, Wall Street is going to start moving these securities and then the laws of economics will take over. As demand goes up so does price. On a bond, for those of you that don’t remember, when the price goes up the yield (see interest rate) goes down. Thus, even though there is discussion of the Fed raising short term interest rates, what they really are hoping for is that the lowering of short term rates that they did months ago will finally take hold on the long rates and we will see the 30 year fixed rate get below 6% again.

Now I realize that this is optimistic thinking on my part, but if you listen to the doom and gloom prognosticators out there saying that the economy and the stock market are still in for tougher times, someone has to be willing to bet on the bond market. Today I am that person!!!

Declining Markets

As the foreclosures and short sales begin to take effect on the housing market one of the single biggest changes that is occurring is the dreaded “Declining Market” label attached to a property in the appraisal. I have seen investors make the predetermination that certain zip codes, cities and counties are in declining markets and thus they are lowering their exposure by reducing the maximum loan on the properties in that area. Other investors have said that they will only apply declining market guides if the appraisal states that the property is in a declining market. Either way, when the declining market rules come into play, the only person that loses is the borrower.

Here are a few examples:

· The borrower is planning on putting only 5% down to purchase the property and the investor has deemed that entire zip code to be a declining market. They will only lend on the property if the buyer puts 10% down.

· An investor is planning to purchase a home with 10% down and the appraiser notes that the property is in a declining market. Now the investor has to put 15% down to get the loan.

In both cases if the borrower has the additional 5% it is an inconvenience, but the transaction will still go forward. But if the borrower does not have the additional 5%, then the deal is dead. In most cases the seller has lost valuable days marketing their property while the waiting for the buyer to get loan commitment.

Now that we know the challenges this brings I will discuss the inadequacy of how this is applied in my next post.

Gentlemen Start Your Engines

Fasten your seatbelts mortgage professionals. This week President Bush will sign into effect his economic stimulus package. The stimulus package contains several features designed to improve the troubled housing market.

It would increase the Federal Housing Administration's loan limits from $362,000 to $729,750 and those of two federally sponsored entities, Fannie Mae and Freddie Mac, from $417,000 to $729,750. The FHA insures private loans made by FHA-approved lenders, while the other two buy and sell loans in the secondary market.

The measure would also enable the FHA to become more active in dealing with the direct impact of the housing crisis, permitting more borrowers facing defaults to refinance subprime loans through the federal agency.

So what does this mean to the mortgage industry?

1) Every loan that was a “Jumbo” loan that was originated in the last 4 years in all probability will be now a conforming conventional loan. That could mean a drop of up to 1.25% in the interest rate for borrowers. On $600,000 that is a savings of $489 a month. You can bet those borrowers will be clamoring for the chance to save money. Especially when the package may call for the change in the loan limits to only last for 12 months.

2) All those borrowers who have conventional loans that are over the current FHA loan limits will get a chance to refinance their first and second mortgages up to 95% of the value of their house depending upon the new FHA loan limit in their geographic area. These are the people that Fannie and Freddie have turned their backs on with the current mortgage crisis. As delinquencies rose credit standards have tightened.

3) Pipelines will swell and people will be hired to handle the increase in volumes.

4) Real Estate will recover in the following years as people have had a chance to re-adjust their budgets and dig out of the mess that was created.

For all those out there that would like to comment on this or who have one of those Jumbo loans, please contact Chris Scheer at 314.223.9824 or cscheer@cornerstonestl.com.

What Just Happened?

In a move not seen in recent history the Federal Reserve has stepped in and lowered short term interest rates. I could go on and on about the fears of the world about the U.S. economy going into recession, but you can get plenty of that information from other sources such as http://online.wsj.com/article_email/SB120100837976106391-lMyQjAxMDI4MDIxMzAyMDM4Wj.html or http://www.forbes.com/2008/01/23/europe-interest-rates-markets-equity-cx_vr_0123markets06.html?partner=msn.

What I want to discuss is the ramifications this has on real estate and the mortgage industry.

The bond market responded to the rate cute as I would have expected. Prior to the move the market had priced in a 50 basis point cut at the next Fed meeting. All it did yesterday was add the other 25 basis points to the Fed move and now we are seeing the 30 year fixed in the 5.5% range. If borrowers are paying attention, you can now purchase a home with little or no money down and get a fixed rate mortgage for 6% or less. Housing prices are at near bargain basement prices. The Fed is betting that aside from calming the fears of the world markets, this will be the impetus that will get people back out buying houses. I personally think that we are still months away from that day. Even thought the inventory is overloaded with good houses for first time homebuyers and there are bargains everywhere you look. It will fall upon the middle class of America to jump start the real estate cycle.

For the past 3 years the middle of the price range has been the house slowest to move. The people who are looking to buy their second or third house to move into or the people who anticipate or have just received a promotion at work and are ready to get a bigger house. These are the people who need to get back into the game. For quite some time they have been standing on the sidelines hearing all the gloom and doom about the economy and they are smart enough to recognize that they could lose their job. We are a long way away from them feeling secure enough to make that move. Until then we will continue to see housing struggle.

For questions or comments, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

Customer Service or Lack There Of!

If you have read my previous posting on Manufactured Housing you may be aware of the challenge that I had getting the appraiser to put the Make, Model, serial number and year manufactured on an appraisal of a Manufactured house. The appraisal form clearly states that this information is needed, yet the appraiser we chose to use could not find the information on the property and thus felt it was not his responsibility to locate. Over a 2 week period my assistant requested the information be added to the appraisal and each time she was told he didn’t have it or have access to it. Since this was one of my first challenges working with this assistant I let her attempt to handle the situation until it became a crisis. I recognize I should have stepped in sooner, but until you see someone perform under fire you don’t know how good they are.

At the eleventh hour I went to the internet and found the source of the information within 10 minutes. Prior to doing that I sent an e-mail to the managing partner of the appraisal company that was very direct and to the point, see the following:

We have a challenge. As you are aware, we have asked the appraiser to supply the Manufacture’s serial number, name, trade/model and date manufactured for the property on Lynch road. At this time this is the only item I need to get a clear to close, however we will not close until we have it. In the appraiser’s defense, the realtor and her clients went through the entire house tonight and could not find it. However, since there is the HUD certification label #RAD730051 as per his appraisal, this should be the basis to track down the required information. If the realtor manages to find this information then the appraiser looks bad. If we manage to find this information, then the appraiser looks bad. If HUD provides it, he still looks bad, but not as bad. If he finds it, then he gets off the hook. See the challenge? I realize that this is extra work and frustrating for everyone. However we have a client who is trying to purchase a home and helping them achieve their goal is what we do.

Feel free to call me if you have any questions or comments.

I have inserted “the appraiser” and “realtor” where the names were in the correspondence. I received no reply to this e-mail from the appraiser and when I was contacted that day by the appraiser to review the value on another property nothing was mentioned of the e-mail until I brought the situation up. The defense of the appraiser was that no other lender had ever requested this information and he felt it was not his responsibility. I reiterated that the underwriter requested that the appraiser complete this section of the appraisal, therefore at that time it becomes the appraiser’s responsibility. He continued to contend that since he couldn’t find it then it wasn’t his job to get it. When I explained how easy it was for me to obtain, he asked why I didn’t do that sooner. It became a circle of discussion with me telling him what I expected as the client and him saying that he wouldn’t do it. Later that day I addressed the situation with one of the other principals at the company whom the e-mail was sent to and he defended his partner. Going further to say that we didn’t know what we were doing.

I appreciate a business partner defending his associates, but at the point that you have a client telling you that you screwed up and that what was being requested was not out of the ordinary for out industry this is not the stance to take if you want to keep the relationship. As the lender I have a choice of the appraisers I choose and the stance this company took will keep them from getting any more of my business.

For questions or comments on this post, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

All I Want For Christmas

So imagine if you will; you are one of the many mortgage originators who have managed to stay in this industry through the last 3 years of cutbacks, layoffs, companies going out of business and income less than you have seen in a long time. Over the last 2 ½ weeks you have seen the 30 year fixed rate drop below 6% more than once and actually get to 5.75% for 24 hours before heading north again. You have glimmers of hope of making money again; real money! Not just closing enough loans to pay off your draw and keep your job, but enough money to justify all the pain and heartache you have experienced lately.

Wall Street is in your corner. They are pushing for the Fed to continue to lower short term interest rates. They need the lower costs of money to offset their huge losses in the Subprime Mortgage fiasco that they created. Your consumers are clamoring about the most recent Fed rate cut “does this mean that my interest rate dropped?” Instead of being able to say yes you have to say no and then spend 10 minutes on economics, Wall Street, mortgage backed securities and Japanese candlesticks to try to get them to understand the difference between short and long term rates and that one moving doesn’t mean the other will move.

You are exhausted and leave the office to try to find a real estate agent to talk to in hopes of getting a deal from them only to find that you either can’t get into their office or the agents you can find spend the entire conversation telling you how bad the real estate market is and no one is doing any business. You grow weary of bad agents and bad attitudes and get back into your car only to find that no matter what radio station you turn on you hear a commercial for a mortgage company, one of the “Dark Side” lenders who continue to prey on the unknowing and confuse most of the average and below average consumers with their lies and misleading information. Thoughts of George Bailey jumping off the bridge in “It’s A Wonderful Life” dance through your head. As you think of that you realize that the story ends happily and George gets to live his life with happy endings. Where are your happy endings?

They are right where they should be! This career, this job you have chosen to continue to pursue is your Christmas wish. It isn’t about the money. It isn’t about confused borrowers. It isn’t about competitors that don’t play the game fairly. It isn’t about realtors who let others control their minds and outlook on their career. It isn’t about whether the Fed lowers or raises interest rates. No it is about each and every borrower you do get to help finance or refinance their home. Not house, but home! You get to help people live the American Dream. It is about being the person who touches the lives of everyone you meet in a positive way. You can only be measured by how you made the lives of the people around you better. Accept that as your calling and reap the rewards of a life worth having and living!

Happy Holidays!

For your questions or comments please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

I Knew Everything!

I had the chance to get my shoes shined last week and found more wisdom in the person shining my shoes than I do in most people I meet on a daily basis. Life has been hard to him but he also has finally learned from his mistakes. He says it took him the opportunity to be locked up for 7 years to learn he didn’t know it all. “I knew everything but my own ignorance” he said. “I was always with a pocket full of money and living for the moment. My decisions were always about me and what I wanted at that moment. How could I get satisfaction or how could I get enjoyment at that moment. Most of the time it was alcohol and women; it took me going to jail to learn what gives you pleasure gives you pain.” Think about it! As he took the time to shine my shoes he kept on talking about how he made the wrong choices kept on making the wrong choices. But now he saw the light and realized that it wasn’t about now, it was about the rest of his life. He is now saving money and planning for his retirement. Think about that, this man shines shoes for a living and he is saving money and planning for his retirement. How many people in this country make $100,000 a year and don’t manage to save money. I don’t know what my enlightened shoe shiner earns, but I know that for a $5 shine I gave him a $5 tip. Those two quotes, “I knew everything but my own ignorance” and “what gives you pleasure gives you pain” were worth more to me than my college education.

So what does this have to do with buying a home or financing a home? I hate to say that if you didn’t get the message then you weren’t paying attention. Quit living beyond your means! Start saving money! Stop using credit cards. Here is a quote for you, “only poor people use credit cards.” Stop believing that you have to live better than your friends or at least as good as them. If they are your friends they will accept you for who you are not what you look like. This applies to your home also. Do you really need that giant house? Do you really need that new car? Is what giving you pleasure now going to give you pain later in life? Remember our entire economy is on the brink of disaster. The Federal Deficit is growing by the second. Be sure that you are preparing for the future and not living for the present.

For questions of comments, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.

Where did you go Jumbo?

I was on the phone with a past client last night that is building a $1,300,000 house and will need a loan for $800,000. When she asked about the rate on the 15 year fixed rate mortgage I tried to prepare her for the rate shock, but I almost had to call the paramedics after she heard the rate. As the fallout from the break up of the marriage of Wall Street and Mortgage Backed Securities continues, the pressing question on the mind of many borrowers is, “Why are Jumbo rates so high?” First we need to define what a Jumbo mortgage is and for that we turn to our new “bff” Wikipedia http://en.wikipedia.org/wiki/Jumbo_mortgages. Now that you know what a Jumbo mortgage is, hopefully the fact that it is the insurance companies and banks that are the ones who purchase these Jumbo Mortgage Backed Securities for their investment portfolios will help shed some light on why there is not as much demand for them. No different than any commodity in a capitalistic society, the laws of supply and demand rule the day. As the demand for these products has shrunk, the price of them has fallen. Because they are a bond instrument, back to my new “bff” http://en.wikipedia.org/wiki/Bond_valuation, when the price falls, the yield or interest rate rises. In the case of the Jumbo loans, the price has fallen so much that spread of the yield from Conventional loans is greater than it has been in the last 20 years. So we have all the Banks and Insurance Companies that would normally be gobbling these securities up straying away from them because they are mortgages.

Mortgages right now to investors are a very bad word. Jumbo mortgages are part of the 3 trillion in adjustable rate mortgages are coming due this year and next. There is too much demand for these products for the spread to stay where it is today. As I have challenged the industry before I will challenge them again. Somewhere there is an insurance company or a bank that is willing to put these loans on the books at a more reasonable price. As I type these words I am sure that those companies are out there, it is just harder to find them but we will!

For your comments or questions, please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.