NY Times Article

THIS IS AN ARTICLE ABOUT MY CUSTOMERS. I DID AN INTERVIEW WITH THE WRITER FOR ABOUT 3 HOURS and HE NEEDED CUSTOMERS AND OTHERS TO TALK TO...I SENT HIM ABOUT 12 PEOPLE AND EVERYONE IN THE ARTICLE WAS FROM MY DATABASE.



As an Exotic Mortgage Resets, Payments Skyrocket

DAVID STREITFELD
Published: September 8, 2009
Edward and Maria Moller are worried about losing their house — not now, but in 2013.


Edward and Maria Moller and their son, Isaac, at their La Mesa, Calif., home, which was financed with an interest-only loan.


That is when the suburban San Diego schoolteachers will see their mortgage payments jump, most likely beyond their ability to pay.

Like millions of buyers during the boom, the Mollers leveraged their way into a house they could not otherwise afford by taking out a loan that required them to make only interest payments at first, putting off payments on the principal for several years.

It was a “buy now, pay later” strategy on a grand scale, meant for a market where home prices went only up, and now the bill is starting to come due.

With many of these homes under water — worth less than the loans against them — many interest-only mortgages will soon become unaffordable, as the homeowners have to actually start paying principal. Monthly payments can jump by as much as 75 percent.

The Mollers owe so much more than their house is worth, and have so few options, that they are already anticipating doom.

“I’m praying for another boom,” said Mr. Moller, 34. “Otherwise, we’ll have to walk.”

Keith Gumbinger, an analyst with HSH Associates, said: “This is going to be the source of tomorrow’s troubles. The borrowers might have thought these were safe loans, but it turns out they bet the house.”

After three brutal years, evidence is growing that the housing market has turned a corner. Sales in July were the highest in a year, and August gives signs of having been even better. In nearly all major cities, home prices are now rising.

Celebration, however, might be premature. The plight of the Mollers and many others in a similar position is likely to weigh on any possible recovery for years to come.

Experts predict a steady drumbeat of defaults over much of the next decade as these interest-only loans mature. Auctioned off at low prices, those foreclosed houses could help brake any revival in home prices.

Interest-only loans are not the only type of exotic mortgage hanging over the housing market. Another big problem is homeowners with “pay option” loans; in many of these loans, principal balances are actually increasing over time.

Still, interest-only loans represent an especially large problem. An analysis for The New York Times by the real estate information company First American CoreLogic shows there are 2.8 million active interest-only home loans worth a combined total of $908 billion.

The interest-only periods, which put off the principal payments for five, seven or 10 years, are now beginning to expire. In the next 12 months, $71 billion of interest-only loans will reset. The year after, another $100 billion will reset. After mid-2011, another $400 billion will reset.

John Karevoll, a longtime senior analyst for MDA DataQuick, sees the plight of interest-only owners this way: “You’re heading straight for a big wall and you can’t put the brakes on.”

The greater the length of the interest-only period, the more years the owners have to hope for a recovery, government help, or a miracle. But a long interest-only period works against them, too. A loan that is interest-only for its first 10 years means the entire house has to be paid off in the next 20 rather than the more typical 30 years.

One possible solution: start paying extra each month now to pay down the principal before the loans reset. But many homeowners took out the maximum they qualified for, and don’t have the means to pay more, or at least not enough to make a sizeable dent in the principal.

A decade ago, interest-only loans were rare. But as the boom heated up and desperate buyers sought any leverage they could, these loans became ubiquitous. They were especially popular in Florida, Nevada and above all California. In 2004, nearly half of all buyers in the state got one.

The Mollers bought in 2005, paying $460,000 for their three-bedroom, thousand-square-foot house. A quick refinance a few months later supplied cash to pay debts. Now the house is worth perhaps $310,000. After their interest-only period is up, they expect their monthly payments to increase 20 percent if not more.

“Everyone out here always preached to me, ‘Buy real estate. It’s the best investment you’ll ever have,’ ” said Mr. Moller, who grew up in Iowa. “Then all this stuff started crumbling and I was like, ‘You’re kidding me.’ ”

While default may be a long way off, the prospect is already dampening the couple’s spending habits. They are postponing the new windows the house needs. They recently bought a 2005 Nissan Murano instead of a new car, and they have put off buying a flat-screen TV.

Mark Goldman, a San Diego mortgage broker, said many interest-only buyers thought they would be in control when the loans reset. “They expected to move or refinance,” he said. “But you can’t do either when you’re under water.”

Among the people Mr. Goldman put into interest-only loans was himself. He refinanced five years ago to shrink his payments so he and his wife, Julie, could put their two sons through college. When the interest-only period expired a few months ago, their payments went up by 40 percent.

The Goldmans have been in their house for 20 years, which means they still have some equity. Still, they are unhappy to find themselves in “a world different than we planned for,” said Mr. Goldman, a lecturer in real estate finance at San Diego State. “If you purchased your home with an interest-only loan between 2003 and 2006, you’re cooked.”

The federal government, through the finance company Fannie Mae, increased the scope of a program this summer that might help some interest-only borrowers by letting them refinance. But it will not help many in coastal California. Only loans owned by Fannie Mae are eligible, and during the boom Fannie had a limit of $417,000 — not enough to buy a home at the peak in a middle-class community.

Dean Janis, a Southern California lawyer who bought a $950,000 home in 2004, will see his interest-only loan reset in December. He calculates that will send his payments up a minimum of 27 percent, to $3,726. A rise in rates could eventually push it as high as $6,700.

“I understand I took a risk,” Mr. Janis said. “But I did not anticipate that the real estate market would go down 30 percent.” He talked with Wells Fargo about his options, and the lender said he had none.

Homeowners with interest-only loans have a much greater likelihood of default, the First American CoreLogic figures indicate. Nationally about 18 percent of prime interest-only loans are at least 60 days delinquent. In California, the level is even higher: 21 percent, a rate exceeded only in the other bubble states of Florida and Nevada.

“The bailout is not trickling through to help many of us who have worked hard, under very difficult circumstances, to keep paying our bills,” Mr. Janis said. “I am stuck with nowhere to go — absent trashing my credit and defaulting.”

Federal Reserve and Other Legislative Updates

I just got off a California Association of Mortgage Brokers Government Affairs conference call and have important somewhat game-changing information to report from the Federal Reserve and HUD that affects not just everyone in the mortgage and real estate industries but our customers and the population as a whole. There is also other pending legislation we need help on from our customers and all industry participants. It is important that everyone reads this because there will be ACTION PLANS that we will all need to do to in regards to either blocking things from happening or making things happen. There are also lots of questions about loan modifications and I want to give some direction to my customers that even many realtors or loan officers may not be aware of. Attached are the following:

New Federal Reserve Rule dated August 26th
Today’s HUD Memo regarding changes to the FHA Policies
Short List of State Bills
CAMB’s Letters against AB 260 and supporting SB 36 Safe Act Implementation

I will go over these issues one by one and will have this e-mail and all of the info posted up on macplan.blogspot.com for your future reference in case you can’t read this right now.

NEW FHA GUIDELINES

Per today’s press release by HUD small loan originators will no longer have to get HUD approved or have net worth requirements. So this is a big victory for CAMB and the small loan originators since we have been pushing HUD to open up FHA to the small brokers. This is also good for Realtors as it could open up the Realtors to deal with loan originators that they want to deal with instead of going to an institution forced upon them.
In theory this is also good for borrowers because the FHA products could be opened up to more competition.
However, don’t be jumping too high. Even though now originating brokers will not have to go through the HUD Approval process, the lenders probably will setup their own FHA originator guidelines. Warehouse lenders who mortgage bankers get their funds from to lend are becoming stricter than ever with mortgage bankers. The new FHA guidelines put the risk squarely on the lender funding the loan and I have a tough time believing that a lender would not try to pass that risk on to a broker submitting the file.
If that is not possible, then you are looking at lenders not taking on any 3rd party origination business….in other words the small brokers even though it will be legal for them to originate FHA loans may not be actually able to do so because the lender funding the loan is assuming all of the risk and because of that they may only want to fund loans done in-house on their retail side to eliminate quality control issues with brokers.
As the mortgage bankers are currently getting squeezed by their own warehouse lenders per today’s HUD announcement they will also now have to have a net worth requirement of 1 Million Dollars compared to $250,000.
This probably will close down a lot of smaller to medium sized mortgage bankers or at least promote mergers amongst them so that they could pool their net worth.
On the one hand HUD does something that is supposed to open up competition by giving the small brokers the ability to do FHA loans….and the other hand they are taking away competition by increasing net worth requirements on mortgage bankers and putting 100% of the risk for the loan on the originating lender instead spreading the risk to the broker, lender and investor.
The HUD changes overall further promote consolidation of the lending industry into the hands of the few and this ties into the Federal Reserve rule which I will get into next.

FEDERAL RESERVE RULE AUGUST 26th

On August 26th the Federal Reserve published a proposed rule that would significantly change the way that bank loan originators and mortgage brokers are to be paid. There is a 120 day public comment period on this rule. Our National government affairs team is meeting with the Federal Reserve early next week to go over the concerns that we have to and clarify some issues. I would advise that everyone read the attached Federal Reserve Rule and forward your comments to me by Monday of next week so that I can put something together to give to the team meeting with the Federal Reserve. Here is the video on this Rule by CAMB’s state Government Affairs Chair Ken Jones, there are 2 parts. After the meeting with the Federal Reserve next week will be putting out another more detailed video and suggest a more detailed action plan:

www.thinkbigworksmall.com/mypage/archive/4484/21665

This Rule if implemented will bring with it the ultimate consolidation of lending into the hands of a very few which I have been predicting for years now. This means extremely higher rates and less loan options for borrowers, both of which we really don’t need right now in this economy. The Federal Reserve Rule is far and away a bigger issue than the health care debate, although the government takeover of healthcare is important.
This Federal Reserve Rule would further empower the money-changers as FDR called them that caused the financial crisis in the first place.

I will be detailing and publishing my concerns about this Rule after the Fed meeting next week. But I want my customers and everyone to know that within 120 days if the Fed is not stopped or unless it modifies the Rule you will see rates go way up, more unemployment, less credit, even more foreclosures and very few options on where you go to get a loan done. This Rule Changes the lending landscape 180 degrees and basically does away with the securitization model that worked OK up until Wall Street crooks developed loan programs and products that didn’t make sense.

FEDERAL LEGISLATION

HR 3126 is the Consumer Finance Protection Act which is sitting in Barney Frank’s House Financial Services Committee. HR 3126 ties into the Federal Reserve Rule. It would create a Superpower Regulator that would have total control over originator and lender compensation. In other words, the government would be telling community banks, mortgage bankers and loan originators how much they can make on a transaction instead of letting market conditions and the free market decide. This bill is currently being negotiated behind closed doors. At this point we believe that the bill won’t come out of committee in its current form. There is a turf ware going on. The bill would take too much power away from the Federal Reserve and Treasury. I will let you know more as we get more info on this.

With both the proposed Federal Reserve Rule and HR 3126 it is obvious that the government does not trust the people of the United States to make financial choices and decisions on their own. That is why the government wants total control and limited competition.

HVCC – Home Valuation Code of Conduct HR 3044

The HVCC is the appraisal regulation that was made as part of a deal with NY Atty General Cuomo and the GSE’s. It puts the control of the appraisal process in the hands of 3rd Party Appraisal Management Companies. Customers are being charged more for often bad appraisals done by rookie or out of town appraisers, experienced appraisers are working for less, and the lenders who often own part of the appraisal management companies are using this process to as another avenue for profit margin and as a way to manage their lending capacity…in other words not lend.
HR 3044 would put an 18 month moratorium on the HVCC. It has 91 sponsors. It is currently being held up by Barney Frank. The only way we can get this out of committee is to put the pressure on Frank by getting more co-sponsors for the bill. So far, as far as I have been told, none of the San Diego delegation, democrats or Republicans have sponsored the bill. We need all of them to do that!

ACTION PLAN: Call your Congressman and tell them to co-sponsor HR 3044!

STATE BILLS AND LOAN MODIFICATION NEWS:

Attached is a short list of state bills that affect the lending industry and our customers. The enrolled bills have been sent to the Governor to sign and he has until October 11th to sign or veto the bills. AB 260 is an especially bad bill for everyone on many different levels. We hope and expect that the governor will veto it.
SB 94 has also been sent to the governor and we expect him to sign it. This will make it illegal for anybody, including attorneys, to accept upfront fees for loan modifications.
This is an urgency bill so it should be signed sooner than later and take effect immediately.
SB 36 is the implementation of the SAFE ACT and that will be signed. AB 33 the Creation of the Department of Financial Services is a 2 year bill which is still being worked on. That would merge the DOC and DRE Brokers.
Overall, CAMB has done an extremely good job this year of dealing with the state legislature and our industry partners with the over 81 bills that effected our industry and our customers.


LOAN MODIFICATION, SHORT SALE AND OTHER ISSUES

I have been getting more and more calls from my past customers who mostly are upside down about getting loans modified or refinanced. Here are some basic rules:

1) If your current loan that you want to be modified or short saled is a purchase money loan…a 1st and/or 2nd that was taken out when you bought the property…think very,very long about trying to do a loan modification or short sale the property. If you do those you could lose a lot of important protections. I would see an attorney before you did anything.
Purchase money loans are non-recourse loans…which means in most cases the lenders can’t sue you for the deficiency balances if you decide to walk away or if you get foreclosed on. Also, if you have a purchase money loan and you get foreclosed on in the past the written off debt would have been considered as income for you and you would have received a 1099 from your lender. However, now there is a good chance that you may fall within the Mortgage Tax Relief Act guidelines which could do away with your potential tax liablilities. If you think about walking away or going thru foreclosure talk to a CPA or a Tax attorney for tax advice.
If you decide to do a short sale because you don’t want to have a foreclosure on your record and you have a purchase money note it could be said by some attorney’s that by short selling the note the note then becomes modified….once the loan is modified then it becomes in most cases a recourse note….then that could open you open to both lawsuits from your current lender to go after the deficiency balance and also open you up to tax liabilities.

2) If you have already done a refinance and you are trying to get your note modified:

a) See if the loan is owned by Fannie Mae or Freddie Mac by going to MakingHome Affordable.gov. If it is follow the steps with your servicer to see if you qualify for the loan modification or refinance

b)If you do not have a FNMA or Freddie Mac loan….AND you did a full income documentation loan when you took the loan out originally then go to Community Housing Works, a HUD approved agency that could try to help you out for free. They have the systems down but don’t wait until the last minute…see them early.

c) If you do not have a FNMA or Freddie MAC loan…and the loan you are trying to modify was done on a STATE INCOME/STATED ASSETT program…then I would probably go through an attorney because you would have attorney client privledge. When you apply for a modification you need to provide documentation to the lender. Anything you give the lender can be used to approve your modification but may also be used against you later on by the lender if something you give them doesn’t match up to the original loan package. You or your original lender or broker may not have done anything wrong…but the lenders being asked to modify the notes could claim something was done wrong either to justify pushing the property into foreclosure or to recoup their losses in other ways. Lenders are not playing nice these days….and if they are taking losses they want everyone to be as damaged as possible.

Bottom line, I am not saying to walk away from your home or to go through foreclosure. If you are upside down and can afford the payments my suggestion is to keep what you have as long as you can until loan programs come along that make sense to you. Short term modifications don’t make sense for most people.

If you are having problems making payments then certainly look at all options including modifications. However, seek advice from a qualified real estate attorney and/or CPA first before talking to your lender. You should have a plan that is acceptable to you before you talk to your lender. If your lender can’t comply with your requests for what would be good for you, then examine all of your options at that point.

That’s it for now.

Dave McDonald
American Dream Mortgage
619-977-1193
DRE Lic#01400040

Making Home Affordable Letter to Congress

September 15, 2009

San Diego Congressional Representatives
Hon. Senators Dianne Feinstein and Barbara Boxer
FHFA Director Edward De Marco
United States Treasury Secretary Timothy Geitner
House Financial Services Committee Members
Senate Banking Committee Members

RE: Making Home Affordable Program Implementation and the Financial Reform Plan

Dear Honorable Senators Feinstein and Boxer, Congressional Representatives, Secretary Geitner and Director De Marco:

This morning I received a memo from Wells Fargo that says even though FNMA and Freddie Mac now say they will go up to 125% Loan to Value on the Making Home Affordable Program Wells Fargo will only go up to 105%. Wells Fargo is one of the biggest loan servicers and it has not bought into the Making Home Affordable program per this memo:

Investor: Wells Fargo
Type: Guideline Information
Description: DU Refi PlusTM LTV Update: Fannie Mae Announcement 09-26 increases the maximum allowable LTV for DU Refi PlusTM loans to 125% effective with DU® system updates after the weekend of September 19, 2009. Wells Fargo Funding will not adopt this change and continue to limit the maximum allowable LTV for DU Refi PlusTM loans to 105% and will not purchase loans with an LTV greater than 105%. This communication amends Seller Guide Section 805.06 which will be updated accordingly.

The Making Home Affordable Program is not working, and has never really had a chance to work based on the lack of participation or other issues with key institutions that make of the chain of the lending process.

I personally am sick and tired of the dog and pony show of different government agencies rolling out new loan programs and exaggerating the anticipated success of those programs. Making Home Affordable is not going to help 9 Million People. It won’t even come close. Here is why:

SOME PROBLEMS WITH MAKING HOME AFFORDABLE

1) The program is limited to only FNMA and Freddie Mac serviced loans. Alt- A loans and others still don’t have even the options available from Making Home Affordable.

2) If a customer has a FNMA or Freddie Mac serviced or guaranteed loan still many lenders are not participating in the program.

3) If a lender does participate in most cases they will only participate with their own customers. Both the FNMA DU Refinance and the Freddie Mac Home Relief in reality are only being used by the lenders that currently service the loan. This means that there is less competition for that loan and the consumers are getting hit with higher costs and higher rates.

4) Mortgage Insurance companies are still a clog in the system. Most borrowers that currently have Mortgage Insurance and are with one servicer do not have the option to shop around for a loan because in most cases the only way to qualify and re-write the MI policy is to go back to the same lender as before. Again, no competition for that loan and higher fees and rates to the customers.

5) I understand the reluctance of the lenders to join the program. On many levels it makes sense that a lender would not want to do a 125% Loan to Value loan. It would make sense for them to want to charge more for it because of the risk factor. It would make sense for undercapitalized Mortgage Insurance companies to not want to re-write policies for higher loan to values when they are already struggling to come up for reserves for anticipated loan losses as well as reserves for the new policies they write.

Here are some suggestions on what could be done to unclog the system:

SOME SOLUTIONS TO CURRENT LENDING ISSUES

1) Enforce the agreements between the GSE’s and lenders. Wells Fargo and other lenders have signed up to be a servicer with the GSE’s and have signed other agreements with the GSE’s. However, from what I am being told it is up to the individual lenders to make their own loan guidelines such as staying at 105% LTV. The Congress, Treasury and the GSE’s have to make the lenders go with the programs that the GSE’s come up with. Lenders that use GSE funds or guarantees cannot have it their way only. Lenders have to understand that refinancing a loan that ends up reducing the payments for a customer that is upside down is and will be beneficial in the long term for everyone.

2) Force the lenders to re-open the 3rd Party distribution channel. Currently and predictably, there is very little or no competition out there for consumers to shop to get loans. The small mortgage brokers, realtors and appraisers has been made into the scapegoats that caused the mortgage meltdown. Today, most lenders have cut brokers off. The Home Valuation Code of Conduct has put appraisers out of business. Realtors are having a tougher time than ever dealing with lenders on short sales.

Now, the lenders who are trying to manage the balance sheets are hiring their own retail loan officers and loan modification staffs at great costs to those lenders. The reason brokers existed in the first place was because banks used them to get more market share without having to pay for training and other human resource expenses. The mortgage brokers that are currently in business have been in it for a long time and new laws being implemented will prevent bad actors from getting into the business. Now is the time when banks should be using and outsourcing the expertise that is available.

3) Combine the GSE’s. Take the best programs of both of them and get rid of the rest. The fact is that we the people own them. We are overpaying. Customers and even industry professionals are confused and have a tough time keeping up. Consolidation is good in this case.

4) Develop another government entity via the Treasury that could provide warehouse lines of credit at good terms to banks and mortgage bankers which would result in more competition for loans. The increased competition would be great for consumers and would ignite the securitization market. If done right the Treasury could and would actually make a profit. The securitization process has worked in the past before rogue Wall Street insiders bastardized the mortgage backed securities market with loan products that did not make sense. However, securitization has not comeback yet. Lenders really don’t want to lend because they know we are expecting more declines in values and higher unemployment rates. Lenders are balancing their current lending capacity against their anticipated future losses. Thus, every loan done today is extremely tough to get done even for the best customers. Increasing the lending capacity overall will help to stabilize the housing market which would help to stem some of the future losses.

5) Form a co-op with the GSE’s, Mortgage Insurance Companies, Lenders and borrowers so that Mortgage Insurance is available for the GSE Products with less than 20% down. This would be similar to the FHA MIP program except that the MI companies would have a vested interest in the program. Mortgage Insurance companies are severely undercapitalized to the point where they are not even able to insure many new loan products in the parts of the country hardest hit by the financial crisis. Thus, for most new buyers with less than 20% down or previous FNMA borrowers that have lost equity and are trying to refinance those borrowers have to get an FHA loan and pay the upfront and monthly FHA Mortgage Insurance Premiums. The inability for the Mortgage Insurance companies to insure new GSE loans has hurt the economic recovery in the country. Customers have not been able to better their financial situation in many cases due to mortgage insurance issues.

6) Develop a loan product thru the GSE’s for Performing loans such as Alt-A that are not currently owned by the GSE’s. Make this loan product available for upside down borrowers as well as borrowers with alternate income documentation. If done right this could be a money maker for the government. Many borrowers who are making their payments now could qualify when they got their original because of higher debt ratios available on full income documentation loans or the fact that they used alternative income documentation to get into the loans at the time. Now those guidelines are no longer available. The borrowers cannot better their financial situation and if they are upside down they have a high likelihood of walking away unless a program comes around which could help make them feel more financially secure.

7) Bring transparency to all of the financial instruments such as CDO’s and the mortgage backed securities that brought on the financial crisis by setting up a regulated trading platform for all to see.

8) It is estimated by one bank than in a couple of years almost 90 percent of Californians will be upside down and about 50% of American will be upside down. When that happens the American people will be losing their freedom. There only options will be bad ones such as going on now with foreclosures, short sales and bankruptcies. There will be very few buyers that will qualify for new home loans due to bad credit issues and this will effect the pool of buyers in the coming future. When this happens 2 things have to happen:

A) a mortgage credit moratorium which would free the market up to more buyers. 90% of the borrowers were not stupid and it is not their fault they are upside. If the rest of the credit is good and they have the ability to pay they should not have to deal with the negative consequences that Wall Street and the large banks created.

B) There will have to be a systematic loan program that allows current homeowners that are upside down move without having a foreclosure or short sale on their. One program might allow traveling debt to another property in the form of an note. One program might allow for principle reduction with certain terms.


MY CUSTOMERS, THE BAKERS

This story says it all about what I have been talking about. Mr. Baker has a home in Central California. He had a 15 year fixed on it with a rate in the 6’s and hoped to pay it off before he retired. He and his wife took out a Home equity Loan to do major home improvements and for other family needs. The plan was for the first mortgage to be paid off then they would payoff the 2nd mortgage.

The problem happened when Mr. Baker lost his over 100K per year job that he had for over 15 years with no notice. Refusing to go on unemployment, Mr. Baker sucked it up and took almost a 70% pay cut just so he could keep working. He didn’t want any handouts.

When he took the job for about 35K he called his lender Citi to see what they could do for him. The Baker’s just wanted to make the 15 year loan into a 30 year and hopefully lower their rate. I have it documented that Citi tried to push a modification on the Bakers…the modification side didn’t even bring up the refinance option where an experienced mortgage broker is used to looking at all options. Already a lack of training and expertise with the Citi employee is evident.

When I heard about this I suggested that he should qualify for a refinance instead the modification. He called Citi and they said that he did qualify for the refinance at 5.5 with 1.75 points upfront. A week later Citi increased their upfront origination cost to 2.625 points not including processing and underwriting fees and told the customer he would have to bring in about $8000 to close the refinance. This was at best unethical and at worst a bait and switch.

The Bakers asked me if I can help them. The problems I had were many. Citi has cutoff almost all of their brokers including me. The Freddie Mac Relief Program that Citi had that the customers qualified for was basically only being done thru Citi directly and no brokers were allowed. I could not take the borrowers to another lender because lenders were not accepting other lenders Freddie Mac loans….for a broker like me had I had to bring it back to the current lender and because Citi chose not do business with over 95% of the brokers out there I could not help them.

If I could have helped them I could have done the loan for no points and have Bakers bring in very little of any funds to close….I have saved them close to $8000. Instead, the Bakers so far are stuck with the options of taking the 8k out of their dwindling retirement to pay for overcharged lender fees or not doing anything at all and possibly losing the house. Based on the rates at the time I estimate Citi’s total yield on this refinance to be about 4.5% to 5%, where my yield would have been 1 to 1.5% if I could do the loan.





THE OBAMA FINANCIAL REGULATORY REFORM PLAN

The Baker’s story above has many meanings. One is how Citi used the fact that there was no competition for that loan to increase the fees on their own customer. Another is how the large banks are consolidating their lending power by cutting off the small mortgage brokers that in most cases could give better customer service to their clients. Citi is probably trying to increase their points on loans to help pay for their inexperienced staff. Mr. Baker is a Salt of the Earth American who doesn’t want any handout yet his current lender who the government has helped to bailout was trying to screw him and have him tap into his withering retirement account. Quite frankly, that offends not just me but the Bakers.

The Financial Regulatory Reform Plan submitted by the Obama Administration would affect people like the Bakers tremendously. The plan puts the blame for the financial crisis on the point of sale people.ie, the mortgage brokers, the Realtors, appraisers,etc. The plan points out that government has not done enough, although many if not most of the problems we have now are because of things that the government did. The plan did not take on the Wall Street and Bank oligarchy or the rating agencies that ultimately caused the current crisis. Instead, it is regulating the heck out of the small business person and furthering the consolidation of lending power in America to just the very few that in my opinion helped to write the plan. There will be many more people like the Bakers affected if this plan were to be approved.

Specifically, requiring originators of loans to hold back 5% of the loan amounts. That will close down the rest of the mortgage banking world. Setting up a trust or having lenders pay commissions over time using the insurance model. Well, that may seem OK….however usually it doesn’t take 30-60 days to buy auto insurance where it does for the loan process. Are small mortgage brokers exempt from getting cash flow? If you worked on something for 60 days or more without getting paid, would you want more than a penny for your efforts.

If the average mortgage banker, small mortgage broker, realtor or appraisers are so bad, why weren’t there more foreclosures in the 1980’s and 1990’s. It is simple. Because the loan products were different. Securitization worked to expand lending opportunities when there were not the risky loan products. The bottom line is do not over regulate small businesses that have spent 20-40 years building their businesses.

In conclusion, the mortgage markets have basically already been nationalized with the take over of FNMA and Freddie Mac and the increase of FHA Loans in some areas to more than 50% of the new originations. There are things that can be done that would make the current financial crisis more bearable. However, the banks that caused the crisis have yet to be called on the carpet and that must stop!

Please call me at 619-977-1193 to discuss anything that you may need clarification on. Thank you very much.

Yours Truly,

David McDonald
5426 Annie Laurie
Bonita, CA 91902