Banks Too Big To Fail

Mortgages' Big Two Are Too Big to Avoid
September 25, 2009
By Kate Berry
Eleventh in a series

The crisis and consolidation in banking have given Wells Fargo & Co. and Bank of America Corp. an unprecedented share of the mortgage market and new clout in their business relationships.

Correspondent lenders and mortgage brokers now must work with one or both of the Big Two to be in the business, industry executives and observers say. Combined, the two companies originated 44% of all the home loans written during the second quarter, up from 28.6% a year earlier, according to National Mortgage News.

"The funding is all coming from B of A and Wells, either directly or indirectly," said Ken Jones, the president of Blue Oak Mortgage Corp. in Santa Rosa, Calif., and chairman of the California Association of Mortgage Brokers. "If you look at lending like a pyramid, with the big players at the top, slowly more and more production is being pushed up that pyramid."

The Big Two both attributed their market share gains to acquisitions they made of ailing institutions last year. B of A bought Countrywide Financial Corp., which had long been the top home lender.

Wells, the longtime No. 2 lender, took over Wachovia Corp. (which had purchased Golden West Financial Corp., a significant force in the mortgage market, two years earlier).

But market participants say the two megalenders have been using their new scale to fiercely compete for loans since the summer.

"They're pricing better than everyone else because they make money back on volume," said Matthew Pineda, the president of Castle & Cooke Mortgage LLC in Salt Lake City. His company, which has 25 offices producing a combined $100 million a month, sells most of its loans to B of A and Wells.

"I need them both," Pineda said.

However, he also sells to JPMorgan Chase & Co, GMAC Inc., U.S. Bancorp and directly to Fannie Mae.

"I need to maintain relationships with everybody because what happens if one of them shuts down?"

Tom Millon, the president and chief executive of Capital Markets Cooperative in Ponte Vedra Beach, Fla., a provider of secondary marketing services to banks, said that bank consolidation and a retreat from the correspondent business by some large players last year have resulted in too few outlets for loans.

"You're getting to the point where mortgage companies have very large … share [of their production] with one investor and they are essentially a de facto branch of Wells or B of A," Millon said. "It's a business risk of having just two big conduits."

Neither of the Big Two would make executives available. Terry Francisco, a B of A spokesman, said that correspondents can choose "between Bank of America and more than a dozen financial firms who are providing liquidity for the overall markets."

Teri Schrettenbrunner, a spokeswoman for Wells Fargo's home mortgage unit, said its "strategy has always been to go into this from the standpoint of controlled market share growth. We have been very focused on credit and underwriting practices and responsible lending."

LEVERAGE WITH GSEs

Millon said the larger banks can offer better pricing to correspondents because they are charged lower guarantee fees by Fannie Mae and Freddie Mac to insure the payments on securities they issue.

A July report from the Federal Housing Finance Agency, the regulator and conservator for Fannie and Freddie, cited several reasons why smaller lenders are charged higher fees.

Large sellers "have achieved a degree of leverage that can be used to negotiate better terms," the report said. From the government-sponsored enterprises' point of view, working with large lenders entails lower administrative costs and counterparty risk "tends to be higher for small-volume sellers."

"It's less of a free-market, 'size matters' argument now and more about pricing for the risk," Millon said. "In practice, apart from Wells and B of A — nobody else matters."

Adam Glassner, executive vice president and senior managing director at GMAC, which is trying to expand its correspondent business (see sidebar), said "it's hard to disagree" that Wells and B of A have significant control of the channel, "even though it's not true."

Though many third-party originators "talk about wanting to diversity their relationships," he said, "if 80% of their business is with one lender, it's because they're selling to the one with the best price."

He also dispelled concerns about market share gains.

"You can lead yourself to believe that [market share] is your driving factor and take credit risks that are not appropriate," Glassner said.

David Olson, a managing director at Access Mortgage Research and Consulting Inc., in Columbia, Md., said the overall costs of business have soared for small mortgage lenders, which are struggling to obtain warehouse lines of credit and meet higher net worth requirements set by federal agencies. (Last week, the Department of Housing and Urban Development proposed raising the minimum net worth requirement for Federal Housing Administration lenders to $1 million, from the current $250,000. Fannie and the Government National Mortgage Association have made similar moves in the past year.)

"The brokers are pretty much gone and now there will be a small coterie of correspondents left," he said. "All the states have raised fees, warehouse lines are now extremely expensive and if you have to do an annual audit by a [certified public accountant], then no one will make any money."

Moreover, the prospect of mortgage rates rising next year, after the Federal Reserve stops its planned buying of mortgage-backed securities in March, will further drive small players out of the market, he said.

"The industry is really shrinking," Olson said.

He said he expects total industry volume to fall by nearly half to between $1.1 trillion to $1.3 trillion next year.

Mortgage brokers accounted for more than 60% of the lending market at the height of the housing boom in 2006, but Olson estimates there are now just 15,000 brokers. Correspondent lenders also could see their ranks cut in half from 1,000 to 500 by yearend, he said.

"No one knows what's going to happen to the wholesale and correspondent channels," he said. "B of A and Wells do dominate and they don't want to play with the little guys."

National Mortgage News data shows that the top four originators — B of A, Wells, JPMorgan Chase and Citigroup Inc. — control 57.8% of the overall lending market.

Still, JPMorgan Chase with market share of 7.7% and Citi with market share of 5.7% are running a far distant third and fourth place; both lost market share in the 12 months ended June 30.

Overall, Wells was the largest mortgage originator in the second quarter. It funded $131.2 billion in loans, a 101% increase from a year earlier, while B of A came in second with $114.3 billion, up 223% from a year earlier.

REGULATION

Mortgage experts said a slew of new regulations will further tilt the balance of power in favor of the megabanks.

"The sheer pace and complexity of federal and state regulatory change promises to substantially increase the costs and risks of lending," said Louis Pizante, the chief executive of Mavent Inc. in Irvine, Calif., a provider of automated compliance software. "Ultimately, it will force small- and medium-sized lenders to exit the mortgage, and even consumer-loan, business."

Proposed changes by the Fed to Regulation Z, which implements the Truth in Lending Act, would require a recalculation of annual percentage rates for certain mortgage products and prohibit brokers from receiving certain types of payments.

Dave McDonald, a mortgage broker at American Dream Real Estate Group Inc. in San Diego, said the proposal, which the Fed released Aug. 26 for a 120-day public comment period, would radically change the business.

"As soon as this plan is implemented, the banks will stop taking third-party originations," he said. "The plan is supposed to appease the international banks by saying the risk has been taken out of their end and is 100% on the originator. But what will happen is because the originators have to accept all the risk, they won't do any perceived risky transactions."

(c) Copyright 2009 American Banker. All rights Reserved.

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

Chase Rally on Youtube

just one of 3. http://www.youtube.com/nomoreforeclosures#play/all/favorites-all/2/2bmsUGJ1Ct8. Click on Title to see Youtube interview

Rally At Chase

I invite you to a rally outside Chase Bank in Downtown San Diego on Friday August 14th at 11:00 AM to protest the Bank’s unfair business practices in regards to they way they are handling short sales, loan modifications, small business and builders lines of credit, and other related issues.

You are all welcome to join us. This is only the 1st bank on the list and was mainly picked because Chase has stopped doing business with mortgage brokers and other mortgage bankers. We have at least 100 people committed so far and expect some national media to be there as well.

For several years it has been my opinion that the mortgage and housing crisis will not get better until there is a program developed that allows people who are making their payments but are upside down to take advantage of the lower rates. In order for a program like this to be developed the big banks have to sign on to the proposal and they have not done so to date. The current Obama FNMA and Freddie Mac Plan is not even close to getting the job done.

This article states by 2011 over 90 % of the loans in California will be upside down if nothing is done and over 50% in the US as a whole. It is time for the government and the big banks to get ahead of the problem instead of catching up to it.
http://news.yahoo.com/s/nm/20090805/bs_nm/us_usa_housing_deutschebank

The Bank and Wall Street Oligarchs have acted at best unethically and at worst they have committed treason against the American people by setting individuals and businesses up for failure.

They developed 100% Loan To Value loan products to get people into homes and then almost overnight took those products away predictably resulting in fewer refinance opportunities for people that took out those loans and fewer buyers that would qualify to buy the same properties.

They used credit scores as low as 500 in some cases to justify giving loans to people and now they are saying credit scores as high as 680 are too low and that justifies keeping people who should qualify for financing from doing so. The banks are having it both ways.

They solicited small businesses such as established mortgage brokers and small mortgage bankers to partner with them to grow their businesses. When these businesses signed on with the banks as partners the businesses for the most part did grow. That is until the banks almost overnight took away the products that the brokers and bankers had to offer while at the same time warehouse lines were closed and the banks started demanding buybacks from their same old business partners. So then the mortgage bankers not only had no products to sell, they didn’t have their credit lines and were being forced to buyback loans from the major banks. Since 2006 over 320 lenders and many more small businesses related to the mortgage industry have been wiped out by the bank oligarchy.

Going into business partnering with a bank is like going to war with Benedict Arnold as your right hand man.

So the bank Oligarchy wiped out all of their competition and the small guys like the mom and pop mortgage broker all as part of their plan to consolidate lending and dominate market share for their little group. The government has not helped and in many ways has aided this oligarchy.

The Obama Regulatory Reform Plan basically puts all of the blame on the small mortgage broker, appraiser, realtor, etc and plays into the hands of the Bank Oligarchy. The plan never states that if these loan products were never developed by the big banks and Wall Street firms that we would not be in this crisis. Instead the plan addresses the origination of these loans from the point of sale view…not from the Top…the Wall Street Firms and Banks, where the plan should be focused.

The Obama Regulatory Plan states that government needs to do more but does not even mention the wrong things that government has already done to compound our problems: 1) Artificially low interest rates 2) Federal Reserve Rule and other Legislative Initiatives eliminating loan programs and lowering debt ratios predictably making about 50% of the people that had qualified under the previous programs unable to refinance, sell their homes or buy new homes 3) monetizing the debt (printing more money) while producing record deficits 4) coming up with loan products within legislation that were doomed to failure because the lenders would not implement or utilize them to begin with 5)not coming up with any real solutions to get ahead the problem. Throwing billions of dollars to the Bank Oligarchy in the name of stabilizing the financial system maybe looks good for the short term but does not work for the man on the street long term as foreclosures will only continue to get worse further destabilizing the entire system.

So, the bank Oligarchy sucked individuals and businesses in, pulled the plug from underneath them and now the same Bankers who have promoted policies that would drive down the value of certain assets are buying the assets back or for pennies on the dollar. It is the biggest transfer of wealth in American history.

These Wall Street Bankers are hiding behind the letter of Contract Law basically saying everyone who signed a loan note is responsible for paying those notes back. They are indeed correct. However, don’t the bankers have some culpability in the loans that they developed, bought and sold? Don’t they have some responsibility to rectify the situation that they created by developing the programs in the first place? Didn’t the borrowers who took out those loans and the loan officers that sold those products have the reasonable expectation that those products in one form or another would still be around and if they were taken away that the borrowers would have other options to go into down the road? In fact, the products were taken away with no customer safety net.

For those reasons I am pushing for Long Term Loan Modifications or Refinances for people that are upside down and that are making their payments on time….no matter what their Debt Ratios or Credit Scores are. If they are making their payments those loans are performing assets and they should be able to Modify or Refinance for up to 50 years in a way that would not waive any of the loan customer’s individual rights.

Week in Review - Congresswoman Susan Davis

Week In Review – What’s Going on Now

1) Last week I helped teach a Loan Modification Seminar at the San Diego Association of Realtors. My class outline was uploaded to macplan.blogspot.com

2) Last Saturday I, along with Janelle Riella the San Diego Association of Realtors Director of Government Affairs and a couple of others, met with Congresswoman Susan Davis in her San Diego Office. Here are the results of the meeting:

A) I told her about how self-employed people are being left out of the buying and refinancing market because the Federal Reserve Rule and other federal and state legislation that include the Ability to Repay provisions, meaning the only way self-employed people can get a loan is if they don’t write off any business expenses so that their gross income is the same as their net. These underwriting guidelines are a de facto tax against the small business person and takes the self-employed person out of the potential buyers pool.

B) I explained to her that the effects of not having loan programs available to upside down borrowers. Those people are generally stuck with no good options right now, except short sales, foreclosures or loan modifications which in most cases don’t make sense. People that are upside down have effectively lost their freedom to move about….they in most cases cannot buy another property. This, along with the inability of self-employed borrowers to quailify, shrinks the potential pool of buyers which is ultimately bad for the market. She said that she, along with Barbara Boxer, has written a letter to the appropriate people to get the 105% LTV limit in the Obama plan raised to 125%. I told her that that was a good start, however the Obama plan will have a hard time working in the first place because of mortgage insurance issues.
The bottom line is that I suggested some solutions to the problems such as having the GSE’s provide warehouse lines to the non-bank lenders, developing a program that would allow upside down borrowers to buy another property but carry their other debt with them so that their will be no moral hazard but that would allow potential upside down sellers to get out of their homes without bad marks or foreclosures on their records, institute a mortgage insurance premium program within the GSE’s (much like FHA MIP or the VA Funding Fee) to make up the difference and the slack that the currently under-capitalized Mortgage Insurance companies are causing and unable to pickup, institute a program to roll the non GSE Loans into Fannie and Freddie on a Streamline program based on previous mortgage payment history (the loan is a performing asset).
Congresswoman Davis was very sincere about us putting these and other solutions down in writing and said that although she was not on the House Financial Services Committee she knew people that were and she said that she would make sure they got our list.


3) Status of the MACPLAN – Real Mortgage Reform: We gave Susan Davis the initial draft of the plan and are working on another version with all of the solutions that I have collected. There obviously has been a lot going on with the Treasury, Fed and Administration so any plan that we finalize will have to work under the current political and regulatory climate. I hope to have something by the end of this week…then have a meeting to discuss it….vet it out….then proceed with the final version.

4) Yesterday I was invited to a Real Estate Roundtable hosted by George Chamberlin at the San Diego Daily Transcript with economist Dr. Alan Gin, economist Alan Nevin, and one of our own mortgage brokers in San Diego Mark Goldman, among others. For more on that go to www.sddt.com. It was an honor being invited and participating with that group of people.

That is all I have for you now. Have a good one!

Loan Modification Seminar Notes

Spoke to: the Deputy Commissioner of the DRE, All local congressional staffs, the DA's office and the FBI regarding the modification issues and overall mortgage fraud.
1) Federal and National Level –
A. Current Atmosphere surrounding Obama’s Plan and the Industry:
1) Lawmakers getting calls off the hook about bad modification companies
2) Lawmakers: some understand there is a problem but don’t know how deep, some understand the problem and how deep but don’t know what to do, some understand the problem and think they have solutions but don’t know how to sell them to their colleagues.
3)Anti-California Attitude More Prevalent than ever - We caused the collapse of their 401ks….why should they help us out
4) Foreclosure issue is mainly in 43 states but centered in 3 CA, NV and Florida
5) There will be a further backlash against people and the states that are getting bailed out as the moral hazard issue becomes more prevalent. In the form of new laws.
6) SAFE Act making level of financial responsiblity to stringent....if licensed revoked for loan mods no chance of doing loans again
B. Obama’s Plan - is the result of compromise with the 47 other states and government agencies and is made up of at least 2 parts: Loan Modifications and Refinancing, in addition to the Treasury activity of monetization.. It is only the 1st step.
2) State Level -
A) Sacramento Capitol workers work in Foreclosure Atmosphere, brokers, lenders, Realtors and builders are all targeted for new legislation
B) 81 new bills mentioning mortgages
C) SB 94 if passed would outlaw all upfront fee agreements
D) SB 239 would make it a felony with automatic 2-4 years prison sentence for borrowers and industry participants who commit loan fraud. No Wobble rule and is due to growing moral hazard backlash.
E) AB 260/1830 would prohibit realtors from getting a listing they did a bpo on and prohibit brokers from soliciting their clients for refinances for a period of 1 year.
NOW KNOWING THIS ENVIRONMENT
STILL WANT TO DO LOAN MOD's

Per the DRE Commissioner- Foreclosure Rescue Fraud and Loan Mod Fraud on Top:
1)About 300 companies have received No Objection letters to do loan mods, published on DRE Website (watch the advertising)
2)DRE has looked at over 1200 applications (brokers filling them out incorrectly)
3) Task force of DRE, District Atty's, State Attorney General, and HUD are closing down loan modification shops (Lodi)
4)Any Broker or Attorney taking upfront fees for loan modifications has to be DRE approved
5) All upfront fees have to be deposited into a trust fund...not an escrow
6)Brokers who have approved upfront fee agreements will recieve surveys asking for info on fees collected, disbursed, customer name, outcome, trust fund documents. This survey must match trust fund.
7)DOC Brokers cannot do loan mods
8)Approximately 1700 attorney's being investigated by the state bar per another source
Rules of Professional Conduct Codes 1-310, 1-320 in regards to fee splitting and running and camping ,3-110 attorney's have to be competent in performing legal services
9) If an attorney hires a realtor or broker to do loan mods they have to be on salary...not per transaction
10) NOD Filed - Only an attorney can get an upfront fee
11)State Bar Association - Ethics Alerts...for more info
12) brokers not accepting upfront fees can be paid at the end of the transaction...some attorney's my differ with that opinion by instituting installment plans, but that is a risky proposition.
KNOWING THIS, STILL WANT TO DO LOAN MODS?
Per the OCC, 37% of loan mods defaulted within 3 months, 55% after 6 months and 58% after 8 months. Thus another reason for no upfront fee agreements and the crackdown on them. At the end of 2008 91.47 (92%) of all loans were current or performing.
STEP-BY-STEP WHAT WOULD I DO FOR A DISTRESSED CUSTOMER
1) Have a ready list of attorney's that are experienced with loan forensic issues, bankruptcy law, and tax laws. Have a list of CPA's and financial planners readily available for any fallout that may occur. Depending on the results of my first meeting with the customers, I would not take on a loan modification, short sale or deed in lieu of foreclosure without having the customers consult with those professionals first before I proceed.
2) Get copies of original loan documents- check for any loan potential loan fraud or misrepresentation for the loan in question. If you don't know how to check...stop...and don't go forward with the loan mod or short sale on your own. The advice yout give your clients could put them at risk if you don't know the ramifications.
3)Based on the documents you recieve there are several options:
A) Foreclosure
B) Short Sale
C) Deed in Lieu of Foreclosure
D) Loan Modifications
E) Possibly staying and renting after foreclosure
F) Refinancing
Ramifications of Choices:
Once A-E are introduced, a case is opened with the lender. Whatever information the borrower gives the lender at the point could be potentially used against the borrower at a later date by both the lender and other authorities. That is why any decision to proceed for any borrower whose lender could potentially have a case for misrepresentation needs to be backed up, in my opinion, by other professionals such as attorney's and accountants. Going into whatever transaction is deemed appropriate, everyone needs to be on the same page....up until the timing of the bankruptcy if necesary.
4) Implementing Obama's Modification and Refinancing Plan:
A) Get copies of original loan documents and accumulate all of the facts about the customer' situation.
B) Find out if the customer's loan is FNMA or Freddie Mac Owned or guaranteed
1) Have customers call their loan servicers with the phone number on their billing statements
2) go to makinghomeaffordable.gov...this can walk you through the whole process
http://www.fanniemae.com/loanlookup
http://www.freddiemac.com/mymortgage
C)If the loan is GSE related have the customer ask if their loan is eligible thru their servicer for the Home Affordable Refinance and ask for a rate quote. Most lenders should start rolling out the program around April 4th and enhancements will continue until May 2nd. Some lenders won't offer it.
D)After getting a rate quote from the servicer don't necesarily think that is the best deal, shop around. Remember, the program will take take time to impleemtn will every lender
E) If the loan is FNMA or Freddie Mac owned, serviced, or guaranteed it has a chance to be modified or refinanced under the Obama Plan. If the loan is not GSE related then as of now the only option is to do a loan modification with the current servicer
F) If the loan is GSE related, try for the refinance 1st and if it doesn't qualify consider the loan modification
G) Refinance issues to think about -
1) some lenders may not participate, it is a voluntary program
2) mortgage insurance issues can be a road block
3) 105% LTV is just the start....probably will be increased after initial implementation, most people in San Diego that bought in the since 2005 are far more upside down. Per NAR 43% of US Homebuyers in 2005 put no money down.
4)only good for owner-occupied (investors are bad?)
5) 36% DTI may be too low although the program does allow for exceptions
H) Loan Modification Plan
Goal is to get to a 31% piti debt ratio to prevent re-defaults:
1) reduce rate at 1% intervals until it reaches a low of 2%
2) if that doesn't work spread the payments out to a 40 year fixed
3) if that doesn't work reduce the principal
4) Lenders Come up with Net Present Value to see what is best for them(foreclosure, short sale, loan modification, refinancing, selling the note individually or in bulk, selling property in a bulk REO sale, auction). They will go with what they think limits their losses the most. Every lender is different and there is movement to have one formula to figure NPV. Most NPV's are figured by loss mitigation people that are out of the area and may not have the local expertise to come up with a legitimate NPV. Give them as much supporting info as you can that would help your case. They also will look to see if their has been any initial loan misrepresentation....if they think there was then theycould try to recoup losses in other ways.
Issues with this plan and other Modifications:
1) Still Voluntary with lenders
2) Delays the inevitable in most cases
3) Prohibits Freedom Of Movement - Less Transactions, bad for the economy. Any debt deferred by this plan is payable at a later time...in the form of a balloon payment or higher rates or payments after a certian amount of time.
4) Only good for owner-occupied
5) Moral Hazard....could put neighbors against each other
6) The 31% DTI level for the piti in California will be hard to reach....and if fully implemented for loans going forwarded could help drive down the real estate values further
7) Could make one lose his security clearance
I) If you don't feel comfortable send them to the Hope Now Alliance or Community Housing Works
Conclusion: Be good and focus on Real Estate or Loans...stay away from modifications!


WEBSITES
makinghomeaffordable.gov (loan refinance and modification eligibility)
www.fanniemae.com/loanlookup
www.freddiemac.com/mymortgage
www.efanniemae.com(loan and modification guidelines)
www.freddiemac.com
www.dre.ca.gov
http://www.dre.ca.gov/mlb_adv_fees_list.html (list of No Objection Letter companies)
www.995hope.org
www.chworks.org (Community Housing Works)
macplan.blogspot.com

The MacPlan - Real Mortgage Reform (In Process)

1) We need loan products that are made available to people that are currently making their payments on time but are upside down by more than the 105% that the Obama plan has in store…the people that are upside further than that need access to the lower rates for several reason including giving them some incentive to stay in the property.
2) We need to make the $697,500 loan limit permanent and so that borrower’s, banks, the bond traders and the GSE’s can all plan long term. We suggest making these limits consistent nationwide so that it the higher loan amounts can be easier to administer….rather than having different loan limits in 250 different metropolitan areas.
3) The higher loan limits have to be implemented in a way borrowers can actually utilize them. The program, underwriting guidelines and rates should be the same for $697500 as they are for $417,000 and below
4) I suggest even higher loan limits for Super Jumbo loans that would bring liquidity back to the high end market thus hopefully prevent some preventable foreclosures. This could be a tiered system with the $697500 being the 1st tier, followed by Tier 2 $697,500-1,000,000, followed by Tier 3 which would be 1-2 Million Dollars. Each tier would have tougher guidelines and higher rates…but at least those borrower would have something to better their positions long term. They are, for the most part, stuck with what they have right now.
5) Loan Modifications are a good idea but only if they provide long term solutions. Currently most loan modifications are written from 1-5 years. I believe that the best loan modifications would be for 30, 40 or 50 year terms while taking advantage of today’s low long term treasury prices. Without long term loan modifications we will be re-visiting our current problems….we will be just postponing the inevitable….and the pain will be a lot worse later than it is now.
6) Most stated income or low documentation programs have been banned which is killing the small businessman and self-employed borrowers across the board. We need to bring back low documentation programs for self-employed borrowers that are based on good credit, good assets, and a good Loan to Value of 80%. This will allow more self-employed people to go out and buy new homes, and will also allow self-employed people that currently own a property an opportunity to better their financial position by taking advantage of the low interest rates by refinancing. Currently self-employed people are stuck because the stated and low income documentation loans they used to purchase their properties are no longer available. So there is no way for them to better their position…or buy new a new property….which in turn takes the self-employed out of any buyer pool which makes it harder to sell a property.
7) We should recognize the difference between a real estate investor and speculator and make programs available for the real estate investors to have them also be able to take advantage of the lower rates. Most speculators basically got into the market in the recent past with no real knowledge of the art of real estate investing and they tried to flip properties and got stuck. Many real estate investors are just mom and pop, husband and wife and have 1 or 2 properties…and probably have owned the properties for years….however they are being made into villains in this whole mess. They should be afforded the same access to low rates or loan modifications that are currently only being worked on only for owner-occupied properties.
8) The FHFA, HUD, Treasury, The Fed and Congress all have to work better together. It doesn’t make sense for the Treasury to be using TARP money to buy Mortgage Backed Securities with the goal of lowering interest rates while at the same time FHFA (the GSE’s of FNMA and Freddie Mac) are increasing their loan fees which effectively offset the lower rates that the Treasury is trying to accomplish.

One last point, the mortgage insurance companies either need to be re-capitalized so that FNMA and Freddie Mac loans can be made for over 80% LTV in San Diego….and if they can’t get capitalized I suggest that the FHFA develop its own insurance that could be passed onto the borrowers much like the FHA insurance model or even how VA Loans have been insured in the past. FNMA and Freddie Mac can utilize this insurance for loans higher than 80% LTV in the absence of the other more traditional mortgage insurance companies. This would help to stabilize the market and give more options to the customers other than just the FHA Product which would have different qualifications than the FHFA products.

CAMB Economic Forecast

There are over 2000 CAMB mortgage professionals all over the State of California. As a result, they provide a grass-roots view of the real estate and mortgage markets. Here is a summary of member opinions about these markets:

50% do not expect stabilization of their real estate markets until 2010
54% expect sales concessions to increase
77% expect an increase in foreclosures
64% expect an increase in housing affordability
50% expect no increase in the types of loan products offered this year, with the vast majority expecting FNMA and FHA 30 year fixed loans to be prevalent
62% think that the Obama administration will have a positive effect on the real estate market and stabilization of the real estate industry

Integrity in the lending process: CAMB members speak out
The overwhelming majority of respondents to our survey have been in the mortgage business for more than 10 years and own their businesses. Hence, they have a long-term perspective on the industry and a vested interest in the health of the mortgage financing system.
69% feel that loan modifications should be heavily regulated
Respondents call for tougher licensing and screening requirements for those who wish to be in the mortgage industry
Respondents call for better reporting mechanisms for industry members who commit fraud or engage in unethical behavior
Most respondents think that the return of simpler loan products and more stringent underwriting standards will prevent many of the abuses that have occurred in the recent past
Respondents emphasize the need for more consumer education and strict enforcement of existing consumer protection laws