Marc's Mortgage Matter's

Knowing that April 15th is next month, here's a new word for you: "Intaxication", which is the euphoria at getting a tax refund which lasts until you realize it was your money to start with. 

Any weapons race with Russia doesn't receive the publicity it did 30 years ago. But whatever you call someone who originates loans in Russia (brokers?) received some good news last week, when Russia's Prime Minister Vladimir Putin announced that the government will help to lower the mortgage rates investing more than $8.3 billion. The government will provide this money to the banks thus substantially subsidizing the current mortgage rates, which are currently at 14-15% in Russia. Putin set a target rate at 11% with a maximum down payment of 20%.

Do folks here in the US and in the mortgage business have any good news to cheer about, besides rates not being 11%? Some are dealing with the changes in FHA lending and the effect on condominiums. The markets, and interest rates, are facing the end of the Treasury's purchases of mortgage backed securities and the end of the first time homebuyer tax credit ($8000). The economy does not appear to be rebounding enough to generate much home buying interest, the unemployment rate is hovering around 10%, and foreclosure filings not yet abating.

Should foreclosures be run by the government? Lordy lordy... the Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government's Home Affordable Modification Program. Bloomberg reported that the proposal was reviewed by lenders last week on a White House conference call, "prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed," according to a Treasury Department document outlining the plan. At present, lenders can initiate foreclosure proceedings on any loan that hasn't been submitted for HAMP eligibility. Under current HAMP rules, foreclosure litigation can proceed while borrowers are under review for the program or even in a trial modification. The proposed changes would prohibit lenders from initiating new foreclosure actions before loan screening by HAMP and would require lenders to halt existing proceedings for borrowers once they are in a trial repayment plan.

I don't know what I'll be doing around Labor Day, but Freddie Mac will be eliminating its Interest Only product. At that time the company announced that on or about September 1, it will cease purchasing and securitizing IO mortgages, including Freddie Mac Initial Interest fixed-rate and adjustable-rate mortgages. As agents and brokers know, what Fannie or Freddie do, the other usually follows, and with them, most investors. This will leave portfolio and hard money lenders as the only entities possibly offering IO products by late summer.

Here is a riddle for you. What happens every Friday, is tragic, and is only expected to become worse? The answer is regulators shutting down banks, this time in Nevada and Washington. The assets of Carson River Community Bank (NV) will be assumed by Heritage Bank (NV), and those of Rainier Pacific Bank (WA) by Umpqua Bank (OR). It is reported that FDIC officials claim that the pace of bank seizures will likely accelerate.

But a mortgage underwriter is an underwriter, regardless of name. Lately I have been hearing from fellow colleagues, some of whom are upset about the current lending environment, some not. But for a slightly different view of things, here is what one very experienced and knowledgeable underwriter wrote to me:

"It used to be that we could 'underwrite' a loan and use common sense to navigate individual circumstances and actually make a decision that a loan was a good credit risk. Then lenders (aka DU & LP in mortgage circles) came along and gave us the laundry list that had to be followed. We were still able to manually underwrite loans for those transactions that did not fit the box. Then the bottom fell out of the business and everyone got scared and new rules came out. Investors and Wall Street were to blame for allowing individuals who were not telling the truth to buy homes. Today investors are pre-underwriting loans prior to purchase and we have to 'march to their tune' including getting pieces of paper that seem ridiculous, but since we need the investor to purchase the loan so we obtain them anyway. Only the most qualified borrowers with all their ducks in a row get loans these days.

Manually underwritten loans are subject to scrutiny such as we have never seen before and frankly, we do not have the courage to paint outside of the lines because we cannot afford to have a loan purchase refused. Today, it takes two to three times as long to underwrite a loan and we have checklist upon checklist that help us make sure all of the i's are dotted and the t's are crossed. I have been doing this for over 30 years and frankly we are back to the rules of the early 80's or worse when it comes to documentation." I totally agree and this was an excellent assessment of the current landscape.

An Amish boy and his father were in a mall. They were amazed by almost everything they saw, but especially by two shiny, silver walls that could move apart and then slide back together again.

The boy asked, "What is this Father?"
The father (never having seen an elevator) responded, "Son, I have never seen anything like this in my life, I don't know what it is!"
While the boy and his father were watching with amazement, an overweight old lady in a wheel chair moved up to the moving walls and pressed a button.
The walls opened and the lady rolled between them into a small room. The walls closed and the boy and his father watched the small circular numbers above the walls light up sequentially. They continued to watch until it reached the last number and then the numbers began to light in the reverse order.
Finally the walls opened up again and a gorgeous 24-year-old blonde stepped out.
The father said quietly to his son....."Go get your mother."