Re-posted from contribution made to Seattle Avenue Newsletter.
As I was ferrying my two youngest back home on my lunch break the other day after picking them up from my wife at her Dentist appointment, I tuned in to AM 1000 to catch some financial news and see how the market was responding to the 1/2 point move by the Federal Reserve.
To my dismay and utter bewilderment I sat staring blankly at a red light, perplexed by the mortgage market commentary being offered by an Economics guru from one of our state universities. I really couldn't believe my ears.
Asked a series of questions by hosts Manda Factor and Bill Yeend, the Economist's responses were dismal at best. Here's my recollection of his comments (in a nutshell, referred to below as "IANS"), and my response to each:
Question: Is now a good time to refinance?
Economist (IANS): Well, maybe, IF you can qualify, but most people won't, based on the credit crunch.
James: Come again? The 'credit crunch' is not even applicable for many borrowers. There have been changes to loans that allowed for no or low down payment, low credit scores and no or low-income documentation; however, for the majority of borrowers, if you qualified 12 months ago you qualify today.
For programs that have been affected, it usually means that I sit down with the borrowers and we put a 2-to-6 month game plan in place to help them prepare. We put a budget together; we identify ways to improve credit profiles. We put the horse squarely in front of the cart.
I don't mean to sugar-coat changes in the credit and mortgage markets, but in all too typical fashion they have been grossly over-exaggerated.
Question: But aren't rates a historic lows?
Economist (IANS): Well maybe but banks just aren't making the loans. They are advertising low rates but when you go into to lock the rates you don't qualify.
Come again? Humor me for a moment, but why would banks spend hundreds of thousands of dollars advertising rates if they didn't plan on offering those rates to customers? I don't even know what else to say to that.
Question: What about the FOMC lowering the Fed Funds Rate, won't that help borrowers?
Economist (IANS): Well, the banks are just going to sit on those funds to increase their liquidity, so it won't help the consumer.
Come again? I may be oversimplifying this, but the whole point of the Fed lowering that key rate is to pump additional funds into the system so the banks WILL make more loans. The reason banks get one rate and charge a higher rate is so they can make a profit. If they don't lend it out, they lose money because they are paying interest on those funds and that doesn't help the banks or us.
Someone once said you can't believe everything you hear. Well shucks, I guess they were right!
Showing posts with label 2nd mortgage. Show all posts
Showing posts with label 2nd mortgage. Show all posts
Tuesday, February 19, 2008
Tuesday, September 25, 2007
The Real State of Real Estate in Washington State
Before anyone gets their scruff in a huff, I'm not practicing Real Estate, just wanted to grab your attention with a snappy title :-)
So here's the disclaimer: The contents of this post (and every post I make on this blog) are the opinions of the writer (that's me) and are my opinions, wholly my opinions (unless otherwise stated, er, written) and nothing buy my opinions (even though they may occasionally come across as law). (Also please forgive the use of parenthesis in this paragraph.)()
This entry is an amended re-posting from a posting that will hopefully soon be posted in a very nice blog entitled Seattle-Avenue, written managed and directed by Denice Rochelle Brameus. Denice, 10,000 thank-yous for including me in your blog (which can be found here or by pointing your browser to seattle-avenue.com).
So what the heck is going on in the mortgage world anyway? Well, I'm glad you asked.
While the vanilla Fannie Mae and Freddie Mac loans we often hear about have avoided any sweeping reforms, if the loan scenario didn't fit inside that 4x6 box the national 'credit crunch' actually has some bearing, much more so at least than the blazing headlines of bubble-bursting, spontaneously combusting real estate recessions.
“Huh?”
What I mean is, the nay-saying media’s spin on the national devastation in Real Estate values just plain doesn't apply to our local market! Can I get an "Amen?"
In contrast, the mortgage market has been affected more directly because the majority of lenders licensed in our state sell the loans on the national secondary markets. Because of this, our local loans are directly affected by the state of the market generally. There are exceptions to any rule but basically that’s how it works.
So if you're saying to yourself "What about this $1M condo, should I really be buying now?"
I don't know of a single savvy Real Estate investor who would let a 'right-ing' of the mortgage market get in the way of making a right decision, regardless of the price range. Ultimately that’s a question for your Agent -- if you don't have one I am happy to recommend one -- and if the answer is yes, then we sit down to see what programs are available.
Does financing look the same as it has over the past few years? No, it's changed and we're going to structure things a little differently than we have been.
That’s all I really have to say about that.
Speaking directly to interest rates, a loan that meets the ‘conforming limit’ (currently capped at $417,000) is generally at a [slightly] lower interest rate than a loan amount that is non-conforming (over the $417,000 cap). This difference in rate based on the conforming loan limit is an historic trend we have found ourselves following once again.
So to re-cap: The sky is not falling and the Greater Seattle market is not going to pieces.
Have we even considered the net job growth that is projected for the next ten years? The affect of that on growth for our state? The real burning question should be, “Where are all those people going to live?!?” Wouldn’t that be GOOD for Real Estate?
Granite Falls just may become part of Greater Seattle after all…
In all seriousness, those of you that are really in this market I'm sure are more focused on the value of your investment than on the interest rate (which is enough in and of itself for a separate article). If you're concerned about value, that's a question for your Agent; if you're concerned about that interest rate, it's time for us to chat. How about over coffee – I’m buying!
Tuesday, August 7, 2007
What? Foreclosure increases and fraud-- THE LENDER'S FAULT?!?!?
Recently award-winning author and debt collection expert Michelle Dunn posted a blog entry about the current adverse changes in the mortgage market, laying the blame of the current challenges in the mortgage industry squarely on the shoulders of the mortgage lenders!
Ms. Dunn went on to explain in no uncertain terms that the looming spill-over (some of which has already spilled over) into other lending areas is all caused by over-zealous mortgage lenders trying to capitalize on over-eager lenders ready to bite off more house than they could chew.
Well Ms. Dunn, I cannot let your post go unanswered. As a Mortgage Planner I have been in the trenches over the past several years, doing my best to recommend that borrowers consider not what they qualify for, but what they can afford when considering a mortgage payment. But I am only one man and at 5' 10 1/2 " not even a very tall man. There's only so much I can do.
In direct response to your blog post.... I in large-part agree.
There has been huge demand, both from borrowers and from the secondary markets where mortgages are sold. It has been a feeding frenzy! In a(nother) phrase, it's been out of control. As the lender, there should have been a greater deal of control over making sure that individual borrowers really had the ability to repay -- especially borrowers who had demonstrated that it was often a challenge for them to repay even a much smaller loan. Too loose also were guidelines on which stated income and asset loan programs had no check and balance system.
And now the lending industry is reacting once again -- no longer to demand but the lack thereof. Now suddenly no one wants to buy many of the loans that borrowers want to close, regardless of credit score, risk-factor, down payment, etc. There seems to be no rhyme or reason to the lack of interest in certain types of loans... but, we brought this on ourselves I suppose. With record low interest rates and record high appreciation, the industry gave in and we wound up here.
In all fairness, much of the foreclosure issues were brought on by fraudulent loans that did not meet lender guidelines, but were also due to the things you mentioned -- adjustable rates with an initial rate that was discounted and was sure to go up (and now have gone up), and lax qualifying standards that allowed borrowers to take out a home loan with a payment that was much higher than they could ultimately afford.
Now that we're here, I for one am looking forward to a controlled pace of business. Many of the guideline changes are long overdue -- I just hope the markets don't overreact to the point where well-qualified borrowers aren't able to finance the home they deserve and can easily pay for... we're already seeing some of this and as you mentioned I'm sure it's not over yet. But a right-ing of the market is prudent and the changes are welcomed by those of us who really do our best to look out for the interests of our clients.
Michelle Dunn's posting can be found here: http://blog.myspace.com/index.cfm?fuseaction=blog.view&friendID=30359901&blogID=293592890&Mytoken=7B52D6EF-E43D-4806-95FF12A75CA7EB1783616320.
In addition to her MySpace blog, she has two Web sites: http://www.credit-and-collections.com/ & http://www.michelledunn.com/
--James Wirth
http://myspace.com/mtgplanner
http://mymortgageplan.blogspot.com
Ms. Dunn went on to explain in no uncertain terms that the looming spill-over (some of which has already spilled over) into other lending areas is all caused by over-zealous mortgage lenders trying to capitalize on over-eager lenders ready to bite off more house than they could chew.
Well Ms. Dunn, I cannot let your post go unanswered. As a Mortgage Planner I have been in the trenches over the past several years, doing my best to recommend that borrowers consider not what they qualify for, but what they can afford when considering a mortgage payment. But I am only one man and at 5' 10 1/2 " not even a very tall man. There's only so much I can do.
In direct response to your blog post.... I in large-part agree.
There has been huge demand, both from borrowers and from the secondary markets where mortgages are sold. It has been a feeding frenzy! In a(nother) phrase, it's been out of control. As the lender, there should have been a greater deal of control over making sure that individual borrowers really had the ability to repay -- especially borrowers who had demonstrated that it was often a challenge for them to repay even a much smaller loan. Too loose also were guidelines on which stated income and asset loan programs had no check and balance system.
And now the lending industry is reacting once again -- no longer to demand but the lack thereof. Now suddenly no one wants to buy many of the loans that borrowers want to close, regardless of credit score, risk-factor, down payment, etc. There seems to be no rhyme or reason to the lack of interest in certain types of loans... but, we brought this on ourselves I suppose. With record low interest rates and record high appreciation, the industry gave in and we wound up here.
In all fairness, much of the foreclosure issues were brought on by fraudulent loans that did not meet lender guidelines, but were also due to the things you mentioned -- adjustable rates with an initial rate that was discounted and was sure to go up (and now have gone up), and lax qualifying standards that allowed borrowers to take out a home loan with a payment that was much higher than they could ultimately afford.
Now that we're here, I for one am looking forward to a controlled pace of business. Many of the guideline changes are long overdue -- I just hope the markets don't overreact to the point where well-qualified borrowers aren't able to finance the home they deserve and can easily pay for... we're already seeing some of this and as you mentioned I'm sure it's not over yet. But a right-ing of the market is prudent and the changes are welcomed by those of us who really do our best to look out for the interests of our clients.
Michelle Dunn's posting can be found here: http://blog.myspace.com/index.cfm?fuseaction=blog.view&friendID=30359901&blogID=293592890&Mytoken=7B52D6EF-E43D-4806-95FF12A75CA7EB1783616320.
In addition to her MySpace blog, she has two Web sites: http://www.credit-and-collections.com/ & http://www.michelledunn.com/
--James Wirth
http://myspace.com/mtgplanner
http://mymortgageplan.blogspot.com
Thursday, July 26, 2007
Current state of (Home Finance) affairs
MARKET UPDATE
The roller coaster ride that is today's real estate and mortgage market continues to loop, turn and spiral in unexpected (or expected, depending on which site of the debate you listen to) ways.
Is "Mortgage" becoming a bad word? IMHO (in my honest opinion, according to my kids), the answer is an affirmed "no."
Mortgages above 80%, however, are changing dramatically and we may very quickly find ourselves without 2nd mortgages as we know them.
For those that are a little newer to the home buying market: 2nd mortgages in their most recent iteration have allowed home buyers to pay a little higher interest rate on a separate mortgage above the traditional 1st mortgage that went up to 80% of the value of the home.
The good ol' days saw the remaining 20% (or even more if we stretch back a little further in time) as the required down payment in order to qualify for home financing. More recently, Private Mortgage Insurance often called MI or PMI (for one company's site, go here, or a general definition, go here) and the aforementioned 2nd mortgages have been available to provide the means to finance a greater percentage of the value of a home, up to- and sometimes over- 100% of its value.
Well times they are a-changing. The news has been replete with the shake-up of the subprime (trickier, unconventional loans or lower credit scores) market and the affect has 'trickled up' into the conventional market affecting how borrowers qualify for loans and the options they have with regard to financing more than 20% -- regardless of income or credit score. The latest change that's happening even as I type, is with regard to 2nd mortgages being, in many cases, pulled completely off the table.
The "why" for this is tricky to summarize because there are a number of things affecting this. The short answer is that the majority of lenders out there sell the loans they make on the secondary market, and the buyers willing to purchase those loans have stopped buying them.
Are 2nd mortgages completely gone? Let me set the stage, and then I'll answer that question:
The term "mortgage" (for the definition, go here) loosely means that it's a loan secured by a house -- there's a 'lien' on the property for a certain amount. The lender is extending financing terms in exchange for a secured interest. When the loan is paid off, the 'lien' is removed and full ownership interest is transferred to the homeowner. In the case of a 2nd mortgage, the lien is in 2nd position, behind the 1st mortgage.
So now we have a firm grasp (or possibly we're just holding on by our finger tips but at least we're holding on) on what a mortgage is and the difference between the 1st mortgage and a 2nd mortgage. The 2nd mortgage is more exposed in the event the homeowners stop paying the loan -- the reason it's even allowed is because of the historical average appreciation level of 6% per year. If the homeowners (who have turned the interest over to the lender so they could finance the home) stop making payments, the lender can auction the home off and even if there were two loans on the property, the home would have hopefully appreciated enough to recoup the amount financed by both lenders.
Enter Stage Right, a slowing market and rising foreclosure- or at least default- rate (go here for a June Seattle Times article about why to distinguish the two). That higher level of risk for the lender in 2nd position, and in this market with many loans over the past few years going to higher-risk scenarios has created a severe lack of interest in buying these 2nd mortgage loans. By higher risk I'm referring to lower credit scores and higher debt-to-income (DTI) ratio borrowers (borrowers who had more of their money going to their monthly payments than was traditionally accepted), with little or no money in the bank to fall back on. And don't even get me started on all of the ill-advised adjustable rate mortgages
The panic has now set-in, founded or not, and we're experiencing a mass exodus from the largest portion of the 2nd mortgage market: loans involving a loan-to-value or LTV (for a def. go here) of more than 80%, regardless of credit score, income level, etc. Bar-none.
How about some good news, yeah? The long and short of it (ok, maybe more the long) is that now is still a great time to buy. So what if loan programs are moving around -- this is a dynamic marketplace and lenders are reacting to the changes in the market in order to remain competitive.
There are still options that will allow you to finance more than 80% of the value of a home. PMI that I mentioned earlier will still do it, and there are still some 2nd mortgage companies that, for the time being, offer higher LTV financing. AND, interest rates are still historically low, sellers are motivated and at least in our market here in the greater Seattle area, current appreciation has cooled slightly giving buyers a chance to catch their breath.
Now that you've had a little rest and are prepared with a better understanding of current conditions courtesy of yours truly...
What are you waiting for?!?!? Give me a call so we can discuss your options and get you pre-approved and out there buying a house.
Operator is standing by. --James
The roller coaster ride that is today's real estate and mortgage market continues to loop, turn and spiral in unexpected (or expected, depending on which site of the debate you listen to) ways.
Is "Mortgage" becoming a bad word? IMHO (in my honest opinion, according to my kids), the answer is an affirmed "no."
Mortgages above 80%, however, are changing dramatically and we may very quickly find ourselves without 2nd mortgages as we know them.
For those that are a little newer to the home buying market: 2nd mortgages in their most recent iteration have allowed home buyers to pay a little higher interest rate on a separate mortgage above the traditional 1st mortgage that went up to 80% of the value of the home.
The good ol' days saw the remaining 20% (or even more if we stretch back a little further in time) as the required down payment in order to qualify for home financing. More recently, Private Mortgage Insurance often called MI or PMI (for one company's site, go here, or a general definition, go here) and the aforementioned 2nd mortgages have been available to provide the means to finance a greater percentage of the value of a home, up to- and sometimes over- 100% of its value.
Well times they are a-changing. The news has been replete with the shake-up of the subprime (trickier, unconventional loans or lower credit scores) market and the affect has 'trickled up' into the conventional market affecting how borrowers qualify for loans and the options they have with regard to financing more than 20% -- regardless of income or credit score. The latest change that's happening even as I type, is with regard to 2nd mortgages being, in many cases, pulled completely off the table.
The "why" for this is tricky to summarize because there are a number of things affecting this. The short answer is that the majority of lenders out there sell the loans they make on the secondary market, and the buyers willing to purchase those loans have stopped buying them.
Are 2nd mortgages completely gone? Let me set the stage, and then I'll answer that question:
The term "mortgage" (for the definition, go here) loosely means that it's a loan secured by a house -- there's a 'lien' on the property for a certain amount. The lender is extending financing terms in exchange for a secured interest. When the loan is paid off, the 'lien' is removed and full ownership interest is transferred to the homeowner. In the case of a 2nd mortgage, the lien is in 2nd position, behind the 1st mortgage.
So now we have a firm grasp (or possibly we're just holding on by our finger tips but at least we're holding on) on what a mortgage is and the difference between the 1st mortgage and a 2nd mortgage. The 2nd mortgage is more exposed in the event the homeowners stop paying the loan -- the reason it's even allowed is because of the historical average appreciation level of 6% per year. If the homeowners (who have turned the interest over to the lender so they could finance the home) stop making payments, the lender can auction the home off and even if there were two loans on the property, the home would have hopefully appreciated enough to recoup the amount financed by both lenders.
Enter Stage Right, a slowing market and rising foreclosure- or at least default- rate (go here for a June Seattle Times article about why to distinguish the two). That higher level of risk for the lender in 2nd position, and in this market with many loans over the past few years going to higher-risk scenarios has created a severe lack of interest in buying these 2nd mortgage loans. By higher risk I'm referring to lower credit scores and higher debt-to-income (DTI) ratio borrowers (borrowers who had more of their money going to their monthly payments than was traditionally accepted), with little or no money in the bank to fall back on. And don't even get me started on all of the ill-advised adjustable rate mortgages
The panic has now set-in, founded or not, and we're experiencing a mass exodus from the largest portion of the 2nd mortgage market: loans involving a loan-to-value or LTV (for a def. go here) of more than 80%, regardless of credit score, income level, etc. Bar-none.
How about some good news, yeah? The long and short of it (ok, maybe more the long) is that now is still a great time to buy. So what if loan programs are moving around -- this is a dynamic marketplace and lenders are reacting to the changes in the market in order to remain competitive.
There are still options that will allow you to finance more than 80% of the value of a home. PMI that I mentioned earlier will still do it, and there are still some 2nd mortgage companies that, for the time being, offer higher LTV financing. AND, interest rates are still historically low, sellers are motivated and at least in our market here in the greater Seattle area, current appreciation has cooled slightly giving buyers a chance to catch their breath.
Now that you've had a little rest and are prepared with a better understanding of current conditions courtesy of yours truly...
What are you waiting for?!?!? Give me a call so we can discuss your options and get you pre-approved and out there buying a house.
Operator is standing by. --James
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