Mortgage Market Update

So, what’s new in the mortgage market this week? A couple of things:
1. It’s official – if the President is now talking about the subprime mortgage crisis and how the government should help many of the subprime borrowers keep their homes, you know it’s a big issue.
2. The Consumer Confidence reports fell for August – the biggest drop in 2 years.
3. The inventory of homes for sale came in at the highest level since, I believe, 1982.
4. Home sales were up from June but down 10.2% from last July.
5. The Fed says, “We’re watching the situation and we’re ready to act if we need to.” Many people are expecting that the Fed will lower rates by at least .5% between now and Christmas. Though many people are also questioning whether the Federal Reserve can really do much about the mortgage mess.
6. There are starting to be more and more talk about increasing government regulation on the mortgage industry. There is a story about a mortgage lender in Alaska who is actually doing JAIL TIME for lying on a loan application. Apparently he grossly overstated a borrower’s income on a loan application and the deal (actually 2 of them) went bad because the borrower was in over his head and couldn’t make his payments.
7. Several large lenders are either restricting or eliminating entirely their wholesale lending divisions. In other words, they don’t want mortgages that were written by someone who doesn’t work for them.
8. At least two more quite large mortgage lenders are on the verge of shutting their doors.
9. So far, it seems like the focus is more on avoiding foreclosures and less on saving the investment banks who are going to lose money. We’ll see if that continues.

Okay, now it’s time for a personal editorial – if mortgage lenders were honest about the facts on a loan application, if they asked the question – is this really what’s best for my customer, if Realtors didn’t pressure lenders to “fudge” the facts, if investment companies didn’t come up with these exotic loan programs with teaser rates and huge prepayment penalties, if wholesale lenders didn’t offer higher income potentials for subprime loans, we wouldn’t have this mess. Yeah, part of it is the borrower’s fault, they should know what they are signing, but we’re the professionals in the business and we need to have some honesty and integrity and take the time to make sure that we’re doing what’s best for the clients. Read the article at http://blownmortgage.com/2007/08/30/countrywides-official-response-to-the-ny-times/ It spells out a pretty convincing case that certain mortgage lenders have policies and procedures set up that “push” people into higher cost loans, loans that make a higher income for the lender, the loan officer and that cost more for the customer.

When the average length of a mortgage lender’s career is, last I heard, around 6 years, and I’ve lasted almost 20, what’s the difference?
1. I’ve always worked for a locally run bank (not necessarily locally owned, but locally run).
2. I’ve always worked very hard to develop a relationship with my customers so that they can come back to me again and again. Just yesterday, I did a loan application for the son and future daughter in law of a past client of mine. You can’t get that kind of referral if you are more focused on how much you can make off any individual deal, like so many mortgage brokers are.
3. Life is too short to fudge numbers on loan documents. You just don’t do it. Call it what it is and let things go where they must.

So, in a very volatile market where over 140 lenders have either shut down, or severely limited their mortgage product lines, wouldn’t you rather work with someone who’s been around for a while and is working for a very established bank. We’ve never been in a better position as far as the mortgage market is concerned. We’re having no problem getting the deals done that need to be done and they are being done in a way that’s fair, honest and equitable for everyone.

I’ll continue to keep you informed, please let me know how I can help.

Thanks!

Tom Vanderwell
Mortgage Officer
Office (616) 653-5375
Cell (616) 292-7559
Fax (616) 825-6085
111 Lyon St. NW
Grand Rapids, MI 49503
thomas.vanderwell@53.com

For some straight talk about mortgages, check out www.straighttalkaboutmortgages.blogspot.com.

Quote of the week: “Ben S. Bernanke, Mr. Greenspan’s successor at the Fed (and his loyal supporter during the antideflation hysteria), is said to be resisting the demand for broadly lower interest rates. Maybe he is seeing the light that capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich. ” James Grant, New York Times, August 26, 2007

A letter from Countrywide

I found this on www.blownmortgage.com and it summarizes quite well what’s going on in the mortgage industry and why I’m glad I work for a large bank…..

This is unquestionably one of the most challenging times in the annals of mortgage lending. As such, this communication is the first of a series that will outline how Countrywide®, America’s Wholesale Lender® is navigating through this challenging market. Additionally, it is my desire that these ongoing communications will share some perspective that will help you to adapt and prosper in the current mortgage lending environment.
Countrywide in the News
First, I would like to take a moment to address some recent developments that have strengthened our ability to serve both you and your borrowers.
Bank of America Investment in Countrywide – On August 22, Bank of America invested $2 billion in Countrywide in the form of non-voting, convertible preferred securities. It is important to note that this is an investment in, and not an acquisition of Countrywide. Bank of America does not have representation on Countrywide’s board or a management role in the company.
The investment is a true vote of confidence in Countrywide from the largest retail banking franchise in the nation. It strengthens our balance sheet and benefits all of Countrywide’s constituents including our Business Partners.
Additional Funding Liquidity – We have recently drawn upon credit facilities provided by a syndicate of 40 of the world’s largest banks, which provided an infusion of $11.5 billion to supplement Countrywide’s liquidity.
Mortgage Business Migration – We recently announced that we have accelerated our long-held plans to migrate our mortgage business into Countrywide Bank which has over $100 billion in assets. We are executing this migration as quickly as possible and do not expect it to materially change the way we operate, our key strategies, or our continuing goal to be the dominant lender in the wholesale channel.
Now that I’ve outlined the steps taken to strengthen Countrywide’s franchise, let’s turn our attention to the current market environment.
Secondary Market Driving Change
Further complicating an already tough real estate and lending environment is one of the weakest secondary markets in history. The result is that there is limited demand for mortgages or mortgage-backed bonds other than what is commonly referred to as the “agency” execution (Fannie Mae and Freddie Mac). Despite this disruption in the secondary market, substantial lenders like Countrywide, with access to a bank balance sheet, are well positioned to succeed.
In an effort to address the above challenges, Countrywide, along with the rest of the industry, has been revising product guidelines and pricing policy on an ongoing basis. It is likely that these areas will continue to change so I urge you to check cwbc.com frequently to ensure that you have our most updated guideline and pricing information.
Channel Dynamics
Another challenge facing the wholesale lending channel is that the mortgage industry has shifted toward a retail bias. Why? There are many factors. However, one of the major causes is that loans originated and processed on a retail basis generally perform better than third party originations where an intermediary originates and processes the loan on behalf of the lender.
While this bias may seem daunting to your business, it is a challenge that can be overcome with a simple formula – everyone involved in the wholesale lending channel must work to improve the performance of third party originated loans. By consistently elevating borrower and loan quality, we can, over time, bring the market back to parity. Your best source for ensuring loan quality is to work closely with your Account Representative and branch or fulfillment center to assist in properly documenting all loan submissions consistent with lending guidelines and loan approval conditions.
In addition, it is imperative that you adopt (or continue) the proven “best practice” of presenting your borrowers with a full array of product and pricing options. Your focus should be on allowing them to make truly informed decisions that best meet their financing needs and ability to re-pay. This practice will not only ensure a long term relationship with your customer but is part and parcel of ensuring high quality loans and good performance.
Our Ongoing Commitment to the Channel
As stated in the opening of this communication, all of us who earn our living in the wholesale lending arena are facing challenging times; times that require us to work together to achieve a common goal – successfully evolving the wholesale lending channel.Our focus at Countrywide remains constant – working with and supporting only those brokers who can adapt and evolve their business model and who can originate quality loans consistent with our strengthened lending standards. None of us should ever contemplate doing a loan we wouldn’t be willing to fund with our own money.
When navigating the current waters, keep in mind that, for over 23 years, Countrywide, America’s Wholesale Lender has been fervently committed to the wholesale channel and to the success of our Business Partners. We maintain a strong leadership position and focus on achieving a dominant status among wholesale lenders.
Thank you for your time and attention to these important matters.
Todd A. Dal PortoSenior Managing Director & PresidentCountrywide, America’s Wholesale Lender

The National Home Builders Association is just full of good news….

And Mortgage Markets Are Delivering Heavy Hits to Builders… NAHB is surveying builders intensively about the impacts of recent mortgage market turmoil on home sales as well as sales cancellations.
We’ve been surveying builders on these topics since early this year, when the subprime market started to melt down, and it’s clear that the tightening wave that hit during the past month has had the most severe impacts so far.
Our current survey shows that the most recent wave of credit tightening has had adverse impacts on home sales at nearly two-thirds of single-family builders, with the heaviest impacts on large companies in the West.
Furthermore, the credit problems have pushed up sales cancellations at more than one-third of the companies, particularly for big builders in the West.
When asked about credit problems in various components of the mortgage market, the builders ranked degrees of seriousness as follows ― subprime, Alt-A, prime jumbo and prime conforming.
On the other side of the coin, one-fifth of survey respondents said FHA-insured mortgages are helping to fill the gaps and one-eighth said VA-guaranteed loans are filling in to some degree.

The Fed

This is also from the National Association of Home Builders

Monetary Policy Will Be Eased Before Long The revised FOMC statement paves the way for a cut in the federal funds rate target to be made at or before the next FOMC meeting on Sept. 18. NAHB’s forecast now assumes quarter-point cuts at both the Sept. 18 and Oct. 31 meetings, and an additional cut at the Dec. 11 meeting is not out of the question.
The projected easing of monetary policy is sorely needed since the recent market turmoil has tightened overall financial market conditions as investors have stampeded toward credit quality. This process has driven down risk-free interest rates (i.e., Treasury rates) but widened quality spreads in virtually all private markets — raising credit costs for all but the best credit risks.
The mortgage market has been hardest hit, but the cost of funds for all but AAA-rated businesses has climbed as well. [return to top]

From the National Association of Home Builders

The Overall Economy Still Is Performing Well Despite the Major Housing Correction Growth of U.S. economic output (real GDP) slipped badly in the first quarter of this year but rebounded nicely in the second quarter. Third-quarter growth should be around the average for the first half of the year, according to momentum at mid-year and available monthly data for July, and that’s not bad at all.
The housing production component of GDP (Residential Fixed Investment) contracted substantially in the first half of the year, and an even larger contraction is in the cards for the third quarter.
Fortunately, other major components of the U.S. economy have been performing well — including consumer spending, nonresidential fixed investment (including nonresidential structures) and the export market.
Forward momentum in these parts of the economy, along with some support from the government sector, should keep the economy out of recession this year — despite the deepening housing downswing. We currently peg the probability of recession at around 33% toward the end of this year.

Consumer Confidence

Took it’s biggest drop since Hurricane Katrina and the aftermath. This time it’s the financial storms in the mortgage area that are causing people to feel less confident………

Which State Is Going to Get Hit Hardest by the Subprime Bug?

Check out this map……

Wells Fargo eliminates 0% down loans

Check out the story here.

Fifth Third hasn’t done that (yet), so call or e-mail me if I can be of help.

I’ve always said….

that the mortgage business will always have room for those of us who put our customer’s need ahead of scraping more profit out of a particular deal.

But it’s obvious that there are too many people working in the mortgage business to support the current volumes….

Not fun.

I’ve always said….

that the mortgage business will always have room for those of us who put our customer’s need ahead of scraping more profit out of a particular deal.

But it’s obvious that there are too many people working in the mortgage business to support the current volumes….

Not fun.

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