Real Estate is local but mortgage financing is not….

If you are one of the over 1000 who get my weekly updates, then you read the headlines of what’s happening in the housing market this week. It isn’t pretty. When you get a guy like Jim Cramer on the Today show saying, “Don’t buy a new house!” it’s a nasty thing.

So, what do I think is going on? A couple of things:
1. We’re starting to see the effects of the mortgage market meltdown that started the first of August. I think I can honestly say that I’ve had at least 5 or 6 deals in the last 2 months that I’ve told them, “6 months to a year ago, I could have done that deal, but I can’t get you approved now.” Well, multiply that by how many thousands of loan officers all around the country? That’s going to have a big impact in Michigan, California, and everywhere.

2. Inventory – we are still seeing more houses coming on the market than we are selling, and that spread is actually widening as sales slow down. I talked to one Realtor (I know, not a representative sampling) and he said that over 50% of his listings HAD to sell. They were either in financial troubles, moving, or it was a bank owned home. That is having a negative effect on pricing.

3. Reports are national, but home prices aren’t. My brother lives in Sacramento CA. He bought his house in 2000 for a little over $200K (sorry for using you as an example Ron!). In the later part of 2005, he told me that a house almost identical to his sold for just under $500,000. Well, that same home, now, is probably worth maybe $350,000. Is that a 30% price drop? Or is it a 75% price increase? Look carefully at the numbers that you see in the media to make sure you aren’t getting slanted opinions.

Do I think that West Michigan is going to see some declining house values? Unfortunately, I do. BUT I don’t think we are going to see the dramatic plunges in value that other areas of the country are for a couple of reasons:
1. We’ve been in a housing “funk” for longer than they have – they are just now joining us in this wonderful housing market.
2. We haven’t seen the 20 to 40% appreciation rates per year that some places have, so we can’t fall as far either.
3. The vast majority of West Michigan’s market can be financed through conventional Fannie Mae and Freddie Mac loans and those are the ones that remain the closest to way things were. The markets where 60 to 70% of their loans were either sub prime or jumbo are really in for a rough time.

Now I’m going to attempt to answer some of the questions that I think are probably bouncing in many people’s brains:
1. Is now a good time to buy a house? Contrary to Jim Cramer, I think it is a “good” time to buy a house, especially if you either don’t have a house, or are able to sell yours. When the inventory is large and demand is soft, buyers can negotiate more than normal.
2. Would I recommend speculative investment in real estate right now? Only for those who have the financial means to carry the property for a long time.
3. What are rates going to do? Rates have stabilized in the conventional markets and I don’t forsee dramatic changes to them in the near future, but stay tuned.
4. Using the baseball analogy, what inning are we in? I’d like to say we were close to the end of the game, but frankly I don’t think we are. I’d say it’s probably the bottom of the 2nd inning.

So, if I’m a professional who wants to make a living off this market, what should I do?
1. Be smart about how you work. Know your market, keep up on the trends, stay in touch with your clients and go “over the top” in terms of customer service.
2. I’m sure you’ve heard the saying, “If you do what you’ve always done, you’ll get what you’ve always got?” Well, I don’t think that applies right now. What worked 2 years ago, doesn’t work right now. “If you build it, they will come” use to work for builders, but it doesn’t any more. Think outside the box, be creative, and don’t be afraid to be different (but keep it legal!).
3. Realize that the “pie” of available business is smaller, but the number of Realtors, builders, and lenders looking at that pie for their living is smaller as well. I heard one Realtor say that he expects close to 40% of the Realtors that were in business at the start of 2007 won’t be in business by spring of 2008.

I’ve got some ideas that I’m working on in terms of ways that Realtors and builders can partner with an established lender at a reputable bank (any idea who I’m thinking about?) to help foster their business. I’ll post and e-mail more about that later.

Thanks for reading, let me know what you think, and let me know how I can help.

Tom

Mortgage Market Headline News – the week in review….

Here’s the latest “headlines” from the mortgage/real estate industry. I wish I could say they were pretty, but they aren’t. For some thoughts about what I think it all means, check out my next post……

From www.housingwire.com
OTS: Federal Oversight Needed for Mortgage Banks
Posted: 21 Sep 2007 08:26 AM GMT-06:00
In prepared remarks delivered to the Exchequer Club earlier this week, Office of Thrift Superivision Director John Reich suggested that federal regulators be allowed by Congress to expand their authority to include oversight of mortgage banks. Many Wall Street investment banks currently operate outside of the regulatory authority of the OTS and other federal regulators, something Reich said creates “an unlevel playing field.”
From his remarks:
I have heard comments from executives at federally regulated financial institutions that a level playing field does not currently exist and I have to agree with them. Many of the abuses in home lending have come from a side of the mortgage market that is outside the reach of federal regulators, and in many cases also outside the reach of the states. Current supervisory structure provides minimal accountability—and represents a continuing force for tipping the competitive balance in the home mortgage marketplace in favor of entities that play by less stringent sets of rules …
The other area of concern has been the funding of mortgages that were poorly underwritten and/or that had predatory pricing and lending terms. Again, Congress has the ability to address funding abuses by imposing much needed oversight and accountability for mortgage banks. The OTS has extensive expertise in the oversight and supervision of mortgage banking operations that I believe would benefit the currently unregulated mortgage banking market. As I have said in the past, the OTS is not asking for expanded regulatory authority, but if Congress determined that our agency could provide the best solution, we would rise to the challenge.
Reich also said he supported federal registration and oversight of mortgage brokers and loan originators, beyond his suggestion that the OTS might provide the “best solution” to regulating the third-party mortgage market.
It’s probably time to go on record right now and say that the mortgage banking industry is likely to become regulated in ways many in the industry probably never thought possible in the past decade — and how that regulation is enacted at the legislative level will do more than “level the playing field.” It will change the game.
Along with a few others in the industry that I’ve spoken with, I suspect Countrywide in particular already saw this coming, which is part of the broader reason for its recent retreat to a thrift charter. As legislators look to target the so-called “unregulated mortgage market,” the impact on that part of the mortgage industry will probably end up being far more constrictive than the impact of making a move to the relative safety net of existing regulatory authority ahead of any new legislation.

From www.buildingonline.com
Hovnanian Sells 2,100 Homes During Three Day Sales Blitz
09/20/2007
RED BANK, NJ — Hovnanian Enterprises, Inc. announced preliminary results for its “Deal of the Century” nationwide sales campaign, that occurred from September 14th through September 16th in the Company’s residential communities across the country. Over the course of the three-day event, the Company reported more than 2,100 gross sales including more than 1,700 contracts and more than 400 sales deposits.
The company said that agents were so overwhelmed by buyers, some community locations only had enough time to take deposits from customers rather than completing the more extensive process of taking contracts.
Hovnanian said it also experienced a very high level of traffic from interested buyers in our communities, and we had a seven-fold increase in website traffic.
“The preliminary results from our ‘Deal of the Century’ sales promotion exceeded our expectations,” stated Ara K. Hovnanian, President and Chief Executive Officer of the Company. “The high level of traffic we saw in our sales offices and models over the weekend and over the past several weeks convinces us that there are interested buyers in the market today. However, with all of the negative publicity about the housing market, many homebuyers were hesitant to buy because they worried that even lower prices might be offered later. Our “Deal of the Century” promotion gave potential homebuyers the confidence they needed to make a long-term decision to purchase a home at an attractive value.”

www.buildingonline.com
Builder Confidence Falls Again in September
09/20/2007
WASHINGTON — Concerns about the substantial inventory of new homes for sale and the effects that deepening mortgage market problems are having on buyer demand caused builder confidence to decline for a seventh consecutive month in September, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. The HMI dropped two points to 20, tying its record low reached in January of 1991 (the series began in January 1985).
“Certainly problems across the mortgage finance arena are taking their toll on buyer demand, which is weighing heavily on builder confidence measures,” said NAHB Chief Economist David Seiders. “Even so, availability of mortgages under the government-supported part of the market remains very good, and the long-term fundamentals of housing are solid in terms of projected household formations, income growth and other factors. We now expect to see home sales return to an upward path by the second quarter of 2008 and we expect housing starts to begin a gradual recovery process by the third quarter of next year. At that point, the market will have substantial growth potential.”
Two out of three component indexes declined in September. The index gauging current single-family home sales declined two points to 20, while the index gauging sales expectations for the next six months fell five points to 26. The index gauging traffic of prospective buyers held steady at 16 for the month.
All four regions of the country reported declines in their September HMI readings. The Northeast posted a three-point decline to 26, while the Midwest posted a single-point decline to 13, the South posted a two-point decline to 22, and the West posted a four-point decline to 18.

Also from www.buildingonline.com

Housing Starts Fall to 12 Year Low in August
09/20/2007
Overall housing starts fell 2.6 percent in August, to a seasonally adjusted annual rate of 1,331,000, according to new data from the U.S. Census Bureau and the Department of Housing and Urban Development. Single family starts dropped 7.1 percent during the same period, to an annual rate of 988,000. It was the lowest rate of new starts since June 1995.
“The housing market is still contracting, but yesterday’s action by the Federal Reserve to cut the federal funds and discount rate calmed the financial markets and sent a message to American consumers that our central bank intends to ensure that the economy continues to move ahead,” said NAHB Chief Economist David Seiders. “This will help to support housing, especially if the Fed takes further action in the months ahead. We expect starts and permits to bottom out by mid-2008 before a systematic recovery process gets underway.”
Building permits issued in August fell by 5.9 percent, to a seasonally adjusted annual rate of 1,307,000. The performance was 24.5 percent lower from year-earlier numbers.
Privately-owned housing completions in August were at a seasonal
ly adjusted annual rate of 1,523,000, 0.2 percent below the revised July estimate. Single-family housing completions in August were at a rate of 1,249,000, 3.4 percent above the July’s numbers.
From Reuters: Lowe’s warns profit could trail prior forecast
The second-largest home improvement chain behind Home Depot Inc … said “current sales are trending below” expectations as drought in the mid-Atlantic, Southeastern and Western parts of the United States hurt sales of outdoor products.

From MarketWatch: Target cuts September sales outlook
Target Corp. on Monday evening cut its forecast for September sales at stores open more than a year to an increase of 1.5% to 2.5%, down from its previous forecast of 4% to 6%. In a recorded message, the Minneapolis-based discount retailer said there was weaker guest traffic in September than expected …

Home Buying Conditions Better Than the News Media Say (from the National Association of Home Builders)

As consumer confidence in housing has weakened under a barrage of negative media coverage sensationalizing the current mortgage credit crunch, NAHB has been stepping up its efforts to inform the public of the positive opportunities for buying a new home.
“There are some serious problems in today’s mortgage market and the availability of financing is not what it should be,” according to an NAHB op-ed piece that association members can find in the online “Back to Basics” Toolkit, along with two similar buy-now messages that are being used by the executive officers.
However, the editorial points out, the conventional, conforming loans that are the mainstay of the mortgage market have remained largely unaffected by the shakeout in lending to subprime borrowers and recent tightening of terms for jumbo loans. These loans are limited to $417,000 and conform to other standards that enable the lender to sell them to Fannie Mae and Freddie Mac, which then package the loans and sell them to investors.
“Interest rates for these mortgages remain well within the affordable range,” the editorial adds.
As an alternative to the subprime market, first-time home buyers or those who don’t quite measure up to the credit requirements that lenders are now setting for conventional loans should consider the alternative of mortgages insured by the Federal Housing Administration, which require 3% downpayments.
“The most important thing for would-be buyers is to work with the builder to find the mortgage that will enable them to buy the house of their dreams at a cost that fits their budget,” the op-ed says. “In today’s market, there is availability of new housing in a range of prices and good financing options remain, even in instances where there may be some challenges.”

Home Prices Post Biggest Drop in 16 Years
From AP: Home Prices Post Biggest Drop in 16 Years
The decline in U.S. home prices accelerated nationwide in July, posting the steepest drop in 16 years, according to the S&P/Case-Shiller home price index released Tuesday.Home prices have fallen by more every month since the beginning of the year.An index of 10 U.S. cities fell 4.5 percent in July from a year ago. That was the biggest drop since July 1991.”The further deceleration in prices is still apparent across the majority of regions,” MacroMarkets LLC Chief Economist Robert Shiller said in a statement.

From NAR Press Release.
Total existing-home sales – including single-family, townhomes, condominiums and co-ops – were down 4.3 percent to a seasonally adjusted annual rate1 of 5.50 million units in August from a level of 5.75 million in July, and are 12.8 percent below the 6.31 million-unit pace in August 2006.

IMF: Credit Crunch Likely to be ‘Protracted’
by Paul Jackson
September 24, 2007
A report from the International Monetary fund, released today, said that “a protracted adjustment period” lies ahead in the wake of the financial problems created by the collapse of the U.S. subprime mortgage market.
From the press statement:
… the GFSR [Global Financial Stablity Report] said the period ahead may still be difficult as bouts of turbulence are likely to recur and the adjustment process will take time. “Credit conditions may not normalize soon, and some of the practices that have developed in the structured credit markets will have to change,” it stated.
The full report is available here; an executive summary is available here.
At the core of the analysis lies in what the IMF characterizes as a funding mismatch. From the executive summary:
The threat to financial stability increased as the uncertainty became manifest in the money markets that provide short-term financing (especially commercial paper markets). At the center of the turmoil is a funding mismatch whereby medium-term, illiquid, and hard-to value assets, such as structured credit securities, were being funded by very short-term money market securities—often asset-backed commercial paper.
I think another core issue here is the very securities themselves — the nature of many mortgage-backed securities and derivatives is opaque, meaning they can mask off-balance sheet and contingent liabilities.
But it’s a game that can only go on for so long, as we’ve seen numerous times this year alone. How the financial markets address the problem of billions of dollars worth of such securities now serving as the “ghost in the financial machine” will determine where we go next. And I just don’t have the feeling yet that we’ve really seen so-called mark-to-market activity yet.
Housing Glut, Lennar Revenue off 44%, Other Goodies
Published at September 25, 2007 in Wall Street, Economy and Real Estate Musings. 4 Comments
A bunch of big news out of Wall Street today with the high (low?) lights being the following:
Consumer sentiment falls to 2-year low after peaking in July (a massive reversal of sentiment)
Lennar (a large OC-based home builder) sees its revenue fall 44% and miss even the most pessimistic analyst estimates
Housing rises to an 18-year high as
unsold home inventory sky-rockets amongst weakening existing home sales
Consumer Sentiment
Consumers are finally starting to realize that their homes are no longer the never-ending ATMs they thought they were, as mortgage equity withdrawal fueled seemingly unsustainable consumer spending. Now that housing and job losses begin to mount consumers are not as confident as they were just two short months ago, when consumers were very confident in the direction of the economy. From Bloomberg:
Consumer confidence slumped to the lowest level in almost two years and home sales weakened, threatening U.S. household spending and bolstering the case for the Federal Reserve to keep cutting interest rates.
The Conference Board’s index of consumer confidence fell more than forecast in September, to 99.8 from 105.6. The National Association of Realtors said August sales of previously owned houses dropped 4.3 percent and a separate index of home values fell the most in at least six years in July.
Lennar
The large OC homebuilder stunned even the most pessimistic of analysts this morning with a huge 44% drop in revenue last quarter and a near-$1 billion charge for write downs associated with land holdings; a problem that land-hungry homebuilders are going to be facing for a while to come. More Market Watch:
For the quarter ended Aug. 31, Lennar said that it swung to a loss of $513.9 million, or $3.25 a share, from net earnings of $206.7 million or $1.30 a share in the year-ago period. Total revenue fell 44% to $2.34 billion as the company delivered 41% fewer homes and the average selling price decreased 6% from the previous year, driven mainly by higher incentives to attract nervous buyers. Lennar said that incentives averaged $46,000 per home in the latest quarter, up from $35,900 a year earlier.
New orders fell 48% to 5,804 homes.
In response the company is laying off 4,400 workers as new orders also fell almost in half. No orders, no money, no jobs – that is unfortunately the way it goes these days.
Random question – who are these people who are willing to pay $25/share for these homebuilder companies?
Housing
Once again the NAR is going to be searching for their pencils to revise their estimates (downward of course); at what point does it become embarrassing for the purportedly industry leading organization to be wrong over and over? I guess the answer is never as the numbers and analysis coming out of the NAR lately have been nothing short of shameful propaganda.
From the Market Watch story:
With sales of existing homes falling 4.3% to a five-year low seasonally adjusted annual rate of 5.50 million in August, inventories of unsold single-family homes rose to an 18-year high.
Meanwhile, a separate gauge of home prices fell for the 12th straight month, with prices falling in 15 of 20 major cities over the past year. Prices in 10 major cities are falling at the fastest pace in 16 years.
Sales of existing homes were down 12.8% in August compared with August 2006.
Sales of existing homes fell in all four regions, dropping 2% in the Northeast, 9.8% in the West, 5.2% in the Midwest and 2.7% in the South.
Sales of single-family homes dropped 3.8% to a 4.81 million annual pace, the lowest since August 2002. Condo sales fell 8% to a 690,000 pace annualized, also a five-year low.
What’s amusing (or sad) to me is that the talking heads on CNBC and Bloomberg this morning are busy buzzing about this being the “bottom” or the “worst of it” when just this February we were talking about the same things when New Century and Fremont Investment and Loan were wiped off the map.
The facts remain that we have a ton of adjustable rate mortgages of dubious quality still set to adjust and we have a slew of prime Option ARM mortgages that won’t come in to their reset period until late ‘08 early ‘09. These will continue to exert pressure on home inventory (upwards, of course) which will put more homes on the market, driving prices further. Nouriel Roubini is calling for a 20% drop at least; and the Case-Shiller housing price index shows homes already off nationwide 3.9% over the last 12 months.
Folks this is not going to be pretty – and it ain’t getting better any time soon.
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This has been a summer of growth and expansion for Fifth Third Bank and we’re starting out Fall 2007 in much the same way.
We have just announced that Fifth Third Bank has purchased nine branches in Atlanta from First Horizon National Corporation, headquartered in Memphis. With the branches we will acquire in the pending First Charter acquisition, we will now have 11 locations in the Greater Atlanta area. The First Horizon Atlanta franchise currently has loans of approximately $200 million and deposits of approximately $150 million.
This is a great opportunity for Fifth Third Bank and this purchase fits well with our geographic expansion initiative and our strategy of pursuing transactions that are financially attractive for us.
We expect that the deal will close in the first quarter of 2008.
Kevin T. Kabat
President and CEO
Fifth Third Bancorp

– New home sales tumble 8.3% to lowest level in 7 years, Dow Jones
reports.

Log on to http://money.cnn.com/bn for the latest news.

I’ll continue to keep you informed, let me know if I can be of help.

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

Some thoughts about the state of the mortgage market

Well, it’s been quite a week again. Since I’ve already covered the details of what’s happened in a previous post, let me lay out what I think of it all…..

The Fed’s move on Tuesday. They cut rates by more than what most people expected because they felt the overall economy is in a difficult spot. I think that the rate cut will help corporate borrowers, it’s certainly helped the stock market this week, but the portion of the economy that’s in the worst place right now (the housing and mortgage markets) aren’t really going to benefit from it. Here’s why:
1. Very few mortgage products are impacted by the Fed Funds rate. We are more closely linked to the 10 and 30 year treasuries. We’re talking apples and oranges. Saying that the Fed Funds rate is going to affect mortgages is like saying that the price of an apple is going to affect orange growers. Very very indirectly it does, but not directly and not on a .5%/.5% rate.
2. The value of the dollar – mortgage rates went up this week because, after the Fed lowered rates, the value of the dollar got hammered. For the first time since 1976, the value of a Canadian dollar and the value of the US dollar are the same. So what? and why? What happened and is happening is that as the dollar falls in value, people are taking their investments and sending that money elsewhere (like to China, Japan, etc.) and that is making the rates on our investments go up in order to still attract investors. Why? It’s all about the pursuit of return. If an international investor can get a larger return somewhere else, they will.
3. The problems in the housing market aren’t rate driven. The housing inventory isn’t going up because rates are too high. The foreclosures aren’t going up because rates are going up (well, not the “actual rates” but the rates on the subprime “exotic” loans are going up too high). The problems in the housing market stem from something different, something that can’t be fixed by a quick shot in the arm of “rate candy” like we got on Tuesday.

So where do we go from here? A couple of thoughts:
1. I think there is a real chance that if the Fed continues to lower rates we could see mortgage rates go up because it will continue to put pressure on the value of the dollar.
2. I think that, rather than making things better, the Fed’s action might end up being more like a band aid on a 6 inch cut. It’s something, but it’s not what we really need to fix the problem.
3. I think we’re going to see a continuing consolidation in the mortgage industry so that the loans that get done are the ones that can go to Fannie Mae and Freddie Mac (good credit, verified income, usually at least a little down payment). Many good people who have done a lot of good for others in the mortgage industry will unfortunately lose their jobs and I wish them well.
4. We’re going to see continued resistance to investing in mortgage backed securities outside of Fannie and Freddie. The losses will mount for those who hold those type of investments. It will be painful.
5. As things continue to unwind, I believe the business will gravitate to the well educated, smart professionals who are working for rock solid companies (and that goes for Realtors, builders and mortgage lenders). It will be a smaller group than it was 2 years ago.

So when should the government act like a parent of a teenager?
I want to through an idea out there about some of the talk that’s going on (mainly in Washington) about bailouts and the like. I’m saying this as a parent of three teenagers (actually one is 20 now) who haven’t always done everything the way they are supposed to……

If you make a mistake and your parents always rescue you from your mistake without there being any signficant consequences for those mistakes, are you really going to learn anything from the mistake?

That, to me, is the essence of the bailout arguement. If the government steps in and bails out the hedge funds, the mortgage companies, and the borrowers who are in trouble now, will anyone learn from the mistakes that were made? Let me lay out what I see as the top three mistakes that were made:
1. Greed – the investment companies were packaging these loans in such a way that the profit seemed too good to be true. Surprise! It was too good to be true.
2. Confusion- many loan programs that have been done were not truly in the customer’s best interest, and in many situations they weren’t explained well enough that the customer knew what they were getting in to. I think many of us in the mortgage business have a hard time remembering that mortgages can be very confusing for those who don’t deal with them every day.
3. Cheap Credit- there are truly some very sad situations out there because of this mortgage meltdown and I feel badly for them. However, there are also a lot of people who borrowed more than they should, bought more of a house than they should, and did so because interest rates and monthly payments were so cheap and they thought that they could always sell before the rate and payment went up. With the market slowing down, they can’t sell as quickly and they are stuck.

I’m not opposed at all to having the government help out homeowner’s who are stuck in a bad situation and if, by getting a “little” help could turn things around and get back on track. I don’t like the idea of bailing out the mortgage company who did too many subprime loans to people who shouldn’t have, or the guy who bought three condos in Florida as investments because he was going to sell them all before the initial teaser rate was done.

My main point about a bailout (or any sort of government assistance) is that it can’t be something that “makes it ALL better” because if Uncle Sam makes it all better, then we won’t learn from our mistakes. If we don’t learn from our mistakes, we’ll repeat them again and it will be more difficult the next time.

There are consequences to the cheap credit, greedy investment firms, and sloppy underwriting that has happened and it’s not going to be fun to pay that price. But, the price will be more expensive if we pay it 4 years from now compared to now.

That’s why I think the government’s role in bailing out anyone should be limited to a very select few of the troubled homeowners and even then, it can’t be without any consequences. I heard an idea once that I thought made sense. If the government (or FHA, Freddie or Fannie) does a refi for a “troubled” homeowner and they get a rate that’s 1% less than market as a way for them to stay in their home, then Fannie or Freddie would get a “second mortgage” against their house for the amount of the subsidy so that at the time they refinanced or sold, Fannie or Freddie would get the money back. I have no idea how the implementation of that would go.

Stay tuned, we aren’t probably even in the second or maybe third inning of this ball game and it’s not going to be an easy ball game to watch or take part in. But those who stay smart and are aware of what’s going on will make it through okay.

Let me know how I can help.

Tom

Mortgage Market Update – a different approach

Well, it’s been another interesting week, to say the least!

I’ve been contemplating over the last 60 to 75 days the best way to communicate the rapidly evolving and extremely dynamic amount of news that is impacting the mortgage world and I’m going to try something different for the next few weeks.

Here’s what I’m going to do:
1. In the weekly e-mail, I’m going to attempt to do it kind of like a print version of CNN’s Headline News. Over the course of the week, I’ll collect snippets of different news items and commentary that impact interest rates, the mortgage industry, and real estate. They will all have the source identified so that you’ll know it isn’t me making this stuff up and if you want to read more about it, you’ll know where to go with it.
2. At the bottom of each of these e-mails, I’ll put a link to a mortgage blog that I’ve been running for a few months (www.straighttalkaboutmortgages.blogspot.com) and then on there I’ll put my opinions on what’s going on, what it really means, the “story behind the story” and how I think it might affect you, your clients, your business, and your decisions about real estate.

That way, those who just want to read an overview of the “mortgage news” condensed in one place can read through the e-mail. Those who want to “dig a little farther into it” and see what this loan officer has to say about it, can read further. In a few weeks, I’ll send you out a “survey” to attempt to get a reading on what you think, but feel free to let me know your thoughts before then.

As I’ve said before, my goal in doing the weekly updates like this are essentially two:
1. To help educate and enlighten Realtors, builders and the general public about interest rates, where they are going and what’s happening in the mortgage market.
2. To increase the likelihood that when those who read this know someone who needs a mortgage, they’ll think about calling me.
If you have any ideas about how I can do either of those better, let me know.

Okay, here goes with the Headline News version for the week:
Bank of America Sees `Meaningful Impact’ From Turmoil (Update2)
By Elizabeth Hester
Sept. 17 (Bloomberg) — Bank of America Corp., the second- biggest U.S. bank, said “unprecedented dislocations” in credit markets will have a “meaningful impact” on third-quarter results at its corporate and investment bank. “These are quite challenging financial times,” Price, 46, said. “I cannot remember when credit markets in particular have been as volatile and unpredictable as they have been for the last few months
E*Trade Hit by Mortgage Turmoil
Company Slashes Outlook,To Cut Industry Exposure;Bigger Retail-Client Focus
By SUSANNE CRAIGSeptember 18, 2007; Page A3
E*Trade Financial Corp., known for providing cheap trades to individual investors, said it expects profit for the year to fall 31% short of the most recent guidance given to analysts — partly because of the company’s exposure to the mortgage business
Government guarantees Northern Rock deposits
Patrick CollinsonMonday September 17, 2007Guardian Unlimited
The chancellor of the exchequer, Alistair Darling, this evening promised that the government will guarantee all savings deposits at Northern Rock amid concern that Britain is plunging into its worst banking crisis in decades.
The move follows a dramatic last-minute collapse in the share price of Alliance & Leicester, which fell 32% in late trading this afternoon, and sparked fears of “contagion” from Northern Rock to other financial institutions.
Lehman: Sales of Mortgage-Backed Bonds Off 36 Percent by Paul Jackson September 17, 2007
From Bloomberg (via the HW Video Channel), comes some news that will certainly be foremost on most mortgage banking professionals’ minds tomorrow morning: Lehman Brothers is already estimating that MBS sales dropped 36 percent in the soon-to-be-reported-on period.

From www.blownmortgage.com
“Do you think China’s gonna forget?”
Published at September 16, 2007 in Wall Street
It’s amazing what a few beers and a trip to New York City can get you these days. In a recent conversation with an unnamed employee of an unnamed big NYC firm that is huge in the mortgage backed securities game I got a feel of just how bad it is on Wall Street. This person worked on the front lines – packaging and selling CDOs (collateralized debt obligations) to big-time investors. How big you ask? How about China, Austria, and a ton of other countries as regular customers?
His take seems to me to be right on. When asked if the housing market is going to “come back” he frankly said, “never.” The reason? “Do you think China’s gonna forget [how screwed they got]?” As he tells the story he could get anything he wanted rated AAA by the agencies with just a bit of alchemy and some statistics. Take a pile of subprime mortgage debt and slice and dice and voila – an AAA rated CDO. His firm would turn around and sell millions and billions of dollars worth of AAA-rated CDOs that turned in to 10 cents on the dollar, almost overnight. China, a huge buyer of our mortgage debt is holding paper that is worth no more than 10 cents on the dollar; and they hold a ton of it.
If you think lead-tainted toys are a big deal, how about being conned in to a bunch of bad subprime mortgage debt reformulated to look innocuous by the wizards (nay, snake oil salesmen) of Wall Street? The housing market will never return because China will never forget how screwed they got in this whole deal. Do you really think in 3 to 5 years China is going to take another blind plunge in to mortgage debt? Do you think other countries are going to come rushing back saying give us more crap? Not a chance.
Consumer sentiment doesn’t matter, lower rates don’t matter, these countries got burned by the billions and they won’t forget any time soon. The fuel for the American housing market run-up is not coming back. The question is now – how closed off is America and Wall Street to funding from these countries? Will they believe the ratings agencies and Wall Street houses when they tout their latest offering as AAA rated? What else will suffer as these countries keep their money on the sidelines, out of markets that have proved lucrative for US firms hawking their wares?
He said at least you mortgage guys can keep writing refis, but the CDO market is dried up. People [investor customers of the Wall Street firms] are really, really unhappy. And one last thought? You ain’t seen nothing yet.
News from the National Association of Home Builders
This article provides some good insights into how to weather the tough times.
Check it out at http://www.nbnnews.com/NBN/issues/2007-09-17/Front+Page/index.html.

Impac to Exit ‘Substantially All’ Mortgage Lending, Cancels Dividend by Paul Jackson September 18, 2007
In a sign of how difficult the mortgage market has become, Impac Mortgage Holdings Inc. said today that it will exit “substantially all” of its lending activities, including warehouse and commercial lending. An additional 114 employees will lose their jobs, the company said, adding to the 350 jobs eliminated on August 22. (from www.housingwire.com)
Housing starts fall 2.6% to 12-year low; consumer prices down 0.1%, weaker than forecast.
Subprime layoffs head for record
Worst may not be over yet for lending industry as job losses on way to breaking mark set in 2001. By Jeff Cox, CNNMoney.com contributing writer
September 19 2007: 10:45 AM EDT
NEW YORK (CNNMoney.com) — If the banking industry, with its load of worries caused by the subprime meltdown, has another month like it did in August, it will be in record territory for job losses.
Last month, banks with ties to the subprime mortgage industry laid off more than 26,000 employees, the most of any month since global outplacement consultancy Challenger, Gray & Christmas began keeping such records in 1993.

cnnad_createAd(“970130″,”http://ads.cnn.com/html.ng/site=cnn_money&cnn_money_position=220×200_ctr&cnn_money_rollup=real_estate&cnn_money_section=quigo¶ms.styles=fs”,”200″,”220″);
Overall, that brought the total layoff damage to 107,758 in the financial industry this year. Another month that even remotely resembles recent trends will send the layoff total soaring past the 116,515 mark set during the recession of 2001.
And that could spread to other sectors too. “We’ll now start to see how it impacts as the effects ripple into the other areas,” said Challenger, Gray & Christmas CEO John Challenger.
– Bernanke: Fed to propose additional consumer protections against
mortgage foreclosure.

Log on to http://money.cnn.com/bn for the latest news.
From www.blownmortgage.com Sept. 20, 2007 For the first time since the 1970’s the US Dollar and the Canadian dollar have reached parity. That’s right – no hopping north of the border for some cheap smokes and booze! See what happens when the Fed flirts with a total dollar accident with a “market saving” 50 basis point cut to the fed funds rate? From Market Watch today: The dollar has fallen significantly against most major currencies since the Fed made a larger-than-expected half-point cut in both its federal funds target as well as the discount rate on Tuesday, in a move aimed at preventing the credit woes from the subprime mortgage meltdown from dragging down the broader economy. Lower rates erode the returns on dollar-denominated assets, so the Fed’s announcement sent the dollar into a tailspin against every major currency except Japan’s low-yielding yen.
“The U.S. dollar is clearly being sacrificed by the Federal Reserve in a last ditch effort to save the mortgage bankers,” said Ned Schmidt, editor of the Value View Gold Report. “Foreign investors would be foolish to buy U.S. investments knowing that the value of the dollar will decline,” Schmidt said.
I’d like to reiterate the sentiment of Mr. Schmidt – the dollar is clearly being sacrificed in a foolish and futile attempt to save the mortgage industry; an industry that 1) cannot be saved by such a cut and 2) needed be saved in an attempt to prop up a clearly over-saturated market place
From the New York Times High and Low Finance
The Week of Saying Never Mind
By FLOYD NORRIS
Published: September 21, 2007
“When somebody persuades me I am wrong, I change my mind. What do you do?” — John Maynard Keynes
Six weeks ago, the Federal Reserve thought the American economy would easily weather problems in the credit market. One week ago, the Bank of England warned against the risks of bailing out those who had made risky loans.
This was a week to say “never mind.” The Fed cut interest rates and the British authorities decided that they would effectively guarantee the deposits of every British bank, after a run developed on one bank that had gambled in the mortgage market.
It is a measure of the continued confidence in the power and wisdom of central bankers that markets around the world rallied. Both moves showed that the bankers had grown more fearful of credit market contractions damaging economies, but investors initially chose to focus on the action rather than the fears.
By yesterday, however, the markets were moving in ways that cannot have made the Fed happy. The dollar fell — an expected result from cutting short-term interest rates — but long-term rates rose, and so did mortgage rates.
“Alan Greenspan’s conundrum is becoming Ben Bernanke’s calamity,” said Robert Barbera, the chief economist of ITG, recalling that when the Fed raised short-term rates under Mr. Greenspan, long-term rates did not follow. Now the opposite is happening, a fact that will make it that much harder to stimulate the economy.
Those wanting to understand the Fed’s reversal can profit from reading two papers by Fed officials, released this summer as the credit squeeze was worsening.
In total, they constitute an admission that the Fed was surprised by the housing and borrowing boom on the upside, and now fears it will be surprised on the downside.
Lawmakers: Subprime plan is no ‘moral hazard’
At Thursday’s House banking panel legislators on both sides of the aisle were actually in accord when it came to how to fix the subprime mess, reports Fortune’s Nina Easton.

By Nina Easton
September 21 2007: 8:47 AM EDT
(Fortune) — Barney Frank and Hank Paulson and Ben Bernanke want everyone to know this: They are not engaging in morally hazardous behavior.
Read more at http://money.cnn.com/2007/09/20/magazines/fortune/powerplay_subprimehearings.fortune/index.htm
For more thoughts and observations on the state of the markets, check out my mortgage blog at www.straighttalkaboutmortgages.blogspot.com.
Have agreat day and let me know how I can help!

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

Quote of the week: “Standing is harder than moving.” Moshe Feldenkrais

The Fed – what does it mean?

Okay, so the decision is made and the Fed pulled a surprise and dropped rates .5%. This was definitely one of the most widely discussed and somewhat unknown meeting that the Fed has had in the last 5 years. Let me “ask and answer” some questions that many people are probably wondering……

What will this do to rates on home equity lines of credit? Very simple, it will drop them by .5%. Depending on the bank, they will either drop immediately or at the start of the next billing cycle.

What will do this to mortgage rates? Immediately, probably nothing. The 10 year bond finished the day up only .01%, not enough to impact mortgage rates. Remember, the Fed controls the shortest of the short term rates and mortgage rates are the longest of the long term rates. The mortgage market tends to move in anticipation of the Fed, not because of them, and that’s why I don’t anticipate any major moves in the near future. Long term, it could potentially cause rates to rise. Let me lay out why:
1. Money becomes cheaper and so spending goes up.
2. Spending goes up and that causes inflation.
3. Inflation goes up and that causes issues in terms of what the rate cut can do to the value of the dollar which is also inflationary.
So, there is a potential inflationary risk in what the Fed did today.

Will the Fed’s move “help” the housing market? Unfortunately, I don’t think it will do much. For the reasons cited above, it probably won’t move mortgage rates much. You will probably hear in the press that it will help people who have Adjustable Rate Mortgages because the rate they reset to will be lower. If the loans are tied to the 1 year Treasuries, that it true, it will probably make some difference. However, a large percentage of the ARMS are tied to LIBOR instead and that’s not going to be affected by what the Fed did.

So what why did they do it?
Since I’m not part of the Federal Reserve’s inner circle, I’m only providing my personal opinions….
1. They cut rates because they know more than the rest of us do and they realize that the economy is not in good shape right now and it’s a lot shakier than it was 60 days ago. I think the operative word is “forestall” in their statement – they know things aren’t great and they are trying to push off the potential of things getting a lot worse.
2. They cut rates to try to get money moving again. A lot of the credit markets are really “bottlenecked” right now and they want to get things moving again. Will it work? It remains to be seen.
3. A “confidence booster” – there’s a certain school of thought that says the Fed wanted to give the markets and the economy something to feel good about. Did it work? For today, it did. The Dow rallied sharply.

What was my first reaction when I got the e-mail with the news? I had expected that the Fed would lower rates by .25% and say that they were prepared to do more if they needed to. The fact that they cut rates by .5% said to me, “Wow, they think the economy is heading into a really rough patch and they are trying to keep it from going into the ditch…..”

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

Tom

The Federal Reserve and .50%

I’m sorry I didn’t have a chance to let you know this earlier. Busy day today!

Here’s what the Federal Reserve had to say today (directly from their website – emphasis added by me)

“Release Date: September 18, 2007
For immediate release
The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4-3/4 percent.
Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.
Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
Developments in financial markets since the Committee’s last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.”

Wholesale vs. Retail

I got this from www.blownmortgage.com. It’s from Countrywide.

There’s a growing debate going on over the retail vs. wholesale mortgage model. I’m not a betting man, but I’ll wager that the amount of mortgages that get done through retail operations of larger banks (like the one I work for) is going to grow exponentially compared to the wholesale portion. Read it and tell me what you think.

“In the latest broker letter from Countrywide attempts are made to reduce anxiety building in the broker community about the onslaught of bank closures and strategic changes away from the wholesale and correspondent lending models. Clearly with WaMu shuttering correspondent lending, and lots of chatter about the need to improve quality by focusing solely on retail origination, brokers are rightfully worried about their place in the industry when all is said and done.
From Countrywide:
Dear Business Partner:
As we continue to adapt to challenges in the mortgage market, this communication is the second of a series from Countrywide®, America’s Wholesale Lender®. In these ongoing communications, my goal is to present open and direct assessments of the current state of wholesale lending, and the measures we can take collectively — as originators and lenders — to successfully evolve the wholesale lending channel.
My first communication in this series, emailed to you on August 28, was met with a wide range of reactions from the broker community as expected. I’m pleased that so many people took the time to share their views as it demonstrates how engaged and passionate we all are about this business. Truly productive communication should inspire dialog that airs points of agreement as well as honest differences of opinions.
Undoubtedly, these communications are about looking forward and about helping to define what success will look like for all of us — tomorrow and in the future. To flourish, all players in the wholesale lending channel — lenders and brokers alike — must work together to evolve and prosper in today’s ever-changing environment. As a former loan originator who once operated as a mortgage broker, I couldn’t believe more in the vital role that strong, high-quality, and service-oriented mortgage brokers play in the mortgage lending process.
Adapting for Change
In this virtually unprecedented period in our industry, it is clear that we must all take decisive action to ensure the long-term health of our business and of the wholesale lending channel. Given the current soft housing market conditions and the tighter credit standards that are in place today, we already know that 2007 will produce lower origination volumes than expected. We are now estimating that these variables will reduce the size of the originations market in 2008 by 25% or more from 2007 volumes. In addition to these forecasts, Countrywide is now only offering non-prime financing options that are eligible for sale or securitization under programs supported by the GSEs (Fannie Mae, Freddie Mac) and FHA.
Despite these and other reductions to our product guidelines, Countrywide, America’s Wholesale Lender continues to offer among the broadest product menus in the industry. Nevertheless, we must evolve our business model to adapt to these significant changes in the market.
Accordingly, we recently announced our plans to integrate our prime and non-prime sales forces into a single, industry-leading sales organization dedicated to supporting our extensive product line — including Non-Prime, Government, Custom Construction, and Reverse Mortgage*. This evolution of our organization truly strengthens our commitment to our One Source lending strategy and provides you easier access to the home loan solutions that can help drive your business.
As a result of this integration, we made a difficult decision and, earlier today, reduced the size of our sales organization across the country. It was necessary to make these adjustments to ensure appropriate broker account assignments in light of the projected lower size of the overall mortgage market.
Your One Source for Success.SM
In spite of these actions, Countrywide, America’s Wholesale Lender is well positioned to continue its leadership role in the channel and remains relentless in our pursuit of achieving a dominant status among wholesale lenders.
Our new sales force and structure is designed to better meet the needs of our Business Partners as we work together to evolve and strengthen the wholesale lending channel. Our distributed Account Representatives and fulfillment resources are truly devoted to helping you drive your success with one simple goal in mind — delivering responsive and knowledgeable service each and every time you call upon them for assistance.
As a result of today’s changes, we are quickly working to restructure our account assignments across our existing sales force. If you have any questions regarding this process, please contact your Account Representative or the Area Sales Manager in your market. You may visit www.cwbc.com or call 1-800-877-POWER® if you need assistance with contact information.
Looking to the Future
At Countrywide, America’s Wholesale Lender, we remain steadfast in our commitment to our broker Business Partners and our goal of providing solutions that can help drive your business. Working together, I am confident that we can successfully evolve the wholesale lending channel to adapt and prosper in the new market paradigm. To do so, however, we must all be willing to constantly examine our business strategies and practices and to affect change where change is needed.
In my next communication, I plan to address the ongoing importance of the mortgage broker “value proposition” in today’s mortgage lending environment. I also plan to share observations on the topics of strengthening consumer loyalty and enhancing the broker role as a trusted advisor in the housing finance industry.
Together — as originators and lenders — we can and will revitalize the wholesale lending industry. Thank you once again for your time.
Todd A. Dal PortoSenior Managing Director & PresidentCountrywide, America’s Wholesale Lender
My thoughts? Well in the last communication there was quite an uproar from the broker community from what appeared (not to this recipient however) that Countrywide was looking for a way to ease the news that less production would be coming from the wholesale (broker) channel in the future. While not implicit, the first message seemed to raise that concern among brokers.
This is clearly an attempt to show that Countrywide is not running for the wholesale aisle – yet. However, it must be in context with the layoff scheme to reduce the workforce by 20%. Will they be concentrated in wholesale or evenly between all origination channels? From early accounts it seems they are taking their most drastic steps in reducing wholesale capacity. However, this is just my opinion and we have yet to see the final strategy revealed from Countrywide.
I will say though that they are at the mercy of the secondary market like everyone else. If investors only want retail loans, retail loans is what they’ll get – regardless of what Countrywide may or may not say now.
Personally I’ve seen staff layoffs, account reassignments and more that make it look like a paring down of wholesale is well underway – but I could be wrong”

Week in Review

Well, once again here we are at the end of the week trying to figure out how in the world to summarize all that’s going on in the mortgage/financial world. It’s been a week that’s been rather quiet in terms of economic reports, but there has been a lot of other “stuff” swirling around. Let me try to lay out what’s going on, throw in some ideas on what it means, and what to do from here.

Before I do, I just wanted to thank so many of you who responded with a very clear message that you want (and in many cases need) to know the “real story” about what’s going on. So, I’m going to continue to be blunt, be straightforward and do my best to help all of us navigate through this time of historical tumult in the financial and real estate markets. Hang on to your hats, I think it’s going to be a wild ride!

The topics for “discussion” today are:
Tuesday, September 18 at 2:15 pm is a very important time for the financial markets. The Federal Reserve’s Open Market Committee is meeting and the markets are betting/planning that the Federal Reserve is going to lower rates to “help us out of this mess.” It’s not as clear cut of a picture that the Fed is going to lower rates, and if so, how far. Let me explain why:
1. The Federal Reserve’s role is to promote economic stability by keeping the appropriate balance between inflation and growth. All things in moderation, shall we say? Well, if they start aggressively lowering rates, it will increase the risk of inflation, it could (and probably would) have a negative impact on the value of the dollar (don’t ask me what that means, I’m not a currency trader!) and could seriously throw our country’s economic engine out of whack. Stagflation is the term that I believe they use to describe a period of very little economic growth and high inflation. I don’t like the sound of that……
2. Moral Hazard – believe it or not, moral hazard is actually an economic term. It has to do with the economic risk associated with any investment or loan. Every time that Fifth Third makes a loan of any sort, we take a risk. The risk is whether the customer will pay us back, file bankruptcy, leave town, or whatever. There’s a certain school of thought which says that if the Fed chooses to lower rates substantially, they are in essence rewarding the investment banks and mortgage companies that made “stupid” loans and are bailing them out by making money cheaper. If you write a mortgage with a 4% starting rate that is going to adjust to 12% after 2 years and you do it to someone who has a credit score in the 500’s, you are taking a big risk. But should the Fed bail you out when that goes bad? A fair amount of people are starting to say, “You know, if we do that, what’s to prevent it from happening again?” The “Fed Chairman” of the Bank of England explained it quite well when he flat out said that if we bail out banks and investment companies when they are making risky loans (like this) then they won’t learn. So, take your lumps. Check it out at http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2441754.ece. It will be interesting to see if they follow up with the tough talk or not.
3. Pushing a string – as more people are analyzing things, they are starting to question whether a cut in rates from the Fed would even have an impact on the financial issues we are facing. The issues we are facing are not simple (economy bad, lower rates, make money cheaper, people spend more, economy gets better) or (economy growing too fast, inflation is a problem, raise rates, people don’t buy as much, economy calms down). We’re dealing with not the cost of credit, but the availability of credit and that won’t be impacted by a cut in rates, at least not directly.

So what’s going to happen Tuesday? You can be guaranteed that I’ll be paying attention to it and I’ll attempt to let you know what I see as soon as possible. However, I have to tell you, I don’t have a clue as to what the Fed is going to do but I think the markets aren’t going to get as much of a free ride as they think.

Greenspan – Apparently he is coming out with a book next Monday called “Maestro.” Well, there are starting to be more and more people who are saying that because he and the Fed made credit so cheap for so long is a large part of why we are in this mess. Food for thought….

Jobs, Jobs and Mortgage Jobs: Last week, I told you that Countrywide announced on Thursday that they were laying off 900. Well, on Friday (after the markets closed – how convenient) they announced that they are cutting another 12,000 jobs in the next 90 days. Ouch. In addition to that, Option One is laying off 575 mortgage people and just yesterday, First Horizon announced that they are laying off 1500 (50% of their staff), restricting their programs, and closing 50 offices. If those sort of job losses are happening at mortgage companies, I don’t expect that the August jobs report was a fluke.

What does $11,500,000,000 plus $2,000,000,000 plus $12,000,000,000 equal?
The amount of money that Countrywide has borrowed in the last 45 days as they attempt to remain liquid and keep writing loans. (That works out to approximately $2.3 million per hour!

The Mortgage Company Model of Business: It’s becoming more and more obvious that the model of business that mortgage brokers use is getting harder and harder to maintain in the current market environment. A mortgage company essentially writes a loan and then relies on the secondary mortgage market as their only source of funding to buy the loan. They don’t have vaults full of cash to use to write the loans, so they need to use a line of credit (warehouse line) from a big bank as the way to come up with the funding. Well, 155 (at last count) mortgage companies have imploded in this credit crisis, and a large number of them have fallen apart because either their warehouse line or their secondary market source have cut off funding. I’m currently doing 2 loans that couldn’t get done at their “other choice” of mortgage lender because the program got canceled. A mortgage company is entirely relying on the funding of other sources and when those dry up, the gig’s up, they are out of business. Plus, when mortgages are 100% of their business, they are that much more exposed to the cyclical nature of the market.

What do I do with my payments? With more and more people being aware of the problems that mortgage companies are facing, more people are asking the question, “What happens if my mortgage servicer goes under?” I’ve attached an article off the web that illustrates what a nightmare it can become if your mortgage lender goes under. I’ve currently got over $500,000 worth of refinance loans going on strictly because people want to avoid the possibility of that problem. Read it, it’s kind of scary…..

The Top 10 reasons why I’m glad I work for a large bank (with apologies to David Letterman)
10. Because then my office is almost anywhere you need it to be. I can meet you or your clients at any of our offices or anywhere that’s convenient for them.
9. Because it’s always easy to drop “stuff” off to me. All you need to do is go to the closest branch and ask them to interoffice the “stuff” to me. I’ll get it, sometimes the same day, some times the next day.
8. Because in spite of all of the turmoil, our zero down programs are virtually unchanged. Many of them (did you notice that I said many – yes, we have many zero down options!) are totally unchanged. A couple of them have been “tweaked” a small amount.
7. Because then people can ask me, “Why does your bank have such a strange name?”
6. Because then I have so many more resources at my disposal to
help you compared to if I worked for a mortgage company.
5. Because I can now answer the question, “Do you keep the servicing of your mortgages?” With a resounding, “Yes, we do!” See the attached article about bankrupt servicers for the difference that might make.
4. Because I don’t have to worry about my company failing because they borrowed the money to make some really risky loans. Over 95% of the loans that we do are loans that are saleable to Fannie Mae and/or Freddie Mac (and that’s the only part of the secondary mortgage market that is still moving well).
3. Because I don’t have to worry about a bank like Citibank or some other bank cutting our warehouse line and putting us out of business. We have our own deposit base to work with along with many other built in sources of funding that mortgage companies don’t have (and small banks don’t have either.)
2. Because then I get to work for a bank that sponsors the largest 25k run in the country and has it’s name on the local baseball park!
1. Because then I can “stand” up in front of you and say, “We’ve been around for over 150 years, I’ve been doing this for almost 20 years, and no matter what this credit crunch brings, I’ll be here to help you and your friends, co-workers, clients and others through it and provide top quality customer service, good advice, and the right loan at the right price.

Call me if I can help. I’ll keep in touch.

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

A picture is worth a thousand words – good market commentary!

I’ll post more about the Fed and their upcoming meeting soon

But here’s an article about the “Ben Bernanke” of England – and he’s not talking about bailouts and dramatic rate cuts…..

From The Times
September 13, 2007
Governor stands firm on refusing to bail out banks over their ‘risky behaviour’
Gary Duncan, Economics Editor
The Bank of England’s Governor yesterday set his face firmly against taking action to bail out banks struggling with mounting strains on lending conditions triggered by the worldwide credit crunch.
In a staunch defence of the Bank’s handling of the credit squeeze, Mervyn King insisted that the crisis was rooted in a careless mispricing of risks by institutions.
To ride to banks’ rescue now would encourage them to repeat this behaviour in the belief that it was cost-free, the Bank argued. It would also prolong markets’ reassessments of risks and add to the danger of even bigger crises in future.
“If risk continues to be underpriced, the next period of turmoil will be on an even bigger scale,” Mr King told MPs in a submission to the Commons Treasury Committee.
The Governor did make clear that the Bank was ready to take far stronger, emergency action, both to cut interest rates and to flood financial markets with capital, if this proved necessary to avoid grave economic damage.
Mr King emphasised, however, that the Bank would set a high hurdle for such measures. He repeatedly put the onus on the banks themselves to cope with the credit crunch, arguing that they were more than strong enough.
“The current turmoil . . . has disturbed the usual serenity of recent years, but, managed properly, it should not threaten our long-run economic stability,” he said.
Holding out the prospect of rate cuts if the crisis escalates, Mr King conceded that the higher market interest rates caused by banks hoarding cash meant that “effective borrowing rates faced by households and companies will rise . . .” But in a signal that the Bank will be wary of rushing into any moves, he added: “It is too soon to tell how persistent and how large any change in credit conditions will prove to be.”
Mr King reinforced his hardline stance in the face of City demands for the Bank to pump extra billions into money markets, both by accepting more risky securities than usual as collateral for its loans, and by lending over longer than usual periods – actions taken by the US Federal Reserve and European Central Bank (ECB).
“The provision of such liquidity support undermines the efficient pricing of risk by providing ex-post insurance for risky behaviour,” he insisted. He emphasised the danger of so-called “moral hazard”, where institutions act irresponsibly because they believe they will be bailed out. “That encourages excessive risk-taking and sows the seeds of a future financial crisis,” he said. Central banks “could not sensibly entertain” such actions, which would also be unfair on institutions that had acted responsibly.
Mr King urged that the credit squeeze be kept in perspective and banks’ ability to cope be recognised. He noted that, unlike more risky assets, interest rates on high-grade corporate bonds were unchanged, while companies could issue long-term debt.
While banks were being forced to inject funds into some investment vehicles, “as a whole [they] are well capitalised and should be able to do this . . .”
While a process of adjustment for institutions “may not be smooth”, Mr King said that it was “likely to be temporary”. His cool assessment was backed by Simon Johnson, chief economist of the International Monetary Fund, “We don’t see any reason to think that this is any more than a mild slowdown in the US,” Mr Johnson said.
As the ECB injected another €75 billion (£51.3 billion) of funds into euro-zone markets, Mario Draghi, Italy’s central bank governor, also played down the situation. “You cannot call it a crisis, but turbulence,” he said.
Despite Mr King’s tough stance, Angela Knight, chief executive of the British Bankers’ Association, told The Times that at talks with Bank of England officials today she would be calling for it to take a more active “enabling role”. She pointed to the way that the New York Federal Reserve orchestrated a private sector rescue of Long Term Capital Management in 1998 as an example of the sort of guiding hand that could help. “This is quite a serious issue,” she said. “Is there a way the system can be unblocked? I’m going to convey to the Bank some of the views expressed by our members.”

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