I can’t tell you how disgusted this makes me….

It’s another example of people in the mortgage and real estate world who took advantage of someone who didn’t understand the system.   And they aren’t the ones who paid the price, the borrower is…..

We’ll be better off when all of those types who are motivated soley by profit have been run out of the business.

Tom Vanderwell

Calculated Risk: WaPo: A Liar Loan Example

From Donna St. George at the WaPo: The $698,000 mistake

[A]ll of this began in the heady days of the mortgage boom … [Ms. White] only knew that there seemed to be possibilities, even to those with little means such as herself, which is how a woman who had never paid more than $700 a month in rent and who had relied in recent years on Section 8 housing vouchers suddenly owned a house.

A four-bedroom house.

With 3 1/2 bathrooms. And walk-in closets, black granite countertops and a fireplace.

You can already tell how this story will end.

On settlement day, reality bore down.
…
Papers were read and presented, most of which White did not try to decipher. … White’s papers cited income of $163,320 a year, even though she says her 2005 income-tax earnings were less than $15,000 and she relied at times on food stamps.
…
White signed papers while waiting for the one she cared most about: her monthly payment. … “Please let this be something I can afford,” she said to herself. She was pretty sure she could afford $2,000. She told herself that if her day-care business did well, perhaps she could afford $2,500. If it was $2,800, she would struggle. Here, now, came reality: $5,635 a month.

To get White to sign, the sellers – who were real estate agents – agreed to make the first two mortgage payments for Ms. White. According to the article, White received $40,000 in cash out at closing – and the seller made over $200,000 on the house. Naturally it went into foreclosure and Ms. White is back living in an apartment.

Technorati Tags: Bad Ethics, Liar Loans

The Next Step….

I’ve had a lot of people ask me lately, “Tom, what do you see is coming next?   What’s the next step in this mess?”

A couple of thoughts at this point:

• Anyone short of Nouriel Roubini, Paul Krugman, Meredith Whitney and maybe a few others who tell you that they KNOW how this is all going to end is lying.   (Did you notice how I didn’t include Treasury Secretary Geithner or anyone in Washington in that list?)
• But there are some people who have the ability to peer a little farther out into the fog than most do.
• Anyone who tells you this isn’t a confusing and potentially scary time is lying to you as well.   Never in our life times have we seen the kind of financial devastation and economic pain that is currently happening.

The things that are going on are causing lots of people to question a lot of things that they weren’t questioning before.   Things like:

1. Will I be able to retire?
2. Can I ever trust a mortgage lender again?
3. Will real estate still be a good investment?
4. What’s happening in the stock market?
5. Is my financial advisor telling me the whole story?
6. What are mortgage rates going to do?
7. How does the actions of the Federal Reserve impact the financial markets?
8. What are the long and the short term ramifications of the deficits that the government is currently running?
9. How does the value of the dollar impact real estate and mortgages?

Those are just a smattering of the types of questions that I’ve been hearing from people lately.   Okay, some of them aren’t quite in the format that I spelled them out but they have basically been asking that.  Frankly, I think the consumer’s desire to ask more questions is a good thing and a healthy thing in the long run.

So where am I going with this?   I’m getting to it…….

I’ve been fortunate to “hook up” with two of the experts in other areas of the financial spectrum and we’re setting up a new source for financial and real estate market insight and understanding.   As of probably later this week, the new website will be up and running.    We’ve chosen to call it All Markets Considered.

Why did we pick that name?  It’s pretty simple.   We picked that name because we’re setting up a place that will offer unbiased, highly critical (not in a negative sense, but in a detailed sense) and very thorough insights into what’s going on.   What’s happening in the mortgage world, what’s happening in the finance world, what’s happening in the world of real estate as an investment and what’s happening in the world of stocks will all be discussed, no holds barred, just telling it like we see it.   This is not going to be a place where we’re selling “stuff” just offering our advice, insight, understanding and perspective to help people navigate these times.    What’s the catch?   It’s pretty simple – if you want to read more than the first few lines of any of the posts, you have to subscribe to the site.

I’ll introduce to the two experts that will be writing with me tomorrow.   I’m excited about the opportunity to help more people through this and I hope you’ll check it out.

Stay tuned……

Tom Vanderwell

The System is Broke? Humpty Dumpty

I’m just quoting the conclusion of the article that was up on Calculated Risk over the weekend.  It was about a lot of the technical aspects of mortgage servicing and the way that mortgages are sold and bundled.    A couple of main comments and then read the conclusion below:

• Many of the problems in the mortgage world are because of the way that the mortgage world is structured.   That means that it is going to take systematic and structural changes to get us back to a system that really works.
• When there is a lack of accountability, things won’t work the way they are planned.
• Do you think that this lack of accountability and lack of responsibility is part of the reason why short sales and foreclosures are so hard to get approved?   There is no incentive for the servicer to make the decisions that need to be made.

Check it out below…..

Tom Vanderwell

Calculated Risk: Thanksgiving Weekend Mortgage Litigation Roundup

In other words, as many of you suspected all along, “hoocoodanode?” was officially part of the plan for creating mortgage backed securities. Systematic and willful ignorance was incentivized. If Wall Street created a system where each bogus mortgage passed through the hands of a couple of intermediaries who had no ability to do any due diligence on the quality of the loan, then the end buyer of the loan would, legally speaking, be in a better position to collect than the original lender by virtue of BFP status. Did the mortgage broker tell the borrower the loan was fixed rate when it really wasn’t? Oh well, no way the mortgage pool trustee could have known about that after the loan passed through the hands of an originating lender, an unrelated depositor and a legally separate issuer.

Whether for better or for worse, this system is pretty clearly not playing out as intended. BFP status does nothing to protect lenders from broke borrowers and half price houses, both of which were foreseen by knowledgeable people who were not willfully ignorant of details about loan origination. And even the limited protection of BFP status may not be available in cases that are actively litigated, since it won’t be hard to prove that everyone in the industry knew brokers were filling in the blanks on stated income loans with whatever numbers were needed to make the applications go through.

So I guess this is just one more reason why all the Fed’s ponies and all the Treasury’s men are not going to be able to put Humpty Dumpty back together again.

Technorati Tags: Mortgage Backed Securities, Systemic Fraud

Loan Modifications Aren’t Working…..

The New York Times has an article outlining some of what the government is doing and is thinking of doing in an effort to stem the growing losses in the mortgage world and stop the rising foreclosures.

A couple of reactions to it:

• A lot of people (present company included) felt that the incentives that the government was offering to lenders weren’t strong enough to make lenders interested in a significant effort to modify loans.
• It’s frankly a strictly financial decision for the banks.    Do they make a loan modification, accept less in payments and still run the risk that they’ll end up taking the house back?  
• I’ve heard a number of reputable economic analysts, the only modifications that will have any type of long term impact in terms of what a borrower can afford are modifications that have an impact on the principal balance.  Let me explain that in a bit more detail:   1) The “typical” modification will lower the interest rate or defer the principal payments for a period of time (18 to 60 months usually).   2)  The “typical” modification doesn’t address the balance of the mortgage in relation to the value of the house.  3) As the economic mess continues, borrowers are continuing to struggle and many of those who are in the temporary modification phase are continuing to struggle and realizing that they just aren’t going to be able to make it.
• The government is attempting to “shame” lenders into doing more.    I don’t expect that will work at all.   The main thing that appears to motivate banks and financial institutions at this time is money, profit, or the bottom line (take your pick).

So what would it take to make loan modifications more effective?   A couple of thoughts:

• Substantial principal reducations – if prices in some areas have fallen by 40%, then there are a lot of struggling homeowners who are so far upside down on their house that they can’t see the light at the end of the tunnel and correspondingly a relatively moderate and temporary reduction in payments aren’t enough to make a difference.
• I’ve seen a lot of people who inquired about refinancing and while it would save them money, it didn’t save them “enough” to make what they felt would be a difference.   In other words, “Yeah, the $100 a month would be good, but if I lose my job, my wife loses her job, or something like that, it won’t be enough to keep us from having big problems.”

I’ve said it before and I’ll say it again.    The answer to our economic problems is systemic and substantial deleveraging and until we collectively accomplish that, we’re going to continue to struggle and limp along.

I’m working on a new website where, in collaboration with Jeff Brown and Max Whitmore, we’re going to tackle the bigger issues in real estate, finance and the stock markets.    We’ve decided to call it All Markets Considered and it should be live in a matter of days.

I hope you’ll stay tuned.   It’s going to be an interesting ride…..

Tom Vanderwell
Treasury to Pressure Mortgage Companies to Cut Payments – NYTimes.com

The Obama administration on Monday plans to announce a campaign to pressure mortgage companies to reduce payments for many more troubled homeowners, as evidence mounts that a $75 billion taxpayer-financed effort aimed at stemming foreclosures is foundering.

“The banks are not doing a good enough job,” Michael S. Barr, Treasury’s assistant secretary for financial institutions, said in an interview Friday. “Some of the firms ought to be embarrassed, and they will be.”

Even as lenders have in recent months accelerated the pace at which they are reducing mortgage payments for borrowers, a vast majority of loans modified through the program remain in a trial stage lasting up to five months, and only a tiny fraction have been made permanent.

Mr. Barr said the government would try to use shame as a corrective, publicly naming those institutions that move too slowly to permanently lower mortgage payments. The Treasury Department also will wait until reductions are permanent before paying cash incentives that it promised to mortgage companies that lower loan payments.

Technorati Tags: Mortgages, Loan Modifications, AllMarketsConsidered.com

A Question That Needs to be Asked More Often…..

Technorati Tags: Mortgages, Big Questions

Atlas Shrugged – Part 5 of ?

Sorry for such a long delay in getting back to this.   Been a bit busy with real life.

Any way, this post takes us to when Dagny Taggart is riding on the Taggart Comet, the “premier” train in the country.   She falls asleep while the train is moving and wakes up when it’s stopped.

Why did it stop?  Because a signal was broken.  The signal routed them on to a “side” track and they just sat there.  The engineer knew the signal was broken but it wasn’t his job to override the signal and proceed.   So they just sat there, and sat there, and sat there.

Dagny came out and overruled the engineer’s unwillingness to do what he knew was right because it “wasn’t his job.”  That got the train moving again.

Now ask yourself:

• How many of the problems we are currently facing would be minimized or eliminated if more people had stepped up and said, “Do the right thing!”
• How many bad loans would not have been written if more loan officers had either refused the customer’s request or asked them to reconsider because it didn’t seem a good thing for the customer?  But instead, too often the only concern was, “Can we sell the loan?”
• How many people wouldn’t have bought as much of a house as they did if their real estate sales agent hadn’t “talked” them into more of a house?  I couldn’t tell you how many times I’ve had people tell me, “I’ve told the Realtor I wanted to spend less than $150,000 (or whatever) and they keep showing me information at $200,000 or more.”
• How many of the problems in the investment world (aka the Madoff scandal) would have been avoided if people, especially financial advisors, had asked questions that might not normally seem to be their job?  Many people on Wall Street knew something was broken but they didn’t think it was their job to do the right thing…..

Stay tuned, there’s a lot more coming!

Tom Vanderwell

It’s Beginning to Look a Lot Like Christmas

It’s Beginning to Look at Lot Like Christmas More Riskless

Technorati Tags: Banking, Masters of the Universe

Five Years – Gulp….. What does that mean for the housing market?

Let’s take a look at what this means for the housing market:

• If it takes 5 years before we see sustainable growth, then it’s going to be a very slow rebound to the jobs market.
• If it’s going to be a slow rebound to the jobs market, then delinquencies on mortgages will continue to climb and will remain an ongoing problem for Fannie, Freddie and FHA.
• If delinquencies continue to climb, then we’re going to see continued tightening of underwriting guidelines.
• If we see continued tightening of underwriting guidelines, then we’re going to see continued pressure on house prices.
• If we see continued pressure on house prices, we’re going to see a continued lack of inflation and potential deflation.
• As we see continued lack of inflation and potential deflation, we’re going to see interest rates remain lower.   Not as low as they are now, but still in the lower ranges.

If you had asked me 3 months ago, I was telling people that I thought we had 12 to 18 months until we started seeing significantly higher interest rates.   I was also telling people that I expected that most markets would see property values bottom in 2010 and start a gradual rise from there.

If the 5 year time frame is accurate, both of those time frames are going to extend outward significantly.   Rates will stay lower for longer and it’s going to be longer until we see a bottom in house prices.

So what’s it going to take to turn it around?   I’m working on some ideas, but I’ll be honest with you, the only ways that I can see are frankly quite radical.    How to describe it?   Three words:

Massive Systemic Deleveraging.

Hey, I didn’t start Straight Talk about Mortgages because I wanted to sugar coat things.   I started it because I believe people need to know the truth as I see it.   And that truth isn’t pretty right now.

Tom Vanderwell

FOMC Sees Sustained Growth Five Years Away : HousingWire || financial news for the mortgage market

It will be at least five years before the economy experiences a sustainable rate of growth and levels of unemployment and inflation acceptable to the Federal Reserve, the Federal Open Market Committee said in its Nov. 4 meeting.

Meeting participants, including members of the Fed Board of Governors and the presidents of the Federal Reserve banks, believe economic recovery will be gradual, with real gross domestic product (GDP) growing at a moderate pace and the unemployment rate declining slowly over the next few years. During this time, inflation will remain subdued, the committee said.

The committee increased its projections for real GDP growth for this year, after the second half of the year outperformed its original June projections.

The committee also agreed to maintain the current 0 to 0.25% federal funds rate, noting economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The committee affirmed its intent for the Federal Reserve to purchase a total of $1.25trn of agency mortgage-backed securities and about $175bn of agency debt.

Technorati Tags: The Fed, House Prices, Mortgage Rates

Underwater Housing – Your Mileage May Vary…..

Like I was saying early, the underwater housing report was on a national scale and the mileage may vary.   Here’s proof that it does:

Technorati Tags: Underwater Housing, House Prices

And a Happy Thanksgiving to you too!

You know, I guess there’s a lot we could argue about in terms of whether the economy is recovering or going downhill or what, but we do have a lot to be thankful for.

I’ll more thoughts on that in my Mortgage Market Week in Review – Thanksgiving Edition…….

Sign up for it by sending an e-mail to mortgagemarket@aweber.com.

It’s free!

Tom Vanderwell

Just in Time for Holidays: Another Dire Economic Forecast – Economy * US * News * Story – CNBC.com

David Rosenberg, who used to be Merrill Lynch’s chief economist and now works for Gluskin Sheff of Canada, told CNBC Tuesday that the US economy is mired in an economic crisis that shows only scant signs of abating.

“We’re in a form of Depression,” Rosenberg said in a live interview. “Depressions…typically happen after a prolonged period of credit excess morphs into a collapse and you get asset deflation. We had asset deflation and we had a contraction in private-sector credit.”

Rosenberg is just the latest well-known expert—including New York University’s Nouriel Roubini and Pimco bond fund’s Mohamed El-Erian—to warn that the economy remains mired in either no growth or slow growth that will last several years.

Technorati Tags: Mortgage Market, Thanksgiving

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