OUR FUTURE BANKERS

Sen. Maria Cantwell

Rep. Dave Reichart

Sen. Patty Murray

Here they are, our State Representatives. “The Cop”, “The Mom in Tennis Shoes”, and “Whatever, I Need to Work Somewhere”. I’ve tried to locate the email addresses for these folks on-line to no avail. What they offer is a form on their respective pages to be filled out, along with a message, and sent into the ether with the hope that it will find the intended recipient. I don’t care type my message three times, so I will convey my thoughts here, then send them a link via their little forms.

Folks [Dave, Patty and Maria], I have some concerns. First, all of you are too nice to be effective.

Dave’s done a pretty good job of moving up the charts in the House, making it to the Ways and Means Committee. But honestly Dave, how many years of hob-knobbing do you plan to invest before you say something that matters? Are you under the impression that you have to hang around for 10+ years before anyone will listen? Sure, everyone likes a nice guy. But what the country needs right now, and especially us out here in the Northwest corner, is some backbone. I haven’t seen your name in the paper since Nov 4, 2008, and that bothers me.

Patty is working hard for the improvement of the treatment of our veterans. Nothing could be more noble. However, how much more chatting around this subject is necessary? You’re the self-proclaimed “Mom In Tennis Shoes”. I suggest you put on those shoes and move on…to anything else. The veterans issues are pretty well known, but your approach is too nice, and too timid. You have a kick-ass issue there. Get LOUD, and get the changes done. Heck, you’ve been there long enough to throw your weight around. Call Oprah for gosh sake. I bet you have a ton of stories that would quickly fill more than an hour. At least call Larry King. But get moving on this thing. Once the Iraq war is wound down, you won’t get the interest level as high again. In fact, you may have already missed the mark.

Maria, Maria, Maria. What are we to do with you? You’ve been there how many years? And you have all the punch of a loaf of white bread. Then, out of the blue, I read that you plan to vote, or have voted, in opposition to the Bush proposed, and Obama endorsed, bailout plan. Yes, there is great uncertainty there. But there is no uncertainty concerning the state of the economy. Then again Maria, are you unsure about what’s going on out here in the land of reality? Maybe you should call your Mom. Ask her how her neighbors are doing. Maybe she’ll tell you about her checker at QFC that’s been working doubles for the last six months because her husband was laid off, not to mention the five year arm that is in its last 6 months before that bomb goes off. Since the Feds have cranked up the heat on the quality of mortgage applicants, the checker doesn’t qualify to refi the house she bought 5 years ago. I really have no idea what it is that you do. But I am acutely aware that I have not heard your voice, or seen your name in type……for…..years.

Patty and Maria, [Dave's off the hook because he wasn't in the game yet] I wrote to you prior to the first vote for the first allocation of money for Bush’s war in Iraq. Check your archives. It should be around. I still have the responses you sent back. At that time I warned you that funding the war was wrong, and that it would uncategorically create financial havoc in our fragile economy. I wasn’t anti-war in the pacifist sense. I was anti-war because it was stupid and fiscally irresponsible. No WMD’s, not much Al Quaida, but we sure did a good job of shortening the life span of about 500,000 innocent people. Although the actual number may never be known. I believe that I touched on the fact that it’s only been 150 years since our own civil war, and it was unreasonable to expect the tribes of Iraq to reconcile their differences and become a democracy overnight……because we tell them to. Anyway, I have to get this off my chest: I told you so.

Now, for the matters at hand. ARE YOU DEAF AND DUMB??!!??!! You, our Washington contingent are sort of the exemplary wimps of our Federal Government. Where is the incredulity at what is occurring ON YOUR WATCH? You can’t send out a statement about your anger at the early bonuses for the Merrill-Lynch crooks? You have nothing to say about the AIG $500,000 retreat? You’re OK with the same guys running the show, both on Wall Stret, and DC, that have run us into the ground?

It was the funniest thing in the paper today. It is being considered that The Fed become the big watchdog over all financial institutions, where they now only watch over 800+ banks. This may sound crazy, but my guess is that most believed, whether it was the SEC, IRS, The Fed, or even Homeland Security, that someone was watching the store. GEEZE, it was only a few years ago that the country was about blown away by ENRON. Doesn’t anyone learn, or follow-up on stuff like this? Corporate tendancies that indicate that business is not being conducted normally? Was no one at all paying attention when WAMU reported…..FOR YEARS… that it was booking unpaid interest on its negative amortization loans as profit….year….after year……after year? And everyone shuddered for months that might fail. Anyone who knew that one aspect about that bank knew, then and there, they were done.

So now we have a bigger problem, and it’s just like 1991, only worse.  Can you remember back that far? Desert Storm and the S & L crises. Things were going pretty good. Not as crazy as 2007, but pretty good. Then a bunch of overextended, overspeculating savings and loans failed, ala Charles Keating and the like. That was not a good time to apply for a loan. Like now, with the Feds looking under every bank teller’s chair, the pendulum swung waaay too far over, suffocating legitimate businesses that had done nothing wrong, but their business lines of credit were chopped, right when they needed them most, with no more explanation that we are getting today.

Here’s the big question for all three of you: if the banks are not going to lend the taxpayers dollars you keep giving them, what’s the point? I implore all of you to get incredulous, get loud, get angry, but get that money moving out the doors of those bank recipients, or all will be for naught. Are there no conditions on those funds? The money is just handed to these knuckleheads with no accountability about how to use it? There is no time limit?

Here’s an idea: the goverment should just take over B of A. Use all of the money to refinance those that have not already lost their homes, get those credit lines going again with the hundreds of thousands of small businesses across this country. People would start to feel good again in a big hurry. Waht happens when people feel good? They spend money. As for the car companies? forget about them. As evidenced by their collective private jet junkett to DC to plead for cash, they don’t deserve anything. Their labor union needs to have a long conversation with itself. It will have the time to do that when most of them are unemployed. The workers are arrogant, and the products are uncompetitive… have been for years. Heck, I just watched “An Inconvenient Truth” for the first time about a month ago. It was uncanny how accurate Gore’s auto production charts were back then. It was dead on with what we are seeing today. How can the auto industry base its product on the price of gas today when it takes, according to them, up to five years to design and build something new? They say they can’t afford to design more efficient cars? Can they afford not to? Again, that union has to have a VERY serious conversation with itself. The concessions they have won over the years may cost them all of their jobs. Heck, I was talking with a lady the other day that was saying that her father, a retired autoworker, was worried that he wouldn’t get his free, brand new car every year. What the heck does a retired guy need with a new car every year? If they have health insurance they’re doing better than about half the country to begin with.

My big concern is that darned pendulum. It has swung too far. No bank is sure if they can write a loan for anyone. Fannie Mae and Freddie Mac raised their fees?…….NOW? That’s just outright craziness. Another wrench in the gears. Again, they mismanaged themselves, so we get to pay for it. Seriously, folks. We need a Federal Bank, and we need it now. You say the government cannot be in the banking business? Well guess what? You already are. Either you accept the fact and learn to run it, or get ready to accept the blame when this thing really crashes on your head.

Left Out In The Cold?

The help that the Federal Government has pumped into the economy may take a awhile to help home-buyers and those seeking to refinance. The Sunday Seattle Times included an article by Jeff D. Opdyke and Jane J. Kim of The Wall Street Journal. Very good insights as to why we are not seeing conforming 30 year fixed rate mortgages drop to near 5% are offered. ARM’s are no bargain either because lenders are doing all they can to liquidate the ARM’s they already have on their books. This means that the ARM Jumbo you may be seeking will have a tough time being resold into a market already flooded with older ARM’s that lenders are trying to unload, thus your ARM will require a higher rate to attract buyers.

One bit of relief is the reduction in credit card and auto loan rates, as well as home equity lines of credit ["HELOC"].

Good advice is also offered regarding the importance of watching the mortgage market closely for signs of an opportunity. As the market is extremely volatile, be ready to act quickly should the product you desire suddenly drop in price.

The Mortgage Professor

Jack Guttentag, aka “The Mortgage Professor”, is  a syndicated columnist to the Seattle Times. He has often referenced his website: http://www.mtgprofessor.com/Default.htm. Today, I finally decided to pay a visit, as I am considering the alternatives available to me for refinancing my current Jumbo mortgage. There is a lot valuable information there. It is more important than ever to thoroughly research the loan process as lenders attempt to shore up cash flow based on fewer transactions. Learn about “UMB’s” and “MB’s” from the professor, then set your sights on what the best avenue is for you.

As Diana mentioned to me this morning, it is uncanny how acutely aware homeowners and home-buyers are aware of commissions paid to real estate agents, yet have little grasp of how mortgage lenders/brokers are compensated. This web site will open the eyes of would-be borrowers to the web of techniques utilized by unscrupulous lenders that seek to take advantage of borrowers, particularly when their backs are to the wall i.e., facing default on a purchase and sale agreement if they don’t close, or losing a home to foreclosure.

The lack of regulation and standardization is what created the mortgage lending crisis. It is solely up to consumers to decipher what they are getting for their money. This website will educate you to the pitfalls, give you the questions to ask your lender, and resources that you may not have considered. It takes a bit of effort to absorb, but is well worth the time invested………..for all of us. For if we, as a group, bring similar pressure to bear on the lending industry, we might just help straighten out the current crisis, as well as insure that it is not soon revisited.

Mortgage Mess: Light at the End of The Tunnel?

Jack Guttentag, aka “The Mortgage Professor”, provides some interesting insights into the mortgage market meltdown in his Sunday Seattle Times article “It’s Time To Expand Role of Mortgage Insurance”. Parts of his article are characteristically dry and difficult to read, but the essence of the message is there. If there is a bright spot in this deluge of not-so-good-news, it is that the mortgage insurance companies, those that impose an insurance policy on mortgage amounts in excess of 80% of property values, are doing OK. Why? Because they are insurance companies. As insurance companies, they have been required to “hold in reserve” i.e., save, a portion of the premiums that they collect in order to weather, without going broke, a housing downturn event. This means that they actually have the money to absorb the losses they are suffering through foreclosures and deflated property values. At least, so far.

Have you wondered how so many managed to get that zero down 100% no doc, no equity, no job loan with having to pay mortgage insurance premiums ["MIP"]? As an alternative, the mortgage bundling geniuses of Wall Street cooked up a risk assessment system that charged loan fees, interest rates and loan types based on risk factors.

“Oh, you don’t want to pay MIP with your loan every month? No problem. We have this little thing called an ARM with an artificially low start rate that is guaranteed to completely blow up your financial life in 2 or 3 years. But don’t worry, we’ll refinance you out of that in a year or so into a 30 year fixed rate loan you can live with. How do we do that? Simple! Your property simply has to appreciate to where it will appraise for 20% more than the inflated value that we are using today. Oh, did I say inflated? I meant enhanced. That’s what we say when we pack all of the exorbitant loan fees onto your loan amount. That way, you’re not just getting 100% financing, but about 103% financing. But don’t worry. The important thing is that you are in the market, and surely your property will continue to appreciate at 10-15% per year.”

The Mortgage Professor thinks that MIP is the way out of this mess. Once considered a nuisance to borrowers, it may now be a blessing as a means to refinance loans that exceed 80% of appraised property values and allow owners to keep their homes.

Rex Agreement: Avoid This Like The Plague

You would think that with the mortgage mess still unsorted, the last thing we would see is another exotic home equity product from a financial institution. The Rex Agreement has to be one of the most abusive instruments I can image. It’s just like taking your home equity to the pawn shop. According to the Sunday Seattle Times article:

1. If you have high equity in your home, and it is worth $500,000 you may borrow up to 15% of its value ($75,000)

2. You get the money immediately, free to do whatever you want with it, interest free.

3. You sell your home 5 years later for $700,000.

4. You are required to repay the original REX loan of $75,000 PLUS 1/2 of the appreciation, for a total of $175,000.

It cost $100,000 to borrow $75,000 for 5 years. Let’s think about that for a moment.

If you borrowed $75,000 with a HELOC (Home Equity Line of Credit) from Bank of America at 6% interest for five years, making 60 monthly interest only payments of $375, it would cost $22,500. Hmmmmmm……..$175,000 vs $22,500.

Make no mistake, this is a highly predatory product designed to tap into good folks’ fears. I can hear the “closers” for this one.

1. “You won’t have to sell your home, you can stay where you are.” [Note that these loans are only for people with high equity and excellent credit i.e., older folks that have been scared to death by the media over the last 6 months and think they should stuff their mattress with cash.]

2. “If your home goes down in value, we will share that loss with you.” ["Oh golly, what incredibly nice guys. How could they possibly be crooked if they are willing to accept half of the risk of my home depreciating?" Are you kidding? If they didn't know that the real estate markets across the country have already bottomed out, and are set for a steady march upward in appreciation, they never would offer this product.]

3. “You won’t pay one cent of interest for this loan.” [Gee, thanks! Over the past 30 years, single family home appreciation has averaged about 4% annually. 5 years would mean about 20% appreciation, and I only have to give you guys half? 10%? Where do I sign.]

4. “These are just standard forms.”[My favorite! Let me say this once. When it comes to lending, THERE ARE NO STANDARD FORMS!!! I think that this has been thoroughly demonstrated by the current record foreclosure rates by homeowners who thought they were signing "standard forms" when in fact they were endorsing a time bomb. If people had taken the time to read their loan docs, the entire mortgage/credit mess may have been averted.

If you know elderly homeowners who might be strapped for cash, probably so that they can pay their ridiculously high property taxes, or unforeseen medical bills, warn them against REX Agreements. It is better to explore the offerings of a bank bank based “reverse mortgage” than to succumb to the vultures that will be peddling REX Agreements. They are already advertising on the radio locally. Warn your elderly relatives and friends. They are the primary targets.

More Waiting For True Jumbo Relief Required…..

Further exasperating the jumbo loan picture is the idea that Wall Street is going to segregate the new Fannie Mae and Freddie Mac loans that exceed the former conforming limits. This is going to limit the interest rate relief originally sought by the increased conforming loan limit initiative. Read this article from the Associated Press.

Fed Help Not Really Enough For King County….

 Daniel Billett of Response Mortgage in Seattle plans to refinance as soon as the new loan limits are confirmed.

The Saturday Seattle Times featured a cover story by Katie Hafner of the New York Times concerning the Federal stimulus packagerecently signed into law. (For some reason, the Seattle Time’s on-line version is not available, so this link takes you to the NY Times site.) While the story reveals that the new maximum limits for “conforming” loans may be as high as $729,950, it also explains that the limits are set in accordance with regional median sales prices. That means that our new local conforming loan limit will be about $544,000. It will help, but not nearly enough for the many homeowners sitting on 3 to 7 year adjustable rate mortgages in excess of $600,000. And there are a lot of them. The King County market needed a boost in the conforming limit to at least $650,000 on order to avert a looming meltdown in what I call the “upper tween-er market”: homeowners that earn enough to support properties valued from $700,000 to $1M, but are not liquid enough to reduce i.e., pay down their respective loan amounts to get under the conforming limit and refinance before their current jumbo ARM resets or expires.

Builders face a similar problem. With finished building lots coming on line at between $225,000 and $350,000 each, builders generally need to build finished homes worth between $750,000 and $950,000. The new conforming loan limit of $544,000, by itself, is not going to be sufficient to finance this type of product.

Since it has taken sine June of ‘06 to get this much help from the Feds, waiting for additional, or increased, assistance isn’t going to be practical for many homeowners and builders. I think it is more likely that the higher jumbo loan (non-conforming) rates will have to be endured for the foreseeable future. With those rates exceeding conforming rates by 1-2%, and fewer buyers willing to pay those rates, there will be downward pressure on prices of properties in the upper tween-er market.

(Note: I refer to this price range as the tween-er market because owners and buyers in the market above $1.2M generally have enough liquidity that they are comparatively immune to interest rate variances on this scale.)

Watch For Miscellaneous Fees i.e., Check Your HUD Statement

I mentioned in a previous post that home buyers/borrowers will need to be on their toes as lenders will be trying to maximize profits from each transaction, at least in the foreseeable short term. The only way to know what you are being charged is by carefully reviewing your HUD ["Housing and Urban Development"] statement that you receive from your escrow agent. Sometimes, questionable fees may appear. Don’t be cowed by an “Administrative Fee” when you are already paying a “Loan Origination Fee”. Ask about the validity of a “courier fee” if you suspect that all of the documents were faxed.

Ken Harney’s article in the Sunday Seattle Times is about this very subject. Surprising to me was the mention of add-on type fees by real estate companies. I have never heard of such a thing locally, but I admit that I am not familiar with the compensation arrangements for anything but traditional full service brokerages.

We make it a policy to attend every closing in person in order to review the HUD statement with our clients. If we are unable to attend in person due to a schedule conflict, we will arrange to obtain a copy of the HUD from the escrow agent prior to closing so that we can at least review it with our client over the phone before they sign closing documents.

There have been many times that we have recommended refuting some fee that was not anticipated. It is rarely a lot of money, but that is not the point. The point is that every borrower receives a GFE ["Good Faith Estimate"] from their lender in advance of closing. If there are to be any variations between a GFE and HUD, they should be thoroughly disclosed and discussed with the borrower well in advance of signing closing documents. Items (costs) that pop up a day or two prior to closing should never be accepted without a complete explanation. Statements such as “these are standard fees” or “this is the way we always do it” will not suffice if the charge was not on your GFE.