Rich Sweum's Blog

Regional Bank Survival Strategy..."Mortgage Formerly Available Only To God."

2008-08-21T10:44:47Z

Some smaller regional banks that have millions in builder/development loans out have come up with a unique strategy to avoid taking back half developed dirt, partially done condo conversions, and plats that just aren't moving. Check out an example of one of the programs being offered to buyers:

5/1 ARM, 10 year interest only, 5.5%. ZERO down, NO MI, closing costs of 1.5% (prepaids and loan fees). Formerly called "Loan only available to God."

Essentially what they are doing is trading builder loans that they aren't getting paid on for residential mortgages that they will at least get partially paid on. They portfolio the loans until the market rebounds (hopefully).

The alternative for the bank is to take the properties (in various states of completion) back onto their books en mass and this will totally screw up their capitalization requirements, and write downs will explode.

For me, a lender who is competing against them, this sucks. However, in view of the big picture, this is a good thing for builders, banks and potentially for buyers as long as they don't overpay for the home.

What bank gimmicks / strategies have you been seeing in your area?

Gamblers are back at the table: SEC's ban on Short-Selling Financials about to expire

2008-08-13T00:34:55Z

If you read the rule book, "naked short selling" is not an acceptable practice, but one that the SEC has turned a blind eye to for years. I thought it was funny when the SEC didn't create a new policy but just decided to enforce an old policy preventing equities gamblers from betting on the demise of financials and GSE's. The Financials took a beating today and there is fresh blood in the water. The ban on short selling expires Tuesday night...perfect.

Naked Short Selling; USA Today:

"Short sellers bet that a stock's price will fall so that they can profit from it. They borrow shares of the stock and sell them. If the price drops, they buy cheaper actual shares to cover the borrowed ones, pocketing the difference.

"Naked" short selling occurs when sellers don't even borrow the shares before selling them, and then look to cover positions immediately after the sale. The SEC's temporary order required short sellers to actually borrow shares before selling them."

This might be the straw that breaks Fannie and Freddie's back...when they both lose 50% of the value over the next 2 weeks, Paulson will be nationalizing both entities and the repercussions will be deep and wide. Treasuries will be impacted as foreign investors lose faith in the solvency of the crap they have absorbed and keep absorbing. Once offloading begins of our Treasuries, you ain't seen a credit freeze like it before...ice-age proportions.

What does this mean for mortgages? Noting good. Let's hope for a miracle.

FHA modernization / Condos...can someone give me some definitive info on the changes???

2008-08-11T00:23:53Z

All I have been able to find out is some general language in the actual bill that says that FHA will be viewing Condo's as SFR's in the future...is this true? Haven't been able to get clarification from FHA and of course no underwriter is helpful because they haven't seen the notices on it yet.

1) what is the likely application of the provision?

2) when does it go into affect?

3) what are the "unintended consequences" if any that will make financing condo's with FHA more difficult.

Headline: Housing recovery to begin in Q1 of 2009!!! Hurray

2008-08-07T18:57:43Z

Headline: Housing recovery to begin in Q1 of 2009!!! Hurray

Yea, yea, I know, I have been the "pragmatic / negative doomsayer" for some time. But the one glimmer of hope I have been holding on to is the fact that our economy is totally irrational and counter-intuitive.

Let's loosely examine the statistical concept of "Year over Year Comparison." This July compared to July of 2007 has sucked. What will existing home sales and pending home sales look of July of 2009 look like compared to this year? They might still suck but the likelihood of it being better than July of 2008 is about 50/50. I'll take those odds at a casino any day!

The credit unwinding started en mass last August, the first half of 2007 was still pretty good. Time for a clean slate! Banks still may fail, it is what it is, but I really feel like we have a very good chance of seeing a recovery in some markets much quicker than the 2010 / 2011 that I have been predicting up until this point!

Markets function on sentiment, feeling, and hairs on the back of necks. No one, and I mean NO ONE wants to miss the bottom of a market! And from earnings reports to sales charts, 4th quarter of 2008 and the whole of 2009 is going to have a lot better chance of looking like we are pulling out of a problem. The best thing about a having a really CRAPPY year is that is makes the following year look not so bad EVEN IF you have a slightly crappy year.

Baseball: if you strike out in the first inning, but fly out in the 3rd inning, it's an improvement. Still got out, but hey...at least we laid some lumber on the bat! That's what I tell my little league players and we aren't much different than kids, right?

Grasping at straws? Drinking a different flavor of Koolaid? Maybe...or maybe the vacation I took last week cleared my head a little.

The "X" List...banks that are in big effin Trouble...

2008-08-07T16:34:32Z

Some "No Duh" information, but we all know that the FDIC has a top secret watch list, but Martin Weiss, an economist with an axe to grind has been fairly right on these past 24 months. He had a conference video call yesterday and revealed some of the Banks and Brokerages that are most susceptible to failure in the next year...here is the screenshot of their bank list. The only one that I was a little by suprised by was HSBC's derivatives exposure...derivatives is best described as "gambling money." For every dollar it has, they stand to lose $7. As far as gambling cultures go, no continent is more casino mindset oriented than Asia...shouldn't have surprised me.

Congressman's response to plea to keep DPA alive...fuggetabowdit!

2008-08-07T15:20:46Z

We have received a few responses back from our Washington delegation regarding our request that they consider supporting the new DPA bill. Essentially they blow smoke, and alude to the mantra that DPA's are bad done by bad mortgage people. Kiss DPA goodbye.

Here is the response, which was almost exactly like Senator Murray's from Washington:

August 6, 2008

Dear Mr. Mortgage Guy:

Thank you for contacting me regarding the Foreclosure Prevention Act of 2008. I appreciate hearing from you about this important issue.

As you know, H.R. 3221, the Foreclosure Prevention Act of 2008 has passed the House and Senate and is expected to be signed by President Bush in the near future despite prior veto threats. As you mentioned, this bill prohibits down-payment assistance from the seller or a third party benefiting financially from the transaction or a third party being reimbursed by transaction participants. This component of the legislation is intended to reign in irresponsible lending practices and prevent default loans. The FHA is reporting above-average default rates for seller-assisted down-payment programs which will force the FHA to request a government subsidy for the first time in the agency's 74-year history. Please know that I understand your concerns about the importance of helping first-time homebuyers and I will look for responsible ways to assist homebuyers in achieving their dreams.

You may be interested to know of the Expanding American Homeownership Act of 2007, H.R. 1852, which was introduced into the House this Congress. This bill aims to expand opportunities for home ownership by increasing maximum Federal Housing Administration (FHA) loan limits, extending mortgage terms from 35 to 40 years and reforming the FHA mortgage insurance program. In other words, this bill attempts to adjust FHA limits to reflect housing prices as they stand today and in the process captures potential homeowners who would otherwise turn to predatory lenders. This bill passed overwhelmingly in the House, with my support, by a vote of 348 to 72 and has moved to the Senate for further consideration.

I would like to share with you two measures in the House to address the problems which have been occurring in the Housing market as well. First, the FHA Housing and Homeowner Retention Act (H.R. 5830) which would expand the FHA program to help refinance at-risk borrowers into viable mortgages and require the Federal Reserve Board to conduct a study on the need for an auction or bulk refinancing mechanism. This measure has passed out of the House Committee on Financial Services and awaits consideration before the House. It is my hope that the House acts quickly to pass this measure and that the House and Senate versions of these bills can soon be reconciled. The second measure of note is the Neighborhood Stabilization Act of 2008 (H.R. 5818) which would provide loans and grants to states and cities to deal with problems associated with large numbers of foreclosures in neighborhoods across the country. With my support, this legislation moved quickly through the House and has been referred to the Senate Committee on Banking, Housing, and Urban Affairs.

Please continue to contact me about the issues that concern you, as I both need and welcome your thoughts and ideas. As a service to my constituents, I maintain a website which contains valuable resources and information on Congressional activities. Please feel free to visit the website at http://www.house.gov/inslee for information on recent issues and to learn more about the services my office provides.

I encourage you to contact me via email, telephone, or fax, because security measures are causing House offices to experience delays in receiving postal mail. My email address is: Jay.Inslee@mail.house.gov. Please be sure to include your full name and address, including your zip code, in your message.

Very truly yours,

JAY INSLEE
Member of Congress

Never underestimate the power of "short term" thinking

2008-07-23T15:21:06Z

...actually, there is an argument to be made that "short term" thinking is actually not thinking at all! The disaster that will be created down the road by the $25bl bailout of Freddie and Fannie is truly breath-taking. Capitalism only works if failure is a potential outcome of decision making. I would argue that we don't even really have capitalism any more. Today is a sad day for our national economy.

There Will Be Blood--Starring... (updated)

2008-07-17T11:26:23Z

I spoke with a friend of mine who is a long time WAMU suit. He has been quietly shopping his resume' for the past year and a half and has found no lillipad to jump to as yet. Yesterday, he reached the "capitulation point." Time to surrender his beliefs in the Corporate talking points...he could deny reality no longer. When the truth is known, there are likely to be no survivors. His last statement to me was telling: I don't know how long the charade will be able to go on, there's going to be a lot of blood!

If you need to delude yourself by grasping at momentary blips of "positive news" have at it...housing starts, Dow rallies, etc--you will find yourself in good company! Just don't be surprised when the music stops.

UPDATE: Wachovia is shutting down Wholesale lending as of this week...earnings report on Tuesday...just some confirmation of the "blood." Wachovia and WAMU were left of the SEC's protected from "short-selling" list...I wonder why?

The "Texas Ratio" and banks: what it is, and whudit aint!

2008-07-16T15:51:37Z

We are bound to be hearing more and more about the Texas Ratio as tidbits leak out as to what banks are in trouble...here is some background.

Texas ratio: What it is...

From Wikipedia

The Texas ratio is a measure of a bank's credit troubles. Developed by Gerard Cassidy and others at RBC Capital Markets, it is calculated by dividing the value of the lender's non-performing loans by the sum of its tangible equity capital and loan loss reserves.

In analyzing Texas banks during the early 1980s recession, Cassidy noted that banks tended to fail when this ratio reached 1:1, or 100%. He noted a similar pattern among New England banks during the recession of the early 1990s.

Whudit aint:

1) the number of Texans that dress like JR Ewing compared to the number of Houses of ill-repute in any given Texas city over 50,000.

2) the number of Churches compared to the number of Juvenile rehabilitation centers.

3) the number of democrats that won't for Obama because he's a "neeegro," but will never admit it (I was recently with a Texan who actually used that word, which I haven't heard used in at least a decade.) compared to those democrats who won't vote for him because they think he is a muslim.

4) the number of Texas ex-high school football players that list their varsity experience in their post-college job search resumes compared to those that don't.

IndyMac, et al---It's just a flesh wound! (Black Knight, the Holy Grail)

2008-07-15T18:46:59Z

As I listened to the blather of Rocky and Bullwinkle (Bernanke and Paulson) today, I couldn't get the image of a wonderful scene from Monte Python's The Holy Grail...The Black Knight, "I'm alright, it's just a flesh wound!"

Indymac's failure is not a flesh wound. Of all the banks that have failed over the past 6 years, their total deposits and assets are only 1/3 the size of Indy! Seeing lines of people waiting to get their money at IndyMac branches should send shivers...remember the S&L crisis? Get your hot-dog stand out of mothballs, you might be able to make some coin selling tube-steaks to folks waiting in lines at local bank branches over the next couple of years!

It's all good, we are fine! Still loans to do, credit to pull, AUS's to run! Lots of business to be had. Historically, the Great Depression didn't unfold overnight after the stock market crash in Oct. 1929, it took about 3 years to develop. If you are waiting for a major "event" you will lull yourself to sleep. This financial crisis is going to have many ups and downs, but ultimately there will be more downs. Remember that Hoover and congress tried to get things shored up with the Hawley-Smoot Tariff act and some other bandaids, but ultimately they made the situation worse.

Uncle Ben and Hank Paulson are out front trying to put out fires with globs of sterno! The fires will only burn longer.

The Perfect Storm--The Mortgage World and the Andrea Gail

2008-07-14T13:28:38Z

One of my favorite parts of the movie "Perfect Storm" was the nerdy weatherman assessing the incoming weather data and doing a "What if." What if these 3 things happen...perfect storm!

Perfect Storms don't happen very often, rarely in fact. But, every once in a while, we get to experience "epic" proportion events...

Consider the conditions...

1) a worthless dollar created by current Fed and Treasury policy.

2) commodity prices going through the roof.

3) the supply of oil in jeopardy; 70% likelihood of Israel unilaterally taking military action on Iran.

4) Fannie and Freddie are virtually insolvent.

5) A host of big banks on the verge of liquidity issues which will create insolvency issues: WAMU, Wachovia, Lehman, and virtually every Regional bank.

6) A huge oversupply of houses.

7) Businesses cutting jobs left and right to soften their losses. People without jobs don't buy houses, and those with houses and no jobs eventually lose their houses.

We all might have some great seats to the greatest global financial meltdown of all time. Something to tell our grandchildren about.

Storms are natural, unfortunately, this financial storm on the horizon is not natural. It has been born out of irresponsibility, greed, and short-term thinking.

I am not a "gold bug" and up until now I believed that the "gold standard" was completely impractical because it limits scales of growth and economic expansion. Well, how much will we wish that there had been some brakes on our speed of growth if we experience the "Perfect Financial Storm?"

Even if the other pieces of the puzzle don't come together...consider the Fannie/Freddie piece. What if...

...we lose the ability to securitize mortgages? What bank do you know that has the capitalization that can stand to portfolio the loans that they get on their books over the course of a year? What do you think will happen to mortgage rates and our current housing crisis?

...the government nationalizes Fannie/Freddie? Where does the money come from? There are two choices...1) me and you in the form of higher taxes or 2) the printing press. Neither of which are good options.

I was with an agent this morning who was drinking the "Positive Koolaid" and I couldn't help but conjure up the mental image that he was paddling out on a surf board to catch a Tsunami. Maybe he's a good surfer...one can only hope.

Am I being negative? No way. I am being realistic. I am extremely optimistic that our cyclical economy will correct as well as our housing market. It took us 5 years go get us into this mess, there are no quick exits.

Paulson / Bernanke = Abbot / Costello and the GSE Fuster-Cluck

2008-07-11T17:34:34Z

These guys are baffoons! Keystone cops! A vaudeville sideshow act! Both of them are stooges of the financial sector and have done nothing but clusterize an already bad situation. "All is well! Do not flee, we support the current structure of the GSE's!"

I posted my contempt for Paulson this Winter as he refused to acknowledge the weak dollar and he kept saying "We have a strong dollar policy!" The guy is a friggin macaroon! Bernanke doesn't know whether to sh!t or wind his wristwatch...let's make free money available to more starving institutions (Fred and Fan) via the short term fed window! Line 'em up, get your billions while they still have some value!

We are at the edge of the cliff and the only thing scarier than forced governmental control and oversight of our financial system is that these two idiots will be the ones at the helm!

With out securitization via the GSE's we are about to see the most drastic upheaval in the mortgage loan system that we have ever seen. It will make the last 12 months seem like a few bee's at a picnic.

Yes, I have been a "sky is falling" guy for the past 1.5 years and while I hope I am wrong, unless Jesus shows up and performs a "water into wine" miracle...we very well could be at the the critical moments before the plane slams into the side of the mountain.

The descent of a plane without landing gear is scary, but not nearly as painful as the impact and crash. We haven't made impact yet!

Get ready for a wild 2 weeks. The GSE's are toast in their current form and function. The US dollar is going to be good for toilett paper AND if Israel decides to take action in Iran, we will have a regular economic cluster screw of historic proportions.

I hope I'm wrong...I pray for a rabbit to be pulled from the hat.

Mortgage Insurance Company--a Carnival Midway Arcade!

2008-07-02T15:36:43Z

Have you had any challenges with your MI company of choice lately? They definitely have been taking a beating over the past 8 months as many of their stock prices have spiraled (not in a good way).

From Condo's, warrantability, cash out restrictions, credit score limitations to DTI ratios...it's a whole new ball game. Not only do you have to prequalify the client via AUS, but you then have to step up to the MI Midway Arcade and try to find one where you can have a shot at winning a stuffed animal!

A number of our investors have developed "Cheat Sheets" that are updated weekly (sometimes multiple times per week) trying to keep up with the different MI companies changes. As if DU 7.0 wasn't a screw-job enough, now you have to pass a 2nd level of underwriting via the MI company.

The last 3 conventional loans I have done have forced me to become an expert at the "ring toss" and fortunately, I won 3 stuffed animals.

Anyone else experiencing the same headaches?

Foreclosure Crisis Stop Gap Measure: Home Owners Loan Corporation redux.

2008-07-01T17:55:37Z

I first posted on this past winter of 2008, that a re-enactment of a version of the Home Owners Loan Corporation (HOLC) created by the FDR administration in 1933 might be the cat's meow, and the only measure that the country could afford, that could stem the rising tide of foreclosures. I recently came across a piece by Jack Guttentag (the Mortgage Professor) about a plan and possible regulations that might possible help a small segment of homeowners who are in trouble. He originally wrote it as a "fable" back in 2005, predicting what the government would have to do to get out of the mess we would be in by July 4th, 2007. Well...one year later, as we approach July 4th 2008, we are in a much greater mess than even Guttenberg predicted. Nevertheless, the time has come for the government to do something more than it has been doing, not for all, but for some.

Jack Guttentag's fable:

http://www.mtgprofessor.com/A%20-%20Purchasing%20a%20House/home_owners_loan_corporation_ii_-_a_fable.htm

Posted Winter 2008.

Possible way out of the mess: Home Owners Loan Corporation (HOLC)

Just in time, we have a visionary Democrat that could potentially re-invigorate the Alphabet Soup method of economic recovery! The NYT recently did a piece, as did Newsweek, reviewing how Roosevelt dealt with the foreclosure mess. The Home Owners Loan Corp essentially bought mortgages that were in trouble. I have posted this idea before that the only other tool that the Federal Government has is to get us out of this mess is to actually get back into the debt purchasing business. The downside is that they would have to rob Peter to pay Paul to accomplish this. Who needs social security anyway! Let the Baby Boomers fend for themselves!

"During the Depression, President Franklin D. Roosevelt and Congress dealt with huge impending foreclosures by creating the Home Owners' Loan Corporation. Now, a small but growing group of academics and public figures, including Senator Christopher J. Dodd, Democrat of Connecticut, is calling for the federal government to bring back something like the HOLC. Count me in. The HOLC was established in June 1933 to help distressed families avert foreclosures by replacing mortgages that were in or near default with new ones that homeowners could afford. It did so by buying old mortgages from banks - most of which were delighted to trade them in for safe government bonds - and then issuing new loans to homeowners. The HOLC financed itself by borrowing from capital markets and the Treasury." NYT.

FDR is one of my least favorite Presidents because while he is given credit for rescuing us from the Great Depression (he didn't, WWII did), he created the welfare state and the mentality and expectation that the government will take care of you from cradle to grave.

The reality is that the Government will not stand idly by in an election year...they will act; and this might not be a completely "bad" solution.

Thoughts?

Bank of America...7500 jobs on the block after the CW merger...gross!

2008-06-27T11:55:17Z

KEY PHRASE: AFTER THE MERGER! All along, I have said that the only thing that BofA is interested in is their servicing portfolio and access to current accounts for their own marketing purposes. 75% of these job cuts will be from the CW side, which is comparable to other buyout/bailout acquisitions.

Bank of America to cut 7,500 jobs after merger

By John Spence, p.m. EDT June 26, 2008 BOSTON (MarketWatch) -- BAC Thursday afternoon said it expects to eliminate about 7,500 jobs after it completes the acquisition of mortgage lender Countrywide Financial Corp. The deal is expected to close on July 1. Bank of America in a statement said the job cuts will take place around the country. Final decisions on all specific groups to be reduced and their locations haven't been determined, and the Charlotte, N.C.-based company "will continue to monitor market conditions and make adjustments as appropriate." The reductions are expected to happen over the next two years. Affected workers will be notified in the third quarter, and eligible employees will get severance packages, the bank said.

It's the price, Stupid! Case-Shiller home price index points to the promised land!

2008-06-24T11:05:42Z

WASHINGTON (MarketWatch) -- Home prices across 20 major U.S. cities have dropped a record 15.3% in the past year and are now back to where they were in the summer of 2004, according to the Case-Shiller home price index released Tuesday by Standard & Poor's. Prices in the 20 cities are now down 17.8% from the peak two years ago. Prices were lower in April than they were a year earlier in all 20 of the major metropolitan areas as tracked by the Case-Shiller index. The numbers would be much worse if the CS index included new construction, condo's and condo-crapversions!

Remember when the rate on your 30 year fixed was 9% and you thought you were getting a great deal? And you know what...it was a great deal because the home you were buying cost $75k, a little more than double your annual income! Now, rates tick up to 6.625% and the market stalls because home prices are 4X greater than than your annual income...8X greater if you live in LA.

Plain and simple, money will never be as easy as it was from 2003-2007...get over it! The equity you thought you had was never there...it was, well..."FIAT Equity"...it was there because someone was stupid enough to believe it was really there and was able to convince an investor.

I've said it before, and at the risk of getting alienated further for being a "party pooper", I'll say it again. THE EMPEROR HAS NO FREAKIN' CLOTHES ON!!!!! My apologies if you can't handle the truth and still need to believe that he is fully dressed...reality is painful, I understand, it will take you a little while longer!

When home prices come down another 15% to 25% we will see the housing market become more normal. There is no way to get Aunt Dora back in her box, Bernanke, Paulson, et al can try as they might, but the only thing that will restore balance in our housing market is a full scale unwinding, a grand mal seizure that makes everything we have seen so far seem like a nervous tic! I do not fear this, I look forward to it; indeed, I pray for this to happen! The boil that is this housing bubble, must be lanced and the longer we wait, the longer it will take to recover. I'm all about getting to "recovery" as quickly as possible. BUt, you can't skip the pain to get there though...we must embrace it and confront it, and grind our way through it!

Surviving the cycle...the Stockdale Paradox

2008-06-23T16:22:00Z

"You must never confuse faith that you will prevail in the end - which you can never afford to lose - with the discipline to confront the most brutal facts of your current reality, whatever they might be." The Stockdale Paradox. James Stockdale (google it.)

Here is where I struggle with blind optimism. With blind optimism, you deny reality. This is impossible for me--just the way it is, I am who I am. I believe the greatest disservice that we can provide our families and our clients is this type of delusional thinking that ignores the facts.

I am optimistic that this downward cycle will end, but it isn't going to end tomorrow or next month. I am optimistic about 2010, and 2011. In some people's minds, this might be a little delusional and optimistic. Can I hang on until then? I believe I can and will, because I've embraced the reality that I will need to hang on that long!

July 2007 Redux...deja vu all over again...the credit "deep freeze"

2008-06-20T14:14:35Z

What is it about July? Well, coming to grips with horific 2nd quarter performance numbers, a new round of write downs (both residential and commercial MBS's/CDO's), AND more importantly...NO, and I mean NO arrows left in Uncle Ben's quiver that can stave off a further massive deterioration in the credit markets. You think that Last July's credit freez was chilly...get out your goose down parka because this July and August will make the summer financial chill of 2007 seem like a light frost!

The factors:

1) Inflation / Stagflation.

2) Writedowns...AKA the bad loans I ate last night coming home to roost.

3) Global Inflation / Stagflation.

4) Uncle Ben's catch 22...raise rates to stave off horrific inflation and dollar devaluation and which will cause a deeper recession OR keep printing more money, further devalue the dollar cause a deeper recession because there simply won't be anyone willing to fund our debt...you think there is a libor spread now...just wait.

5) Did I mention inflation? This is going to be complicated by the flooding in the midwest putting untold pressure on food commodity futures which were already pressured by our drive for more corn ethanol.

Is there a rabbit that can be pulled out of a hat? I hope so, but crazy uncle Ben made the Bed we are sleeping in that was purchased by Greenspan.

What's Your Home in Snohomish County Worth???

2008-06-19T12:36:33Z

I love asking prospective clients who have to sell their home to buy another this question; "So, what do you think your house is 'worth?'" Their first response is usually, well, a year ago our neighbor with a home a little (700sqft) larger than ours sold for $X.

Then comes some painful, emotionally charged ruminations about real data, current market conditions, and what they are up against. Most Realtors are indeed coming to grips with the reality...6 quarters of an ever softening market will do that and rather than take a listing that sits for 12 months, they speak truth--however harsh, to their prospective client.

Bottom line, your home is only worth what someone will pay for it today. And you know what, it's not just about "will pay" its about "can pay."

The client may not be willing to "sell" for that amount, but coming to grips with that harsh but honest reality of a properties nominal worth is necessary for our inventory to decrease. My clients who have sold their homes in the last 6 months all have had them priced correctly and have been willing to "negotiate." Those clients that still have their houses on the market are 10% overpriced, minimum.

When sellers get realistic, the buyers will appear!

Retail Sales up??? Really? Not quite the whole story!

2008-06-12T14:35:34Z

From Bloomberg:

June 12 (Bloomberg) -- Retail sales in the U.S. rose twice as much as forecast in May as Americans snapped up electronics, clothes and furniture, evidence that they aren't hoarding their tax-rebate checks or using them just to pay for gasoline. (DUH, do people ever do anything else except spend their tax refunds on discretionary toys?)

Purchases climbed 1 percent, the most in six months, following a 0.4 percent April gain that was previously reported as a drop, the Commerce Department said in Washington. Sales excluding gasoline increased 0.8 percent last month. (Perfect analysis, comparing previous months spending that didn't include tax refunds)

The figures suggest that consumers, whose spending accounts for more than two-thirds of the economy, are helping stave off a deeper downturn. Stocks rose, while Treasury notes slumped as the report reinforced investors' expectations that the Federal Reserve will increase interest rates later this year.

``It's just amazing -- the American consumer's resilience in the face of everything negative,'' Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, said in an interview with Bloomberg Television.(He is taking a drag off the same doobie as the NAR's Chief Economist!)

Ok, this is what I love about data reporting and the way Wall Street responds to out of context data! We had a spike of retail sales in May of 2007 just like we did this year...BUT...the year over year comparison for retail sales shows that we are down .8% from last year. What do people always do in May and June? Spend their tax refunds on "goodies" like flat screens, appliances, and other toys. This year we had the extra bump of the stimulus package which pushed May retail sales up 1%. BUT>>>>> In 2007, Retail sales jumped 1.4% in May compared to April 2007 numbers.

A decrease of .8% in retail sales YOY, and a decrease of .4 in the May v. April sales numbers from 2007!

Grasping at any glimmer of hope, however delusional!

Zillow L.O. Police...vigilante justice is needed!

2008-06-10T14:30:11Z

If Zillow doesn't raise the bar on loan quote requestors OR allow LO's to contact them directly, then each state should have 5-10 "zillow police" loan officers who can flag irresponsible LO's, get quicker responses from Zillow to remove crazy comments and fraudulent ratings.

Time and time again, I see obvious wacky quotes...sure, the consumer can sort them out eventually, but it's like trying to make your quote compete against one of those radio ad's that is pure "bait and switch."

I still think that being able to contact the borrower directly is the only real fix. Until then, I keep my expectations very, very low.

Updated Neg AM Recast Timeline...welcome to 2008!

2008-06-10T13:16:59Z

The previous charts had a more concentrated bubble of neg am loan recasts in 2010-2011. Credit Suisse has done some more research and found that because "so many" people have been making the bare minimum payment on these loans, we are going to be seeing more and more of the WAMU and CW 115% neg am cap's get triggered earlier than expected...AS IN THIS YEAR, NOT NEXT YEAR. The Downey and World Savings 125% caps are a little further out which will really help people...if you consider going further in the hole helping people out! I'm sure they've all been investing the difference between their minimum payment and the fully indexed/amortized rate, and have been earning 7-12%, so they should be ok.

Consider two things:

1) a large segment of these neg am loans were "low doc"...I wonder how many borrowers will be able to afford the recast payment which could in some cases be close to double? Probably all the of them will be able to afford it because so few of them overstated their income! Right?

2) Values have decreased, loan sizes have increased via negative amortization...I wonder what percentage of borrowers can't refi out of these wonderful loans because of LTV issues? (not to mention income documentation issues) Additionally, how many can't sell because of being upside down?

Home Price Limbo...how low can they go???

2008-06-05T13:16:45Z

Don't worry, I'm not putting on a grass skirt!

Back in the 80's, home prices were around 2.2 to 2.5 times household annual income (depending on what sources you believe) Interest rates were BRUTAL, financing options limited, and supply was pretty scant.

Today, home prices nationally are 3.8 to 4.2 times household annual annual income. Interest rates are pretty darn good, financing options are not what they were in 2006, but there are still a lot of options out there, BUT>>>BUT>>>BUT>>>supply is huge.

This suggests to me that if we are to paddle ourselves out of this quagmire, that prices are going to have to come down...how much? I'm thinking about 20%. Ouch. What do I base this on...nothing except a gut feeling.

Will this happen? Not without a bunch of short sales! Will the banks allow this to happen...I don't know if they have a choice. They are going to get something from a short sale, OR something less by taking the property back through foreclosure.

Gross.

Fannie DU 7.0 compared to LP... 7/2/2008

2008-06-02T16:37:38Z

We all knew that DU 7.0 was going to be a tighter, but just to give you a little comparison in findings on a file that was exactly the same, run on both engines:

My Community 97, 5/1 ARM, 704 fico, 42% back end ratio, condo... REFER / EA IV...yea, as in "4"!

Home Possible 97... Streamline accept.

(there still is an issue with finding an MI company for condo's...Radian will still go to 97 on a warrantable condo as of 2 weeks ago)

If you get some funky findings, try LP, hopefully their automated engine won't change for a while. DU 7.0 does have some, (few), benefits over the previous version, but I think they might have tighted down the screws just a tad bid too tight!

New Condo / Condo Conversion Financing issues...possible HUD solution?

2008-05-29T11:29:49Z

MI companies have started running away from new condo's and condo conversions at a break-neck pace. This, combined with the evaporation of 2nd mortgages has made financing these properties vitually impossible. Last year, when I read the guidance from Fannie and Freddie that they were getting out of the business of "warranting condo's" and putting the responsibility back on the individual lenders, I knew that it would be a cluster.

The solution would be a simple one, but uncharacteristic of HUD, streamline and expand the condo project approval process and parameters for FHA and VA condo approval. Builders, developers, the NAR, NAMB, MBA, et all need to put some unified pressure on HUD to address this issue.

I'm not optimistic that there will be change any time soon, but I don't see private MI companies getting back into the game for a long time on this properties. HUD could really help out this sector of the housing market by providing a sound financing niche.