Joe's Blog

The Fed: Cutting the federal-funds target rate, September 18th, 2007: What events have led to this…

Joe Brady - World Wide Credit Corporation — Thu, 20 Sep 2007 15:57:06 -0500

The much anticipated day has finally arrived when the Fed made the decision to cut the federal-funds target rate by 50 basis points as well as the discount rate by 50 basis points. The move was a bit stronger then expected. What has led to this? Why has this been somewhat expected and deemed necessary? The summer of 2007 is one that nobody in the mortgage industry will forget....READ THE FULL ARTICLE

Changing industry: Mortgage Firm Restructuring

Joe Brady - World Wide Credit Corporation — Thu, 06 Sep 2007 14:41:09 -0500

An exact reversal of action is taking place now in this post-boom housing market. Large companies began acquiring many mortgage lenders and increasing employees when times had been good. And why not? Times were good and the mortgage industry was brining in lots of money. But times have changed now. What began as employee expansion and a bright future for mortgage companies 2-3 years ago has now reversed. Firms are now selling off (if possible) or closing subprime divisions and laying off employees. In an article entitled “Wall St. losing subprime lenders” in the Philadelphia Inquirer, 1,200 people lost their jobs in light of Lehman Brothers Holdings, Inc. closing its subprime unit, BNC Mortgage L.L.C. This is just one example of corporations attempting to separate themselves from the subprime market. On Wall Street, any separation from the risk of subprime has led to an increased in company valuation. The list of companies who made moves to acquire mortgage firms in the past years include a list of Merrill Lynch, Bear Sterns, Morgan Stanley, Credit Suisse, Barclays, and Deutsche Bank. Now each company is struggling to separate itself from subprime and increase its valuation.

The post-boom housing market has also begun to slash the number of M&As, mergers-and-acquisitions, which had been booming since 2003. In a September 6^th Wall Street Journal article, Robert Kindler, vice chairman of Morgan Stanley, states that he “would not be surprised if deal volume is down 20% to 30% next year.” This is an abruptly different change in momentum as M&As had been $579 billion in July and now $222 in August, and are expected to continue this decline into next year. Where did this slip in M&As originate from? It all stems from the mortgage meltdown and the high cost of money. With companies struggling to finance M&As and large banks focusing on staying liquid, money is being soped up in different aspects of the economy and not permitting easy M&As. Not to say that there won’t be any, but the volume will be greatly reduced.

In light of these effects from the ‘liquidation crisis,’ credit is expected to remain tight going into next year. News from the Fed is still greatly anticipated come September 18^th as to where rates are heading. (I would expect a 25 basis point rate cut in hopes to ease the credit problems) Now the markets are really seeing a reversal of character as once M&A booms are now being reversed with cutbacks, layoffs, and an effort to disassociate with subprime mortgages. This leading to a consolidated Philadelphia mortgage marketplace, with only those truly knowledgeable left in the industry.

Countrywide in Trouble: how will this affect you?

Joe Brady - World Wide Credit Corporation — Fri, 17 Aug 2007 12:05:03 -0500

Countrywide is in serious trouble! As the largest U.S. mortgage lender by volume, their problem is your problem. You may ask yourself how Countrywide’s problems may impact you, and why are they in trouble? By now everyone should be aware of the mortgage problems that have escalated recently. Things have not looked good as many lenders have gone belly up because of what began as a Wall Street ‘risk-adjustment .’ Initially this affected only the subprime mortgages, but then seeped through the whole industry, resulting in the Fed’s action to liquefy markets by injecting billions of dollars. This is particularly eminent now as Countrywide had to draw down $11.5 billion in order to increase their liquidity. On top of that, Merrill Lynch just downgraded Countrywide and their stock has plummeted roughly 30% over the past week. Not a good sign for the leader in the mortgage industry. But how does this affect you?

Well, Countrywide is to the mortgage industry as Coke and Pepsi would be to the soft drink industry. If you are craving that Coke or Pepsi product and they are having major liquidity problems, as Countrywide is, you may see your favorite products (maybe Sprite or Mountain Dew) disappear. It is the same with Countrywide, except their products consist of an assortment of loan programs. Due to these troubles, you may not be able to get that program you qualified for, a much more serious consequence as you may not be able to receive funding now. They are cutting those programs which are risky or are not backed by a select few. The next logical question may be which programs are being cut? I love my Mountain Dew and wouldn’t want to see that gone. Countrywide is now focusing solely on Fannie Mae and Freddie Mac loans, leaving those who do not meet the guidelines out of luck. They are expecting that in the coming months, 90% of loans issued will be sold to Fannie Mae, Freddie Mac, or meet the criteria of Countrywide Bank.

So does this affect you? Yes it does. It affects the economy, markets, and anyone seeking a loan. However, there is solace somewhere in this mess. For those that are in search of traditional financing and have the money to do so will not be affected, unlike those looking for 90-100% financing. Now more than ever a mortgage professional is needed to help you find the right program. So keep your eye on the market and don’t panic, yet…

*Article cross-posted on www.joseph-brady.com

Philadelphia market conditions encourage rent-to-own

Joe Brady - World Wide Credit Corporation — Tue, 14 Aug 2007 17:51:28 -0500

As homes in the Philadelphia area are staying on the market longer, many sellers are turning to rent-to-own agreements. An article in the Philadelphia Inquirer titled Market forces change, by Joanne Cleaver, takes a look at a couple who spent $100,000 in remodeling their home, only to be forced to mark-down their asking price from $475,000 to $439,000. Now they are forced to look at rent-to-own agreements because they’d rather do that then lower their price further. Their reasoning? "It's like the stock market: You don't sell at the bottom," says the seller.

The question therefore begs, what are rent-to-own agreements and are they really beneficial to both parties? I prefer to call these rent-to-own contracts lease-options, as they give the buyer a ‘lease’ with the ‘option’ to purchase at a given point in time (but this is just a technicality in language that I prefer to use). The basic benefits for the buyer are as follows:

they can get in the home they want with little out of their pocket
gives a sense of hopeful future ownership
lock in purchase price
chance to repair past credit problems and qualify for appropriate funding in the future

Benefits for sellers:

1. quick transformation of equity to cash
2. alternative option to lowering your selling price

3. great incentive for tenant to maintain property

4. calculated rate of return with little market risk

Described above is a brief overview of the benefits for traditional lease options. However, here at World Wide Credit, we have been advising REALTORs on how to create a market through the use of lease options, and still get paid. Typically real estate agents shy away from lease options because there is no reward. The premise of the lease options program involves matching up investors/sellers with potential lease options clients. With the current market conditions in Philadelphia and around the country, this different type of real estate may emerge as a practical alternative for REALTORs. Specific to this topic, we presented an audio and visual ‘webinar’ that had great response. For a copy of the presentation please feel free contact me.

So is the seller in the article doing the right thing? In their situation, it would make perfect sense. They are sticking to their claim and not “selling at the bottom.” This is just an example of the changing marketplace and how lease options may soon become the most viable option for sellers who cannot sell at the price they want.

Mortgage rates: industry wide shake-up

Joe Brady - World Wide Credit Corporation — Fri, 10 Aug 2007 11:13:49 -0500

Last Thursday the mortgage lending industry was hit with a shockingly abrupt rate increase due to a Wall Street “risk-adjustment.” This risk adjustment translated into across the board rate increases, particularly on non-conforming and non-A paper loans. What is this risk-adjustment and how does it affect mortgages at a consumer level? The answer is buried under a selling and buying cycle among Wall Street and lending. Basically, Wall Street has now accounted for the increased mortgage defaults and continuing housing slump; resulting in an allocation of additional interest points needed to compensate for this higher risk. For a different take and more in-depth explanation of the recent changes, check out Brian Brady’s Blog.

However, as a home buyer or owner, the daunting news may not affect you as much as you think. For some larger loans there may be additional dollars spent on higher interest rates as expected. But the fact of the matter remains; if you are looking for a loan you can still get reasonable pricing, the work falls on the mortgage planner finding the correct program for you amidst the industry’s consolidation. Many programs are still viable options for those with mediocre or low credit, including FHA, which many people have turned to since the tightening of the subprime market.

There are many benefits to an FHA loan, particularly for people with low or no credit scores. For a little background on FHA, this program has been around since 1934 and was a result of the Great Depression. The Federal Housing Administration (FHA) wanted to encourage home ownership at a time when many people were laid off and had to put down about 50% on a note that would balloon in later years. Doesn’t sound too appealing, and that’s where FHA stepped in. Now at this rocky time in the industry, it just makes sense that more people would turn to FHA. However, there are still some misconceptions, one that FHA has a hand in the loan process. This is incorrect, all FHA does is insure loans made by FHA-approved lenders. Lenders are therefore glad to give FHA loans because they are fully insured in the event of default. The best part about the FHA agency is that it is the only government entity that does not cost taxpayers money; it runs solely from its own income. So if you think you cannot qualify with little or no credit, think again with an FHA loan.

Also there may be an increase in Fannie Mae and Freddie Mac loan amounts, particularly important in higher cost housing markets. As reported in an article from the Wall Street Journal, the Senate Banking Committee is calling for this increase in loan amounts. This would allow people to get loans easier, especially here in the San Diego market where many home loans are well above the conforming limit. 100% financing programs are still available for people with good credit and the ability to make payments.

So, despite hesitations that may be well warranted, this is not the time to panic or shun away from getting that loan you want. All you have to do is talk to the right person who is willing to put in the time and effort to get you the loan you want. Good luck!

Who is this guy?

Joe Brady - World Wide Credit Corporation — Thu, 09 Aug 2007 12:54:18 -0500

As an up and coming mortgage planner who will be relocating to the Villanova/Philadelphia area in late August, I felt that I should introduce myself to the blogging world. This realm of networking has been exposed to me through one of the greatest bloggers around, the one and only Brian Brady. I know that his expertise in this online world will be of great use. I only hope that I can absorb as much of his knowledge as humanly possible.

Now a little about myself...I am working toward finishing my Finance and Economics double major at Villanova University in Philadelphia, PA. After spending the spring semester in London, England, studying Economics at UCL (The University College of London), I returned to my home town of San Diego to begin working for Brian Brady at World Wide Credit. I have been fortunate enough to learn the tricks of the trade from one of the very best this summer, who also happens to be a Villanova Alumni. In addition, Brian has introduced me to many great people in the industry, particularly seen at the Del Mar Racetrack event. I was able to mingle with some of the best, including Laurie Manny from Long Beach, Marlene Bridges from Laguna Niguel, Jeff Dowler from Carlsbad, and even Jeff and Josh Brown from Brown and Brown investments here in San Diego, just to briefly name a few from this 'who's who in the industry' list. Last summer I had a little taste of commercial Real Estate as I worked for Burnham's Urban Retail Group in downtown San Diego, but now enjoy the change of pace at World Wide. My one passion has always been surfing and beach volleyball, but back at Villanova there is nothing better than feeling the adrenaline rush of sitting at a Villanova basketball game. We have a young team this year with a lot of potential so I am already eagerly awaiting the start of the season. My experience here at World Wide Credit has thus far been one of nonstop hands-on learning. Back in Philadelphia I wish to continue increasing my knowledge of the industry and look forward to doing business in a different type market 3,000 miles away.

Any tips, help, or advice is always greatly appreciated as I am continuously seeking to learn. And who knows, maybe I'll have some incite to help you.