In a recent article that Yahoo republished from the Wall Street Journal, Stephanie Simon wrote about a failed Colorado bank - New Frontier. She tells the story of a woman named Tina Gasner and her $260,000 business loan to start a pizza shop.  

In the article Ms. Gasner blames the bank for misleading her into thinking her business plan was sound. The problem I have with this is that at the beginning of her statement she declares that she is an accountant.

Come on Ms. Gasner - it's time to "woman up".. and take some blame for selling yourself and the bank on a bad plan.

As an accountant she should have been knowledgeable in determining costs,revenues and profit margins.

Either she is a very poor accountant or she tried to borrow on a business plan that she knew did not add up.

Granted the bank was making a lot of bad loans, their criteria for lending failed the ultimate test. The bank was closed by regulators.

But Ms. Gasner and borrowers like her have to step up and take some blame. If you know that you cannot make the payments you should not be asking for the loan. You should not blame everyone else for letting you do something that based on your experience and knowledge you must have known had little chance of succeeding.

To be fair - the bank management and the loan officer that approved the loan were as delusional as the borrower.

This reminds of the days of the NINA loan. borrowers would apply knowing that they did not have a chance in you know where to make the payments over the life of the loan. They were leveraging themselves against all odds to get in on the flipping bandwagon. If a loan officer did the right thing and refused to process the application the borrower moved down the street until they found someone who would take the application.

I for one am glad to see products like the NINA and loan officers who only care about an easy commission out of this industry.

For the full story see: Click Here

Important Information About Your LIBOR ARM Mortgage And How Your Rate Can Change.

Several months ago I posted some information about the possible surge in the LIBOR rate that could impact millions of mortgages in the US. 

Based on the recent history at the time it was possible that LIBOR rates could soar putting many Americans in financial jeopardy.

The good news is that although the LIBOR did continue to rise for a brief period in late Oct 08, it has recently tanked. The 6 month LIBOR rate has fallen almost 4% in the last 8 weeks. It is almost at zero.

How does this help homeowners with LIBOR based adjustable mortgages?

In some instances it means that homeowners with a mortgage tied to the LIBOR will see their payments decrease at each adjustment period.

If you have a conventional Fannie Mae or Freddie Mac LIBOR ARM mortgage the above sentence is talking about you.

If you have a sub-prime or any of the alternative mortgage loans written in the last 2 - 5 years you might not have much to party about.

Why? Because many of the sub-prime and Alt-A mortgages have a clause in the adjustment rider that says that your rate will never go below the start rate.

How do you know which loan you have?

How do you determine how low you rate can or cannot go?

You want to dig out your mortgage papers - that would be the big packet of documents that you received from the settlement agent at or soon after your closing.

You want to look for a document called the Adjustable Rate Rider.

You want to look for a section that is usually titled - "Limit On Interest Rate Changes".

This paragraph will spell out the rules for your mortgage's adjustments.

All ARM mortgages have caps or limiters that stop your rate from skyrocketing or dropping through the floor all at once. There are two types of caps. Perodic - these occur at each adjustment. And Life Caps - these caps set the maximum/high  and in some instances the minimum/low that your rate can float up or down to.

This is in place to protect you when rates spike and the lender when rates tank.

If you have an LIBOR ARM or any other adjustable mortgage you should be aware of the adjustment caps.

The other shoe could be about to fall... the LIBOR rate has spiked in recent weeks. What is the  LIBOR and why is something to be concerned about?

From a report on Bloomberg this week..
"The overnight Libor rate in U.S. dollars soared 3.33 percentage points to 6.44 percent today, its biggest jump in at least seven years, according to the British Bankers' Association. The one-week rate rose by more than a percentage point, to 3.88 percent from 2.49 percent on Monday, and the one-month rate increased to 2.75 percent from 2.5 percent."

LIBOR is short for London Bank Inter Offered Rate. It is a rate index that is set by the British Bankers' Association.

Created in the mid 80's the index became widely used in the mid to late 90's in the US mortgage markets as the preferred index for adjustable mortgages. Most subprime and about 40% of conforming adjustable rate loans are based on a LIBOR index.

This means that these loan rates cannot be controlled by the FED.

If the LIBOR's recent increases continue this means that the adjustable rate mortgage payments that are tied to the  LIBOR could more than double at adjustment time.

Most LIBOR based loans are tied to the 6-month index. This means that the rate is a rolling 6 month average. So will a short term spike cause you rates to jump? No. But an ongoing increase will.

If you have a LIBOR rate keep a very close watch on the monthly rate. Do not wait for the rate to spike before you have an exit strategy.

By now everyone has heard about the historic bail out of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) by the government. In the short term this looks like a good move. The two companies are saved from insolvency and they can continue with business as usual. Is this good or bad in the long run? I think it depends on how ready FHA is to take the lead in mortgage lending in America.

Look at some of the ramification of the take over.

1. The CEOs will be fired - Great… it should have happened a long time ago.
2. The boards will be replaced - same as above!
3. There will be restructuring of the balance sheets - not so good!

The devil is always in the details.

The restructuring will result in a new class of stock to be created that has precedence over current stock holders. This new senior preferred stock will earn 10% a year.

Fannie and Freddie will be required to make major cuts in their mortgage holdings. Over several years they will have to cut their portfolios by almost 70%.

Mortgage rates are currently in the 6% range - Fannie and Freddie will be forced to borrow at 10% - you do the math!

With Fannie and Freddie cutting their portfolios by more than two-thirds this means that conventional mortgage money will be choked at the source.

This leaves FHA as the sole survivor. Let’s face it with Fannie and Freddie cut to one-third of their original size they will become secondary players. Is HUD prepared for the role it is being thrust into. For years this agency has taken a back seat and is now at 3 times it’s former production levels. This change will put a substantially larger burden on HUD.

Let’s hope that HUD is up to the challenge.

The FEMA disaster recovery center is open for Seminole County residents and business owners who were affected by Tropical Storm Fay.

Crews from the Federal Emergency Management Agency and the State Emergency Response Team will help staff the center in Stanford. The office is open daily from 8 a.m. to 6 p.m.

People who were affected by tropical storm Fay can apply for disaster assistance at the center and get help with answers to questions about claims and disaster loans.

The office is located at: 520 W. Lake Mary Blvd, suite 101, Sanford , FL 32773

Applicants should register by calling FEMA toll-free at 800-621-FEMA (3362). Those with a speech or hearing impairment may call the TTY number at 800-462-7585 and apply. Multilingual operators are available. The toll-free telephone numbers will operate 7 a.m. to midnight daily until further notice. Application for disaster assistance can also be made by registering online at www.fema.gov or at one of the Disaster Recovery Centers (DRCs).

Florida - Seminole county FEMA assistance - was your home or business affected by Tropical storm Fay?

Seminole County has received a declaration from the Federal Emergency Management Agency (FEMA) for Individual and Public Assistance for homeowners and public facilities affected by Tropical Storm Fay.  Please call 1-800-621-FEMA (3362) to apply for federal assistance or go to their website by clicking here.

Thirty of Florida's 67 counties are now eligible for Public Assistance.

At the FEMA site you can get the information you need to determine if you qualify for FEMA assistance.

If you have an insurance policy you should file your claim before applying for FEMA assistance.

although FEMA help is primaraly for homeowners without insurance coverage there is also some assistance available to supliment your insurance coverage.

Individual Assistance can include grants to help pay for temporary housing, home repairs and other serious disaster-related expenses not met by insurance or other assistance programs.  Low-interest loans from the U.S. Small Business Administration (SBA) also will be available to cover residential and business losses not fully compensated by insurance.

For additional information also go to this website by clicking here.

According to one Florida mortgage banker they are.

I received an email from the Mortgage Bankers Association of Florida that contained a reprint of an editorial from the Miami Herald by Alex Sanchez. Who is Alex Sanchez? He is president and chief executive officer of the Florida Bankers Association.

According to the Florida banker's perspective, Florida mortgage brokers are Satan incarnate and are solely responsible for the sad shape in which the financial sector and housing in general finds itself.

Here are some of the misdeeds blamed on mortgage brokers by Mr. Sanchez in his editorial.

• "More than 80 brokers who were caught stealing from clients by siphoning funds from escrow accounts and issuing excessive fees were allowed to continue working in the industry."
  
• "Here-today-gone-tomorrow mortgage originators were in the practice of doing whatever needed to be done to close the loan. As we now see, some unscrupulous individuals working in the mortgage industry were willing to lie, cheat or steal just to seal the deal."
  
  
• "Banks, which are well capitalized (meaning they have required rainy-day funds) conduct a series of examinations to determine the credibility of a loan before its issuance, including verification of income, requiring a solid deposit and performing substantial credit checks. According to recent news articles, others peddled mortgages "that required no money down and minuscule payments for the first few years." Some even forged records like tax forms, account balances and income statements."

First I would like to correct Mr. Sanchez's understanding of Florida lending law.

Mortgage brokers cannot get near escrow money. They could not siphon off escrow funds if they wanted to because in no part of the transaction does a mortgage broker collect or have access to escrow funds.

Granted, some brokers have been caught in questionable and in some instance illegal practices. These people should be barred from any type of employment in our industry and prosecuted to the full extent of the law.

In fact, I doubt that you would find many in our industry that would not vote for special penalties for these people.

But, are bad brokers alone in this problem? No. Real estate agents, title agents, appraisers, bankers, builders and attorneys have all been guilty.

Unethical people from every sector have stepped up to take advantage of a system in disrepair. But for a banker to blame mortgage brokers for the mortgage problems we are facing that was in a large part created by the banks is nothing more than a smoke screen to hide the real problems in our industry, which is the greed of many bankers.

What sector created the no income, non-owner, high loan to value mortgage?

What sector threw out the window payment history, employment history, and assets, and used instead a credit score to make a lending decision?

What sector was responsible for overseeing the underwriting practices for these mortgages?

What sector pushed these products on mortgage brokers and offered them in some instances two times the normal compensation to deliver these loan products?

What sector threw principles of decisioning out the window for short term profits?

The answer is one that Mr. Sanchez will not want to face. It is squarely on the door step of our bankers.

Mortgage brokers do not have any money to lend. They are simply providing origination services for bankers.

I know Mr. Sanchez is going to continue to cry that broker fraud is the problem. The facts are different. If you remove all numbers of mortgage fraud, no matter what sector committed it, we would still have a major lending crisis because the lending practices of the majority of the banks involved in mortgage loan production were operating on automatic with no one watching the store.

They were asleep at the wheel. Blaming others for their lack of responsibility will not change that fact.

Shame on you Mr. Sanchez for not accepting your (industry's) fair share of the blame.

If you would like to read the complete message from Mr. Sanchez see this link.
http://www.miamiherald.com

If you would like to contact Mr. Sanchez directly to voice your opinion about his statements you can reach him at:

Alejandro “Alex” Sanchez
President
Florida Bankers Association
P.O. Box 1360
Tallahassee, FL 32302
850.224.2265
asanchez@floridabankers.com
www.floridabankers.com

I guess I could end this by saying that some of my best friends are bankers… 

The support for H.R. 6694 the bill recently introduced to revive seller assisted DPA is growing.

Supporters include Jerry Howard, chief executive officer of the National Association of Home Builders, said the association supports HR 6694.

Also today, Nehemiah Corporation of America announced the launch of www.DPAGroundSwell.org, a web-based community established to mobilize the growing industry opposition to the October 1 ban on seller-funded downpayment assistance (SF-DPA).

On the new site you will see an inpressive list of supporters, a countdown clock showing when the current programs like Nehemiah's will expire. You will also find links and information showing you how you can help, and where you can write to demonstrate your support.

To see the bill as introduced see my previous post.

If these programs are important to you get involved.

Do something.

Are you are getting emails from "CNN" that promote the top 10 stories of the day?

Guess what?

They are not from CNN - they are spam that points you to websites that are not part of CNN.

Do not click on the links.

The practice is called spoofing. 

It looks like this....

This one is pretty good.. if you hold your mouse over the links in the lower part of the email.. the gray areas.. they go to a CNN link.

The top story links do not.

I got 5 of them today - all from different email addresses that are not CNN email addresses.