The agonizing death of the subprime market this past July/August has seen the demise of many big and small lenders. The Bank of America bailout of the nation's largest lender, Countrywide (CFC), by virtue of a 15% equity interest acquisition has allowed this wounded giant to continue. The financial markets would be further destabilized if Countrywide were allowed to go under. I do not believe that Bank of America, that other financial giant, will allow this to happen for a couple of reasons. First, Bank of America now has a direct financial stake in the health, either on its own, or more likely through acquisition, of Countrywide. Secondly, Countrywide generates tremendous profits from the servicing of its loans which is where the real money is made. However, there is a caveat to this.
The unparalled mortgage default rates on the subprime products that Countrywide sold through its Full Spectrum Lending Division and Specialty Lending Divisons have effectively destroyed the secondary market (i.e. hedge funds and IRAs) that generally sought mortgages as long term, low risk investments. Thus we have the death of the subprime market. It must be remembered that the profits generated from subprime loans far out paces that generated from conventional prime loans. What does this mean? Vast profits were obviously generated quite quickly from these loans. It must also be remembered that Countrywide also generates enormous income from the prime side of its business; these prime borrowers are who are referred to in the Countrywide television ads that promote teaser rates and Home Equity Lines of Credit, though the targets of the ads are generally non-prime borrowers.
What does this all mean? The federal government cannot allow the further destabilization of the financial markets so they will be forced to take action. I believe that the federal government (meaning taxpayers) will have to initiate a bailout similiar to the S & L bailout of the late 80's and early 90's. There is already an attempt to avoid such a costly and public bailout currently underway. The FHA Secure program that was rolled out can help many homeowners who are facing the reality of foreclosure if their mortgage (and other) delinquencies are a direct result of a resetting of their interest rate. This is an opportunity for us loan officers to help improve not only the sullied reputation of our industry but to help the disenfranchised borrower (this could be our friends, neighbors, or family mambers) when they need it most. If, as projected, a record number of loans will reset this upcoming January 2008, then the need for loan officers to be dilligent in helping those who qualify under the revised FHA guidlines is imperative.
Time is definitely of the essence as the FHA Secure program is set to expire, if not renewed by Congress, after the fall election has already taken place, in December 2008. Most of us have read blogs, newspapers articles, or seen on television a lot recently about the flurry of legislation on both the state and federal level dealing with the real estate industry. To ensure that qualified and ethical professionals populate our industry, we must individually know prior to the 2008 election where those who are seeking our vote stand as their legislation can alter our industry in either a positive or negative way.
About the Author
If you are in the market to purchase a home or even refinance an existing loan and you want a loan officer that will walk with you every step of the way, then contact the Thornton Team at Home America Mortgage today. We can have you pre-approved in as little as 4 hours. You can visit our website or send an email to thorntonteam@hammtg.com or call us @ 404-354-2024.
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Rich, you are right in this. The only problem that I see is you have customers that believe they can get a 6% fixed rate with a 500 score and 100% financing still because their friends did it a year ago. As the industry tries to move foward, so do the customers.