This is going to be a long one, and I’ll be late for lunch, as usual. I just got off the phone with Gwen Moritz, Editor of Arkansas Business in Little Rock. Gwen took a look at a scintillating report in Saturday’s Arkansas Democrat-Gazette that said 25% of Arkansas mortgages are “under water”. Steve Brown ran the same report Friday and I parroted, our number in Dallas being 30% underwater. Every media outlet in America ran the piece since it was wisely sent out localized and sensational. The study was made by a California company called First American CoreLogic. Gwen read the story and it nagged her — 25% of Arkansas mortgages under water? How can that be, she asked.
Now when I read the story, I too had my doubts, for this reason: if the reports CoreLogic used included HELOCS — home equity lines of credit — why would 30% of Dallas mortgages be underwater? In Texas we are limited to 80% loan to value home equity ratios. That would mean that if someone maxed out their HELOC in Texas, they’d have to have lost 20% of the value of their BRAND NEW 100% FINANCED home and then some to be underwater. Or maybe they’d be flat. Whatever, I thought, as I usually do, who am I to question the brainpower and computers of these geniuses in California? God, we are all so bad!
Well, Gwen questioned them. She did what I should have done and picked up the phone and said, you know, this just doesn’t look right. Artkansas never had a housing bubble. Neither did Texas. She did some research on CoreLogic’s methodology and found out — hold the presses!!! — the company’s numbers may be biased on the HIGH SIDE . In other words, giving us facts that are worse than they really are.
Most of the mortgages used in the study are less than six years old — really? Did the whole world re-finance in the last six years? When she called CoreLogic, Gwen got them to admit actually 85% are less than six years old.
The study assumes that the borrower owes the balance of the mortgage when they took out the loan — in other words, it does not take into account monthly mortgage payments made against that balance. Why? Because of the way CoreLogic gets it’s information — it aggregates information from lenders, matching total mortgaged amounts in geographic chunks, like how much was loaned in a specific area or zip code. Then the computers whiz out numbers against property values. (Obviously I over-simplify.) They get this proprietary info from the lenders and use original loan amounts from public data records. But they base it on the original loan amount — they never get to come into our file cabinets and see how much money we’ve actually paid down on that mortgage or home equity LOC.
See where I’m going with this?
Gwen also found out the study includes the HELOCs but again, uses only the maximum credit figures since that is all the information that is available. So it looks like every one’s HELOC is at the max. Don’t know about you, but I have to pay down on mine every month and in fact, ours is almost paid off.
So if you are using figures that assume homeowners still owe every penny in debt they ever took out on a loan, figures that give no credit to what homeowners have in fact paid, then Gwen asks, maybe that study could over-estimate the number of folks whose mortgages are underwater.
“It’s biased to the high side,” says Gwen. “We need to be a little more skeptical of these studies.”
No kidding.
(Note: Thanks to Gwen Moritz for not only questioning the CoreLogic report but notifying the Alliance of Area Business Publishers of her query via email, which Glenn Hunter, editor of award-winning DCEO, then forwarded to me.)
That’s 15.2 million U.S. mortgages, or 32.2 percent of all mortgaged properties in the U.S., were in a negative equity position as of June 30, 2009. (And you ask why I’m saying we have not hit bottom yet?) Steve Brown reports that about 30% of Dallas/Fort Worth mortgages are gurgling - -that is, the homeowners owe more than what the property may not be worth. This could be because the owners bought high — say they paid a million and still owe that but the property is now worth $800,000. Or they took out those second mortgages which, THANK GOD, can only be taken out on 80% of the home’s value. Either way, all this means is that if you have to sell your home today, you’d take a loss. Just keep paying the mortgage, hang onto your job, and tell your children and grandchildren: it’s probably not a good idea to think of your home as an ATM.
It happens to the best of us — like when I found last month’s bills under the seat of my car once… maybe thrice. My husband’s office manager was 3 weeks late on her mortgage payment — plumb forgot it. When she discovered this, she pronto wrote a check for the payment, then, to show she was not really a scofflaw, wrote out two more future-dated payments, put sticky note instructions on each one, popped them in the envelope and rushed them to her bank. She says that in the past, the bank has taken her post-dated checks and held them until the date due. And that’s what she thought was going to happen.
Yesterday, she learned that all three mortgage checks had been cashed, her mortgage now pre-paid, and her checking account severely overdrawn. Not only that, she was hit with $350 in bank fees. Her bank officer called her — (”I didn’t even know I had a bank officer,” says she) and said gosh, this is so weird, your account has never been overdrawn in 15 years!
I am researching her recourse on the bank’s actions. They have refunded half the fees. But they would not reverse the payments. My lawyer daughter tells me to always, always write your bank account number on the back of a check or else, if the bank credits it to another account accidentally, they may not be liable. But I wonder how far the instructions on a check go — future dating — and sticky notes? My son (financial advisor) says banks cannot cash checks bearing future dates. But for best results, I have advised getting that mortgage set up on an auto-draft because Texas is a non-judicial foreclosure state.
Which leads me to a theory — would love your opinion on this. When you pay a creditor on an auto-draft, you significantly decrease any collection expenses they may encounter. In fact, you all but eliminate them. I think that banks and mortgage companies should give us a discount if we sign up for auto-draft. Or at least go back to handing out free toaster ovens! Calling Sheila Bair…..
Yes, and I would keep copies of the payments in a file in case things get “sticky”.
Even if your mortgage has been sold, sold again and re-packaged as a mortgage-backed security, your name is on the note and you are responsible for the monthly payments no matter who it was assigned to. Know those stacks of papers you sign at closing? One of those docs gives your lender the right to assign the loan — or sell it — to whoever wants to pay the big bucks buy it. Miss one payment, you’ll find yourself embroiled in a lot of explanation and eterna-holds. (Wachovia calls me if one of our mortgage payments is two days late!) Miss several and your home could end up being sold on the court-house steps. Texas is a non-judicial foreclosure state, which means nothing has to be shown to a judge prior to launching the foreclosure process. This is one reason why Texas bankruptcy attorneys are busier than sin these days, working Saturdays and going to court to help homeowners save their homes.
But I need reader’s help with this one: is the mortgage holder, in this case none other than our esteemed Wick Allison, required to mail the payment (or send electronically) to the last known servicing address? Isn’t the bank required to notify all mortgage holders when a new loan assignment has taken place and specify where payments are to be mailed? What, if any, are the penalties against the mortgage holder for not doing so?
I recall an article in either the New York Times or Wall Street Journal a few months’ back describing the confusion all these loan re-assignments have caused in the foreclosure process. Folks were getting to court and no one could locate the actual mortgage documents. I’m trying to find the article.
OK, let’s face it: many of us got a little help from mom and dad when we bought our first homes back before zero-down loans. Guess what, it’s 1980 all over again. Tough Love in lending and we are back to ten, twenty percent down payments, tough for kids fresh out of school, loaded with education debt, to come up with. No wonder lenders are seeing a surge in kids asking M&D for help with down payments. Keep in mind, the help cannot be a loan and you must document the down payment gift with a “gift letter.” My fave mortgage blog has all the details on the right way to do a gift letter, and will even email you a sample. To satisfy underwriter’s increasingly unsatiable appetites, you’ll need the gift letter, the gift in a cashier’s check, and no co-mingling of funds on deposit.
This is not new: the tradition at Romanian weddings was to pin money on the bride (a tradition I’d like to revive), that money going to help the couple buy their first home. There are also many ways parents can help their children buy a home without giving them a chunk of cash. For example, we let my daughter and her fiance live with us while they saved up for a down payment. You can also cover the cost of property improvements on the new home once they move in.
Call me Debbie Divorce Downer, but I am a member of the 50% divorce rate generation: what do you do if the marriage doesn’t last? Let’s say you “gift” Johnny and Susie $20,000 for a down payment on a cute M Streets cottage. They split after two years. Texas is a community property state, home is to be sold and equity split. My take: you have just gifted your son-in-law $10,000. Am I correct?
A reader writes:
“If we missed out on the 4.5% refi rates, have we basically missed the boat? What would make it worth it now to still refi?”
Good question, we’ll find an expert and try to get you some answers!
Dallas realtor Martin Weber scooted this my way today, and you need to read it. Affects everyone who owns property. In a nutshell, a confidential computer registry company that saved the banking industry more than ONE BILLION over the last few years may now be holding your mortgage along with about 59,999,999 others.
“From an office in the Washington suburbs, it played an integral, if unsung, role in the proliferation of mortgage-backed securities that fueled the housing boom. But with the collapse of the housing market, the name of MERS has been popping up on foreclosure notices and on court dockets across the country, raising many questions about the way this controversial but legal process obscures the tortuous paths of mortgage ownership.”
The government announced yesterday a multi-department effort to crack down on mortgage scams - pulling desperate people into phony modification programs, promising them ways to keep their home from foreclosure, then ripping them off. I asked Dallas bankruptcy attorney Rustin Polk if he has seen any evidence of this hanky-panky in Dallas — and he said unfortunately, yes. Too many: One client was working on a loan modification with a “loan counselor”, paid several fees and appraisals during a six month period of time. The lender went ahead and posted the home for foreclosure today. Yesterday at noon, the loan counselor said to his client, “Oh by the way, we just found out that your mortgage lender doesn’t do modifications.”
Another client paid a local “law firm” that advertises on a local Dallas radio station $3,000 to get his mortgage modified; the firms first piece of advice was to intentionally get behind on his mortgage. The mortgage company posted him for foreclosure, the modification people told him that they couldn’t help him. Now he now faces the prospect of losing his home if he does not pay three months of payments all at once, plus all of the bank’s legal fees related to the foreclosure, and he’s out the $3,000. What a scam.
Then there’s the “foreclosure rescue specialist” called North American Foreclosure, LLP. Folks need to be careful, says Polk, a bankruptcy attorney and home foreclosure expert for 15 years.
“Sadly, a person will try whatever they have to in order to keep their home and a roof over their kid’s head. And who can blame them?,” says Polk. “But a con artist can sense that kind of desperation. The number of so-called “loan modification counselors” has quadrupled in the last 18 months as the hucksters have opened up shop. These fly-by-night operators target desperate homeowners– the easiest mark, but also the least able to afford such a scam.”
This NY Times article on whether to use a mortgage broker or go it alone with a bank caught my eye this weekend. On one hand mortgage rates are low. On the other banks are constantly changing their loan rules, they are sometimes very slow to respond, and several big players (Chase and the PMI Group) are refusing to work with brokers … because some brokers weren’t looking out for their customers.
The money quote:
“The ways brokers were paid created a conflict of interest and really meant that the broker to a very large extent was financially rewarded by betraying the trust of the borrower,” said Representative Brad Miller, a Democrat from North Carolina.
The article also goes on to provide some helpful tips for shopping home loans.
Many of you probably read the news last week regarding the Obama administration’s plan to come up with a rather aggressive effort to stem the tide of foreclosures. In short it’s a way for homeowners to reduce their monthly payments (not including PMI) to 31% of their pre-tax monthly income. For the full monty visit Zillow’s blog post here that explains the process in detail and even points you to the right documents.
Here are the dirty details on qualifying:
The Mortgage Bankers Association sees weaknesses in Obama’s real estate stimulus plan in the lending realm, like the upper limit of a 105% loan-to-value ratio required for refinancing, and the role of Freddie Mac/Fannie Mae as guarantors.
I finally found out why private mortgage insurance didn’t help with the mass of defaulting loans, thanks to this comprehensive article from Housingwire.com, which is kind of bullish on the HASP. GSE (government sponsored enterprises, like the Fannies and Freddie) charters prohibit financing for more than 80% of property value. If the loan to value ratio is higher than that, the loan must have third party credit support.
“Historically, this credit support has been in the form of PMI, but in the bubble-building years, borrowers found piggy-back second mortgages less costly (because they were securitized and off-loaded into CDOs and yield-hungry funds). As much as the GSEs have tightened their credit standards, PMI underwriting is even tougher, and their insurance premiums have gone up to reflect the realities of mortgage risk.”
I know the reports are preliminary, but I am already getting ulcers over President Obama’s cure for our housing woes. Here’s my first report card:
A -$8000 tax credit for first-time buyers, l like very much. Assuming this will work like a section 179 deduction and come right off the taxes, not add 5 more pages or 6 hours of CPA billable hours to the tax return, essentially using tax dollars to help fund the home purchase.
F- Revamping U.S. bankruptcy rules, giving judges the power to reduce mortgage payments and set lower interest rates. Excuse me, but I think part of our problem was that banks got too big, unregulated and complex. So now we are going to let judges play banker? This will slow down lending and banks will have to recoup their losses from somewhere —charge more to the customers who pay their bills, or higher PMI or PMI for everyone or higher interest rates.
Not fair, folks.
C – The government will match reductions lenders make to keep borrowers home payments at 31% of their income. What income — stated income? Does that include alimony?
Incomplete – Flushing Fannie Mae and Freddie Mac with $900 billion.
Reader James Clutts over at CSW Home Loan fills us in the details of what actually passed to benefit homebuyers in the Economic Stimulus package:
It now appears the economic stimulus bill will deliver be some significant benefits to those wishing to purchase or refinance a home. These include:
Ø A true first-time homebuyer tax credit in the amount of $7500 available for a qualified purchase of a principal residence between January 1 and September 1, 2009. I say “true” since, this time, the “credit” will not have to be repaid by the homeowner!
Ø FHA, Fannie and Freddie loan limits will be revised. While specifics have not been released, reports indicate the 2008 limits will be reinstated for 2009 with certain limited exceptions.
Ø Foreclosure mitigation and neighborhood stabilization is forthcoming. In essence, this means that there will be some as-yet-undetermined method for funding state and local efforts to abate foreclosure and stabilize and redevelop neighborhoods. of abandoned and foreclosed homes are authorized.
One of my favorite bloggers is not too keen on Federal Reserve Chairman Ben Bernanke’s apparent self-satisfaction with the loan programs he has engineered thus far. Show regular folks the money, honey. I found Fareed Zakaria’s column (Newsweek) on the health of the Canadian banking system interesting. No Canadian bank failures thus far, and Canadian banks are leveraged at 18 to 1, compared with U.S. banks leverage rate of 26 to 1. Canadians are bullish on home ownership –68.4 percent of Canadians own homes, compared to 68% of Americans. But Canadians can not deduct the mortgage interest on their homes. What Zakaria did not mention: Canadians pay far higher income taxes than we do, ostensibly to cover their national health care system, which Zakaria says is cheaper than ours. (Would the Canadian system have covered a woman having octuplets?) Canadian medical care is rationed, and patients wait months for surgeries. Many Canadians come to the U.S. for what they perceive as better health care. In any case, his point is that porky-ness — our gubmint encouraging over consumption — isn’t necessary to stimulate home ownership.
My daughter recently attended a first-time home-buying seminar sponsored by Virginia Cook’s Ed Murchison and Beverly Bell, and Shelter Mortgage. She learned that loans are available for young people like herself for as little as 3.5% down, that you need 6 months worth of mortgage payments in the bank for an economic safety net, and that the $7500 deduction for first time home buyers will increase to $15,000 in the new economic stimulus package — details are forthcoming. Pork city! Clearly this stimulus package wants to get the young people into homes solidly, and I am glad someone is offering sound advice. Too bad seminars like these are not required for every first time homebuyer.
Call me Bob Shiller, who thinks every American family ought to have a personal financial adviser paid for by the government. Let’s see, no mortgage deduction, free health care, a free financial adviser on Uncle Sam’s tab, will there be any money left in our paychecks?
Do you think the mortgage deduction in the U.S. encourages over-consumption? Is that deduction sacrosanct or heading for oblivion or… heading for a one-time offer?
According to this well-versed source, despite government intervention, rates will be lower but fewer people will be getting mortgages in 2009.
And moves by the Feds could even make this economic downturn worse, said a panel of national experts at the conclusion of day one at Inman Real Estate Connect . This mess started, said one panelist, with a bunch of southern Californian banks who found it profitable to sell bundles of mortgage loans to investors seeking higher returns. That story is now so oft-repeated I recite it in my sleep:
“Loan originators were able to divorce themselves from risk by selling loans to Wall Street investment firms that bundled them into securities that were sought after by investors looking for better returns than Treasurys. When home prices collapsed and borrowers began defaulting, the losses on those investments and others tied to them rippled through the financial system, curtailing all types of lending.”
But I gasped yesterday when one panelist said that hidden in the fine print of the securitization process of the bundled ARMs was a non-default warranty from the loan originator of 90 days!
You haven’t heard from me because I spent half the day with travel delays –it’s cold and rainy in NYC, which matches the mood perfectly at this year’s Inman News Real Estate Connect. I tootled in just in time to hear Bob Shiller, the famed Yale economist who creates the benchmark SP/Case Shiller Housing Report. The heads — Bob Shiller wants to see us trade real estate securities like stocks, thinks the government should subsidize financial advisers for every family, and made liberal use of the D word — depression:
That’s what Zillow reports, trolling (and rightfully so) for customers. Yo, local mortgage brokers, what are the rates in Dallas today? Is 4.7 fixed for thirty years, conforming or non-conforming? Points? Homestead or second/investment property? Does the Fed want us all to refinance?