Sept. 17 (Bloomberg) -- Democratic presidential candidate Barack Obama likened the fallout from defaults on subprime mortgages to the collapses of Enron Corp. and WorldCom Inc., saying it could lead to a ``crisis of confidence'' in the markets.
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[Source: Yahoo! News Search Results for mortgages]
Tuesday, September 18, 2007
Question Du Jour: .25 or .5 - what are your rate cut predictions?
Everyone is buzzing about tomorrow’s Fed meeting. The question seems to be will there be a .25% or .5% cut to the Fed funds rate (currently at 5.25%)? Most are weighing in at .25% but some are predicting Bernanke goes big with a .5% cut. Personally I question the effectiveness of any rate cut in smoothing out problems in the credit markets. And I’m not alone. While most Wall Street firms are calling for at least a .25% reduction (wonder why with the CDO meltdown?) some cooler-headed folks question the help it will provide to the market:
The odd man out is Scott Anderson, senior economist at Wells Fargo Economics.
Anderson argues that the Fed should not lower the Fed funds rate, but said they will just for the “psychological effects it could have on financial markets.”
“A Fed Funds cut will not bring back the U.S. housing market. A Fed Funds cut will not bring back the commercial paper market,” Anderson said.
If the housing market remains depressed, the markets “will ask for another rate cut, and another, and another, and another…and then what?” he asked.
Well put.
According to John over at Shadow Government Statistics the effective Fed Funds rate is already around 4.75% reinforcing the idea that any cut will be more for show.
From one of the bazillion Market Watch articles on the conjecture:
Most economists think the central bank will cut by a quarter-percentage point to 5.0%, but some are attracted to the somewhat strong move of a half-percentage point.
“While the arguments favoring a bold move are compelling, we believe the chances of a 25 basis point cut carry a higher probability,” said Michael Moran, chief economist at Daiwa Securities America Inc., in a note to clients.
Moran gives three reasons for a smaller move. First is concern about the appearance of the Fed being too quick to protect lenders and investors; second are doubts that the economy will weaken sharply and last is nervousness about inflation.
So my call would be that we are going to see a quarter-point reduction to 5.0% but question its ability to help anything, and wonder aloud what greater risks it may flirt with. What are your thoughts?
Read More...
[Source: Blown Mortgage]
What are Interest Only Loans?
An interest only mortgage is a relatively new way to finance your home that has been gaining strong momentum lately. When you originally take out a mortgage your payment consists of two parts: interest and the principal. The principal is how much your house actually costs and the interest is how much extra you pay on top of the cost of your house to take out the loan, which is based on the interest rate you receive. The interest is basically the price of taking out a mortgage. You will pay both the interest and the principal based on an amortization schedule in which at the beginning most of your payment will be interest and towards the end most of your payment will be principal.
Interest Only?
An interest only mortgage takes out your premium payments for certain length of the loan. This usually happens at the beginning and lasts about five years. The first five years of your mortgage you will only pay the interest on your mortgage. Once those five years are up your mortgage will be re-amortized to include the principal on your mortgage. What is the point of this? For the first five years of your mortgage your monthly payment will be much less then it would be with a normal mortgage. Once those five years are up your monthly payment will be higher for the remainder of your mortgage. This is a good option for people who dont have a lot of money now but could see themselves getting more money via raise or investments in the future.
A Gamble?
Deciding on an interest only mortgage can be gamble because if you do not receive a raise in income like you expected after a few years then you could be stuck looking at high monthly mortgage payments after your initial few years of interest only payments has come up. Hopefully the money you saved during your interest only payments was managed wisely and you wont have this problem. An interest only mortgage basically comes down to whether or not you want to save some money at the outset of your mortgage.
Additional Resources
amortization schedule, Interest, interest only mortgage, interest rate, Mortgage Payments, Mortgage Planning, Mortgage Rates, mortgages, mortgage payments, UncategorizedRead More...
[Source: Mortgage Blog]
Do you think Chinas gonna forget?
It’s amazing what a few beers and a trip to New York City can get you these days. In a recent conversation with an unnamed employee of an unnamed big NYC firm that is huge in the mortgage backed securities game I got a feel of just how bad it is on Wall Street. This person worked on the front lines - packaging and selling CDOs (collateralized debt obligations) to big-time investors. How big you ask? How about China, Austria, and a ton of other countries as regular customers?
His take seems to me to be right on. When asked if the housing market is going to “come back” he frankly said, “never.” The reason? “Do you think China’s gonna forget [how screwed they got]?” As he tells the story he could get anything he wanted rated AAA by the agencies with just a bit of alchemy and some statistics. Take a pile of subprime mortgage debt and slice and dice and voila - an AAA rated CDO. His firm would turn around and sell millions and billions of dollars worth of AAA-rated CDOs that turned in to 10 cents on the dollar, almost overnight. China, a huge buyer of our mortgage debt is holding paper that is worth no more than 10 cents on the dollar; and they hold a ton of it.
If you think lead-tainted toys are a big deal, how about being conned in to a bunch of bad subprime mortgage debt reformulated to look innocuous by the wizards (nay, snake oil salesmen) of Wall Street? The housing market will never return because China will never forget how screwed they got in this whole deal. Do you really think in 3 to 5 years China is going to take another blind plunge in to mortgage debt? Do you think other countries are going to come rushing back saying give us more crap? Not a chance.
Consumer sentiment doesn’t matter, lower rates don’t matter, these countries got burned by the billions and they won’t forget any time soon. The fuel for the American housing market run-up is not coming back. The question is now - how closed off is America and Wall Street to funding from these countries? Will they believe the ratings agencies and Wall Street houses when they tout their latest offering as AAA rated? What else will suffer as these countries keep their money on the sidelines, out of markets that have proved lucrative for US firms hawking their wares?
He said at least you mortgage guys can keep writing refis, but the CDO market is dried up. People [investor customers of the Wall Street firms] are really, really unhappy. And one last thought? You ain’t seen nothing yet.
Read More...
[Source: Blown Mortgage]
E-Trade Exits Wholesale Mortgage, Revises 2007 Guidance
E-Trade Financial announced today that it was exiting wholesale mortgage as part of its move to return to “core businesses” that benefit its retail customers. The company is also upping its amount of loan loss reserves as a result of “charge-offs expected as a result of the disturbance in the credit markets.” The aggregate loss reserve provision is $245 million. From the release:
With this additional reserve, allowance for loan losses as a percentage of non-performing loans is expected to increase to 75 percent based on assumptions for the second half of the year, up from 45 percent on June 30, 2007. Within home equity loans, where the Company and the marketplace have seen the most significant stress, the coverage will be approximately 100 percent, up from 51 percent as of June 30, 2007.
As a result of the actions outlined above, the Company is revising its earnings outlook for 2007 to account for 1) higher provision for loan losses; 2) potential securities impairments; 3) slower balance sheet growth and composition expectations; and 4) exit and other restructuring charges. For the full year 2007, E*TRADE FINANCIAL expects GAAP net income of between $450 million and $500 million, and earnings per share of between $1.05 and $1.15 per share. This is down from its previous range of $1.53 to $1.67.
No word on the number of jobs affected; but I imagine it is significant. Just another sign of the times, and certainly not the last notice like this. If you think of all of the companies like E-Trade, AIG, H&R Block that got in to mortgage as an adjunct to their core business models there is still a decent list left of those that will probably make the move out of the sector to preserve liquidity and earnings in other, more profitable business units.
Read More...
[Source: Blown Mortgage]
Monday, September 17, 2007
Countrywide Layoffs Gear Up
My sources just informed me that the entire Anaheim subprime wholesale production office was given 60-day notices as the Countrywide layoffs announced last week apparently get underway in earnest. I am not sure of the size of the Anaheim production office but it was a sizeable division.
Please email me if you have more information about the sure-to-be ongoing Countrywide layoffs.
PS. I’m still on vacation but finally have high-speed internet - finally!
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[Source: Blown Mortgage]
Wachovia unit sued over option-ARM mortgages (BizJournals)
A lawsuit filed against Wachovia Corp.'s mortgage unit and World Savings Bank alleges the bank was less than honest in explaining its option-adjustable-rate mortgages to consumers.
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[Source: Yahoo! News Search Results for mortgages]
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[Source: Yahoo! News Search Results for mortgages]
New Zealand Bank Defends Plan To Offer Low-Cost Mortgages (Nasdaq)
(RTTNews) - New Zealand's state-owned Kiwibank is defending its move to offer cut-rate mortgages, despite government wishes to cool the housing market.
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[Source: Yahoo! News Search Results for mortgages]
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[Source: Yahoo! News Search Results for mortgages]
Countrywide tries to assuage broker fears with latest email
In the latest broker letter from Countrywide attempts are made to reduce anxiety building in the broker community about the onslaught of bank closures and strategic changes away from the wholesale and correspondent lending models. Clearly with WaMu shuttering correspondent lending, and lots of chatter about the need to improve quality by focusing solely on retail origination, brokers are rightfully worried about their place in the industry when all is said and done.
From Countrywide:
Dear Business Partner:
As we continue to adapt to challenges in the mortgage market, this communication is the second of a series from Countrywide, America’s Wholesale Lender. In these ongoing communications, my goal is to present open and direct assessments of the current state of wholesale lending, and the measures we can take collectively as originators and lenders to successfully evolve the wholesale lending channel.
My first communication in this series, emailed to you on August 28, was met with a wide range of reactions from the broker community as expected. I’m pleased that so many people took the time to share their views as it demonstrates how engaged and passionate we all are about this business. Truly productive communication should inspire dialog that airs points of agreement as well as honest differences of opinions.
Undoubtedly, these communications are about looking forward and about helping to define what success will look like for all of us tomorrow and in the future. To flourish, all players in the wholesale lending channel lenders and brokers alike must work together to evolve and prosper in today’s ever-changing environment. As a former loan originator who once operated as a mortgage broker, I couldn’t believe more in the vital role that strong, high-quality, and service-oriented mortgage brokers play in the mortgage lending process.
Adapting for Change
In this virtually unprecedented period in our industry, it is clear that we must all take decisive action to ensure the long-term health of our business and of the wholesale lending channel. Given the current soft housing market conditions and the tighter credit standards that are in place today, we already know that 2007 will produce lower origination volumes than expected. We are now estimating that these variables will reduce the size of the originations market in 2008 by 25% or more from 2007 volumes. In addition to these forecasts, Countrywide is now only offering non-prime financing options that are eligible for sale or securitization under programs supported by the GSEs (Fannie Mae, Freddie Mac) and FHA.
Despite these and other reductions to our product guidelines, Countrywide, America’s Wholesale Lender continues to offer among the broadest product menus in the industry. Nevertheless, we must evolve our business model to adapt to these significant changes in the market.
Accordingly, we recently announced our plans to integrate our prime and non-prime sales forces into a single, industry-leading sales organization dedicated to supporting our extensive product line including Non-Prime, Government, Custom Construction, and Reverse Mortgage*. This evolution of our organization truly strengthens our commitment to our One Source lending strategy and provides you easier access to the home loan solutions that can help drive your business.
As a result of this integration, we made a difficult decision and, earlier today, reduced the size of our sales organization across the country. It was necessary to make these adjustments to ensure appropriate broker account assignments in light of the projected lower size of the overall mortgage market.
Your One Source for Success.SM
In spite of these actions, Countrywide, America’s Wholesale Lender is well positioned to continue its leadership role in the channel and remains relentless in our pursuit of achieving a dominant status among wholesale lenders.
Our new sales force and structure is designed to better meet the needs of our Business Partners as we work together to evolve and strengthen the wholesale lending channel. Our distributed Account Representatives and fulfillment resources are truly devoted to helping you drive your success with one simple goal in mind delivering responsive and knowledgeable service each and every time you call upon them for assistance.
As a result of today’s changes, we are quickly working to restructure our account assignments across our existing sales force. If you have any questions regarding this process, please contact your Account Representative or the Area Sales Manager in your market. You may visit www.cwbc.com or call 1-800-877-POWER if you need assistance with contact information.
Looking to the Future
At Countrywide, America’s Wholesale Lender, we remain steadfast in our commitment to our broker Business Partners and our goal of providing solutions that can help drive your business. Working together, I am confident that we can successfully evolve the wholesale lending channel to adapt and prosper in the new market paradigm. To do so, however, we must all be willing to constantly examine our business strategies and practices and to affect change where change is needed.
In my next communication, I plan to address the ongoing importance of the mortgage broker “value proposition” in today’s mortgage lending environment. I also plan to share observations on the topics of strengthening consumer loyalty and enhancing the broker role as a trusted advisor in the housing finance industry.
Together as originators and lenders we can and will revitalize the wholesale lending industry. Thank you once again for your time.
Todd A. Dal Porto
Senior Managing Director & President
Countrywide, America’s Wholesale Lender
My thoughts? Well in the last communication there was quite an uproar from the broker community from what appeared (not to this recipient however) that Countrywide was looking for a way to ease the news that less production would be coming from the wholesale (broker) channel in the future. While not implicit, the first message seemed to raise that concern among brokers.
This is clearly an attempt to show that Countrywide is not running for the wholesale aisle - yet. However, it must be in context with the layoff scheme to reduce the workforce by 20%. Will they be concentrated in wholesale or evenly between all origination channels? From early accounts it seems they are taking their most drastic steps in reducing wholesale capacity. However, this is just my opinion and we have yet to see the final strategy revealed from Countrywide.
I will say though that they are at the mercy of the secondary market like everyone else. If investors only want retail loans, retail loans is what they’ll get - regardless of what Countrywide may or may not say now.
Personally I’ve seen staff layoffs, account reassignments and more that make it look like a paring down of wholesale is well underway - but I could be wrong.
Read More...
[Source: Blown Mortgage]
Do you think Chinas gonna forget?
It’s amazing what a few beers and a trip to New York City can get you these days. In a recent conversation with an unnamed employee of an unnamed big NYC firm that is huge in the mortgage backed securities game I got a feel of just how bad it is on Wall Street. This person worked on the front lines - packaging and selling CDOs (collateralized debt obligations) to big-time investors. How big you ask? How about China, Austria, and a ton of other countries as regular customers?
His take seems to me to be right on. When asked if the housing market is going to “come back” he frankly said, “never.” The reason? “Do you think China’s gonna forget [how screwed they got]?” As he tells the story he could get anything he wanted rated AAA by the agencies with just a bit of alchemy and some statistics. Take a pile of subprime mortgage debt and slice and dice and voila - an AAA rated CDO. His firm would turn around and sell millions and billions of dollars worth of AAA-rated CDOs that turned in to 10 cents on the dollar, almost overnight. China, a huge buyer of our mortgage debt is holding paper that is worth no more than 10 cents on the dollar; and they hold a ton of it.
If you think lead-tainted toys are a big deal, how about being conned in to a bunch of bad subprime mortgage debt reformulated to look innocuous by the wizards (nay, snake oil salesmen) of Wall Street? The housing market will never return because China will never forget how screwed they got in this whole deal. Do you really think in 3 to 5 years China is going to take another blind plunge in to mortgage debt? Do you think other countries are going to come rushing back saying give us more crap? Not a chance.
Consumer sentiment doesn’t matter, lower rates don’t matter, these countries got burned by the billions and they won’t forget any time soon. The fuel for the American housing market run-up is not coming back. The question is now - how closed off is America and Wall Street to funding from these countries? Will they believe the ratings agencies and Wall Street houses when they tout their latest offering as AAA rated? What else will suffer as these countries keep their money on the sidelines, out of markets that have proved lucrative for US firms hawking their wares?
He said at least you mortgage guys can keep writing refis, but the CDO market is dried up. People [investor customers of the Wall Street firms] are really, really unhappy. And one last thought? You ain’t seen nothing yet.
Read More...
[Source: Blown Mortgage]
A brief history of your Blown Mortgage Scribe, Part 3
A lot of people ask me about my background and how and why I am in mortgages. Most people want to know why someone in the mortgage industry has a web site like Blown Mortgage. I guess its a little weird having a site that is primarily focused on the negative aspects of the industry in which I work. So with out further ado, for those of you that care about who is writing this blog please enjoy this autobiographical article that should shed some light on who I am and why I write Blown Mortgage.
PART 3
A New Day
Like being dunked in cold water you realize right away that sitting behind a desk dreaming up customer experience is a whole lot cleaner than the messy business that is running a company. Marketing theory and strategy that look good on paper can quickly fade in the face of overwhelming reality. But we continued to force the issue of quality and writing good loans. We focused on customer service, developed a 10-point customer service pledge, and took an oath to try to rewrite the ending of the bad story that so many home owners had come to expect of our industry. You can see our 10-point pledge online.
It wasnt easy. A constant battle to retrain employees that had come from corrupt backgrounds was a veritable turf war over right and wrong. We learned that our best people were those that were educated, friendly and decent who had the unique trait of never having been in the business. These untainted individuals were by far the most successful. For there is something truly refreshing about working with someone who actually has your best interests in mind. It was common to hear in our office in the early days I dont need to make that much money on that loan, a sign that our employees heads were in the right place.
As we grew (and grow we did) it became an ongoing struggle to weed out the bad apples (we did) and train the ones with promise (I have so many power point files you wouldnt believe) to model their business behavior after the idealized way we wanted things done. We didnt always succeed. One of the biggest misgivings I have about starting my company is that I know 100% that there are people out there that hate my company; who feel defrauded and lied to and cheated by another unscrupulous mortgage company, and it breaks my heart. I tried hard to keep that from happening, but in the end, it is impossible to 100% satisfy everyone. Even in an environment of exceptionally loose credit, not everyone can get what they want.
We spent every dime (virtually) on building the company, obtaining licenses for more states, investing in people, hardware, compliance, consultants, marketing, employee benefits, you name it. We didnt want to be a fly-by-night company working off of plywood desks but all driving Ferraris. We put it back in the business to be able to serve our customers better. I drove a 1997 Lincoln Town Car as the owner of a mortgage company (with 147,000 miles on it) while at the drive through I was surrounded by 911s and Sypder convertibles. We were singularly focused on becoming better at what we did and hopefully making a difference for the people we helped.
Read More...
[Source: Blown Mortgage]
Chase Eliminates Stated & No Income Alt-A Loan Types
In another case of “what took so long?” Chase has announced the elimination of their no income and stated income ChaseFlex loan types. The change, announced yesterday, goes in to effect on the 19th. Just the latest in a long line of investors who find that secondary market buyers want to see proof of capacity to repay; something that was minimized in favor of credit score over the last few years. As we’ve maintained - “FICOs can’t make your mortgage payment” and the market seems to finally be agreeing.
From the announcement:
As a responsible lender and investor, we continue to monitor the lending environment and make changes as necessary. The security of our customers, employees, and shareholders is our highest priority, and as such, we are charged with ensuring that our products and policies remain prudent and further support our commitment to help borrowers sustain home ownership.
When reviewing product performance, we find adequate documentation is a key risk driver in loan repayment. From a financial standpoint, we need to take this risk component into account when making loans in this environment.
Consequently, we have decided to eliminate the ChaseFlex No Doc and No Ratio programs from our Alt A product suite effective September 19, 2007.
While there will be hold outs it appears a certainty that lack of capacity will only be tolerated on low LTV and high FICO loans - and little else. Seems to me like we’re getting back to “common sense” in a hurry - which has to be seen as a good thing.
Read More...
[Source: Blown Mortgage]
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