Traci Gregory, Financier

Feds move up from originators, go for IndyMac, Countrywide and New Century Mortgage

I've just heard today that those three, IndyMac, C'Wide and New Century have been issued subpoenas as the subject of a federal grand jury investigation. The Justice Department was focusing primarily on smaller operators thought to be defrauding homeowners and mortgage lenders . . . as if there could have been a coordinated effort across the country large enough to create the mess we're in. . . Now they've decided that it was fraud on the part of large sub prime lenders. According to Los Angeles Times, they have asked for e-mails, phone bills, financial records and other information. The Times said this is part of an investigation into whether fraud and other crimes contributed to the mortgage crisis.

I find this stuff small time compared to the creation of the programs that required a heartbeat and a signature to get a loan, but I'm just a loan officer . . . They didn't need fraud to lose money on those programs! There were such minimal requirements for loans an enterprising 12 year old could have made them work.

You already know about Countrywide and Angelo Mozilo, with the "friends of Angelo" mortgage program . . . interesting that the only "friends of Angelo" that we know about are politicians . . . who probably can't repay the favor for him now . . . too much daylight shining on their relationships . . . and you probably know by now that Countrywide is being sued in Illinois, Florida and California. I'm sure Cuomo will jump in there soon. After his win with Fannie Mae, he couldprobably take on any lender and win.

Countrywide and all its memories will fade though, except maybe for Angelo and anyone else who actually attends a trial. BOA bought it, and they'll swallow it whole. . . they're already changing the names of the divisions to "Anything But Countrywide".

I was surprised to hear that a court-appointed examiner has determined that New Century was involved in inappropriate accounting practices that inflated its profit and gave top executives the ability to acquire millions of dollars in undeserved or inflated bonuses. I guess I was surprised that I had not heard it sooner . . . I'm certainly not surprised at the charges.

They were not a lender that I sold loans to . . . they were quick to change program details, interest rates, etc, at the closing table and they only had to embarrass me once for me to take them completely off my list of possibilities. They filed Chapter 11 in April of 07 . . . and I felt almost the same way when I heard that news as I did when I heard Greenpoint had "bitten the dust." (What goes around comes around doesn't it? Couldn't have happened to anyone who deserved it more.)

The FBI is up to 21 cases against corporate and other large companies relative to subprime market defaults. They've inferred they want brokers, lenders, and now securities firms, hedge fund operators and credit rating agencies. The Securities and Exchange Commission (SEC) is reportedly working closely with the fibbies to find and charge anyone who may have contributed to the credit crises . . .but because of deregulation they're struggling with making criminal cases about the subprime debacle.

I've recently thought of two youtube videos I think I'd like to make . . . Bear Stearns indictees, set to the tune of Dirty Laundry, by Don Henley

You may listen to it in the next post

Bush effectively against HR 3519

I hope that I have written my last diatribe re: HR 3519. 

EXECUTIVE OFFICE OF THE PRESIDENT, OFFICE OF MANAGEMENT AND BUDGET, has issued a STATEMENT OF ADMINISTRATION POLICY  that is against most of the Bill HR 3519. 

Notable are references to work already being done by the Department of Housing and Urban Development in revising its Real Estate Settlement Procedures Act (RESPA) to enhance mortgage disclosures, and the Federal Reserve’s intentions to improve disclosure requirements and develop new national standards for unfair and deceptive practices.

The best news is that it pointedly states "The Administration does not support the provisions of H.R. 3915 that could overly constrict the primary and secondary markets for mortgage finance, such as the bill’s specific underwriting standards, assignee liability provisions, and the subjective obligations for mortgage originators. The Administration is concerned with these and other provisions that could lead to greater uncertainty and increased litigation, which could cause an undesirable reduction in mortgage credit and a drop in future homeownership."

Who would have thought it?  Well, I admit I have been told he wouldn't let it go into law, but I didn't expect an announcement this early in the game.

Read the full text here

Pax et bonum

Update on Friday, November 16, 2007 at 03:25PM by Traci Gregory

The House of Representatives Thursday approved HR 3915 in a slightly watered down version, in a 291-127 vote.

Rep. Tom Feeney, R-Fla., called HR 3915 "the landlords and lawyers relief act," because he said it would make it more difficult for renters to become home buyers, and make lenders and the investors who back them more vulnerable to lawsuits.

Formerly a "galloping horse," the housing market has "gotten very sick," Feeney said. "What we are doing for the sick horse is feeding it strychnine," by restricting home buyers' access to credit, he said. 

Appears that according to him, Americans should live on credit cards, drive nice cars, and rent their homes.  Or, maybe they could just live in their cars.

HR 3915 On to a new vote

FHA Secure

The FHA Secure program is available to borrowers who have late mortgage payments due to their arm adjusting upwards and making their house payments too high to handle.  FHA will refinance, with no penalty for the lates, and allow you to keep a second mortgage, even if the value of your house has fallen and the loan to value is now over 100%.

If the loan limits are changed to $417,000, thousands of people will qualify to refinance with an FHA loan - their interest rate will go down (way down) and they can get a fixed rate loan for 30 years.  What a boon!

And the amazing thing is that the FHA is making it easier for Brokers to do FHA loans, while HR 3915 appears to be trying to wipe out mortgage brokers across the country and redesign the lending system so that only about 20% of the American population will qualify for a conventional loan.

H.R. 3915 highlights

• the removal of yield spread premium to brokers in most instances.  Yield spread is paid to brokers as an indirect income from lenders they sell loans to.  Apparently Capital Hill thinks every broker in the country is making a mint off yield spread and "steering" borrowers to loans that aren't good for them for the profit from yield spread payments.

There is something else to do with that money -Spend it on the borrower to help them get a loan.

I got a call Friday from a lady who was going to buy a house that needed work and she wanted the purchase money and the rehab money in one loan.  Countrywide had offered her the same loan at 6.875 and she wasn't getting enough love from her Countrywide loan officer.  She asked if I could do the loan, and I said sure, and so we did her application, priced her loan and sent her the docs.

This loan has a pricing adjustment (a charge of 1%) to rate because of the rehabilitation money.  (Anything that varies from an 80%, full doc, 30 year loan for someone with perfect credit has some sort of adjustment to rate - that's why what you see in the newspapers and on the internet is NOT what you're offered when you ask for rate, unless of course, you're that borrower)  Because of that fee, her closing costs were going up $1,150 (1%) and she hardly had 3% to put down.

With my yield spread premium, I was able to pay her 1% for her, and get her a rate of 6.5% and had a fannie mae approval within an hour or two of talking to her.  I emailed the list of documents I needed, and she has a loan.

I did a better job for her than Countrywide (much bigger player than me) and empowered her to buy her house, and with a better loan.  HR 3915 wouldn't have allowed it, even though it was to her benefit.

Thousands of Brokers do the same thing - there is no other way to get a no closing cost loan, but to put the cost into rate, and pay the costs from the yield.

• Additionally, HR 3915 will not allow the financing of closing costs and prepaids.  On refinance transactions, this is normally a given - you roll your costs in, lower the interest rate, lower the payment, and nothing out of your pocket.  If this bill becomes law, every refinance will mean you write a check for 3-4% of the loan amount - and that's going to hurt most people.
• There are many other line items that will create such a burden for lenders that I think most lenders won't do the loans under those circumstances, or will increase the cost of the loan (the interest rate you pay) to cover their liability.  I've heard estimates that these changes will raise interest rates by as much as 2%.  And that is if you can prove your income, your ability to repay the loan, have exemplary credit and a lot of money to put down on a house.  Otherwise, you'll stay where you are.  And if that means in your parents' house, you'll probably still be there to inherit it.

The worst irony is that they, Capital Hill, have decided to see that there are NEVER again months and months of foreclosures for loans that should not have been made.  In a free market place, the fact that lenders have lost BILLIONS of dollars on these loans, and decided they didn't want to do any more because they don't want it to happen again either, would resolve the entire issue.

And, in this market that we have now, lenders have done just that.  100% investor purchases started disappearing last December.  The lenders saw the writing on the wall - they wanted to stop the madness.  As the year has gone on, more and more programs have gone away (along with about 200 lenders who went out of business), so we are down to mostly plain vanilla at the lenders ice cream shop.

The market is repairing itself.  It isn't over - there are more loans in default, and more will go into foreclosure, but this "perfect storm" will never pass this way again.  The market can't bear it.

Capital Hill, with its vote-getting mentality in full evidence, either doesn't want to hear the truth about the market being in correction, or can't understand the complexity of the mortgage market as it really works. 

The country has a whole doesn't have huge foreclosure problems.  There are pockets that do have huge problems: California, Arizona, Nevada, Florida.  Those areas will take longer to come back, because that is where the largest numbers of foreclosures exist.

But the reality is that 70% of the country is experiencing growth in real estate markets.  It isn't what it was twelve months ago, but it isn't declining.

It will be declining, however, if this law actually passes as it stands today.  When only 20% of the population can qualify for and get a mortgage, there won't be many houses sold, I can't see that there will be any new ones built, and the fallout from real estate not moving will be a tremendous blow to this entire country. 

Funny, I said in my blog months ago I had stopped worrying about the mortgage meltdown, and even my meltdown, and had moved my concern up a notch or two, to cover the entire USA.  One of my readers told me that wasn't my job.  Whether it is my job or not, it is my country and my children are growing up here . . . And I'm thinking that instead of them moving on after college, and me selling my big house and getting two small ones (one on the beach for the winter, and one in Montana for the rest of the year) we're all still going to be together in 2025.  Horrors!

Thursday, November 15
H.R. 3915 will be brought up on the floor of the United States House of Representatives.
 

If you don't know about HR 3915, you should read the final text (as it stands today).  I suggest you read it and then get in touch with your representatives and let them know that you are concerned (you should be) about where they are pushing this country with HR 3915.

You can find your elected officials here

I've asked my friends, my clients and my family to do the same thing.  If everyone doesn't make enough noise about this bill, life in these United States is going to be a different place in a couple of years.

Pax et bonum

ps.  From my friends at Vertice, the current MARKET COMMENTARY for 11/13/2007:

U.S. 10-year Treasuries fell for the first time in a week as investors pulled out of longer-dated debt on speculation inflation will accelerate. The decline pushed yields up from the lowest in two years before reports this week that economists predict will show growth in wholesale and consumer prices quickened in October. Equity futures pointed toward stronger U.S. stock markets later today, crimping the appeal of safer government debt. Trading was closed yesterday because of a holiday in the U.S. Ostwald predicted the 10-year note will yield between 4.2 percent and 4.35 percent this week. Analysts' forecasts compiled by Bloomberg, with the most recent predictions given the heaviest weightings, suggest it will rise to 4.48 percent by the end of the first quarter of 2008.

Contact Your Congressional Representative TODAY Regarding H.R. 3915

From the National Association of Mortgage Brokers: 

Following the mark-up of the bill by the HFSC, NAMB's Government Affairs team continued to work tirelessly with members of Congress and their staffs to clarify the anti-steering provision to ensure that consumers continue to have the ability to finance origination fees and costs and to clarify our ability to receive compensation for our work. Thanks to your patience and timely response when called to action, I am pleased to report that clarifications to the anti-steering language have been made and our concerns have been addressed.

Our work is not finished. Specifically, Title III, which proposes changes to HOEPA that will adversely affect consumers' ability to obtain mortgage financing, must be amended or removed entirely. We anticipate that there will be a number of amendments offered to Title III when H.R. 3915 reaches the House floor.

TODAY, we are asking you to CONTACT YOUR CONGRESSIONAL REPRESENTATIVE and urge him or her to support any amendment(s) that may be offered by Rep. Gary Miller (R-CA) to modify Title III, or any other amendment offered to eliminate Title III in its entirety, to help ensure credit will remain available for consumers who need it most. The mortgage reform effort in Congress should move forward and H.R. 3915 is the first step, of many, in this deliberate process.

With H.R. 3915 set to go to the House floor for a vote this Thursday, November 15, 2007, THE TIME TO ACT IS NOW.

find your elected officials here

FHA Reform Moves Ahead in Washington/Bradley Miller Bill to Broker Incentives to Work

Talk about conflicting agendas in the government:

The FHA Reform Bill is moving right along:

Passed full House by a vote of 348-72
Passed Senate Banking Committee by a vote of 20-1
Public Comments in the Senate closed October 22, 2007
Expected to pass the full Senate in November, 2007
President's signature expected in November, 2007
FHA commissioner confirms rapid implementation

Benefits of the FHA Reforms include Elimination of the audited financials and net worth requirements for BROKERS; Brokers can post a surety bond in lieu audited financials; Loan limits in high cost areas increased to at least $417,000; Minimum downpayment reduced to 1.5% or lower.

Ironically, moving through the same system, is Bradley Miller's Bill, H.R. 3915 the "Mortgage Reform and Anti-Predatory Lending Act of 2007, which will send Brokers the way of the dodo and dinosaur and is due to be voted on November 6.

The FHA is making it easier for Brokers to become approved to do their loans, which makes it appear that they would want us to stay in business and perhaps work to refinance the mortgages that everyone considers questionable for the borrower . . .

And Sen. Miller wants to legislate underwriting guidelines.  I guess his group feels they are better at underwriting mortgage loans than the industry (perhaps being a politician does that for one), and so they want to make their underwriting guidelines law.  And, they wants to re-arrange the way the market works, eliminating indirect pay to Brokers.

Too bad I'm not registered to vote in North Carolina.

Good News and Bad News to cure Sub-Prime woes

Bank of America, Citigroup Inc., Countrywide Financial Corp., Fannie Mae, Freddie Mac, First Horizon National Corp., GMAC ResCap, HSBC North America Holdings Inc., JPMorgan Chase & Co, National City, Option One Mortgage, SunTrust Mortgage Inc., Washington Mutual Inc., and Wells Fargo & Co. have signed up for HOPE NOW, a Bush administration initiative designed to assist homeowners who may be facing foreclosure.

The plan is that HOPE NOW will do national direct-mail to reach at-risk borrowers, with instructions to contact their lenders or a mortgage counselor to work out a repayment plan or restructuring of their mortgage to prevent foreclosure.

They also want to expand counseling capacity to make it easier to communicate with loan servicers.

I'm guessing picking up the phone and calling to ask if there is a way to restructure is too constricting, and that's why more people aren't doing it.

In September, FDIC Chairwoman Sheila Bair spoke at the Lied Center of the University of Nebraska Lincoln campus.  The subject was money and financial responsibility.

Speaking of  Mortgage responsibility she said, "... Regulators need to make sure that borrowers have what they need to fully understand the terms of the loan. And borrowers need to make sure that they fully understand the loan before they sign on the dotted line.”

I've read that she has pushed loan servicing companies to engage in wholesale conversions of adjustable-rate mortgages into fixed-rate loans where possible when borrowers are in danger of default.

Chairwoman Bair said, "Frankly, I'm frustrated that the servicing restructuring has not reached the level that I had hoped it would.  We have a huge problem on our hands. We can't just sit here doing this kind of case-by-case, laborious restructuring process with all these millions of subprime hybrid ARMs."

Unfortunately, mortgages are labor intensive and consist of legal documents that have to be revised, approved, signed and then recorded.  I agree that they could be converted to fixed rate products, but I don't see a quick or easy way of doing it.

Now the bad news ~~~~~

From a press release on Representative Brad Miller's website:

"Representative Brad Miller, North Carolina, and Rep. Linda Sánchez, California, ... introduced legislation that will prevent hundreds of thousands of Americans from losing their homes in bankruptcy."

Essentially, they want to give bankruptcy judges the authority to rewrite mortgages that are included in bankruptcies. 

Quoting the press release again: "According to the Center for Responsible Lending, a non-partisan, consumer advocacy group, the Miller proposal could help prevent up to 600,000 people from losing their homes in the next 24 months."  That's 25,000 bankruptcies a month. Handling that paperwork will keep a lot of people busy for a long, long time . . .

Rep. Miller goes on to say:

"Responsible lenders who made loans on reasonable terms have nothing to worry about in bankruptcy court, but predatory lenders will end up with the loans they should have made in the first place" That's because responsible lenders don't have any customers who would take unfair advantage of any law that he can put on the books, I'm guessing.

Rep. Sánchez comments: "As the subprime crisis heats up, it's high time we write legislation to help America's working families instead of helping the opportunistic lenders who took advantage of them. I look forward to moving this legislation swiftly through the Subcommittee on Commercial and Administrative Law."

On 10/4/2007 when this bill was forwarded to the Committee, it's sponsors had grown to 14:

Rep Cohen, Steve [TN-9] - 9/25/2007
Rep Davis, Artur [AL-7] - 9/26/2007
Rep Delahunt, William D. [MA-10] - 9/26/2007
Rep Ellison, Keith [MN-5] - 9/25/2007
Rep Frank, Barney [MA-4] - 9/20/2007
Rep Gutierrez, Luis V. [IL-4] - 9/27/2007
Rep Johnson, Henry C. "Hank," Jr. [GA-4] - 9/25/2007
Rep Lofgren, Zoe [CA-16] - 10/4/2007
Rep Maloney, Carolyn B. [NY-14] - 9/20/2007
Rep Miller, George [CA-7] - 9/27/2007
Rep Nadler, Jerrold [NY-8] - 9/25/2007
Rep Sánchez, Linda T. [CA-39] - 9/20/2007
Rep Sánchez, Loretta [CA-47] - 9/27/2007
Rep Watt, Melvin L. [NC-12] - 9/20/2007

Having written about the pawn shop mentality of some borrowers (If I don't pay for it, the bank will get it back), I'd like for these legislators to interview oh, fifty of their constituents who have loans going into default.  And, if they're really interested in the truth, they could interview the loan officers who did the loans, and review the loan files that those borrowers presented when they applied for the loans. 

This is America, where we want it all (and to quote my favorite refrigerator magnet) we want it delivered.  Credit is so-o-o easy.  Every college student in America is offered a new charge card a week (I know it is true, I have two living in my house and I shred their mail most days because COLLEGE STUDENTS DON'T NEED CREDIT CARDS.)

I bought my first house in 1971.  Yeah, I'm over 50.  I made a $3,000 downpayment on a $13,000 house!  That's a 23% downpayment.  I was 20.  Can you count on one hand the number of people you know who have made a 23%  downpayment on a house?  Can you calculate how long it would take the average American to accumulate a 20% downpayment with the price of housing in this country? 

I have clients in Europe who have always made 20% downpayments.  They are buying houses here with 25% downpayments.  Talk about having skin in the game . . . but we've come to expect that we can buy everything  NOW and pay later.  So for all those people with ARMS, it is later, and it is hard to keep that deal we made when we signed the loan docs.

Think I'm heartless?  I HAVE AN ARM.  The payment adjusted (upward) $700 in August.  No, I don't like it, its not comfortable, but I've got to grin and bear it til I finish the renovation on my house and get another mortgage.  I knew it was coming for three years . . . And so did everyone else who has one.

Dave Ramsey, where were you when we needed you??

Finally, Some Love for Mortgage Brokers!

In an interview David Bach did with Bankrate.com, he discusses the cost of mortgage refinances.  (David Bach is the author of the Automatic Millionaire series of books, and is, not incidentally, a former senior vice president at the Wall Street investment firm Morgan Stanley.)

"You have to factor in all the closing costs for a refinance. There is no such thing as a no-cost loan. The loan documents, the HUD-1 settlement statement details it all."

And my favorite: "...There are more good mortgage loan people out there than bad. It's a very regulated industry."

You can read the full article at http://www.bankrate.com/

In an interview David Bach did with Bankrate.com, he discusses the cost of mortgage refinances.  (David Bach is the author of the Automatic Millionaire series of books, and is, not incidentally, a former senior vice president at the Wall Street investment firm Morgan Stanley.)

"You have to factor in all the closing costs for a refinance. There is no such thing as a no-cost loan. The loan documents, the HUD-1 settlement statement details it all."

And my favorite: "...There are more good mortgage loan people out there than bad. It's a very regulated industry."

You can read the full article at http://www.bankrate.com/

Car Dealers Cause Auto Emissions

I read that headline today in an email from Rich Workman, President of the Florida Mortgage Brokers Association.

He goes on to say: Car dealers sell the cars the automakers engineer and manufacture. If it were not for the car dealer then there would be no car emissions. Therefore, it is clear if we simply eliminate the car dealer we can solve global warming.

His point being that Mortgage Brokers are taking the hit for the subprime melt-down in the news and from politicians everywhere.

I, for one, am really tired of hearing remarks like these:

The Bush administration is pressuring the Department of Housing and Urban Development to speed up the issuance of a Real Estate Settlement Procedures Act proposal to improve good-faith estimate disclosures of mortgage broker fees and settlement costs.

Why, when mortgage fees are discussed in the press, and by elected officials, are they always referred to as Broker Fees? It is as if a loan can't be completed by a Mortgage Banker, or a Mortgage Lender, only a Mortgage Broker. . . and that is not the case.

AND, what brokers make, or lenders make, or mortgage bankers make is already on the Settlement Statement. That's the law. It isn't as if we have secret incomes. Whatever we make from the borrower or the lender is on the Settlement Statement.

From the website of Senator Charles Schumer from New York: "Up to 80 percent of subprime loans originated in 2006—the year that lax underwriting seems to have been the most problematic—were adjustable rate mortgages with low “teaser rates” that reset to higher rates that induce payment shock on the borrowers."

How shocked can they be when they knew it was coming for two years?

I have an arm. It adjusted in August. Not only did I know that was going to happen, I got at least ten pieces of mail a week from people trying to refinance my house. And in the last month before it adjusted, the lender called three to four times a day! There was no avoiding the knowledge that my arm would adjust UPWARDS during the month of August.

Those high risk, high loan-to-value loans that were generated from the Sub-Prime industry were designed to help people get into homes. There is not a lender in this country who would just as soon have your house as get the monthly payment. They would all rather get paid than foreclose.

I've had borrowers who couldn't qualify for a loan of any kind ask 'why not? The lender will get the house if I don't make the payments' . . . As if in making a loan the lender becomes part of a quiet side agreement to "buy" the house by default. That's not how it works.

Borrowers who take a two year arm or a three year arm do so based on their plans to sell or refinance in two or three years. In an increasing real estate market, this plan works. BUT, if the property values go down, or even stay the same, there is no refinance to be had, and in a declining market, there is no selling the house to get out of it either.

Paraphrasing Rich Workman again, here: 'When the real estate market pulled back from a 24-month unsustainable growth spurt, people couldn't refinance a house that was worth less than the mortgage, and couldn't make the payment, the Sub-Prime market was left with mortgages that were in default. Then market reacted and the Sub-Prime guidelines got tighter.'

And they got tighter without legislation. They got tighter because the market demanded it. Long before a politician decided to make a to-do about it.

AND, 2/28 and 3/27 arms don't have teaser rates. They are fixed for two years or fixed for three years. After that they adjust, up or down, with caps on how high they can go.

I can't believe that none of the people who got an arm for two years or three years didn't know that payment was going up. In addition to a loan originator's verbal disclosure, there are written disclosures at the application process, and at closing, there is a real estate attorney or title company responsible for explaining every document that is signed by the borrower. Arm Riders are separate and distinct documents in the closing package.

If I didn't understand what I was signing at a closing, I'd ask the guy who was handing me the papers. My pen would hit the paper when I understood what I was signing and I was okay with it.

Teaser rates are those 2% payment rates you see advertised that have nothing to do with interest rates. Totally different animal, but people who aren't in the mortgage business, like politicians don't know the difference and seemingly don't care to learn.

Sub-Prime Meltdown? What About My Meltdown?

I read all the broker bashing going on . . . how lenders and greedy brokers encouraged borrowers to buy houses they couldn't afford and sign up for payments they couldn't make and about the bailout programs states are putting in place to keep people in their homes and I think back to conversations I have had with borrowers over the last few years.

One in particular comes to mind, my client, a well educated and successful business owner, with great credit and lots of assets had completed an application for an investor purchase.

Noting the $20K a month figure he had put in the salary block, with his hand,  I asked "Did your income tax return last year show $240,000 in taxable income?"

"No" he said, somewhat indignant.

"Well, was your gross income before deductions $240,000?"

"No," he says, getting more agitated. "Where are you coming up with that?"

"Well, if we multiply $20,000 X 12 months, my math says that is $240,000 . . . Right?"

"Uh, yeah, but this is a stated loan."

"A stated loan?"

"Yeah, a stated loan."

"But, Mr. Borrower, a stated loan means you state what YOU made last year . . . Not what Will Smith netted on a slow Saturday night."

"Well, what good is it if I have to state what I make?" (I'm guessing this is as opposed to what Will Smith makes . . . )

"You can state your income, and not have to prove it with income taxes, but you have to state YOUR income. Not what you wish it was, or what it might be, or what you think will get you this loan . . . You state your income, truthfully."

Well, he didn't want to do that and I didn't want to not to do that so we agreed to disagree and I haven't done his loan . . . But I can't count the times I've said, "No, if you're not going to live there, you can't have an owner-occupied rate," or "No, having another home in the same subdivision is NOT a second home, even if you do put your ex-wife and children in it," or, "You know, I'd really like for you to have this house" (and I'd really like to close this loan since I've wasted so much time on you) "but what you are suggesting is loan fraud, and I'm not willing to risk jail so you can . . . (fill in the blanks)"

Everyone is responsible . . . Lenders did take loans that met criteria that appeared to be sufficient to cover their exposure and wasn't; borrowers did take loans they wouldn't be able to afford in two years because their wives wanted in a house, and their children needed a good neighborhood. Speculators in the real estate market jumped on the property bandwagon and drove it away, because they could, and because they wanted to.

Because Americans believe in having it all and having it now, and the credit industry (all of it, not just mortgage lenders) encourages the spend, spend, spend mentality and think about it tomorrow, Scarlet irresponsibility.

I've NEVER been a Chicken Little. I'm the extreme optimist . . . but this meltdown, that started out as the "sub-prime" meltdown, and has turned into the CEO of Countrywide mortgage predicting that the major 10 lenders in the country will go to five major lenders soon;

Australian funds that are tallying their losses because they bought real estate securities in the US;

Lenders scrambling to keep people out of foreclosure with forebearance contracts and payment plans and then they go into foreclosure, only it is three months later than they should have.

Massachusetts setting up a $250 million fund to help 1,000 homeowners. . . New York, $100 million to help 500 homeowners?

So now it is My meltdown. I don't worry about my job anymore, or even about my industry.

Now I'm worried about my country

Rock Stars, Professional Athletes, Business Moguls

So what do Rock Stars, Professional Athletes and business moguls have in common and why are they on my mortgage blog?

Well, some of them have me in common, and those  who do, live in houses with loans that are termed Mega Jumbo.

A super jumbo loan is anything over $650,000. A Mega Jumbo is over a million dollars . . . and up to 10 or 12 million dollars.

And, while one would think if you lived in a mega-million dollar house you wouldn't be concerned with financing products, or monthly payments, the reality is that some of you are.

The new philosophy on owning a home is to regard it as an asset, or a vehicle to accrue assets, rather than merely creating a liability on your balance sheet.

To accomplish this, you get as much house as you can for as small a monthly payment as you can, and invest the rest in something that is making money faster than your mortgage is deferring interest. 

The most popular super jumbo mortgage program is the "interest only loan", which allows you to pay interest only for a defined period of time which can mean substantially lower payments for larger loan amounts.

Are interest rates higher? Mostly yes. Super Jumbo loans tend to carry a higher rate than conforming loans but rate also depends on your overall risk profile. Loans are priced based on risk, and layers of risk mean high interest rates.  Mega Jumbos  are also priced specific to the borrower, the property and the risk.  These loans aren't priced on a rate sheet, and as such are more difficult to quote to borrowers.

General rules are

• full doc loans are less risky that stated loans;
• Verified assets are less risky that stated assets;
• Higher credit scores are less risky than lower credit scores;
• Owner occupied properties are less risky than second homes or investor loans.

So, when you layer a stated income loan, with stated assets, on an investor property, the layers of risk have multiplied, and the interest rate is higher. Add that to the risk of a million dollar property (or more). Before a lender writes the check, they asses the risk they are taking, and your interest rate is the result.

Stated Pay Option Arm to $6 million? Perhaps, it depends on the layers of risk in your property. (Note) I have Stated Pay Option arms  to 100% LTV only on properties that cost $1,000,000 or less.

I also have asset based loans to 100% ltv, up to 12 or 14 million.  This means they are cross-collateralized with other assets, properties, CDs, brokerage accounts, etc.  These are more complicated to price and complete, but well worth the effort when you consider that the more expensive the property, the lower ltv a lender wants to give up.

You should have in reserves, after either purchase, stated or full doc, about 25% of the value of the house.  If you are a strong borrower (huge credit scores, low loan to value) you'll get by with less.  I've done a loan for 4.5 million, at 78% LTV with about 750K in reserves . . . that's half what you'd expect, and it worked.

As of 10/2006 a  standard interest only loan for $6 million  is going to run in the $35,000 per month range, so your income should be $90 to $100 K per month, or your trust account should pay that much. The pay option arm could drop the payment to about $10,000 a month . . . but you have to qualify at the full payment. 

You can see how that $25,000 per month in your investment program could make a big difference over five years . . . as long as you're making money.  Because unless you sell the house before your option payment period is over, you're deferring interest at the rate of $25,000 per month, too.

Send me an email if you've questions on any of these programs;  in most cases we have solutions for the most complicated deals.

And, I wish you the best! I think we should all live in six million dollar houses