Mr Mortgage's Guide to the TRUTH!

NEW FANNIE/FREDDIE 'CON'-JUMBOS ALREADY A BUST

YouTube Video on Fannie/Freddie 'Con'-Jumbos

Just got off the phone with three of my top contacts at three of the nations leading mortgage lenders/banks. These programs are not selling at all. The volumes are very low. Banks are highly disappointed. The difference between a standard Fannie/Freddie (Agency) is roughly 75 to 100bps depending on the lender. Agency 30-yr fixed are roughly 6.25% with no points and Agency Jumbos are roughly 7 to 7.25%. Mortgage rates have gone up about .375% in the past few days.

For refi's, nobody wants out of their 5/1 ARM, ALT-A interest only or Pay Option ARM into a 30-yr fixed at 7.25% where their payments increase substantially. Also, in over 50% of cases appraisal are not coming in at value. For example, the loan application is taken with an estimate of $600k and the loan is an 80% loan-to-value (LTV). When appraisal comes in, the value is actually $500k making the loan a 100% LTV and there are no programs available. This is happening on a vast amount the $417k conforming loans as well.

For the purchase money folk, rates are also too high for current property values. Plus, a down payment required is 10%+. Debt to income ratios have tightened, further reducing buying power. A household wanting to take advantage of a $700k Agency loan at 7.25% must earn about $175k per year at current rates. And that only buys a $770k home, which is low to moderate in most areas in CA. Surely not the first-pick neighborhood of some earning $175k per year. That same person could have purchase a $1.5 million home with little to no down payment nine short months ago..

In a nutshell, the new Fannie/Freddie jumbo programs are already a bust. They offer nothing to most people other than the few with perfect credit, who have a large down payment and make tons of money. That wipes out the vast majority of the buyers in CA. All while inventories of home for sale and foreclosures soar. Slowly over time, home values will gravitate towards the most readily available financing, which is Agency conforming $417k. This is just another example of how far CA Real Estate has yet to fall. -Best, Mr Mortgage

ADDITION TO ABOVE...a) a $720k loan at 7% on a 30-yr fixed is a principal and interest payment of $4,825 PLUS taxes and insurance of another $1,000 for nearly $6k a month. With a 40% debt-to-icnome ratio and reasonable other debt, the household income would have to be in very high $100k's per year to reasonably qualify. b)10% down is the minumum but rates are higher with that LTV and good luck finding a second mortgage to 90% so LPMI is the only option, which adds even more to the rate c) credit score must be over 700 to qualify for the best rates. d) in region deemed 'declining or soft', LTV's may be even lower requiring more equity for a refi or more cash down for a purchase.

ALT-A DISASTER LOOMING - KNOW THE FACTS

The ALT-A universe, nearly twice the size of the subprime universe, is headed for disaster.  Know the facts. - Best, Mr Mortgage

http://www.youtube.com/watch?v=pmeBSWI9sF8

Regarding CMG Mortgage & GMAC/Cerberus - www.ML-Implode.com Collaboration

Below is my response to the chatter than CMG was potentially imploding. ML-Implode broke the story. There is something here potentially, but in this very rare case I don't think an implosion. I think GMAC is still sorting out their tangled web of destruction. -Best, Mr Mortgage

In the right hands, the Home Ownership Accelerator, is a tremendous loan program...a borrower actually can pay down their principal balance in much shorter amount of time than with a traditional 30-yr mortgage and the mortgage balance does not grow every month, as with a toxic Pay Option ARM (neg-am). What an idea!! When I was reviewing this loan program in detail last year, the average age of the borrower was 50, the average fico was 750 and average LTV was <70%. CMG only had 2 defaults since they began selling the program 2 1/2 years ago. This program is not for everyone for sure, but the people who actually make more per month than they spend can benefit from the HOA. I am aware that Cerberus wanted to brand this highly innovative loan program as their own for the GMAC/GM corp and push through their retail channel complete with $10s of millions of traditional consumer advertising to back it. They even wanted to release it as part of their corporate retirement package.

If there is an issue, perhaps it is not a CMG issue. This maybe a GMAC/Cerberus challenge. We all know they are stretched thin. CMG quit doing all exotic and alt-a business early last year to focus upon the HOA and Fannie/Freddie business, which are both very low risk. The volume levels CMG has been putting out have been rising every month. Last I heard they were doing well over $150 million per month and if I remember correctly, and maybe they are reaching their caps with what GMAC will fund. There should not be a real 'funding' issue because these loans are dry funded and CMG likely receives payment within a couple of days.

Every investor is trying to lighten up on their mortgage exposure, so maybe GMAC tightened their guidelines overnight, did not give CMG any leeway on the delivery of loans currently in the pipeline, and CMG is scrambling to find another investor that will do more 'expanded' guidelines for the unfunded loans. This happens quite often. Look how fast WAMU decided to get out of wholesale...if you were a broker without a loan in their shop within two days after the announcement, you were out of luck. Investors do the same to mortgage bankers too. As a mortgage banker when investors pull out, you get little notice if any in this market.

The deteriorating credit market conditions and intense LIBOR volatility and speculation in recent days coupled with this program being based upon LIBOR, may lend credence to something going on at GMAC. As a matter of fact, this program averages 75bps over the 1-month LIBOR, which is a extremely low rate in this credit environment.

I have not heard anything that would lend me to believe that CMG is going down, especially given their conservative nature over the past 12-18 months. This would actually be a shame because I truly believe that the Home Ownership Accelerator is a phenomenal loan program for the right borrowers. If I would have had one on my homes for the past several years, I would likely own them free and clear right now.

Best,

Mr Mortgage

CA HOME PRICES IN FREEFALL DUE TO LACK OF JUMBO FINANCING

The lack of jumbo loans has destroyed the CA real estate market. Without aggressive, affordable jumbo loans, prices will naturally gravitate towards the most available financing, which is Fannie/Freddie $417k loans. 90% of the most widely used loans in CA over the past several years have vanished in the past 6 months. The new Fannie/Freddie 'ConJumbos' carry a rate much too high to complete with the affordibility of the programs that were lost. Now that all the exotics and jumbos are gone, home prices will also have to gravitate towards borrower qualifications using real household income. This means that if the average household income in San Francisco Bay Area is $85k, that borrower can qualify for about a $350k loan. Currently, the average home price is closer to $550k meaning we could have alot further to drop. Now, that we are back to traditional lending, historical valuation measures must be considered such as 3-4x household income, rental cap rates ect. As prices drop, defaults natually rise across all borrower types due to the 'negative equity effect'. Banks then take more losses, tighten credit further and this never ending snowball cycle continues.   -Best, Mr Mortgage

San Francisco Home Sales Fall 41% Amid Tighter Credit (Update1) 2008-04-17 13:53 (New York) By Dan Levy

April 17 (Bloomberg) -- Home sales in the San Francisco BayArea dropped 41 percent to the lowest level for a March in more than two decades as stricter mortgage standards reduced the number of potential buyers and prices fell, DataQuick Information Systems Inc. reported.

The number of houses and condominiums sold in San Francisco, Santa Clara, Marin and six other counties fell to 4,898, the seventh consecutive month that sales reached a record low, La Jolla, California-based DataQuick reported today. The median price decreased 16.1 percent from a year earlier to $536,000.

Sales are declining as lenders require higher down payments and credit scores and buyers have difficulty obtaining mortgages above $417,000, known as jumbo loans. The Bay Area median price would have been closer to $597,000 last month if jumbo availability had ``remained stable,'' DataQuick said.

"It still appears that a lot of Bay Area activity is just on hold, waiting for the mortgage markets to open back up,'' Marshall Prentice, DataQuick's president, said in the statement.

Home purchases made with jumbo loans accounted for 29.8 percent of sales in March, down from 62.2 percent a year earlier, said DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, which began collecting the data in 1988.

Editor: Peter S. Green, Walid El-Gabry. To contact the reporter on this story:
Dan Levy in San Francisco at +1-415-617-7077 or dlevy13@bloomberg.net

S&P May Downgrade $57 BILLION in Subprime

Here we go again...more subprime downgrades = more write downs. As housing values continue to fall, risk modeling changes forcing the raters to raise loss expectations. Most of these $57 billion have likely been downgraded, perhaps many times in the past. The negative equity snowball effect is still growing. If you look at the ABX's, most are still at or near all-time lows so expect more to come. I remember 'them' trying to cast doubt on the accuracy of the ABX, but as every month goes by, it looks as though the ABX was th emost accurate gauge yet. - Best, Mr Mortgage   ABX Quotes... http://www.markit.com/information/products/category/indices/abx.html

Wed Apr 16, 2008 6:04pm EDT

NEW YORK (Reuters) - Standard & Poor's on Tuesday said it may cut $57.1 billion of subprime-related debt due to continuing delinquencies and a worsening outlook, the rating company said. S&P will likely lower many of the ratings over the next few weeks because monthly performance data shows delinquencies and foreclosures continue to rise for deals issued in the first half of 2007, the rating company said. "Today's rating actions incorporate our most recent economic assumptions and reflect our expectation of further defaults and losses on the underlying mortgage loans," S&P said in a statement.

http://www.reuters.com/article/telecomm/idUSN1517630620080416

MR MORTGAGE - ALT-A EXPOSED...MUCH WORSE YET TO COME

The ALT-A universe, nearly twice the size of the subprime universe, is headed for disaster.  Are you prepared? - Best, Mr Mortgage

http://www.youtube.com/watch?v=pmeBSWI9sF8

Mr Mortgage Breaks Down March Foreclosure Disaster

http://www.youtube.com/watch?v=lkQz9Aw4dNo

Stay tuned for another video coming tonight that shows how ALT-A is a mega disaster waiting in the wings. The similarities between ALT-A and subprime are striking. And guess what...the Fed was nice enough to provide all the info for us to use. -Best, Mr Mortgage

LIBOR Manipulation by the Banks? This is a BIG ONE

This could be an ultimate 'Black Swan Event' if true. THE PLOT THICKENS... This MEGA NEWS, reported this morning in the Journal, is being blown off for all intents and purposes by the financial press today. Probably because the ramifications are so great they don't understand how to report it. Entire financial systems and infrastructures are based upon LIBOR! If we find out the reported LIBOR pricing is being jacked-around by banks that are afraid to report how much they are paying for short-term loans and how desperate they are for cash and that LIBOR pricing is deemed unreliable, the consequences could be devastating. It essentially means that everyone with a loan based upon LIBOR is paying artificially lower rates! No puny Fed or ECB cuts or new auction facilities would be able to fix this problem.

The exposure is in the TRILLIONS and this is something that is NOT ON THE RADAR of the financial markets until now. Scott Peng at CITI said "the long-term psychological and economic impacts on the financials markets are incalculable and if banks told the truth about their borrowing costs, the 3-month LIBOR would be as much as 0.3% higher."  Millions of mortgages around the world are based on LIBOR...talk about resets!

Very few knew or even considered that this may have been happening. Banks lying because they are scared to tell how much they have to pay for cash would be a mega-event that would have swift and immediate consequences. If proven true, it could create an event and ripple effect that would make the Bear Stearns event look like just another day...on scond through the Fed made it seem that way anyway. Stay tuned, I have a feeling this story will grow large in the next couple of days. - Best, Mr Mortgage

Or, in this brave world of 'the Fed will fix everything',  will they just blow this off as well.

http://online.wsj.com/article/SB120831164167818299.html

2PM PST -BREAKING CA FORECLOSURE NEWS NOBODY REPORTING -ACCELERATING FAST

Below are the real March foreclosure numbers for CA just released minutes ago from ForeclosureRadar. Sit back, relax, have a large bottle of brown liquor nearby and read away. Remember when reading, that Notices-of-Default lead foreclosures by several months in some cases. Also remember, this housing and credit crisis will not end until home prices/sales/foreclosures bottom and stabilize. By the looks of the most recent data, that is a long way off.

**In CA for March, there were 27,541 FORECLOSURE FILINGS and 42,704 NOTICES OF DEFAULT for a total of 70,246 early/mid stage foreclosure filings. This is the killer that nobody reports...in CA in Feb, ALL HOMES (New & Existing) SOLD WERE ONLY 20,513. ALL NEW HOMES SALES for the ENTIRE 10-STATE WESTERN REGION in Feb were only 13k and ALL EXISTING HOME SALES for the ENTIRE 10-STATE WESTERN REGION were only 55k. One more thing...the MAJORITY of the Notice of Default surge is not from subprime loans. Not even close. I can't specifically tell you which program types are defaulting to the greatest degree, as that is part of a paid service rolling out soon, but I can say they are not subprime and they are not fixed...actually they likely are subprime but the ratings agencies just haven't got there yet!

This means that March CA foreclosure activity is...A) greater than all THE HOMES PURCHASED IN THE WESTERN REGION the month prior. B) nearly 350% GREATER than all the homes bought in CA alone! C) Not primarily a subprime problem. This is a disaster.

Also note that repossessed homes that are sold through a real estate agent count in the Existing Home Sales number, so the problem is alot worse than the public data show.

Foreclosure sales at auction declined 6.5% to 15,833 units likely due to the unavailability of financing and general fear.

Wow!! ONLY 2.3% of foreclosed homes sold at auction...the rest went back to the lender swelling inventories...how about tham apples Charles Bederman. This is despite an average discount of 21% with 39% of the homes offering a 30% or greater discount.

In summary, the worst in CA is absolutely still to come for housing. And everyone is too busy trying to figure out how to bail people out and focusing on subprime to realize that WE HAVE NO JUMBO LOAN PROGRAMS. The Fannie/Freddie 'conforming/Jumbo' programs stink, as they have very few programs available and nobody wants a 7% 30-yr fixed rate loan. Why, when they have an exotic currently and their payment is one-third of a 30-yr fixed. It is all about the monthly payment, remember. For purchases, a 7% 30-yr fixed with a large down payment does not buy the average household much home.

Given this, the worst is yet to come for the financial markets because until real estate quits crashing and goes through a long period of stabilization there can be no basing and subsequent recovery. Either that or bring back all the exotic loan programs and the problems end tomorrow. - Best, Mr Mortgage

This report compliments of data provided by ForeclosureRadar...nobody compares to their accuracy, timliness or depth. You can sign up for your free monthly report by going to the site link above.

FORECLOSURE RADAR MONTHLY CA FORECLOSURE REPORT

Download Mar_2008_CA_Foreclosure_Report.pdf 

Back-Up data for Mr Mortgage analysis in addition to the ForeclosureRadar report:

DataQuick Monthly Home Sales Report

Realtor.Org New Home Sales Data

Census Bureau New Home Sales Data

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Businesses looking for more detailed CA foreclosure information and analysis BY BANK on the mortgage products driving this crisis, the real conditions on the ground and what is likely to come next, please contact me at mrmortgagetruth@gmail.com .

Coming soon -

-Data on every foreclosure by bank (ground zero for the housing crisis)

-Daily updates on foreclosure sales (only source of same day housing sales data currently available)

-Exclusive auction discount data (an early look at which banks are dealing or need to deal)

-Auction pull-through data (what percentage is selling at auction from which banks)

-Which banks maybe delaying foreclosures and why

-Current and projected REO inventories

-Rates and velocity of change in NOD's, foreclosures and REO by bank and market graphically displayed (bank specific risk-management failures)

Foreclosures/Defaults Surge In March - "Foreclosures Have Become The Real Estate Market"

Numbers are just getting worse month over month. The 'Foreclosure Market' has quickly become the 'Real Estate Market'. The 'negative equity effect' is in full force, as people walk from their homes and chose to rent vs. paying 2 to 3x for a mortgage, home ownership and all the other expenses that come along with it. Today, the ForeclosureRadar CA foreclosure report comes out and I will have it posted as soon as it is released to the public. On top of it all, there are no 'affordable' mortgage programs to help people in higher-priced States such as CA, so you cannot refinance out of your problems. This is all going down a road that will lead to a national 'loan amount reduction' bailout, where the Fed prints money, mortgage balances are reduced across the board and overnight, everyone is right-side up in their homes again. Either that, or they bring back all the exotic/affordable loan programs. -Best, Mr Mortgage

U.S. Foreclosures Jump 57% as Homeowners Walk Away (Update2)  By Dan Levy

April 15 (Bloomberg) -- U.S. foreclosure filings jumped 57 percent and bank repossessions more than doubled in March from a year earlier as adjustable mortgages increased and more owners gave up their homes to lenders.

More than 234,000 properties were in some stage of foreclosure, or one in every 538 U.S. households, Irvine, California-based RealtyTrac Inc., a seller of default data, said today in a statement. Nevada, California and Florida had the highest foreclosure rates. Filings rose 5 percent from February.

About $460 billion of adjustable-rate loans are scheduled to reset this year, according to New York-based analysts at Citigroup Inc. Auction notices rose 32 percent from a year ago, a sign that more defaulting homeowners are ``simply walking away and deeding their properties back to the foreclosing lender'' rather than letting the home be auctioned, RealtyTrac Chief Executive Officer James Saccacio said in the statement. CONTINUED - CLICK LINK BELOW

http://www.bloomberg.com/apps/news?pid=20601087&sid=ahJfJhKyxAWI&refer=home

WELLS FARGO & GOLDMAN SUCHS WARN OF STOCK 'BLOODBATH'

HEY!! Finally, these two companies are telling the truth. Maybe there is hope after all. We will see if this new-found honesty holds when Wells reports its earnings scheduled for Wed, prior to the opening of the US market. Banks telling the truth about their holdings and their value (transparency) is the only shot at reviving the credit markets. -Best, Mr Mortgage

Goldman Sachs and Wells Fargo Warn "DELUSIONAL" Investors on Stock By Ambrose Evans-Pritchard, International Business Editor - Last Updated 1:158am BST 15/04/2008

Wall Street faces the growing risk of an equities bloodbath in coming months as the credit crunch spreads to the wider economy and earnings crumble, according to a pair of grim reports issued by Goldman Sachs and Wells Fargo.

	Goldman Sachs said the key for equities will be the full-year guidance offered by companies

David Kostin, the chief US investment guru for Goldman Sachs, expects the S&P 500 index of Wall Street equities to plummet a further 15pc over the "near term" as companies scramble to lower their outlook for this year.

"Although only a few firms have reported first quarter results, early signs are awful. We expect a swath of lowered profit guidance," he said in a research note published today, entitled 'Fasten Seatbelts'.

Mr Kostin, who replaced the ever-bullish Abby Cohen as chief strategist in December, expects the S&P index to reach 1,160, which would amount to a fall of 27pc from the bull market peak of 1,576 in September and enter the annals as a relatively severe bear market.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/14/bcngold114.xml&CMP=ILC-mostviewedbox

Wachovia Drops a Bomb...The 'Pay Option Implosion' Has Begun

First, they moved up their earnings date four days to today. Second, they miss horribly - analysts were expecting 40 cents and they announced NEGATIVE 14 cents. Third, they cut their dividend drastically. Fourth, they raised $7 Billion in combo of common and preferred shares. Terms of their offering...$3.5 bil in preferred shares at 7.5% coupon and 30% conversion premium PLUS 146 million common shares at $24. Given they are one of the largest Pay Option ARM holders in the world, this is likely only their FIRST capital raise despite what Goldman is trying to push this morning.

Wachovia, who bought World Savings/Golden West a couple years ago and inherited $120 BILLION in Pay Option ARMs in the process, is having trouble. The is undoubtedly due to their massive expose to the Pay Option ARM. As you all know, Wach adopted the Pay Option ARM as their primary portfolio mortgage since the acquisition and are still doing commercials to this date with people dancing around their house shaking their bodies and dancing because they can make a much lower mortgage payment when they want to and accept negative amortization (mortgage balance INCREASES). Absolutely irresponsible! Pay Option ARMs were in part responsible for the massive losses from all the players who were the largest players in the program including American Home Mortgage, Countrywide, IndyMac, Downey, First, Fed Bank United, Lehman and Bear. In addition, when they go bad they are total losses in many cases because most are in a severly negative equity position.

We have learned in the past few months, that negative equity is a leading cause of loan defualt, even more so than periodic ARM adjustments. This is why Pay Option ARMs are essentially worthless and Wachovia will be stuck with these in perpetuity awaiting their default or modifying loan balances lower one by one.   

Pay Option ARMs have just started to implode with the big bang coming from 2010 - 2012 unless housing magically appreciates some 5-9% per year going forward (compensate for neg-am) and somehow makes back most of the losses already taken before these loans implode. Remember, this loan programs was the fastest growing from 2005-2007 when prices were at their peak, meaning this group of loans should be some of the worst performing going forward. The ratings agencies just have not got there yet, as usual.

Pay Option factoids...80% of these loans were done in bubble states, 80% of the people pay the minimum monthly payment and accept the neg-am; most of those have an increase in mortgage balance of 5-9% per year, and in 2006-2007 80% were stated income. There are reports out saying at least 50% of all Pay Option ARM borrowers have a second mortgage as well.

This is a great chart of the ARM reset catastrophe  - take a look at the Pay Option Implosion coming soon. This could make the 'Subprime Implosion' look like a walk in the park because Pay Options cut across all socio-economic boundaries with these loans being most prevalent in higher-priced bubble regions. -Best, Mr Mortgage

http://bp2.blogger.com/_nSTO-vZpSgc/R_HlCECrufI/AAAAAAAACZE/E1WPLRuaWmY/s1600-h/Mortgage-Rate-Resets-1.png 

INVESTMENT BANK'S LIES IN BLACK & WHITE

this is a killer. Below are write-down covering all categories including subprime. We know full well these are a SMALL FRACTION of what lies ahead. Wells Fargo is not even on the list despite owning $84 BILLION in Home Equity lines/loans that are presently worth pennies on the dollar. Look at Lehman! Haha. Look at Chase...they have more Home Equity Lines/Loans than Wells Fargo. So does Bank of America. Funny, the CNBC crowd was pushing that it was the 'kitchen sink quarter' just like they tried to do in Q3. -Best, Mr Mortgage

UBS (UBS): $37.4 billion
Citigroup (C): $21.2 billion (expected further loss of $18 billion in Q1, 2008)
Merrill Lynch (MER): $19.4 billion
Morgan Stanley (MS): $12.9 billion
Deutsche Bank (DB): $7.1 billion
Bank of America (BAC): $5.7 billion
Royal Bank of Scotland (RBS): $5.6 billion
Credit Suisse (CS): $4.7 billion
Goldman Sachs (GS): $3.7 billion
Lehman Brothers (LEH): $3.3 billion
Barclays PLC: $3.3 billion
JP Morgan (JPM): $2.9 billion
Bear Stearns (BSC): $2.75 billion
HSBC Holdings: $2.1 billion

http://freundinvesting.com/2008/04/12/a-tally-of-bank-and-ibank-write-downs/

ALSO -this, from a friend regarding Erin Callan, CFO of Lehman, and her earnings call recently. She used the following words the respective times. She is the best spinner out there (no pun intended).

STRONG 24
GREAT 13
INCREDIBLY 8
ATTRACTIVE 6
DIFFICULT 7
CHALLENGING 5
TOUGH 1

CITI & MER to Write-Down Another $15 Bil...FOR NOW

NOT SO FAST! I thought last quarter was it...so now more write-downs and they are calling it the 'trough'. We all know that is not the case. The operative statement in this story is 'subprime', because these write-downs only are on their subprime boo. What about other mortgage types such as alt-a, prime and home equity lines/loans? What about commercial paper, leveraged loans, auction rates, and the multitude of acronyms used by the financials alchemists over the past several years to peddle their trash off as treasure.   -Best, Mr Mortgage

CITIGROUP and Merrill Lynch will heap further pain on Wall Street this week as they reveal additional sub-prime write-downs totalling $15 billion (£7.6 billion) or more. In another sign of the intense pressure on leading banks, Deutsche Bank is attempting to offload some of its €35 billion (£28 billion) of toxic debt to a consortium of private-equity firms. Huge exposure to American mortgages is expected to result in Citi taking a $10 billion hit to its accounts, dragging the bank to a first-quarter loss of almost $3 billion. Some analysts believe Citi’s write-downs could stretch to as much as $12 billion. Merrill will suffer $5 billion of write-downs, analysts say, which would push the bank $2.7 billion into the red.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3671568.ece