Mr Mortgage's Guide to the TRUTH!

4/22 MAR EXISTING HOME SALES...The Story Within the Report

4/22 - YOUTUBE VIDEO VERSION - http://www.youtube.com/watch?v=xi76bemJECU

This morning's Existing Home Sales report, while on the surface may have looked to be stabilizing, was as ugly as can be even though the headlines only say a "2% drop". March Existing Home Sales Data - NAR

The story within the story is that prices continue to plummet caused by foreclosure sales, which if sold by a Realtor, get counted in the number. Datquick estimates that 38.4% of all March home sales were from foreclosure stock. Most do not know this. REO/Foreclosure sales have picked up in count due to the massive inventory banks hold. These homes sell for a 20-60% discount. As REO sales grow, prices will come down even further. Right now, banks are only selling a small fraction of their REO mostly through large auction aggregators such as Real Estate Disposition Corp (REDC). 

CNBC's Dennis Kneale loves to talk about what a great thing this is, however, I see it differently. I see it as where one person gets a great deal buying a fire-sake auction home, while everyone in their neighborhood takes a bloodbath due to the price that one person paid. Remember, home values are based upon comparable sales within a small, defined area. I know many of you will say 'the buyer sets the price so the price is what it would have been anyway'. I say that never before have we seen an economic wildcard in banks releasing inventory slowly (for now) and pricing it at such deep discounts in order to get the inventory off the books as quickly as possible.

On the Jumbo front, prices were down roughly 8.5% nationally and 15% in the Western Region. Dataquick says over half the median drop in prices were due to the lack of jumbo loan financing. Jumbos accounted for just 14% from 38% last year. This is significant. As prices drop, more home owners go into a negative equity position causing more loans to default. The snowball is picking up steam and equity is evaporating quicker than ever.

The only way out off all of this remains a national reduction of mortgage balances for everyone. They will figure it out later than sooner I am sure. -Best, Mr Mortgage

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BLOOMBERG - U.S. Economy: Sales of Existing Homes Fell in March (Update1)

By Shobhana Chandra

April 22 (Bloomberg) -- The two-year U.S. housing slump showed no sign of abating in March as sales of previously owned homes fell for the seventh time in eight months.            

Purchases dropped 2 percent, less than forecast, to an annual rate of 4.93 million, from 5.03 million in February, the National Association of Realtors said today in Washington. The median sales price declined 7.7 percent from a year earlier. Bloomberg report - Left out foreclosure sale info

NOT SO FAST...below is the Dataquick CA report for March. You can get other States there as well. Very good info.

Dataquick Information services - April 17, 2008

A total of 24,565 new and resale houses and condos were sold statewide last month. That makes it the slowest March in DataQuick's records, which go back to 1988. Sales were up 19.8 percent from 20,513 in February and down 38.3 percent from 39,811 for March last year.

Of the homes sold in March, 38.4 percent were foreclosure resales.

Dataquick California March 2008 Home Sales

HOME EQUITY LOAN DELINQUENCIES SURGE...S&P, BofA and Fitch Concur

YouTube Video Link - http://www.youtube.com/watch?v=3NOHJPxGGlk - S&P, BofA and Fitch all concur that the 'Home Equity Implosion' is knocking on, or kicking down rather, the front door.

The delinquency and default crisis with Home Equity Lines/Loans will only grow from here. It is the 'negative equity effect' in full force...many people just will not continue to pay for a massively depreciating asset, especially in cases when the first mortgage maybe an exotic where the payments are increasing!

The update from S&P below came out this morning. On its own it doesn't say much unless you track such things. But when combined with what BofA said in its earnings call this morning and with what Fitch said last month about big banks deadly home equity exposure, it provides a clear path to where all of this is headed - home equity lines/loans are right up there with the Pay Option ARMs as being the next big 'implosion'.

Our nations largest banks holds the majority of these loans. Click the links below and it will all become clear.

Consumers...there maybe relief for you coming soon if you have a home equity loan!

Standard & Poors Home Equity Update Released Today

Download FITCH_HOME_EQUITY_WOES.2008.03.14.pdf

BofA Earnings Call Excerpts...

"Credit quality in our consumer real estate business mainly home equity deteriorated sharply. The problems to date have been centered in higher LTV home equity loans. Our largest concentrations are in California and Florida [40% of portfolio]. 82% of the net charge offs related to loans where the borrower was delinquent and had little or no equity in the home. Loans with the greater than 90% CLTV on a refreshed basis currently represent 26% of loans versus 21% in the fourth quarter. We believe net charge offices in home equity will continue to rise given softness in the real estate values and seasoning in the portfolio. Two issues that is playing home equity and could drive losses are a prolonged deterioration in home values and further deterioration in the economy."

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

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

Mr Mortgage Exposes Wells Fargo Subprime Exposure

this is ugly...subprime rate sheet from August 2006 showing loans for score as low as 500, loans for people with 120-day mortgage lates that should be foreclosed upon and loans to 100% subprime with rates as low as 8%, which is now the same rate as a PRIME 30-yr fixed Jumbo with 20% down. Unreal.

Mr Mortgage's Favorite Websites

www.ForeclosureRadar.com - Best and most current CA foreclosure information. FREE monthly CA foreclosure report. I love this site. I subscribe for $49.95 per month but you don't need to to get the free monthly update and stay ahead of everyone else in the foreclosure knowledge.

www.TickerForum.org - Best mortgage/housing/stock market/financial chat site on the net. Owned and managed by Karl Denninger, this is the place to be to gain real insight on what is happening from day to day. This is a class-act group of like-minded people all out for one purpose...THE TRUTH!

www.ML-IMPLODE.com - Aaron Krowne, with whom I have had the pleasure of speaking to on a regular basis, has been paramount in keeping the world abreast of what is happening with the mortgage meltdown. This site should be the first place you go to for aggregated news on the mortgage/housing sectors. Aaron really knows how to sort through the crap and find the stories that matter.

Mr Mortgage on the Massive Forclosure Problem JUST GETTING STARTED

Here, Mr Mortgage discredits Charles Bederman, President and CEO of Trimtabs, who was on CNBC on March 31st saying 'foreclosures will all be gone by June and in the State on CA, foreclosures are being bought-up as so quickly he can't even get one'. THAT IS A LIE CHARLES. Also, in the video is some great foreclosure FACTS and places to find the real data.

 

Mr Mortgage Exposes Lehman's Massive Dirty ALT-A Mortgage Exposure

Mr Mortgage gets down and dirty with Lehman, the company most in focus after Bear Stearns' Collapse. Those of us in the mortgage industry know, ALL ROADS LEAD TO LEHMAN. Now, you too can see the type of loans Lehman made for years through it's Aurora Loan Services division, and judge for yourself whether or not their massive exposure to risky ALT-A loans will cause them serious problems in the future.

 

Mr Mortgage - Big Banks Home Equity Exposure Revealed

This is a must-see. It is all about HELOCs (Home Equity Lines of Credit), which banks have the greatest exposure, how banks are shutting them down on consumers, Fitch's recent actions and how YOU MAY BENEFIT.

 

ARM RESETS JUST BEGINNING - A Closer Look At The ARMs Reset Problem

Below is a great piece from Mish regarding ARM resets and how they still present a huge problem going forward. The story mostly covers the Hybrid Intermediate-Term ARMs (3/1, 5/1, 7/1 and 10/1) but also touches upon the most toxic, Pay Option ARMs. For many, including the banks, there is no way out of these loans because there is nothing in existence today that compares to these loan's affordability. The majority of people just don't qualify for a jumbo 8% fully amortized 30-yr fixed rate loan. We have gone back to 1990 lending overnight. Even the new Fannie/Freddie 'jumbos' have significant pricing adjustments, making the rates substantially higher than their conforming products.

There are a few areas in his research I view differently regarding Intermediate-Term ARM's. His Pay Option analysis is on the money. Most of the Intermediate-Term ARM's were done at No Points, meaning a higher interest rate. This is because these loans have a teaser interest only period (in the past, 100-200 bps below 30-yr fixed) for the initial 3, 5, 7 or 10-years and it was assumed borrowers could just refi into a new interest only loan before the teaser period was up. They were wrong. Therefore, there will be payment shock on the majority of these even if they do reset lower. For example, a $400k 3/1 interest only at 5% has a monthly payment of $1667.00 whereas a 4.5% fully indexed monthly payment rate after the first adjustment DOWNWARD is $2026.74. This represents nearly a 20% payment increase.

The Intermediate-Term ARM was widely used from 2003-2005 in CA, in addition to all other bubble States due to its affordability vs. a 30-yr fixed. Each of the major lenders program guidelines differed but many allowed up to 100% combined loan-to-value, as low as 620 scores, qualification at the interest only start rate, up to 50% debt-to-income ratios and went up to $1 million. Stated Income and Stated Asset was allowed. Much of it without major price adjustments higher. In retrospect, these are anything but 'Prime'. The popularity of this loan type diminished in late 2005-2006 when spreads narrowed to the 30-yr fixed and the Pay Option ARM's ultimate affordability features swept the bubble States.

A great percentage of these loans are still in existence because rates have risen so much, borrowers have had no reason to refi. So, in order to keep the ATM machine running, many used Home Equity loans over the years in place of MEW. Due to this and values being off to such a great degree in States in which these loans were the most prevalent, many of the borrowers are currently underwater presenting a much greater default risk than is currently being assumed by the ratings agencies. 

Wells Fargo, CITI, Chase, WAMU, CFC were the primary sources for this money. Thornburg also specialized in this product type, which gives an example of the illiquidity of this product type. 

These loans also came in an Alt-A version called 5/6 or 10/6. They are fixed for the initial 5 or 10 years and then convert to a 6-month adjustable LIBOR based upon that index value plus a margin of 2.25 to 2.75%. The primary sources of this loan type were Lehman, CFC, Wells and IndyMac.

Another factor most forget is the near impossibility establishing a true value for this loan type and what impact they have on a banks balance sheet. These loans all had teaser rates compared to 30-yr fixed because they were meant to be short-term loans or meant to adjust higher after the initial fixed period. These loans were never meant to sit on the books at teaser rates (4 - 5.5%) and below for as long as they have been and will be. Many, including the banks, will be stuck with these for much longer due to the inability to refi without bringing cash in to close or without a principal balance reduction.

http://globaleconomicanalysis.blogspot.com/2008/04/closer-look-at-arms-reset-problem.html