Archive for September, 2008
WaMu Goes Down: Should You Be Surprised?
September 28th, 2008 Categories: Mortgage News, Real Estate News, San Diego
It was announced Thursday evening that Washington Mutual was closed by the U.S government in what is the largest U.S. bank failure in history. The Federal Deposit Insurance Corp was named receiver and stated that “customers should expect business as usual on Friday, and all depositors are fully protected.”
I am not writing this post to discuss the details of the post-failure workings (please read this Yahoo News article), and I do understand that WaMu’s failure is complicated. I just want to express my lack of surprise that WaMu failed from a loan officer’s standpoint.
WaMu was a leader in subprime originations and they were fortunate enough to weather the subprime storm of February, 2007, as long as they did. They had a separate subprime division with a separate name (Long Beach Mortgage) which probably helped protect them a little.
But WaMu’s real niche over the last several years was the negative amortization loan, aka, the Option Arm, which allows a borrower to make a minimum payment that might not cover the mortgage interest that is actually accruing thereby causing the mortgage balance to increase.
WaMu was obviously not the only lender offering these loans, but they were known for underwriting guidelines that were further outside of the box than most other lenders. They also loved very large option arm loans and were one of the last option arm lenders to offer stated income. Even though they seemed to have a fairly stringent appraisal review process, many bad underwriting decisions were made.
WaMu was not alone in the big option arm mess. Here are some other lenders that offered, and even pushed, the option arm loan:
· Bear Stearns had an appetite for very large, stated income option arms loans as well. They also offered No-Documentation option arms up to 90% loan to value. Bear merged with EMC, a subprime lender, in 2007. We all know what happened to Bear Stearns.
· World Savings built their business on the “Pick-a-Pay” loan, which was their name for the option arm. If the loan to value was 70% or less, then no income or assets were verified, not even the source. They referred to this as their Quick Qualifier. World Savings also allowed significantly lower credit scores than other lenders and more marginal credit. World Savings was purchased by Wachovia in 2007 and the poor performance of the Pick-A-Pay has since caused the closure of that division.
· IndyMac was recently taken over by the FDIC. They too had a large subprime division, but they also originated many stated income option arms.
· Countrywide was perhaps the largest originator of the option arm, especially stated income. At the time they were “saved” by BofA, 89% of the loans Countrywide originated in the previous year were no longer within their guidelines. Although many of these loans were considered subprime, many were stated income option arms. Little tidbit that is frequently overlooked…BofA actually offered an option arm for a brief time, but wisely chose to discontinue the program.
· Downey Savings has been rumored to be in trouble. They recently discontinued their Lite-Doc program and yesterday discontinued the last of their option arm products. They were always loose on income, but tough on property values.
What do these lenders have in common? Stated income option arms. Is anyone else left that offered these? Homecomings is gone. Greenpoint is gone. Bank United stopped lending in California. SouthStar allowed 100% financing, stated income, with an option arm 1st mortgage, no surprise they are gone. American Home Mortgage, the tenth largest lender in the nation at the time it folded in August of 2008, specialized in easy to qualify option arms, with minimum pay rates of 1% and note rates of 10%…how does that work?
Looks like the option arm really was too good to be true. And WaMu found out the hard way.
| Currently No Comments »
Ownership Changes & Uncertainty For Condo Projects In Downtown Escondido
September 21st, 2008 Categories: Brookside Escondido, Escondido, Real Estate News
Things have certainly changed for city planners and those who envisioned a vibrant new “downtown” in Escondido. Just a couple of years ago, plans were made and buildings started going up for three projects whose new residents would provide a much needed shot in the arm for downtown merchants.
The most ambitious project, Paramount by D.R. Horton, had been under construction for nine months when four of the five buildings burned to the ground in January 2007. Paramount was to be 122 units on over four acres near Washington 
Avenue on Escondido Boulevard. It was the centerpiece to the city’s new urban plan. The county assessor’s office has now reported this past Wednesday the sale of 501 and 511 N. Escondido Blvd, the addresses of Paramount.
While the sale didn’t really catch us by surprise, I think the sale price did. The record shows that D.R. Horton sold the properties for a price of $4.4 million, which is a far cry from the $17.5 million that they paid for it in 2005!
The new owners are Lyon Capitol Ventures of Newport Beach. Peter Zak, one of Lyon’s project managers was quoted in the San Diego Union Tribune saying his company “may finish building the 92 remaining units” that Paramount was approved for.
Another development that’s only partially completed is City Square, by Carlsbad based Barrett American. So far, only 18 units out of a planned 102 on have been completed. The 3.6 acres on Second Avenue now has lots of weeds growing on the land adjacent to the completed units, but the project in now in receivership.
Venue was the third project in Escondido and approved for 82 units next to Paramount, and was also sold for only $1.14 million. D.R. Horton paid $3 million for this one in 2005.
City officials are now discussing what to do about the projects. There is no simple solution; it’s part of the national real estate downturn and developers are struggling. As residents, we hope for answers and look forward to the possiblity of a new Marriott Hotel downtown, along with the new Palomar Medical Center and Escondido Research and Technology Center.
Meanwhile, downtown continues to see vacant storefronts and limited foot traffic.
| Currently No Comments »
Government Poised To Make Historic Moves To Strengthen Our Economy
September 20th, 2008 Categories: Brookside Escondido, Foreclosures & Short Sales, Market Trends, Mortgage News, Rancho Bernardo
Huge headlines, scary story lines, and big government moving at breakneck speed to shore up our economic backbone. You are undoubtedly hearing about an eminent and massive move by the Federal government to finally get its arms around the national, indeed global, financial crisis. The latest courtesy of my friend and Branch Manager Paul Gonzalez at our sister company CW Mortgage.
We are writing to you today to briefly shed some light on what this may mean to you and I. It will be historic, with nothing in our Nation’s history to compare to it. And this is going to happen literally in a matter of days. 
The Federal government appears to be preparing a new entity that will purchase most, if not all, bad mortgages that are currently on the books of lenders and banks, and possibly Fannie Mae and Freddie Mac. The Federal Reserve, US Treasury, Securities and Exchange Commission, Congress and the Administration are feverishly working on this as I am writing this, and will continue through the weekend and into this coming week.
When a bank has a lot of bad loans on its books, it must set aside equal amounts of cash to offset the bad debt and protect its stockholders. This is currently tying up tens of billions of dollars that could otherwise be pumped into the financing system. This has also caused, or been a primary factor, in the collapse of institutions including IndyMac Bank and Lehman Brothers, among many others.
The intended effect of the Federal plan will be to free up huge amounts of capital that lenders and banks will again be able to lend as mortgages and other types of consumer financing.
The plan will likely resemble the Resolution Trust Corp, or RTC, which was set up in 1989 to clean up the portfolios of bad debts that resulted from the Savings and Loan crisis of the times. . All this is vitally important to you and I, and all real estate professionals, and will warrant our close attention over the next few days and weeks.
If such a plan is enacted we will expect to see investors and banks more willing to invest money into the mortgage financing system. Increasing the amount of funds in the system should, over time, bring down the interest rate spreads and lower interest rates.
In the short term, be prepared for wild swings in the stock, bond and mortgage markets. Volatility will be likely rule the day until the global markets begin to sense greater stability and lower risks in putting money into the financing system.
| Currently No Comments »
Government Bailouts Increase Buying Power for Homeowners
September 19th, 2008 Categories: Real Estate News
One of the most important functions of our Government is to help individuals and corporations when they are in trouble. Last Sunday, our Government made a strategic decision to officially bail out Fannie Mae and Freddie Mac. The decision is obviously great news for the two mortgage giants, and homebuyer-hopefuls should be just as excited – you’re going to benefit, too!
Although the bailout is a complicated issue, it is better than the alternative – the failure of two companies that own or guarantee about $5 trillion in home loans! A complete failure of Fannie Mae and Freddie Mac could have lead to a catastrophic freeze in the mortgage market because of the lack of money to fund new loans. The bailout is positive news and is exactly what the housing industry needs right now.
The CEO’s of Fannie Mae and Freddie Mac are being replaced and the new heads will report to the recently formed Federal Housing Finance Agency – which was created under our friend the Housing and Economic Recovery Act.
There will be an injection of up to $100 billion into each of the two companies which should help lower mortgage rates and add stability to the economy. Lower rates and added stability will entice banks to become more willing to write new purchase-money loans and refinance existing loans.
Since the announcement, we have already seen a dramatic decrease in rates. From September 5 to September 8, Conforming 30-year fixed rates dropped about a half percent! In my twenty-five years of financial and real estate experience, I cannot remember a time when rates decreased that much in such a short period of time.
Buyers are coming out of the woodwork asking how much more they can afford at these lower rates. With their buying power significantly increased, everyone is excited by the homes that are now in their price range.
San Diego is a particularly fortunate place to be if you want to buy a new home. A recent report by Global Insight, the global leader in economic and financial analysis, showed that San Diego homes are undervalued by more than 17 percent. This is a dramatic drop from 2005; at that time our city was overvalued by more than 39 percent.
The combination of lower rates, increased buying power and a newly affordable inventory of housing makes this a fantastic time to buy a home. The key will be for the rates to hold at these low levels. 
Remember, lower mortgage rates alone will not solve the housing predicament. The highly unregulated, wild west of loan guidelines we experienced a year or so ago helped get us into a mess and the market is still in a corrective period. Reasonable rates, fair guidelines and a properly valued market are our way out.
It is still hard to tell how all of this will be absorbed in the long run and there is no quick fix to the housing situation, but combined with other recently passed legislation, we are making fantastic progress.
| Currently No Comments »
