Friday, June 25, 2010

Wall Street Wishes and Reform Dreams...

Every since the financial crisis began, I have been waiting to see what response would be rendered by Congress and the White House.

Reform is eminent ! I said to myself. The taxpayer and the individual should be given some kind of protection against the greed machine that is Wall Street.

I watched for years as my money in my mutual funds would creep up ever so slowly for years, and then once worth something - would lose half the value in three months. Enough I said. I took my money out and paid bills with it. Was I losing money because I had the wrong funds in my portfolio, or was it due to fees ? I used to think it was because my ignorance. Nope. Fees. Wall Street greed.

So, our government had a REAL chance of making a difference in how our financial institutions operate. I was looking for a return to the Glass-Steagall days, when the government actually governed.

Well, it looks like they blew it. Again. The two most important issues, banks to stop trading with their own money, and the requirement to move derivative operations to separate companies - appear to have been squashed.

Shahien Nasiripour with the Huffington Post reports that the nation's largest banks now appear to have MORE capital available for speculation under the new reform bill. I would say the House and Senate negotiators should have went home and got some sleep instead of voting in favor of the reform garbage compromises at 5:40 AM that for sure will lead us to another financial crisis in the future.

Wow. My question is - "who runs this country - the citizens or the businesses that hold their money ?"

I am afraid I know the answer, as I am sure you do as well, dear reader.

Now we just have to sit back and wait to see what the next financial disaster is going to look like...

Saturday, June 12, 2010

Silent Death - The Gulf Oil Spill Effect No One is Talking About...

As I watched the major TV News Networks discuss the tragedy of the British Petroleum Oil Spill in the Gulf of Mexico, something dawned on me - The Residential Real Estate market in the Gulf States is toast for at least 10 to 15 years...

According to Wikipedia, there remains 26,000 gallons of crude in the sand and soil from the Exxon Valdez Oil Spill from 1989. That was more than 20 Years Ago !!

I have heard estimates in the news that the BP Oil Spill in the Gulf is more than 8 times larger than the Exxon Valdez spill, so is it going to take 8
times as long for the Gulf to recover to the level that Alaska is today? As large globs of oil wash ashore on the beaches along the Gulf Coast, and news spreads about the dangers of the dispersants used to clean up the oil - the question remains: Will people want to buy condos or vacation properties along the Gulf, knowing the dangers to themselves and their families ?

The commercial property owners along the Gulf Coast States have already begun assessing the effects of the spill on their businesses. Sure, in the immediate term, not many people will want to rent hotels or condos and vacation in the Gulf.

But how long will it be until people actually want to purchase vacation properties there? Current Gulf Coast property owners are concerned about loss of value, and are looking for compensation from insurers or BP. But that's a short term solution to the problem at hand. The long term, and unknown effect - will show it's ugly head when it's time to sell. Sellers could be hit with Short Sale like prices long after the rest of the country has recovered from the current real estate/economic crisis.

We could be looking at the Death of Gulf Coast Residential Real Estate for at least a decade or more...

Deepwater Horizon Oil Spill (BP Oil Spill)
from space by NASA's Terra Satellite

Friday, June 4, 2010

In Defense of Mortgage Brokers and Yield Spread Premium...

Today, I am cruising around the web just reading various articles, poking my nose in here and there, just snooping around as usual.

All of a sudden, I come across a blog written by a person who once was treated poorly by a mortgage broker. He felt that he was taken advantage of, so he decides to start a blog "exposing" the dark secrets of mortgage brokers, and discussing why they are evil.

Go ahead - take a look at the site. Read the blog, it's sort of interesting. In a twisted way, I guess.

Now, to be fair, I have a somewhat biased opinion about mortgage brokers - I have been a mortgage consultant with a mortgage brokerage for the past 7 years. I think brokers offer a legitimate service to borrowers, and a much needed alternative to going to a bank. A broker can save a borrower both time and money, because instead of paying multiple application fees to each bank, he can just pay the application fee once, and let the broker shop around for him. Immediate savings. OR, if the borrower works with someone such as myself - there is no application fee. No credit report fee. No upfront fees, whatsoever. Enough about me - this blog entry is not about me, anyway.

Needless to say - It ticked me off. It's another dishonest cover up that confuses the public.

So let's do some REAL mortgage loan exposure. The mortgage broker can provide the same interest rate or better than the average borrower can find at the neighborhood bank. How ? Because the bank offers incentives to mortgage brokers and correspondent lenders to provide them with a steady stream of new borrowers, because a banks job is to lend money. This incentive is the Yield Spread Premium, or the amount the bank is willing to pay the party who provides them with a new, qualified buyer.

Usually the mortgage broker can offer a better interest for the borrower rate from the same lending institution, than the borrower can receive from walking into a bank and applying for the same loan. How do I know ? I do this all of the time.

This is the wholesale versus retail aspect of mortgage interest rates. Why the difference ? The higher bank interest rate is derived from overhead - they have to pay the light bill, rent, the loan officer's salary, etc...The borrower's interest rate in intrinsically connected to this.

The largest banks have stopped doing business with mortgage brokers altogether. They began phasing out their mortgage broker relationships in 2007. I think they new something was in the water. I think the large banks are behind an unnamed, unidentified scheme to get rid of the mortgage broker. That way, they can charge whatever they want in interest rates, and there is no competition.

Funny thing is this - our friend the mortgage broker hater has mortgage interest rate ads from big banks and lenders DIRECTLY CONNECTED TO HIS SITE. Complete the "Real Mortgage Rates" info and select click on "submit". You will see what I am saying. I am an actual mortgage broker, and I do not advertise any rates on my site, other than the average weekly Freddie Mac rates, that are publicly available on the Freddie Mac Website (I believe the borrower should have a good starting point on the rate they are being offered). What is this guys motivation ? Who's side is he REALLY on ?

Every mortgage broker must reveal the Yield Spread Premium to the borrower. It is stated up front on the Good Faith Estimate, and is shown on the Settlement Statement at closing. Banks are not required to show how much they make on charging a borrower a certain interest rate. They are allowed to "hide" the true amount of money they make on charging the interest rate the borrower has been offered.

Here's another truth - banks sell their loans to the secondary market (Fannie, Freddie & Ginnie) and receive a Service Release Premium, or payment from the GSE's when the bank sells the loan. This is on top of any income they may have received for charging the borrower a certain interest rate.

Needless say, I continued to prod around and found an excellent article about this subject, "Why Oh Why YSP? Why Mortgage Brokers Can Price Better". It verifies everything I am expressing here...It is recommended reading for those who want to have a good understanding of how yield spread actually works.

There is a lot of truth out there in the blogosphere, but there is also a good bit of fallacy. People are being bombarded with all kinds of information, and it is hard to discern what is truth, what is fiction and that gray area in between.

I am sorry the blogger was given a raw deal by a mortgage broker. There are bad apples everywhere. But one bad apple should not destroy the reputation of an entire industry, especially when it provides a legitimate, viable service to the public.

I am going to tell things as I see them, and point out any information that seems not quite right. And this blogger is not telling the whole story...

Wednesday, June 2, 2010

Strategic Default Retribution ?

Well, it appears the Mortgage Banker's Association has conjured up a way of penalizing the homeowners who have decided to just walk away from their properties, utilizing the now infamous "Strategic Default" mortgage scheme.

A Strategic Default results when property owners just literally "walk away" from their properties for no apparent reason - other than they don't want to pay the mortgage any more.

The MBA apparently has decided to punish this group of people by requiring theme to wait up to 8 years before allowing them to enter the mortgage financing arena again.

If this is a scare tactic, as I have heard it may be, than I think it's a waste of energy. It may be that the MBA would like to slow down the strategic default rate, but people are smart. If they don't put teeth to it, it will not work. You need the GSE's (Fannie & Freddie) to come out and support the idea of punishment. Otherwise, the initial scare will go away, and the strategic default rate will continue to rise.

However, I do think this is fair, as long as it is genuine. If the MBA is going to use it's influence and choose to punish the Strategic Defaulters, it must be fair and not try to conjure up it's own "default" scheme of another name, whatever that may be. Check out today's TBWSDaily.com video. There is a suggestion that the MBA may have used the ol' Short Sale scheme themselves...

Everyone seems to be taking advantage of the distressed real estate market these days. It's sad, because we all are paying dearly for it as well...