Author: Brian Brady (page 13 of 27)

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Lehman Brothers has been shopping their firm.  Here’s Paul Muolo, who co-authored a book I’m reading, Chain of Blame, with OC Register’s Matt Padilla:

THIS JUST IN: It could be a busy Sunday again at the Treasury Department in Washington. Lehman Brothers (and Aurora Loan Services) may be sold in a deal brokered by the government. The rumor mill was working overtime dishing out speculation on Merrill Lynch, whose share price was sinking to a new 52-week low. There was also talk the Federal Deposit Insurance Corp. was contemplating the takeover of two depositories. Stay tuned…

Hank Paulson works weekends.

Lehman Brothers is one of the most treasured names on Wall Street.  Its roots go back to before the Civil War, when they operated as cotton traders and established the Cotton Exchange in New York.  They financed Sears, Woolworth’s, and Macy’s, at the turn of the century.  They had a large hand in financing the growth that defined the 20th Century as “The American Century”, providing capital for the movie, television, aerospace, and information services industries.

One more venerable investment banking firm becomes a casualty of the credit meltdown.

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

San Diego City Attorney Michael Aguirre attempts to halt the flow of new loans, into San Diego , by calling a “do over”:

San Diego’s city attorney said on Wednesday he filed a lawsuit against Bank of America and its Countrywide unit to prevent the mortgage lenders from foreclosing on homes in the city, which he aims to make a “foreclosure sanctuary.”

City Attorney Michael Aguirre plans to file similar lawsuits against Washington Mutual, Wells Fargo and Wachovia in an effort to make the lenders negotiate with mortgage borrowers facing foreclosure.

“We would like to see San Diego become a foreclosure sanctuary,” Mr. Aguirre said.

Oh brother.  This is so stupid I don’t even know where to begin.  Foreclosure is an important part of a loan contract.  If a government interferes with the execution of that contract, then a precedent of interference will be set.  Two things can happen:

1- Lenders will need to assess the cost of the “foreclosure sanctuary” and build it into the cost of the newly originated loans.  Buyers will reject the new loans, priced far above loans made in Del Mar, and the City of San Diego housing prices will plummet even farther.

2- Lenders will, most likely, just ignore San Diego.  We saw it happen in Cleveland, about ten years ago.

I knew a shylock, back in Philly.  He worked the union halls.  He’d loan a guy a few hundred bucks, until payday, and make 30%  vig for the effort.  His default rate, for first -time borrowers, was extraordinarily high.  I asked him about his collection policy, visions of The Sopranos in my head. The “shy” didn’t like to get his hands dirty.

If a borrower defaulted, the shylock refused to lend money in that particular union hall.  He let his steady customers  enforce his collection policy.    If a bright borrower decided to alert the authorities, the shylock simply denied any lending activity, and took the loss.  Of course, he never lent in that union hall again.

Mr. Aguirre’s political stunt could lead to that “mob mentality” should lenders halt all activity in the City of San Diego.  Sellers, frustrated with the Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

As jarring as Senator Mc Cain’s announcement, in Teri-Town, was, an Arizona monsoon was the culprit for the Phoenix power outage.  Greg Swann’s mobile and headed to an undisclosed location to keep the wheels of BloodhoundBlog turning.

If you’re a first-time commenter, you may have a comment held up in moderation.  Please be patient until the lights come on, in Phoenix.

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

I had some fun, yesterday, with a report about the down payment assistance ban and the First-Time Homebuyer Tax Credit.  I poked fun at the hypocritical nature of the Down Payment Assistance Programs and speculated that the Tax Credit might be collateral for a “tax refund loan”, thereby, facilitating the need for down payment funds today.

The whole thing is silly when you think about it.  100% financing, through the FHA, is the answer.  Then, we can stop winking at the violation of the spirit of the law.  Some commenters, suggested that 100% financing, or attempts to provide down payment assistance, is dangerous and might bankrupt HUD.  The fact is that down payment assistance programs have a default rate that is twice the normal acceptable FHA default rate.  The universe of FHA loans have a default rate of 3-3.5% while DPA loans are 7-9%.

While it’s easy to say that over 9 out of 10 buyers, who use the DPA program to buy a home, succeed, the high default rate COULD bankrupt the FHA insurance fund.  I queried some senior bank credit officers about this.  What I discovered is that those defaults CAN be managed if we layer the risk.  For you non-mortgage types, that means that we tighten one C if we loosen the other.  I was astounded to hear that over half the DPA defaults could have been avoided if underwriters strictly adhered to a recommended debt-to-income ratio of 29/41 and a minimum credit score of 620.

Compliance to the underwriting guidelines then, could make DPA programs, or 100% financing work.

Last year, I wrote a letter to Senator Dodd, here on Bloodhound Blog.  That letter introduced me to a few contacts inside the Beltway; I called them today .  What I heard was classic political maneuvering.  The recently passed Housing Law was a compromise.  Republicans, siding with the HUD Commissioner, effectively banned the DPA programs and INCREASED the minimum down payment requirement, on FHA loans, to 3.5%.  Democrats, capitulated on the eventual DPA ban because they prohibited HUD from engaging in “risk-based” pricing, which is, higher rates for people who might not Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Well, it looks like the Down Payment Assistance Programs are dead.  Countrywide is usually the bellwether for any  “out on a limb” lending and they sent me an e-mail today, telling me to “get my deals in” by Friday.  Specifically, my down payment assistance transactions have to be locked by Friday and approved by a DE underwriter on Monday.  Files are taking 3-4 days in underwriting so for all practical purposes, I’m out of the down payment assistance business as of 5PM, today.

That’s okay.  I haven’t used these programs since 9-11 so I won’t miss out.  Lower end home prices might get walloped next month, as the pool of unsuspecting buyers disappears, but we might just have a few more tricks up our sleeve.

Did you understand how those programs worked?  You can read about how we got around the  law by calling sellers “owners of participating homes” here.  If it sounds a lot like the disclaimer that escorts use (escorts sell time; what happens between consenting adults is private), it’s because the same principle of “winking” at the law is employed.

The Rules of Fraud Club:

The first rule of Fraud Club is, don’t talk about Fraud Club.

The second rule is, you DO NOT talk about Fraud Club.

It would appear that this movie is about over.  But wait, there’s a sequel!  This one is called the First-Time Home Buyer Tax Credit.  Essentially, it’s a $7,500 tax credit, that must be repaid, over 15 years to the Federal Government.  If you’re buying a $200,000 home, that $7,500 covers your downpayment for a FHA loan.  While “borrowing” downpayment monies are disallowed on loan programs, the first-time homebuyer tax credit is essentially an interest-free, government loan.  The problem with this “trick” is that the buyers can’t get that credit BEFORE they close on the new home.

Hmmm…now, how do we get that money into the buyers’ pockets before April 15, 2009?  I’ll bet that the downpayment assistance charities will find a way.  Look for Nehemiah and AmeriDream to morph into “tax refund lenders”, some time this fall.  Why?

Because, everyone knows the last two rules of Fraud Club

This Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Henry Blodget reports that Chokepoint Charlie is upset:

We view the Olympics as a global sporting tradition and consider ourselves citizens of the world, so we don’t have much patience with country-specific broadcasting rights. Thus, we’re happy that we (and you) can watch the Olympics live right here on on SAI.

(Frankly, we wish we could watch the Olympics on NBCOlympics.com, because their feed is marvelously crisp, but of course NBC is doing everything it can to prevent that. Specifically, NBC is trying to make us watch tonight, on tape delay, when the opening cermonies will be as stale as yesterday’s bread. And when they do broadcast events on NBCOlympics.com, of course, they’re not about to let us embed them.)

NBC views the 2000+ year-old global Olympic tradition as its own personal entertainment show and is therefore doing everything it can to prevent you (and us) from watching them live. For example, check out these takedown notices on veetle.com:

You don’t have to take it.  Watch the Olympics LIVE, from your computer, here .

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

I wrote this article on Active Rain, about two months ago.  It’s got legs in the comments’ thread over there.  You’ll see that the REAL reason I’m worked up is that the “new sleazy option ARM advertisement” is to claim that you KNEW it was bad for the customer. The opposite is actually true

I’m pretty high-touch with my neg-am borrowers.  I keep in close contact with them quarterly.  I just received notice that one of them had a notice of default filed against them for non-payment.  The borrower lost his job and elected to use the “side account” he established, from the monthly cash-flow savings, to rent a new home rather than to “feed the depreciating asset” (his words).

Before you comment on the article, you might read all of Dan Green’s “Mortgage Planning” articles.  if you haven’t the time to read all of them, read:

If Low Downpayments Are More Risky To Banks, They Must Be More Safe For Home Buyers

I’d argue the same logic applies for negative-amortization (rising mortgage balances).

Here’s the article:

Remember the “sleazy Option ARM advertisements“?

They’re back but with a whole new twist:

This is why I never did option arms.  This is part of the reason why we are in the housing mess we are in.  Yes, borrowers have to claim responsibility, but every Bank that pushed neg am as a financing alternative deserves the billions in write downs and losses in stock options that they are mired in.  I have no sympathy for them…only contempt!

Oh, brother! If I see one more loan hack Monday morning quarterbacking this mess I’m gonna puke.  There is nothing wrong with negative amortization loans; there was something drastically wrong with the way they were prescribed.  The “new neg-am” advertisements are “posited indignation” and they’re just as sleazy as the original advertisements.  They prey upon the opposite of the greed motivation; fear.  That ain’t helping anybody!

Let me try to break down the negative amortization loan for you:

• There is an interest rate charged; it may be adjustable monthly, annually, or for a specified period.
• There are payment options.  One option is LESS than the interest assessed for Read more