Author: Brian Brady (page 20 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

Residential lending is in a pretty tough spot. Mounting losses, from former white-picket fence owners, are putting a dent in the country club sets’ wallets. The problem is not unlike the one we faced 20 years ago; bankers turned into riverboat gamblers.

That’s all changed. Today, sobriety is the buzzword in residential lending as the conduit lenders act as if borrowers were trying to pry the money for a home loan out of their children’s piggy bank. If it weren’t so serious it would be comical.

The bankers think that every American is a sub-prime borrower. Until they can reach a consensus on an economic model, Wall Street securitizers will drive this culture of paranoia into the hearts of the newest of mortgage company employees.

Who will save us from this madness? The oil merchants, of course. It’s in their best interest to jump start the little economic engines we call “our neighbors”. If the old lending model was based upon undervalued real estate, the new one will be based upon the nature of the little pink house owners, to buy pimped-out Sherman tanks for their driveways. As long as the American consumer can continue to expand his consumption of gasoline, the oil merchants will finance our homes.

Mark my words, the oil barons will be the new round of fresh residential lending capital. It makes perfect business sense. If your key account is slowing down the orders, give them a little credit to get the through the tough times. That’s EXACTLY what the sheiks will do and they’ll make a killing doing it.

The average American is NOT a sub-prime borrower. Hell, even the sub-prime borrowers aren’t really sub-prime borrowers. Americans really are honorable and most believe in a brighter future. As long as we continue to put men on the moon, develop new communication technologies, and cure otherwise incurable diseases, Americans are the best long-term bet in the world. Debt is an affirmation of that belief. Our biggest vendors believe in us because without us, 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

I’m thinking of getting into politics. I’ve been watching testimonies, from both sides of the aisle, about the credit crunch and impending doom of mass foreclosures. I figured out the problem:

The housing prices were too damned high.

Now, my stance, to this point, has been pretty clear; let the market act as markets do, with commensurate consequences to each and every market participant. Lenders and borrowers lose. Lenders lose money, and borrowers lose the freedom to buy another home, with the use of a mortgage, for a period of 4-6 years. (remember that statement)

As I’ve said, I’m thinking of getting into politics so that straight talk and libertarian approach is somewhat unacceptable in the vote-seeking game. I think I need to find a solution that will put me in a picture, alongside Hillary, Arlen, Barney, and Hank. My solution may also fire a shot across the bow of our economic enemy, China; that’s just a bonus for the cold warriors among us.

The Happy Homeowners Act of 2008 understands that foreclosures are far reaching in their devastating effect. They leave homes vacant in neighborhoods, they attack the esteem and morale of the borrowing family, and what is often left unsaid, they whack the investors’ principal. Talking heads have said that the homeowners just want to live in peace and harmony, in their slice of the American Pie. So… here’s my proposal:

Mark to the Market or yell “do over”. We’re all in this together, right?

1- Homeowners overpaid for their homes. Those homes are worth some 20% less than what they paid for them. The investors will take a loss of 20% (or more) should they proceed with foreclosure…so…just take the loss today. Reset the loans to a loan amount the borrower really can afford.

2- Investors will lose money but can recoup some of those costs from the market participants that profited. Real estate brokerages, mortgage brokerages, originating lenders, servicers, Wall Street securitizers, appraisers, home inspectors, stagers, and everyone who made a dime off the transactions during the “excessive period” 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

I’m a Countrywide watcher. It’s size and reach in mortgage loan origination is worthy of any mortgage originator’s respect and admiration. I had a lot of confidence in Countrywide as it marched to becoming America’s largest originator of home loans. I liked ’em so much that I had a piece of the joint, in my IRA, until April 1, 2007.

It was no April Fool’s Day joke when I announced that they were in trouble because of the Pay Option ARM product. For the Series 7 types, I went from long to cash within 24 hours of writing that post, then short ( not in my IRA) 24 hours later. I was nervously wondering when Wall Street would catch on to the problems and decimate the stock; I felt it would be worth less than ten bucks a share. Alas, I chickened out and closed the short position to raise cash during the liquidity crunch of 2007; I figured that profit would pay my daughter’s tuition when the market slowed.

Wall Street still thinks Countrywide is a twenty dollar stock, even as it trades below nine bucks a share. Are they being fooled, like the Enron debacle, or do they know something that we don’t? While Wall Street fiddles the Mozilo tune, pundits think CFC could file any day now. I don’t think a Countrywide bankruptcy is likely. I thought it made sense for the Feds to bail out Countrywide; two days later they opened the discount window.

How are the Feds bailing out Countrywide today?

1- Certainly, as Countrywide has moved it’s fundings to its federally-chartered bank, any Fed market activity benefits them.

2- I said that they way out of the mess was for Countrywide to originate new loans in less risky programs. CFC has rolled out a major reverse mortgage program and is compensating brokers to refer those loans to them. While some people believe its actions violate the spirit of HUD laws, there are no HUD guidelines specifically forbidding this practice. Reverse mortgages are three times 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

Governor Schwarzenneger brokered a bailout for California sub-prime borrowers with four major servicers:

Countrywide, GMAC, Litton and HomeEq – which collectively service more than one quarter of subprime loans to people with poor credit – agreed to maintain the initial, lower interest rate for some subprime borrowers whose rates are scheduled to jump significantly higher. To qualify, borrowers must occupy their homes, have made their payments on time and prove they cannot afford payments with the higher interest rate.

You had to see it coming. California is a mess right now with foreclosures. An argument could be made that sub-prime borrowers weren’t charged enough for the risk lenders took on them. Did the Governor, in fact, reward the feckless few who blindly bought into an inflated market? Does the measure penalize the responsible who waited for realistic prices and saved their sheckles for a down payment?

Two stipulations of the bailout are:

(a)- the borrower must be making timely payments, and

(b) the borrower must demonstrate an inability to service the higher payment.

While sub-prime loans are traditionally earmarked for the credit challenged, lenders extended these loans to good credit borrowers. Those borrowers bought a home that they couldn’t afford, with no money down. This program may very well reward people who lied to get a “smokin’ deal” and who now cry foul when that subsidized deal is taken away. The only exit strategy these borrowers had was to refinance out of the loan. That strategy was predicated upon a continual rise in property values. I know this; I work in the eye of the hurricane.

So, does Gena Reide. She’s a real estate broker in Sacramento, a community that has been hit hard by the meteoric rise in prices and subsequent drop back down to reality. Her ebullient report about this measure suggests that it is an idea that is long overdue.

Many have said that the homeowners in foreclosure should take responsibility and not receive any bail-out help Federally. It’s time that everyone realize that this doesn’t just effect those homeowners losing their homes, it effects Read more