Author: Brian Brady (page 8 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

If you’re considering a reverse mortgage, get it now. The reverse mortgage market is going to blow up as big as the sub-prime market did.  This time, like last, it’s those “durned borrowers” acting differently than the rockets scientists predicted they would.  In the sub-prime market, it was assumed that people would honor the old paradigm:  mortgage payment, car payment, then consumer credit.  Sub-prime borrowers sacrificed the house payment, in order to keep their credit cards active, and the world turned upside-down.

The reverse mortgage borrower is about to screw things up royally; he’s going to live longer than expected….and like sub-prime, that risk is not priced into the current market.

A reverse mortgage is basically a negative amortization, no-payment required loan.  Actuaries consider the borrower’s life expectancy,  discount a reasonable return on the future loan balance, and loan the borrower whatever is remaining.  When the borrower dies, the loan balance can be paid off so that the heirs can “reclaim” the asset or the house is sold.  The deal goes sour when the now 65-year old lives past his expected death date.   Consider that baby-boomers are the healthiest (and largest)  generation; they could add 4-5 years to that life expectancy.

The loans are still being underwritten as if the oldest baby-boomers were just 56 years old.  Throw in the fact that a tremendous amount of home equity evaporated, since, 2007, and you have a recipe for disaster. While you remember the wreckage an uptick in defaults had, on a levered sub-prime secondary market, imagine how those measly four years could cause the Great Recession of 2030, complete with bailouts.

The warehouse lenders know it, too. Ask reverse mortgage originators why a seemingly healthy market turned ill this year and you’ll hear them blame the liquidity crisis.  Reverse mortgage originators will cry that the sub-prime collapse caused warehouse lenders to adopt a bunker mentality, which is killing a healthy mortgage product.  They’ll tell you that their product has NOTHING to do with sub-prime and they’re correct.  Reverse mortgages and sub-prime loans have only one thing in common;

they were both priced on faulty risk 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

Sean Purcell and I are really figuring VA-guaranteed  jumbo loans.  We’re getting a steady stream of business from high-cost California counties.  One of the common misconceptions is that VA loans are capped at the county loan limit, like FHA and conventional mortgages.  I’m going to walk you through the formula to determine the required down payment and maximum loan amounts for VA jumbo home loans.

STEP ONE:

___Lesser of purchase price or appraised value +

___Add the 100% financing VA funding fee =

___Gross loan amount

STEP TWO:

___ VA county loan limit * (.25) =

___ Veteran’s maximum entitlement * 4 =

___ Maximum VA guaranty (including funding fee)

STEP THREE:

___ Gross loan amount (from step one) * (.25) =

___ Required Guaranty –

___ Veteran’s maximum entitlement (from step 2) =

___ Required down payment

STEP FOUR:

___ Purchase price –

___ Required down payment (from step three) =

___ Base loan amount (before adding funding fee) +

___ Applicable LTV-adjusted VA funding fee =

___ Total loan amount after down payment

Let’s try a $650,000 purchase price in Maricopa County, where the county loan limit is $417,000, for a first-time VA loan user.

STEP ONE:

$650,000 (purchase price) +

$13,975 (2.15% funding fee) =

$663,975 (gross loan amount)

STEP TWO:

$417,000 county loan limit * (.25)=

$104,250 (maximum entitlement) * 4 =

$417,000 (maximum VA guaranty)

STEP THREE:

$663,975 (gross loan amount) * (.25) =

$165,993 (required guaranty) –

$104,250 (maximum entitlement) =

$61,744 (required down payment)

STEP FOUR:

$650,000 (purchase price) –

$61,744 (required down payment) =

$588,256 (base loan amount) +

$8823 (applicable LTV-adjusted funding fee) =

$597,079 (total loan amount after down payment)

Don’t be confused by the entitlement and loan amount; just follow the formula and any VA-approved underwriter will accept your figures.  As you can see, the required down payment, for this example,  is only 9.4%.  I’d probably round it up to an even 10% down payment so that the funding fee would drop to 1.25% instead of 1.5%.  Putting down an extra $3900 saves the veteran $1625 in the funding fee.

Very few jumbo loan programs allow for a down payment of 10% with no mortgage insurance.  This makes the VA-guaranteed jumbo mortgage tough to beat.  The first question you ask for  any loan application should be…

Did you serve ?

It could 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

May Day in the mortgage rates market is over.  The market got spooked by triangulated opinions about the viability of the US Treasury as a going concern.  In response, mortgage traders sold off mortgage-backed securities, some 3-4%, in 4 days, to drive mortgage rates from 4.75%  to the 5.375% current level.

Tom Vanderwell thinks mortgage rates could bounce as high as 5.75%, in the next 30 days unless there is MASSIVE intervention by the Fed.

MOTIVE: It helps to understand that Ben Bernanke is a disciple of financial activism as a means to combat a potential economic depression.  Aware of his activist philosophy, scrutiny of the April, 2009 FOMC minutes would lead you to believe that the Fed is targeting retail mortgage rates to be under 5%.  Mortgage rates north of that number are counter-productive to the fiscal policy designed to deleverage the average American.

MEANS: The Fed has another $700 billion at the ready to stabilize the mortgage-backed securities market and artificially lower retail mortgage rates to under 5%.

METHOD: The Fed would have you believe that not only are they going to purchase those MBS for the consumers but for the viability of the Central Bank (this is spin, plain and simple).  In short, the Fed is saying  “the financial institutions are so healthy that we must direct our attention to the consumer if WE are to remain a going concern”.  I’m exaggerating a tad but that’s the Fed “spin” to justify the massive intervention I expect.

My opinion about the Fed’s actions are irrelevent to the near-term home buyer and mortgage shopper; my analysis is not.  Expect the Fed to drive mortgage rates lower into June.

by Brian Brady

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

Author website

Have you heard of the Home Valuation Code of Conduct?  New York Attorney General Cuomo forced Fannie Mae and Freddie Mac to adopt the measure, in what can only be described as a Machiavellian scheme.  Essentially, mortgage brokers are forbidden from direct contact with residential appraisers; all appraisals for agency loans (not FHA or VA) must be ordered by a lender-approved appraisal management company.

What’s an appraisal management company? Exactly.

The intended result is to keep all loan production personnel (broker or banker) from undue influence on the independent appraisers hired to perform the valuation report.  You see, rather than to cease doing business with rogue mortgage brokers or unscrupulous lenders, a minority of appraisers felt it necessary to encourage Attorney General Cuomo to “put the arm” on the lending industry to protect their past ethical trangressions.

Wholesale lenders, realizing that the appraisal would now be THEIR property, clamored to the idea.  This was just another chance to restrict the value proposition of mortgage brokers (portability) and lock up some business.

Big Banks 1 Consumers 0

Wait!  That’s not all!  If the assigned appraiser is backed up, tough crap!

You see where I’m going with this?  The lender pipelines are ALREADY clogged up because the volume has spiked and the employee count is down.  Soon, we’ll be adding loan applications from the Obama refinance/loan modification plan and a further drain will be put on the overloaded appraisers.  Can I choose to deal with appraisers who won’t do refinance transactions?  Nuthin’ doin.  Ya takes what ya gets under HVCC.

Big Banks 2 Consumers 0

Still, I persist like Mr. Magoo negotiates a maze.  I took a loan application last week, checked Zillow for the Zestimate, closed my eyes and ordered the appraisal from the selected lender.  I locked the rate for thirty days and uploaded the loan submission.  I expected 10 business days in underwriting; surely, the appraisal would be uploaded within a week.

As Meatloaf might say “Stop Right There!  Before we go any further…”

I received an e-mail from the lender instructing me to immediately extend the rate lock for another 15 days…at a .25% fee.  For this $417,000 Read more