Author: Tom Vanderwell (page 6 of 8)

Mortgage Officer

September 17, 2008

Project Bloodhound – Advice Needed

by Tom Vanderwell

Mortgage Officer

I figured we haven’t had a Project Bloodhound post in a while and I can use some advice, so I thought I’d throw it up for discussion. Here’s the scenario first and then, after that, I’ll throw out my questions:

I’ve been asked to give a presentation to the board of Directors for the local board of Realtors next week Tuesday on the state of the mortgage market. The person who asked me is one of the owners of a local real estate firm and he’s been reading my Mortgage Market Week in Review for a long time. Without sounding like I’m patting myself on the back, I would have no problem putting together a 20 to 30 minute presentation on what’s happening in the mortgage market. But Greg Swan has taught me that that’s not good enough.

Using Greg’s analogy, I want to set the bar so high that my competition can’t compete. I want to set the bar so high that all of the members of the board (or at least most of them) go back to their firms and tells their agents that they need to at least talk to that “Vanderwell guy” because he’s where it’s at.

So, here are my questions (for those of you who are real estate agents, especially):
1. If you were going to be at the presentation what would you like to hear?
2. Is there anything that a mortgage lender can say about today’s market that will help you do your job better?
3. What else should I do or attempt to do in the 30 minutes that I’ll have?
4. What should I avoid doing? I’ve already learned (or relearned from Greg and the Gang) that I need to make something like this about the industry and my knowledge of it, not about me or my bank. So, if you were reading this and thinking that, we’re on the same page.

Thank you in advance for being willing to share the collective wisdom of the Bloodhound Gang. I’ll do another post and report back in afterwards as Read more

September 15, 2008

So what does this mean to the real estate markets and real estate professionals?

by Tom Vanderwell

Mortgage Officer

Since I’ve already had almost a dozen e-mails, phone calls and tweets asking me, “So how does the financial meltdown on Wall Street impact me as a Realtor?” I thought I’d take a few minutes this morning and throw out some observations and thoughts of what it might look like.

Before I do, let me remind you that we are in what could truly be called a historical (in a negative sense) event and therefore any prognostications are exactly that and it’s going to be interesting to see. But here’s what I see as some potential ramifications for the real estate markets:

1. Mortgage rates – due to the increased “danger” and perceived lack of safety in the stock markets, I think we’re going to see a major “flight to quality” as people pull money out of stock and into bonds. And, because Fannie and Freddie are now owned by the government, we could see a pretty nice drop in mortgage rates because of it. I also believe that rates will drop because (see #3) of the anti-inflationary pressures.

2. Non-agency loans – by Agency, I mean anything that is bought by Fannie, Freddie, FHA and VA. I believe that the death of Lehman and the forced sale of Merrill (as in, sell or die) are going to be, in many ways, the death knell (for the time being) for non-agency loans. If a bank can’t sell it on the secondary market (and the only secondary market that’s left is Fannie, Freddie, FHA and VA), then they won’t do it or it’s going to be very expensive. Now, there will be small exceptions to that where you have small community banks who are willing to do some creative portfolio stuff, but that’s going to be the exception rather than the rule.

3. Cash is king in the financial world – we’re going to see a tightening of credit in all forms of lending where it is being done with the bank’s own money. Commercial loans, equity lines, car loans etc. are going to be harder to get and more expensive. This will have a negative Read more

September 12, 2008

Mortgage Market Week in Review

by Tom Vanderwell

Mortgage Officer

Well, it’s Friday again, so it’s time for another Mortgage Market Week in Review. I’m going to talk just a little about Fannie and Freddie and then deal with some of the other issues that are currently affecting the financial markets.

First Fannie and Freddie: As EVERYONE knows by now, Fannie and Freddie were taken over by the Federal Government last Sunday. What does that mean? A couple of things that have become clear so far: 1) The fact that US government is now not only implicitly backing Fannie and Freddie’s debt but explicitly (putting your money where their mouth is) has had a good effect on mortgage rates. We dropped as much as .5% on Monday and since then, things have trickled back up a bit, but we’re still .25% lower than we were last Friday. 2) One of the reasons that they did it was to keep the mortgage markets moving and that appears, at least so far, to be a success.

The things that aren’t so clear yet about the Fannie Freddie bailout are: 1) How much is it going to cost the taxpayers long term? 2) Are the executives really going to get the multi million dollar golden parachutes that it looks like? 3) Starting in 2010, Fannie and Freddie are supposed to downsize by 10% per year. What sort of mortgage market is going to take their place? That’s going to be a topic of a lot of discussion in the government going forward.

Now on to what else is effecting the markets. Let’s just say that it is looking like Fannie and Freddie won’t be the only financial firms that are going to suffer a financial death during the month of September. Here’s the latest as I know it:

Lehman Brothers is rumored (LOTs of rumors) to be on it’s death bed. What killed it? Too many investments in risky mortgages. They are supposedly looking for buyers who would save them from the untimely death. Will someone step in and buy them at the last minute? Maybe….. Who are the most likely buyers? The rumors have Read more

September 9, 2008

Every now and then…..

by Tom Vanderwell

Mortgage Officer

Every now and then, I get one of those moments that puts life in a different perspective. You know, the times when you look at all of the “stuff” that you deal with every day and realize that it’s not nearly as important as you’d like to think it is?

I had one of those tonight. I got an e-mail from a close personal friend of mine who is an orphanage director in Haiti at the orphanage that two of my kids came from and she shared some very troubling news about what they are dealing with there.

I wrote about it in more detail at Straight Talk About Mortgages and shared it with Greg and he encouraged me to write a brief post and put a link to more details. I’d really appreciate it if you would take a few minutes, click here and read more about what’s happening and how we have the opportunity to make a difference in the lives of people who are significantly less fortunate than we are, even if we are in a lousy market.

Thank you in advance,

Tom

September 8, 2008

Moral Hazard Revisited…..

by Tom Vanderwell

Mortgage Officer

One of the important things that Paulson said in the press conference yesterday was that we (the government) don’t want Fannie and Freddie to stay public and that one of the things that the next administration and Congress has to figure out is “How in the world do we take them private again?”

In light of that, I thought I’d repost what I original wrote on July 22, 2008 about a potential bailout. Not because I think I was right, but because I think we need to start thinking and talking about what happens now. I certainly don’t want the Federal government “mucking around” in the mortgage world for a long time.

What do you think?

Tom Vanderwell

July 22, 2008 Barry Ritholz at The Big Picture had these two comics that brought to the forefront again the issue of moral hazard. Check out the comics and then we’ll talk “on the other side.”

Okay, now some thoughts about moral hazard:

The definition of moral hazard (as taken from that scholarly journal, Wikipedia):

Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not bear the full consequences of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to bear some responsibility for the consequences of those actions.

Let’s break that down and look at it a little more closely in light of the current market environment:

a party insulated from risk may behave differently…. What that means is that, frankly, the people on Wall Street and the bankers on Main St. (including yours truly) might very well have done things differently over the last few years if we had been more fully exposed to the risk. Will Fannie or Freddie buy it? That’s all that most mortgage lenders really cared about when structuring a loan. On Wall Street, the guys (I’m using that term in a gender neutral sense, okay?) who packaged these loans up and sold them as securities didn’t really care Read more

September 8, 2008

Update on Fannie and Freddie

by Tom Vanderwell

Mortgage Officer

Well, it happened. In case you haven’t heard the news, Fannie and Freddie were bailed out by the Federal Government over the weekend. I’m not going to go over all of the details but just try to hit some “high points.”

So, here goes:

1. The Federal government now owns 80% of Fannie and Freddie. That means that the shareholders in those two companies lost 80% of their equity in the company compared to what they had last Friday.

2. Why did the Government do this? It’s pretty simple. The markets had lost confidence in the long term viability of the two institutions and therefore the debt that they have issued was being questioned and their ability to finance additional housing was being called in question. This was done to stabilize and calm the financial sector of the markets which were very volatile to say the least.

3. What has changed since Friday? A couple of things: 1) The “unofficial” backing of Fannie and Freddie’s debt by the US Government is now official. 2) The question of what will happen to shareholders in the company has pretty much been answered.

4. What hasn’t changed since Friday? The problems in the loan portfolios at Fannie and Freddie haven’t gone away. The problems in the housing market haven’t gone away. However, today the markets so far have been breathing a huge sigh of relief that says, “Yeah, Uncle Sam is here to protect us!”

So what does this mean going forward?

1. I’ve already heard that a lot of economist are saying that there could be a significant drop in mortgage rates. I’m not so convinced that we’re going to see THAT BIG of a drop for a couple of reasons: a) The US Government just became on the hook for an additional $5 Trillion in debt and that will have an impact on the cost of treasury debt and so forth. b) The additional borrowings by the government are going to have an impact on the value of the dollar and that will make US debt more expensive. c) The only thing that has Read more

September 7, 2008

How we got to this place…..

by Tom Vanderwell

Mortgage Officer

I promise I won’t take up so much space on here after the dust settles, but I’m having a hard time getting my mind around the enormity of what’s happening with Fannie and Freddie and what it means, so I figure the best thing I can do is share what I know with others……

I came across this article in the Wall Street Journal which lays out a good “story” of what has transpired. I’m going to copy excerpts of it, but I’d urge you to read the whole thing…….

By DEBORAH SOLOMON, SUDEEP REDDY and SUSANNE CRAIG
September 8, 2008

WASHINGTON — In the end, Fannie Mae and Freddie Mac had no choice.

Summoned to separate meetings on Sept. 5 with Treasury Secretary Henry Paulson and other top officials, the two mortgage giants were told they could either agree to a government takeover or one would be foisted upon them.

“We have the grounds to do this on an involuntary basis, and we will go that course if needed,” Mr. Paulson told senior executives at the two companies, who had little idea such a move was coming, according to three people familiar with the meetings.

There was no dramatic trigger, nor was there fear of imminent collapse. Instead, the sweeping government intervention stemmed from a growing realization by Treasury and Federal Reserve officials that the two companies couldn’t survive in their present forms, and that any collapse would be devastating to the economy.

The decision was hashed out over weeks of meetings…….

In the end, Mr. Paulson, Federal Reserve Chairman Ben Bernanke and James Lockhart, head of the companies’ regulator, the Federal Housing Finance Agency, concluded that the two companies had lost the confidence of the markets and couldn’t survive as currently structured. …..

Inside Treasury, the hope was that merely receiving authority to backstop the two companies would comfort markets enough that they could raise capital on their own. ……..

Two things would soon force Treasury’s hand. Uncertainty about Treasury’s plans and how any intervention would affect shareholders caused shares of Fannie and Freddie to fall sharply, making it all but impossible for them to raise equity. At the same Read more

September 7, 2008

Excerpts from the Press Release about the Death of Fannie and Freddie…..

by Tom Vanderwell

Mortgage Officer

Treasury Press Release

I have clearly stated three critical objectives: providing stability to financial markets, supporting the availability of mortgage finance, and protecting taxpayers – both by minimizing the near term costs to the taxpayer and by setting policymakers on a course to resolve the systemic risk created by the inherent conflict in the GSE structure.

What he’s talking about in terms of the inherent conflict is that Fannie and Freddie are essentially government institutions with shareholders and that creates a conflict of who do they serve – the shareholders or the common good?

I attribute the need for today’s action primarily to the inherent conflict and flawed business model embedded in the GSE structure, and to the ongoing housing correction. GSE managements and their Boards are responsible for neither. New CEOs supported by new non-executive Chairmen have taken over management of the enterprises, and we hope and expect that the vast majority of key professionals will remain in their jobs.

Out with the old, in with the new – and we hope that the main people besides for upper management don’t leave.

First, Treasury and FHFA have established Preferred Stock Purchase Agreements, contractual agreements between the Treasury and the conserved entities. Under these agreements, Treasury will ensure that each company maintains a positive net worth.

That means that if Fannie or Freddie has a bad quarter and loses enough so that they become upside down, we get to turn on the faucet and fill them up with more cash. Your cash and mine.

It is more efficient than a one-time equity injection, because it will be used only as needed and on terms that Treasury has set.

On an as needed basis – as often as needed and on terms the Treasury has set (only when they go negative).

Market discipline is best served when shareholders bear both the risk and the reward of their investment. While conservatorship does not eliminate the common stock, it does place common shareholders last in terms of claims on the assets of the enterprise.

If you hold common stock in Fannie or Freddie, you are the first one to get hit with the losses.

Similarly, Read more

September 6, 2008

A Eulogy….

by Tom Vanderwell

Mortgage Officer

Dearly Beloved:

We gather here to commemorate the dearly departed who’s passing we mourn today. I’d like us to take a few moments to dwell on the lives that were lived, the good that was done, and the ways we can learn from their excesses.

Fannie lived a good long life. She came to this earth during the Depression and spent many many years doing good and helping many many people live the American Dream and buy a house of their own and benefit from long term fixed and affordable mortgages.

Later in life, Fannie’s younger brother came on the scene. Freddie, beset with a case of sibling rivalry, attempted to outdo his older sister. First Freddie attempted to do the same thing that Fannie did and all was well. Competition was good, it kept the siblings honest and many people benefited.

But as Fannie grew older, she began to resent her younger sibling. He was younger, less experienced, but kept up with his older sibling quite well. As the sibling rivalry grew, more risks were taken. In their attempts to outdo each other, greed and corruption took over. Risks were taken and increasingly risky behavior was considered acceptable.

Over the years, the markets responded very well to Fannie and Freddie’s increasingly competitive and risky behaviors. More and more people were able to live the American Dream until the American Dream became too expensive. Suddenly, the risky behaviors that Fannie and Freddie were engaging in weren’t paying off quite as well.

Initially, Fannie and Freddie seemed fine, but later it was determined that the risky behaviors had caused significant internal damage. Many efforts were made to revive them and bring them back to full health. The medical bills have been staggering and the efforts were heroic. But, alas, it was too late.

Rest in peace, dear brother and sister. Know that you’ve done well and helped many over the years. Know that the lessons that we’ve all learned from you will echo throughout the years: Know your limits, be responsible, don’t let greed run rampant.

In Memory of our Dearly Departed, I ask that you join me Read more

September 5, 2008

Quick update on the rumors….

by Tom Vanderwell

Mortgage Officer

If any of you have enjoyed the “give and take” between Sean and I about the Fannie Freddie death watch, it appears, based on reports in the Wall Street Journal and others that the bailout is happening this weekend. What shape is it taking? Lots of rumors, very few facts.

Here’s what I feel safe saying I know for now:

1. If you own common shares in Fannie or Freddie, you can probably use them for wallpaper.

2. If you own “debt” from Fannie or Freddie, you’ll be fine.

3. I’m still going to be writing mortgages next week. The purpose of the bailout is to make sure the housing market stays moving and doesn’t precipitate a total financial collapse.

If I know more, I’ll write more later.

Tom Vanderwell

September 5, 2008

Mortgage Market Week in Review – Jobs….

by Tom Vanderwell

Mortgage Officer

Well, it’s Friday again, everyone is back in school, my 18 year old is off to college (only 35 minutes away but still) and the mortgage world keeps moving on. So what’s this week look like? Well, frankly there were a couple of other things going on, but the main thing that happened was jobs this week. Which jobs? The ones that were getting cut and the ones that John and Sarah are running for (yes I am going to talk about politics!)

First, the jobs that are getting cut. The August employment numbers came out and they were frankly quite dismal. We lost 84,000 jobs in August and both June and July’s numbers were revised downward. In addition to that, the unemployment rate jumped upward to 6.1%, the highest level in, I believe, 5 years. The numbers were not only bad, they were worse than the markets had expected and that has correspondingly renewed the use of the “R” word (not Republican, recession) and has reduced the fear of inflation. The silver lining in that dark cloud is that mortgage rates have benefited this week. The dark side is that there are a lot more people out of work.

So what does that mean? Let’s focus on the “obvious” first:

1. It means that there are very few if any employers who are expanding right now. I’ve heard discussions that in order to handle the growth in our society, we need to create an additional 100,000 plus jobs every month. We aren’t even close to that number. So that’s not a good sign for the overall economic picture.

2. It’s probably also a byproduct of the fact that the credit crunch is moving from just being a subprime mortgage problem to being a mortgage problem to being an overall credit problem. Why is that so? If you were a business owner who was looking to expand but can’t borrow the money needed to expand, it is going to be harder to hire more people. It’s a vicious cycle, know what I mean?

3. If more people are afraid of losing their jobs, then Read more

August 29, 2008

Mortgage Market Week in Review…..

by Tom Vanderwell

Mortgage Officer

Sorry this is a little late. Had a closing out of town and it tied up a lot of my afternoon.

Happy Labor Day weekend! I hope that you take some time to enjoy a very relaxing weekend on the last long weekend of the summer. Due to the fact that it’s the Holiday Weekend, I’m not going to make this as long as some of the others have been. So here’s what’s been going on in the mortgage world:

1. Fannie and Freddie – while nothing has changed substantially, the immediate market fears over Fannie and Freddie have diminished somewhat. I guess you could describe it as a situation where it’s still cloudy and rainy, but the worst of the storm has passed for now.

2. Credit Markets – there is continuing fear and questions regarding the status of the credit markets. How big of a problem is there floating under the water yet? I’ve heard rumblings that as Fannie and Freddie’s shares have fallen in value and as it’s rumored that when (not if) the Fed does bail out Fannie and Freddie, the shares will go to zero. Many banks own substantial shares in those two companies and a reduction in their holdings to zero will require additional writedowns and additional belt tightening on their parts. That doesn’t bode well for the health of the banks. Speaking of banks, there’s some questions about a certain bank out in California (Washington Mutual) because they are currently offering CD rates that are approximately 25% higher than the going rates most banks are paying. The thinking is that they are paying higher rates because they need cash and need it desperately.

3. Economic reports – the Gross Domestic Product report came in much stronger than expected. Does that mean that the economy is going well? Let’s put it this way, the aircraft industry had a very good quarter. The vast majority of the increase came because of the aircraft industry. Apparently some airlines are upgrading their fleets to improve fuel efficiency. Consumer Confidence came in higher than expected as well. The market consensus seemed Read more

August 22, 2008

Mortgage Market Week in Review

by Tom Vanderwell

Mortgage Officer

Here we are on Friday again and it’s time to take another look at what’s going on in the mortgage markets. This week we’re going to talk about two economic reports and two big question marks.

First the economic reports from the week:
1. The Index of Leading Economic Indicators came out and it was down quite substantially. What is that index about? Basically it’s the conference board’s way of looking at what they think the economy is going to look like going forward. That’s why it’s called “Leading” rather than most reports that are essentially reporting what happened. This looks at what they think is going to happen based on trends and such. The fact that it’s way down doesn’t bode well for an economic recovery any time soon. It doesn’t specifically mean that we’ll have (or are in) a recession, but it does mean that things aren’t pretty.
2. The National Association of Home Builders reported that builder confidence came in for August at a record low. Gee, for any of you who read this who are a builder, know a builder, or work with one, it’s probably no surprise at all. We’re going through a fundamental shift in the building capacity that is needed in this country and the weeding out that is going to (and is) happening is not a fun thing by any means. Whether is was building, lending, or real estate sales, the bubble allowed way more people to get into the businesses than what the overall health and growth levels could handle. That’s an ongoing readjustment that needs to continue before we can hit bottom and go up from there.

Now for the two question marks. Actually, it’s one question about two companies. What’s the real story behind Fannie Mae and Freddie Mac? I’ll make a couple of points to tell you what my take on them is:
1. As “quasi governmental” institutions, Fannie and Freddie have been able to borrow money at rates that are better than what other companies can borrow money at. That’s because of the implicit backing of the Read more

August 15, 2008

Mortgage Market Week in Review

by Tom Vanderwell

Mortgage Officer

Well, it’s Friday again, and as one of the few remaining Fridays of the summer, I hope you can get out and enjoy the weekend (and hopefully the weather where you are will allow you to!)

So what’s been happening in the mortgage market this week? This week it’s been all about inflation and housing statistics…..

Inflation – the Consumer Price Index grew by a much faster than expected .8% during July. Normally, that would send the markets into “freakout” mode but the markets didn’t really react all that much. Why? A couple of things: 1) A huge amount of the increase was due to the rising costs of energy and that has dropped quite substantially since the first of August, thereby easing the risk of inflation. 2) There has been quite a bit of “noise” lately on how the slowing of the economy both here and internationally will become, eventually, anti inflationary. How does that work? In a nutshell, if there aren’t many people shopping at Best Buy, they can’t very well raise prices, can they?

Housing Statistics – I’m not going to get into the itty bitty details of the housing statistics that have been released lately but I’m going to give you a bit of an overview of the reports and try to focus on the bigger picture rather than get stuck on details:
1. Foreclosures are rising – the number of homes that have been foreclosed on in July vs. last year is a LOT higher. In some areas of the country, it’s a staggering percentage higher, in others, just higher. But it’s up. What does that mean? It means that the troubles in the housing and credit markets are still going on and are potentially getting worse.
2. REO – Real estate owned by a bank or financial institutions. According to one report issued this week, banks and financial institutions now own over 750,000 homes throughout the United States. What does that mean? Essentially this, if we had to relocate the entire city of Chicago, we could find a bank owned home for every resident of Chicago and there Read more

August 13, 2008

A Proposal to Improve Mortgage Lending….

by Tom Vanderwell

Mortgage Officer

Since there are a variety of licensing, regulation, education, criminal background check proposals bouncing around in an effort to clean up the mortgage world, I thought I’d throw out my own proposal on how to improve mortgage lending.

I’m proposing that as part of the training for becoming a mortgage lender, all originators be required to spend a minimum of 6 weeks working with a Realtor full time. They would be required to essentially job shadow the Realtor in every aspect of the business. What would they learn during their time?

They would learn that Realtors don’t get weekly paychecks, they only get paid when they sell a house.
They would learn that Realtors have many people putting pressure on them to “get the house closed.” The seller wants to close so they don’t have to make another payment on it. The buyer wants to close so that they don’t have to move twice. The Realtor’s wife wants them to close so she has the money to buy groceries. The Realtor’s daughter wants them to close so that Dad can buy her the stuff that she needs to “look good” going back to school. The Realtor’s bank wants them to close so that he can make the payments that need to be made on the _______ (fill in the blank – car loan, lease, house payment, home equity payment).
They would learn that there is a lot more to marketing a house that is for sale than a sign in the yard and a listing in the MLS.
They would learn the intricacies of negotiating a purchase agreement and have a much better handle on the dynamics of the relationship between buyer and seller and the ways that a lender can avoid disturbing those relationships.
They would realize that many Realtors care deeply that their buyers and sellers make wise decisions when they are buying or selling and aren’t just focusing on “how much can I make.” Unfortunately, not all of them are focused that way.
They would realize that there is a lot more that goes into determining what price to list a house at than the Read more

Author: Tom Vanderwell (page 6 of 8)

Project Bloodhound – Advice Needed

by Tom Vanderwell

So what does this mean to the real estate markets and real estate professionals?

by Tom Vanderwell

Mortgage Market Week in Review

by Tom Vanderwell

Every now and then…..

by Tom Vanderwell

Moral Hazard Revisited…..

by Tom Vanderwell

Update on Fannie and Freddie

by Tom Vanderwell

How we got to this place…..

by Tom Vanderwell

Excerpts from the Press Release about the Death of Fannie and Freddie…..

by Tom Vanderwell

A Eulogy….

by Tom Vanderwell

Quick update on the rumors….

by Tom Vanderwell

Mortgage Market Week in Review – Jobs….

by Tom Vanderwell

Mortgage Market Week in Review…..

by Tom Vanderwell

Mortgage Market Week in Review

by Tom Vanderwell

Mortgage Market Week in Review

by Tom Vanderwell

A Proposal to Improve Mortgage Lending….

by Tom Vanderwell

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