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Category: Lending (page 31 of 56)

November 26, 2010

GM IPO= $ 4 UAW

by

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

Author website

Here is yet another example of how the sharp noses of the Bloodhounds, caught a whiff of the stench, before the media did:

Do you remember how Sean Purcell was confused with the mathematics behind the GM IPO?

You know, I seriously don’t mind when others try to mislead me and I’m not much offended when I get force fed a whole bunch of obfuscation from the government , but when you mess with the math you insult me on a much deeper level.  (Note: I may hold math a little more sacrosanct than most.  I see in math the core of philosophy, music and precision; I look at math and I see poetry.)  Listen, it’s not like this is differential calculus; it’s basic multiplication and division.  Don’t stand there and tell me 2+2=5!  As Mr. Brady is fond of saying: “I am cursed with the knowledge that two plus two does, in fact, equal four.”

I don’t know about anyone else, but I’m not buying shares in a company run by people who think they’re so smart math doesn’t apply to them.  In the end, the math of the free market does apply, and it is always right.

Well, Patrice Hill from the Washington Times had a problem with the math as well.  She was more conclusive than our Mr. Purcell.  Ms Hill called the prestidigitation what it was; a payoff:

Thanks to a generous share of GM stock obtained in the company’s 2009 bankruptcy settlement, the United Auto Workers is well on its way to recouping the billions of dollars GM owed it — putting it far ahead of taxpayers who have recouped only about 30 percent of their investment and further still ahead of investors in the old GM who have received nothing.

The boon for the union fits the pattern established when the White House pushed GM into bankruptcy and steered it through the courts in a way that consistently put the interests of the union ahead of many suppliers, dealers and investors — stakeholders that ordinarily would have fared as well or better under the bankruptcy laws.

“Priority one Read more

November 18, 2010

I just “feel” that mortgage rates could drop, for a short period of time

by

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

Author website

Didn’t I just tell you mortgage rates will be rising,  ten days ago?

I sure did, and I think I offered a pretty solid, fundamental explanation of how the bond bubble will pop.  That hiss you heard, directly after my post, was the rapid escape of helium from the bond balloon.  Back then, the 4.0% FNMA bond was trading at 102.75, while today, that bond is trading at 101.50, after reaching a low of 101.25.

What’s that mean to your customers?

The very same $300,000 loan, they could have locked in with no points, on November 8, 2010, will cost that customer about $5,000 extra, in closing costs, today.

I “feel” they’ll have a shot at getting close to that no-point pricing before the month is over.  Let me explain the difference between “feeling” something and “being pretty certain about” something.  I’m pretty certain that the sun is setting over the yardarm of below 5% mortgage rates but I’m having a little difficulty reading the sun dial.  I know it’s sometime between 3PM and 8PM for this mortgage rates rally.

Still, before the last ray sinks into the sea, we’ll see some rallies.  Here’s why I “feel” that way:

  • The Fed is buying between $600B and $900B worth of bonds.  It is resolute that this sort of monetary policy is what is needed to lower unemployment.  So certain is it that it is fighting back against political criticism of QE2.
  • The GM public offering was received very well yesterday.  Investors jumped at the chance to own the electric car company so much that GM expanded it’s offering and is trading higher, post-offering.
  • The Irish bond bailout appears to be happening.

Traders are calming down, and trusting the power of central banks’ and governments’ bailouts again.  A trader’s loyalty is about as reliable as a lap-dancer’s love but, for the near-term, bond traders think  QE2 just might drive bond prices higher.  They ain’t selling too much and they ain’t buying too much.  Expect them to watch what happens through next week, then pile on the bond train, hoping to make a quick buck.  That’s good for mortgage rates, in the short-term.

Eventually, Read more

November 8, 2010

Mama Grizzly Knows Sumptin’: It’s Sunset For Low Mortgage Rates

by

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

Author website

One of the things I love about the internet is that links last.  For your soap-operatic pleasure, Sarah Palin asks a national author if he read his own newspaper, when he criticized her remarks about inflation:

So, imagine my dismay when I read an article by Sudeep Reddy in today’s Wall Street Journal criticizing the fact that I mentioned inflation in my comments about QE2 in a speech this morning before a trade-association. Here’s what I said: “everyone who ever goes out shopping for groceries knows that prices have risen significantly over the past year or so. Pump priming would push them even higher.”

Mr. Reddy takes aim at this. He writes: “Grocery prices haven’t risen all that significantly, in fact.” Really? That’s odd, because just last Thursday, November 4, I read an article in Mr. Reddy’s own Wall Street Journal titled “Food Sellers Grit Teeth, Raise Prices: Packagers and Supermarkets Pressured to Pass Along Rising Costs, Even as Consumers Pinch Pennies.”

It’s common knowledge that Sarah Palin is a vacuous bimbo, who gathers her economic news from the Wasilla Women’s Club Newsletter, right ?

Call me suspicious but I watched an amiable dunce win the Cold War, without firing a shot.  Let’s just say I’m less inclined to question the intelligence of country bumpkin politicians, after living through Reagan, and am more inclined to second guess the propagandists at the major dailies.

Whodathunk Mama Grizzly would face the Wall Street Journal, though?

Mama Grizzly and Mama Brady know something about inflation; they do the weekly grocery shopping.  When Mama Brady told me that our grocery budget had to be adjusted upwards, while I was remarking that our budgeted monthly fuel expenses had to be adjusted  as well, I started thinking that inflation might just be around the corner- that’s not good for mortgage rates.

October 19, 2010

Investors to put toxic loans back on B of A

by

Realtor, Peripatetic Iconoclast

Author website

No wonder B of A is accelerating foreclosures. They will need the cash from the sale of REO’s to repurchase about $47 Billion of bad mortgage bonds that were sold with, shall we say, less than pristine origination paperwork. This is where the robo signing mess matters. If the chain of title can be challenged and your friendly union pension fund can recover part of the loss on the investment, some one will be making up the loss. Any guesses who? Rest assured it will not damage the administration’s bankster contributors’  bonus pool.

Dig deep, taxpaying America.

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October 12, 2010

Foreclosuregate? A scandal? If you want to sue for damages, it behooves you to have suffered a real, actual, material injury.

by

Suburban Phoenix Real Estate Broker

Author website

I had buyers back out of a purchase contract at the last minute, earlier this year. They got cold feet, and they had no remaining contingencies, so they understood they were losing their earnest deposit. The seller’s agent wanted to fight about it, making a lot of noise about specific performance. But here is what was interesting to me, thinking about the legal issues in the abstract:

The deal was a short sale.

In other words, had the sale proceeded to closing, the seller’s actual material gain would have been zero dollars and zero cents.

Taking account that we cancelled the contract, the seller’s actual material loss was — wait for it — zero dollars and zero cents.

Arguably, the seller might have suffered financial damages as a result of losing the home to foreclosure, rather than losing it in a short sale, but these consequences could never have been subject to my buyers’ control.

In other words, though we did not go to court, I could not see a way for the seller to claim any sort of material injury by the cancellation of the contract. He had no real, actual, material consideration at stake.

Why bring this up?

Because I think this is the end of the road in the so-called “Foreclosuregate” “scandal.”

To bring us up to speed, the Wall Street Journal wonders if we’re headed for housing armageddon. Not to be outdone, CNBC insists that foreclosure fraud is worse than you think.

Here’s what I think: If there were procedural laxities in the handling of paperwork, there was no intent to defraud. And laying that aside, there are no former homeowners who can claim that they were avoidably injured by mis-handled paperwork.

Why was your mortgage foreclosed? Because you stopped paying it. Did you have any rational reason to believe that you could keep your house once you had stopped paying your mortgage? No. If the paperwork that led to your foreclosure was not prepared to perfection, does that give you the right to retain possession of a home you are not paying for? No.

Voters are fools, of course, and the Attorneys General of the many states Read more

September 2, 2010

Those Who Can Not Learn From History Are Doomed To Repeat It

by

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

Author website

HUD announces it’s “First Look” program today:

The National First Look Program is a first-ever public-private partnership agreement between HUD and the National Community Stabilization Trust (Stabilization Trust). In collaboration with national servicers, Fannie Mae, and Freddie Mac, the First Look program is intended to give communities participating in HUD’s Neighborhood Stabilization Program (NSP) a brief exclusive opportunity to purchase bank-owned properties in certain neighborhoods so these homes can either be rehabilitated, rented, resold or demolished.

On the surface, it sounds idealistic.  Who would be against local stakeholders being afforded the opportunity to improve their communities?  Don’t private investors do that, though? Maybe this program is targeted at those properties which even the scavengers avoid.

HUD’s NSP grantees, which include state and local governments and non-profit organizations, often find themselves competing with private investors for real estate-owned (REO) properties, which can hinder their efforts to stabilize neighborhoods with high foreclosure activity. With today’s announcement, HUD and the Stabilization Trust, working with national servicers, Fannie Mae, and Freddie Mac, will standardize the acquisition process for NSP grantees, giving them an exclusive option to purchase foreclosed upon homes in certain targeted neighborhoods.

Huh?  Competition is the engine which drives a functioning market.  This means that a government agency will specifically eliminate competition and deliberately sock banks with a loss.  How is THAT good?

HUD’s Neighborhood Stabilization Program was created to address the housing crisis, create jobs, and grow local economies by providing communities with the resources to purchase and rehabilitate vacant homes. NSP grants are helping state and local governments, as well as non-profit developers, acquire land and property; demolish or rehabilitate abandoned properties; and/or offer downpayment and closing cost assistance to low- to middle-income homebuyers. Grantees can also stabilize neighborhoods by creating “land banks” to assemble, temporarily manage, and dispose of foreclosed homes. To date, HUD has allocated nearly $6 billion in funding to state and local governments and non-profit housing developments. In the coming weeks, HUD will allocate an additional $1 Read more

August 17, 2010

Master Seller-Financing To Beat The Mortgage Market Freeze of 2011

by

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

Author website

I’m not so sure I want to play hockey against Bryant Tutas.  He thinks like Wayne Gretsky.

I cautioned about the coming mortgage freeze and asked what agents might do to prepare for it.  I’m a mortgage guy so I think in terms of institutional financing.  I completely forgot about seller-financing.  Bryant Tutas answered:

I’m ready for it. I just listed my 3rd property this month where the seller is offering financing. Seller financing is going to be very popular over the next few years. I’ve also been marketing to foreign investors with cash to spend. Once they purchase a home we turn right around and offer it for sale with financing. It’s a win all the way around.

Are you kidding me?  It’s so time-tested but underutilized it’s brilliant.  I forgot all about it!

What do you know about seller-financing?

First, you have to have a seller with some equity but…. ain’t nobody got no equity no mo’.  What’s a hustler to do?

Foreigners are looking to pay cash for U.S. homes and are finding great bargains at auction.  In San Diego, we see investors buy properties at auction and sell them for 20-35% higher, 60-90 days later.  The problem with some of those properties is that they aren’t appraising.  Seller financing doesn’t require an appraisal nor does it have  those pesky underwriting guidelines.  Bryant Tutas mentioned that he is prospecting foreign investors, to buy properties and sell them with financing terms.

This is the ultimate form of private financing.  Before you embark on this strategy, you might advise your sellers to require the following when considering offers:

  • a tri-merged credit report– you definitely want to check for tax liens, judgments, and large charge-offs.  All of those can become liens on title
  • It’s a good idea to require some income documentation– if your buyer’s housing expense doesn’t exceed 50%, you’re kosher in California but it’s probably a good idea to make sure that all of his/her debts don’t exceed 50% of gross monthly income
  • A down payment is going to assure your buyer has something to lose if the deal goes sour.  I might suggest Read more
August 10, 2010

That Giant Slurping Sound is the Mortgage Market Drying Up

by

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

Author website

Ken Montville asked the nagging question about the future of the mortgage market:

Unfortunately, even Congress — that bastion of liberalism and home of the bailout — is tiring of pouring good money after bad into the two mortgage giants that have been sucking up all the mortgages — good and bad — that private industry is willing to create. To paraphrase one-time third party Presidential candidate, Ross Perot: That giant sucking sound you hear is taxpayer money subsidizing home mortgages.

Now, the big questions remains: What will happen next? If there is no Fannie and Freddie to buy up all the mortgages, who will do it? Will the lenders who originate the mortgages be forced to keep them on their books and won’t this further inhibit an already tight credit market?

I outlined, a year ago, how the government is retarding a private mortgage banking recovery but I said it again for Ken’s benefit:

“If there is no Fannie and Freddie to buy up all the mortgages, who will do it?”

Nobody will…or everyone will. I’m a “lowly retail mortgage originator” with some formal education (and lots of informal education) in economics so consider my opinion with that qualification.

To use a BawldGuy axiom, lenders lend. Unfortunately, the government, through TARP and artificially subsidized mortgage rates, is creating a situation where lenders prefer arbitrage to lending. It doesn’t take a rocket scientist to borrow guaranteed money at 1% and lend it (with a guaranty) at 4.5%. This is the systemic problem that is distorting the market and arresting any chance of a recovery in lending.

If the GSEs were allowed to fail, and FHA disappeared, lending would halt…for about 3-4 months. The recovery would be robust, sustainable, and at rates somewhere in the high 5s or lower 6s. Wall Street is taking chances on 5.75%-6% non-guaranteed, mortgage yields right now; there is interest in betting on the American homeowner. Low down payment loans would most likely be gone for about a year. Read more

August 5, 2010

The line for food stamps is over there. This is the line for deficit-funded mortgage bailouts.

by

Suburban Phoenix Real Estate Broker

Author website

James Pethokoukis at Reuters:

Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.

The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie.

What would be the motive for doing something this dumb? To buy your vote, of course:

Keep in mind the political and economic context. The nascent recovery is already running out of steam. Wall Street economists just downgraded the government’s second-quarter GDP estimate of 2.4 percent to around 1.7 percent. And as even Treasury Secretary Timothy Geithner is warning, the unemployment rate may well begin to rise back toward the politically toxic 10 percent level given such sluggish growth. Many in the White House thought the unemployment rate would be dropping sharply by this point in the recovery.

But that is not happening. What is happening is that the president’s approval ratings are continuing to erode, as are Democratic election polls. Democrats are in real danger of losing the House and almost losing the Senate. The mortgage Hail Mary would be a last-gasp effort to prevent this from happening and to save the Obama agenda. The political calculation is that the number of Read more

July 13, 2010

So what if lenders are lousy at judging character? Who can’t identify fat people when they’re sitting on the other side of your desk?

by

Suburban Phoenix Real Estate Broker

Author website

Who says all academics are mindless time-wasters? A pair of brave scholars have demonstrated a correlation between obesity and mortgage defaults. A bad credit report is good evidence of insufficient thrift, but a good credit report is evidence of nothing dispositive. A bulging waistline, on the other hand…

We show that obesity is an economically significant predictor of mortgage delinquencies at the county level. In practice, however, loan contracts do not incorporate easily verifiable health risk factors such as obesity. The discrepancy between theory and practice suggests the existence of substantial cross-subsidization and misallocation of funds in the loan market. The potential for business opportunities and policy implications warrants further investigation of our results with more detailed, albeit costly data.

This is pretty dumb, practically speaking, but it’s nice to see that the idea of pre-existing conditions might have a future, now that it’s been outlawed where it actually makes sense, in the health insurance business.

As an aside, our own Tom Vanderwell makes a cameo appearance in this “study.”

July 3, 2010

PACE Solar Program Slows Chances of Economic Recovery

by

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

Author website

Residential real estate finance is ill and getting worse.  I cautioned that the elixir that got us into this mess should be removed for a robust private market solution but the mix makers upped the dosage.  It’s gonna make us even more sick.

Last year, I saw an opportunity to finance energy efficient improvements, specifically solar panels.  My motives weren’t a political demonstration but rooted in financial analysis.  Often, an investment in a solar panels installation returns as much as 15% annually through cost savings.  Prescient building contractors reworked business plans to meet the expected demand. The global warming religion heightened awareness to self-produced energy systems and California consumers want in.  The challenge is that little if any home improvement capital exists in the mortgage market; that spelled opportunity for me.

I taught some of these contractors how to structure, price, and make junior loans, to finance their work.  Armed with my database of investors, I started a small secondary market for these “solar loans”.  The contractor would make a loan, hire me to sell that loan to an investor, and pay me a  fee for arranging that sale from the proceeds.  The loan was cross-collateralized by the subject property and an assignation of tax credits to the lender. The loans averaged $25,000 and I intended to build up a servicing portfolio, earning a fee to collect payments and remit them to the investors.

What I didn’t realize was that I had a competitor, a competitor that had a lot more money and influence than I did.  This competitor is able rewrite laws to its advantage, so that it had a first lien position, which is assumable by a purchasing homeowner.  My loans were junior liens with a due-on-sale clause.  That competitor is the PACE program, armed with $150 million of Federal money and the borrowing power of states and municipalities.

That’s a formidable foe for a small-town mortgage broker and his retired golf-buddy investors.  Needless to say, I abandoned the idea last month.  Today, there’s hope for my little venture.  The PACE program forgot that the existing secondary mortgage market doesn’t take kindly to Read more

June 25, 2010

FNMA Lends a Helping Hand (to Our Moral Backside)

by

Real Estate Renaissance Man

Author website

Two days ago, FNMA announced their new policy regarding strategic defaults; it’s a mortgage death penalty: seven years before the offender is eligible for another FNMA loan.  Finally, they got one right.  Yes, you read that correctly; if you make your profession in the business of real estate, Wednesday’s announcement is cause for celebration on more than one level.  I’ll explain why in a moment, but first let’s dispense with the two primary arguments in favor of strategic foreclosure we see over and over again from the bubble-heads on the left:

Already we’ve got Shahien Nasiripour on The Huffington Post (I know, that’s an easy target – but it’s usually wise to start slow and thoroughly warm-up one’s disdain muscles) trotting out the tired argument about how the average homeowner should be allowed to default because the corporations that hold mortgages do it themselves.  Mr. Nasiripour would apparently like to see individuals and large corporations share the same default outlook.  I wonder if he would also prefer that homeowners negotiate their own individual, custom loan contracts; pay much higher commercial insurance premiums; price home loans on the specific risk of the homeowner rather than a pooled risk; and so on.  Either he hasn’t thought this all the way through, or he’d actually like to see the cost of home ownership much higher than it is now.

The other misleading argument is neatly presented by Ezra Klein at The Washington Post.  Actually, kudos to Mr. Klein because he not only presents the other misleading argument, but he also manages to mislead us on the very definition of a strategic default.   The essence of the second argument, in his own words: “…a mortgage is a specific contract. It says that if the borrower stops paying, the bank forecloses on his or her house.”  Not quite.  The contract specifies foreclosure as one (and there may be more) remedy available to the bank if the borrower breaks the contract.  The point of the contract itself is a promise by the lender to loan money at a rate and term that will not vary from what’s specified in return for a promise by the borrower to repay the loan as specified.  That’s not such a Read more

June 14, 2010

The NAR Backs the FHA… Who’s Backing You?

by

Real Estate Renaissance Man

Author website
Late last week the House of Representatives passed H.R. 5072, the so-called FHA Reform Bill.  One of the major components of that bill (you can read the text of the bill here), raises the monthly insurance premium for all FHA buyers.  What does that mean to your bottom line?
 
Currently, the FHA monthly premium is .55% and the new legislation Congress is looking at will raise the premium a wopping 272% to 1.5%.  What does this mean to your buyer?  If they are at the limit of their eligibility on a $300,000 purchase price now, they would have to lower their interest rate by over 1.25% to still qualify for that house.  In other words, if the current market rate is 5.00%, it would have to drop to 3.75%!  If you think you might have trouble locating a lender who will do 30 year fixed loans at 3.75%, don’t worry; you can also lower their purchase price to bring them back into eligibility.  Their new price would only have to drop 10%!  A buyer looking at $300,000 today will be looking at $265,000 to $270.000 as soon as this bill passes. Does that change your market opportunities for the better… or the worse?
 
I understand why the NAR supports this, it keeps FHA alive and well, doing sub-prime loans for people who can’t afford to buy a home, which in turn keeps dues paying agents busy and coughing up their fair share.  But why do agents support it?  It’s going to have a devestating affect on your clients, and therefore on you.  Do you support it?  Have you let anybody know?
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