Category: Lending (page 35 of 56)

by Brian Brady

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

Author website

“Plus ça change, plus c’est la même chose“- Jean-Baptiste Alphonse Carr, 1849

Hat tip to Matt Graham and Adam Quinones of Mortgage News Daily

You gotta hand it to the powerful Mortgage Bankers Association of America (MBAA).  What they lack in imagination, they make up for in chutzpah.  The MBAA released its report “Recomendations for Future Government Role in the Core Secondary Mortgage Market“.  This six page report (the other six pages are pictures and such) essentially suggests that the Federal Government charter “Mortgage Credit Guarantor Entities” (MCGE) with a mission to purchase whole loans from originators and issue securities for purchase by investors.

These MCGE’s will be different from the existing GSE’s inasmuch as they:

• require originators to retain 5% of the risk of the underlying loan values in the form of “set aside” capital
• will be subject to “strong and effective regulatory oversight”
• will only guarantee “core” mortgage products (30 and 15 year fixed rate loans)
• will issue securities with the “explicit” guarantee of the full faith and credit of the United States Treasury rather than the former “implicit” guarantee

The MBAA did recommend that the existing infrastructure of the “outdated” GSEs be used to establish new MCGEs.  It recommends that initially, the number of MCGEs to be established should be…

two or three.

As I’ve said before, I criticize too much.  As a taxpayer, I should be outraged but as a mortgage banker, I’m keeping my mouth shut;

I want to be President of Manny Fae before I retire.

PS:  Read the whole report here.  Pages 5-10 are the meat of the proposal with lots of pretty pictures and footnotes on the other pages.

PPS:  Look for the more powerful National Association of REALTORs (NAR) to offer immediate support for and pledge lobbying efforts  for the establishment of MCGEs

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