Archive for August, 2007
If common sense and research studies hadn’t already convinced you that you should use a mortgage broker (vs. a mortgage banker or direct lender), then chew on this:
Countrywide and Washington Mutual, two of the nation’s largest mortgage banks, stated this week that they are facing “unprecedented disruptions” in the secondary market for mortgages that could adversely impact earnings and financial condition. Unprecedented disruptions. Hmmmm… that’s a vague and scary phrase, but what does it mean?
It means that if you arrange your home loan through a mortgage bank and they experience an unprecedented disruption of the we-can’t-fund-your-loan kind, you may be sleeping in the U-Haul at the close of escrow.
Think I’m exaggerating? Everyone’s heard about the demise of American Home Mortgage (AHM)—one of the nation’s 10 largest mortgage bankers—who one week ago had exactly that type of unprecedented disruption. The were about 7000 people suddenly without jobs, but more to the point there were $800 million in approved loans that didn’t close. U-Haul must have had a great weekend. Those borrowers and AHM employees did not.
How is a mortgage broker different?
read comments (6)Subprime Troubles Spread to Europe
From CBS Market Watch this morning…
LONDON (MarketWatch) — BNP Paribas, one of the largest banks in France, said Thursday that it will stop valuing three of its funds and is suspending investor withdrawals after U.S. sub-prime-mortgage woes led to the “complete evaporation of liquidity,” the latest sign of housing market troubles in the world’s biggest economy rippling across the globe.
So the mess has now spread beyond the sub-prime, beyond the prime mortgage arena, beyond the U.S. economy, and into the international economy, causing a complete evaporation of liquidity.
BNP Paribas was joined by Germany’s Union Investment who suspended redemption on one of it’s funds, U.S.-German JV WestLB Mellon Asset Management who suspended redemptions on an ABS fund Tuesday, and Dutch bank NIBC who wrote of a $137m loss on its U.S. ABS fund. All of this from exposure to the U.S. sub-prime mortgage defaults.
What does it mean to you as an agent or borrower?
Virtually all loans other than government loans or the conforming loans that are sold to Fannie Mae and Freddie Mac have been frozen or the rates raised to ridiculous levels. The markets are repricing risk. Until investors can quantify risk in this new environment and make sense of the complex credit derivatives created by Wall Street, they have headed for the sidelines. Mom and dad have confiscated the mortgage industries credit card.
What to Do?
For now, be careful about removing your loan contingency until the loan funds. Lenders who belly-up because they run out of money to lend don’t care that you or clients will be sleeping in the Bekins van while you try to find another loan.
Got a question? Send me an email.
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The Fed Holds Rates Steady, Disappoints Markets
The Fed adjorned today leaving rates unchanged. Citing a desire to see more convincing signs of a “sustained moderation” in inflation, they kept up their hypervigilant stance against inflation. The decision disappointed the markets laboring under the recent spillover of the mortgage problems into the credit markets.
Here’s the text of the Press Release:
For immediate release
The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.
Economic growth was moderate during the first half of the year. Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy.
Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures.
Although the downside risks to growth have increased somewhat, the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the outlook for both inflation and economic growth, as implied by incoming information.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Michael H. Moskow; William Poole; Eric Rosengren; and Kevin M. Warsh.
The Mortgage Carnage Continues
Monday Update
American Home Mortgage called it quits on Friday, filing for bankruptcy protection.
Today, both Aegis Mortgage Corp. and National City Mortgage’s home equity division stopped accepting new applications. Aegis indicated that it would NOT be able to meet its present funding obligations.
AltA loan programs, home equity loans, and pay-option arms remain frozen until further notice, and Wells Fargo’s jumbo rates were priced all the way up at 8% this morning.
I’ve never seen anything like this in 18 years.
Stay tuned. It’s going to be a wild ride.
Although not quite the canary in this coal mine, yesterday’s announcement of insolvency by American Home Mortgage Corp., one of the country’s largest mortgage banks, sent a chill through the financial markers. The announcement was significant because AHM was not a sub-prime lender and because it indicates that the mortgage industry’s problems have spread into the prime lending and corporate capital markets.
With risk spreads widening and credit tightening at all levels, the LBOs that have sustained the stock market’s recent rise are in jeopardy. Between AHM’s announcement and Countrywide’s earnings report last week, the stock and bond markets were frantic. The Dow dropped 147 points yesterday. AHM’s stock fell from a Friday high of $10.47 to $1.04 per share by the end of the day.