Archive for November, 2007
Very quietly, Countrywide has once again proven the claim: “No one can do what Countrywide can.”
After pushing the worst mortgage junk ever created, pushing their originators to sell that crap, pushing their stock in insider trading schemes before the meltdown, they have pushed this garbage on the Atlanta Fed as collateral for a quiet loan of $51 billion of your money.
A few days ago, New York Senator Charles Schumer was concerned enough about Countrywide to write this letter to the Atlanta Federal Home Loan Bank. In it he says:
I write to express my serious concern over the lending practices of the Federal Home Loan Bank of Atlanta, specifically in regard to the significant volume of advances made to Countrywide Bank. I am concerned that the loans being pledged by Countrywide to secure these advances may pose a risk to the safety and soundness of the FHLB system as a whole.
In exchange for the $51.1 billion in advances, Countrywide pledged $62.4 billion in loans, nearly 80% of its entire investment portfolio, as collateral. Of that, almost half consisted of pay option ARMs, most of them underwritten without any income verification. Delinquencies on the company’s pay option ARMs leaped 78% in the last quarter.
Schumer continues…
read comments (3)As real estate values continue to sag, pushing many home owners toward foreclosure, one question surfaces more than any other. Will a short-sale damage your credit less than a foreclosure?
REWIND
I wrote a couple of articles awhile back entitled, Short Sales vs. Foreclosures…Your Credit Will Suck Either Way and Short Sales and Loan Prospector: A Response From Freddie Mac. At the time–nearly a year ago–my preliminary investigation suggested that short sales and foreclosures would have exactly the same effect on credit. But back then, this issue was just reclaiming the spotlight, and no one had really given it much thought. You see, it has been 10 years since we’ve really seen this problem.
Those articles are still garnering comments, and I’ve been getting daily phone calls and emails from all over the country from people facing foreclosure. So recently I reopened the investigation. And although the issue is far from clear, my conviction is the same. As far as your next mortgage is concerned, a short sale won’t leave your credit in better shape than a foreclosure. And it could leave you worse off from a tax standpoint.
NOT EVERYONE AGREES
Now I need to acknowledge the disagreement out there. Speculation is rampant, but a lot of it is groundless. There are people predicting the number of points each type of foreclosure will move your scores, a claim my credit reporting agency called “asinine.” Real estate agents seem more prone to recommending short sales, though most of the agents I know are very cautious about this. One Realtor/lender wrote,
Last June I wrote an article entitled Is This The End of Credit Score Piggybacking? That article discussed the renting or selling of credit scores by good borrowers to fake good credit scores for bad ones. The practice of piggybacking credit has been used by parents to help their kids develop good credit scores. When accompanied by some education in the matter of building and maintaining good credit habits, this promotes the responsible use of credit.
However, the bad guys have been using credit renting to cheat the system and the credit bureaus are about to slam the door shut. Here is a brief summary from of how it works and the changes you can expect to see shortly. This came from someone at the credit reporting agency I use.
Authorized users are individuals that are added to an account without having any responsibility for the account. The most popular use is when an individual with a credit card, makes other members of the family “authorized users” on the card. The authorized users get their own cards (with their names on them) and the accounts show up on their credit reports as authorized user accounts. However, the authorized user has no actual liability for the account; if the account goes into default the creditor can only pursue the main account holder for the funds, not the authorized users. (This is how authorized user accounts differ from joint to co-signer accounts where the additional users also are liable for the account).
Fair Isaac has upgraded their scoring model to account for the fact that people were abusing the authorized user accounts to boost their credit scores. Called “Credit Renting”, individuals with highly rated credit cards were paid to add individuals with bad credit as authorized users their accounts. The authorized users would see credit score increases when these accounts became part of their credit profiles… Read the rest of this entry »
As if on cue for Thanksgiving, the Sacramento Bee today announced that governor Arnold Schwarzenegger had obtained agreement from four lenders to freeze rates on California subprime loans that are about to reset. Hey, one more reason to celebrate!
The initial list of lenders include Countrywide, GMAC, Litton, and HomeEq—hopefully more will follow their lead—and the agreement applies to borrowers who a) have not yet defaulted on their payments, b) live in the home, and c) can prove that they will be unable to make their new payments. Rates could be frozen for 5 years or more, depending on the borrower’s situation.
Borrowers should not expect this concession to come without some sacrifice. The article mentions that,
“Lenders have complained at State Senate hearings that some borrowers are loath to give up cell phones and cable TV to help them reach a deal.”
The implication is that lenders will be scrutinizing the home owner’s budget and agreeing to forego the interest rate increase only if the borrower is willing to make concessions as well. That seems fair and reasonable.
I’d like to keep tabs on these lenders to make sure this isn’t just happy talk. If any of you do contact one of these lenders, please come back here and let us know how that conversation went.
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Sacramento Mortgage Rates:
The 30 year fixed rate conforming loan (up to $417k) ended the week at around 6.25% at 1/2 point, according to Freddie Mac’s weekly survey.
The 3/1 and 5/1 conforming arms are once again offering a bit of a break and can be had in the low to mid 5% range with that same half point.
Jumbo 30 year fixed rates are still around 7.25%. Only the big banks with a broad retail presence are willing to stick their necks out to offer these, since investors still haven’t found their appetite.
Jumbo 3/1, 5/1, and 7/1 arms are a good bet right now with rates in the low 6% range. For those with a shorter time horizon, a jumbo 7/1 arm at 6.25% on $550k would save $366 per month, or $33,000 over five years. That’s worth looking at!
The interest-only counterparts to these loans will carry a premium on the rate anywhere from .375 to .75%
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The Labor Department released October’s Consumer Price Index (CPI) today on the heels of yesterday’s PPI. The overall index was up 0.3%; the core rate was up 0.2%, matching consensus estimates. This left the market to digest other news as it searched for direction.
That news came in the form of more credit market troubles that sent money into the safety of bonds this morning as Applied Material and J.C. Penny put out weak forecasts and Barclays announced a $2.7 billion write-down from its subprime lending activities and related credit issues.
The flight to quality is pushing mortgage rates a bit lower.
October’s retail sales checked in at a 0.2% increase, slightly better than expected. But take out gasoline sales, and retail sales rose only 0.1%. This wasn’t enough to depress the market, but it was enough to cause Joel Naroff of Naroff Economic Advisors Inc. to quip,
“We could be getting increases in retail sales simply because people are directly depositing their checks into the gas pumps. That would not be healthy for the economy.”
Meanwhile, wholesale inflation for October were slightly lower than expected. Energy costs pulled the numbers down, but how long can that last. Here’s the full government report.
Not much change in mortgage rates today. Let’s see what the CPI does tomorrow…..
Curious about mortgage rates, or need a quote? Contact me. I do loans in most of the western US.