Archive for the 'Housing Bubble' Category
I ran across this article from Kiplinger Forecasts this morning. It does a fair job of addressing the question on every troubled home owner’s mind: Is there a bail out coming?
So far, the answer appears to be no. Despite high level legislative chatter, the recent Bush proposal for FHASecure—the details of which remain vague, and the inevitable debate about the “moral hazard” of keeping the dirty bath water to save the baby, no broad plan has emerged. That may be understandable in light of the fact that 70% of the foreclosure problem exists in 7 states. If your state didn’t contribute to the problem, do you want to pay for its solution?
And yet there is something bigger at stake.
The foreclosures in those 7 states will have a broad negative impact on consumer spending. That hurts retail sales and profits, and ultimately jobs. The negative wealth effect and spending pull-back on the part of foreclosure victims is actually the smaller part of the problem. Think about the much larger group who won’t lose their homes. They’re feeling the pinch too. And they’ll spend less as a result. It’s like the scare-movies they show you in driver’s training. Even though that wasn’t your blood on asphalt, you’ll drive a little more carefully after seeing what happened to the other guy.
read comments (3)More Lenders Falter
Lehman Brothers announced today the closure of its sub-prime subsidiary BNC Mortgage. Lehman Brothers will continue to originate prime mortgages through its Aurora Loan Services platform but is discontinuing all sub-prime originations.
More sad news from my rep at Accredited Mortgage yesterday afternoon:
I’m sure you’ve all heard the news that we’ve ceased accepting new loan applications. As you can surely guess, this means I am no longer employed. I wanted to thank all of you for your business and wish you the best of luck in the future. My email account will be shut off shortly. If you’d like to stay in touch, here’s an alternate email.
HSBC, Europe’s largest bank, restructured its U.S. mortgage operations and announced plans to close an Indiana office.
Finally, this mysterious communication from Homecomings Financial.
First Magnus Folds
This morning’s sad news included a notice from First Magnus that it is no longer funding any mortgage loans.
Moody’s Cuts Countrywide Credit Rating
…update from Reuters this morning. More bad news for CW. Watch your loans and have a backup plan.
NEW YORK, Aug 16 (Reuters) - Moody’s Investors Service on Thursday cut its debt rating for Countrywide Financial Corp. to the lowest rung of investment-grade and said it may cut again.
The ratings agency cited the U.S. mortgage lender’s decision to draw down an entire $11.5 billion credit facility to bolster liquidity.
Moody’s cut Countrywide’s rating three notches to “Baa3″ from “A3.”
Is Countrywide the Next to Crash and Burn?
From Reuters today…
Countrywide Financial Corp. could face bankruptcy if liquidity worsens, according to a Merrill Lynch & Co. analyst who downgraded the largest U.S. mortgage lender to “sell” from “buy”.
The downgrade suggests deepening problems at Countrywide, which has several times in the last month tried to assure investors it will thrive once the credit crunch afflicting the U.S. mortgage industry passes.
Wednesday’s downgrade by analyst Kenneth Bruce came a day after Calabasas, California-based Countrywide said foreclosures and mortgage delinquencies in July had risen to their highest levels since at least early 2002.
“If enough financial pressure is placed on Countrywide or if the market loses confidence in its ability to function properly then the model can break, leading to an effective insolvency,” Bruce wrote. “If liquidations occur in a weak market, then it is possible for Countrywide to go bankrupt.”
Don’t put your eggs in that basket right now. Wouldn’t that be amazing if the country’s largest home mortgage lender were to fall? If American Home Mortgage left $800 million worth of approved loans hanging, how much damage would a Countrywide bankruptcy do? Maybe that’s what the TV commercial means by “No one can do what Countrywide can.”
What’s my point here? Realtors and borrowers are much better off working with a reputable mortgage broker today than with a mortgage banker. In addition to having to fully disclose our fees (Countrywide doesn’t), mortgage brokers can guide clients away from unstable lenders and toward those who will still be around on closing day.
Got a question? Shoot me an email, or leave a comment below.
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?
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.