traci gregory AGENCY

from 5.25% to 4.75%. (Fed Funds Rate is the rate banks pay to borrow money) This should be a positive development for credit markets. Additionally, although less noteworthy, they also cut the discount rate (rate at which banks who can’t borrow from other banks can borrow directly from the fed) from 5.75% to 5.25%. - short rates (1 month through 3 years) are slightly lower - long rates (10-30 years) are slightly higher due to expected increase in inflation that will result from the fed stimulating the economy now through a larger than expected rate cut **note that about 37.5bps of the 50bp cut was already priced into the market based on investor expectations going into the announcement. Therefore, rates are only lower about 0.125% (not 50bps). What does this mean for mortgage rates: Short Term: short arms (1/1s, 3/1s, 5/1s) should go down 1/8 in rate (in line with 2yr treasuries) 10/1s and Fixed Rates will be inch’d to 1/8 higher in rate (in line with 10 yr treasuries) Long Term: The real hope/expectation is that banks will start buying loans for portfolio now, providing liquidity to the market. When short term rates were higher than long term rates, it made no sense for banks to borrow overnight to hold 5/1 arms or 30yr fixed rate loans on the books. Now that short rates / borrowing costs are lower, they can make money buying loans. This should provide some support to the jumbo-A market long term. This is all speculation of course. The worsening of the housing market could trump everything (in which case the fed would need to cut more and eventually that will probably happen, the question is when.)

I read that headline today in an email from Rich Workman, President of the Florida Mortgage Brokers Association.

He goes on to say: Car dealers sell the cars the automakers engineer and manufacture. If it were not for the car dealer then there would be no car emissions. Therefore, it is clear if we simply eliminate the car dealer we can solve global warming. His point being that Mortgage Brokers are taking the hit for the subprime melt-down in the news and from politicians everywhere.

I, for one, am really tired of hearing remarks like these: The Bush administration is pressuring the Department of Housing and Urban Development to speed up the issuance of a Real Estate Settlement Procedures Act proposal to improve good-faith estimate disclosures of mortgage broker fees and settlement costs. Why, when mortgage fees are discussed in the press, and by elected officials, are they always referred to as Broker Fees? It is as if a loan can’t be completed by a Mortgage Banker, or a Mortgage Lender, only a Mortgage Broker. . . and that is not the case.

AND, what brokers make, or lenders make, or mortgage bankers make is already on the Settlement Statement. That’s the law. It isn’t as if we have secret incomes. Whatever we make from the borrower or the lender is on the Settlement Statement.

From the website of Senator Charles Schumer from New York: “Up to 80 percent of subprime loans originated in 2006—the year that lax underwriting seems to have been the most problematic—were adjustable rate mortgages with low “teaser rates” that reset to higher rates that induce payment shock on the borrowers.”

How shocked can they be when they knew it was coming for two years? I have an arm. It adjusted in August. Not only did I know that was going to happen, I got at least ten pieces of mail a week from people trying to refinance my house. And in the last month before it adjusted, the lender called three to four times a day! There was no avoiding the knowledge that my arm would adjust UPWARDS during the month of August. Those high risk, high loan-to-value loans that were generated from the Sub-Prime industry were designed to help people get into homes.

There is not a lender in this country who would just as soon have your house as get the monthly payment. They would all rather get paid than foreclose. I’ve had borrowers who couldn’t qualify for a loan of any kind ask ‘why not? The lender will get the house if I don’t make the payments’ . . . As if in making a loan the lender becomes part of a quiet side agreement to “buy” the house by default.

That’s not how it works. Borrowers who take a two year arm or a three year arm do so based on their plans to sell or refinance in two or three years. In an increasing real estate market, this plan works. BUT, if the property values go down, or even stay the same, there is no refinance to be had, and in a declining market, there is no selling the house to get out of it either.

Paraphrasing Rich Workman again, here: ‘When the real estate market pulled back from a 24-month unsustainable growth spurt, people couldn’t refinance a house that was worth less than the mortgage, and couldn’t make the payment, the Sub-Prime market was left with mortgages that were in default. Then market reacted and the Sub-Prime guidelines got tighter.’

And they got tighter without legislation. They got tighter because the market demanded it. Long before a politician decided to make a to-do about it. AND, 2/28 and 3/27 arms don’t have teaser rates. They are fixed for two years or fixed for three years. After that they adjust, up or down, with caps on how high they can go. I can’t believe that none of the people who got an arm for two years or three years didn’t know that payment was going up. In addition to a loan originator’s verbal disclosure, there are written disclosures at the application process, and at closing, there is a real estate attorney or title company responsible for explaining every document that is signed by the borrower. Arm Riders are separate and distinct documents in the closing package.

If I didn’t understand what I was signing at a closing, I’d ask the guy who was handing me the papers. My pen would hit the paper when I understood what I was signing and I was okay with it. Teaser rates are those 2% payment rates you see advertised that have nothing to do with interest rates. Totally different animal, but people who aren’t in the mortgage business, like politicians don’t know the difference and seemingly don’t care to learn.

As an FHA lender, we are happy to become part of the solution for the ARMS that are resetting and are in default. In a press release issued by the Federal Housing Administration on Friday, the headline read BUSH ADMINISTRATION TO HELP NEARLY ONE-QUARTER OF A MILLION HOMEOWNERS REFINANCE, KEEP THEIR HOMES The contents are highlighted here: President George W. Bush announced on 8/310/7 that the FHA will help an estimated 240,000 families avoid foreclosure by enhancing its refinancing program effective immediately. Under the new FHASecure plan, FHA will allow families with strong credit histories who had been making timely mortgage payments before their loans reset-but are now in default-to qualify for refinancing… This is huge! Imagine, there were no options a week ago and now there is a refinance, that can include defaults and even go above FHA lending limits. Unprecedented! In many cases homeowners may be permitted to include mortgage payment arrearages into the new loan amount, subject to existing geographical mortgage limits and the loan-to-value limit shown below. Before Friday, only borrowers who were current on their existing loan were allowed to re-finance into an FHA-insured mortgage. Highlights of the FHASecure Initiative

• The mortgage being refinanced must be a non-FHA ARM that has reset.
• The mortgagor’s payment history on the non-FHA ARM must show that, prior to the reset of the mortgage, the mortgagor was current in making the monthly mortgage payments.
• If there is sufficient equity in the home, under additional eligibility instructions provided below, FHA will insure mortgages that include missed mortgage payments.
• Under certain conditions, FHA will insure first mortgages where (1) the existing note holder writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage; or (2), the FHA-approved lender making the new mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing.
• Lenders must determine, as part of the underwriting process, that the reset of the non-FHA ARM monthly payments caused the mortgagor’s inability to make the monthly payments and that the mortgagor has sufficient income and resources to make the new monthly payments under the FHA-insured refinancing mortgage.

Additional Information about the FHASecure Initiative: What May be Included in the FHASecure Mortgage Amount: FHA will permit the inclusion of the existing first lien, any purchase money second mortgage, closing costs, prepaid expenses, discount points, prepayment penalties, and late charges. FHA will also permit arrearages (principal, interest, taxes and insurance) to be added into the new loan amount. Subordinate Financing under the FHASecure Initiative: If the new maximum FHA loan is not enough to pay off the existing first lien, closing costs and arrearages, the lender may execute a second lien at closing to pay the difference. The combined amount of the FHASecure first mortgage and any subordinate lien may exceed the applicable FHA loan-to-value ratio and geographical maximum mortgage amount. If payments on the second are required, they must be included in qualifying the borrower. If payments are deferred, they must be so for no less than 36 months to not be considered in the qualifying ratios. If you have an ARM that has reset and you can’t make the payments, this may be your chance to recover! We’re licensed in Florida, Georgia, Alabama, South Carolina and Tennessee. Send me an email at traci@tracigregory.com and we will see if this will work for you! You may read the entire press release at: http://www.hud.gov/news/release.cfm?content=pr07-123.cfm.

I read all the broker bashing going on . . . how lenders and greedy brokers encouraged borrowers to buy houses they couldn’t afford and sign up for payments they couldn’t make and about the bailout programs states are putting in place to keep people in their homes and I think back to conversations I have had with borrowers over the last few years. One in particular comes to mind, my client, a well educated and successful business owner, with great credit and lots of assets had completed an application for an investor purchase. Noting the $20K a month figure he had put in the salary block, with his hand, I asked “Did your income tax return last year show $240,000 in taxable income?” “No” he said, somewhat indignant. “Well, was your gross income before deductions $240,000?” “No,” he says, getting more agitated. “Where are you coming up with that?” “Well, if we multiply $20,000 X 12 months, my math says that is $240,000 . . . Right?” “Uh, yeah, but this is a stated loan.” “A stated loan?” “Yeah, a stated loan.” “But, Mr. Borrower, a stated loan means you state what YOU made last year . . . Not what Will Smith netted on a slow Saturday night.” “Well, what good is it if I have to state what I make?” (I’m guessing this is as opposed to what Will Smith makes . . . ) “You can state your income, and not have to prove it with income taxes, but you have to state YOUR income. Not what you wish it was, or what it might be, or what you think will get you this loan . . . You state your income, truthfully.” Well, he didn’t want to do that and I didn’t want to not  do that so we agreed to disagree and I haven’t done his loan . . . But I can’t count the times I’ve said, “No, if you’re not going to live there, you can’t have an owner-occupied rate,” or “No, having another home in the same subdivision is NOT a second home, even if you do put your ex-wife and children in it,” or, “You know, I’d really like for you to have this house” (and I’d really like to close this loan since I’ve wasted so much time on you) “but what you are suggesting is loan fraud, and I’m not willing to risk jail so you can . . . (fill in the blanks)” Everyone is responsible . . . Lenders did take loans that met criteria that appeared to be sufficient to cover their exposure and wasn’t; borrowers did take loans they wouldn’t be able to afford in two years because their wives wanted in a house, and their children needed a good neighborhood. Speculators in the real estate market jumped on the property bandwagon and drove it away, because they could, and because they wanted to. Because Americans believe in having it all and having it now, and the credit industry (all of it, not just mortgage lenders) encourages the spend, spend, spend mentality and think about it tomorrow, Scarlet irresponsibility. I’ve NEVER been a Chicken Little. I’m the extreme optimist . . . but this meltdown, that started out as the “sub-prime” meltdown, and has turned into the CEO of Countrywide mortgage predicting that the major 10 lenders in the country will go to five major lenders soon; Australian funds that are tallying their losses because they bought real estate securities in the US; Lenders scrambling to keep people out of foreclosure with forbearance contracts and payment plans and then they go into foreclosure, only it is three months later than they should have. Massachusetts setting up a $250 million fund to help 1,000 homeowners. . . New York, $100 million to help 500 homeowners? So now it is My meltdown. I don’t worry about my job anymore, or even about my industry. Now I’m worried about my country