Mortgage Loans

Mortgage Loans

Countrywide to cut 12,000 jobs

John Thomas September 7, 2007

Countrywide to Cut As Many As 12,000 Jobs Because Company Sees 2008 Loan Originations Dropping. The cuts, amounting to as much as 20 percent of its workforce, are needed because the company expects new mortgages to fall about 25 percent in 2008 from this year’s levels, Countrywide said.

Countrywide Cheif Executive said this is market cycle is the most severe in the contemporary history of our industry.

Countrywide is also changing the products it offers to only include products that are conventional mortgage loans. Keep Reading...

Delaware Mortgage Rates & Market Update – September 7, 2007

John Thomas September 7, 2007

The Labor Department reported a loss of 4,000 Jobs in August. This is in sharp contrast to the 110,000 new jobs that analysts were expecting. Making a bad number worse, was the downward revisions of 87,000 to the last two months. This month’s loss in Jobs was the worst report in four years. On a positive note, the unemployment rate remains steady at 4.6% and is seen as the only piece of good economic news within the report.

This morning’s surprisingly weak Jobs Report has helped the Bond climb further above the 200-day Moving Average. For now, I recommend floating and I will be watching closely as the market volatility may continue Keep Reading...

History of FHA

John Thomas September 6, 2007

Congress created the Federal Housing Administration in 1934. At this time, nearly two million construction workers were laid off. Only four out of ten people owned their own home. In addition, mortgage loan terms were outrageous. Borrowers had to put 50 percent down, and the note ballooned in 3 to 5 years. So the mission of the FHA was to encourage home ownership.

The FHA became a part of HUD, which is the Department of Housing and Urban Development, in the year 1965. In the mid-1980’s, the FHA transitioned to what we call direct endorsement and began approving lenders to underwrite and close their own loans. Prior to this time, the FHA did have a hand in the process of the loan. Keep Reading...

The Truth Behind the Mortgage Market

John Thomas September 5, 2007

Subprime mortgages have now been credited for bankrupting well over 110 lenders and seriously damaging operations at many major mortgage firms. They’ve reportedly wiped out 5 hedge funds, tens of thousands of jobs, and have led to millions of foreclosures with millions more on the way. And, as if that weren’t enough, subprime mortgages are also blamed for massive volatility in the stock, bond, credit, futures, and real estate markets here in the US and around the globe. Some say losses in the mortgage securities market alone could reach hundreds of billions of dollars this year. Keep Reading...

President Bush annouces FHA secured loan that will bail out Delaware Home Owners

John Thomas September 5, 2007

On August 31, President Bush announced that HUD will help families avoid Foreclosure by providing a brand new FHA loan called the FHA Secured loan.  This loan will directly impact Delaware Home Owners facing foreclosure.  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.

FHA will implement risk-based premiums that match the borrower’s credit profile with the insurance premium they pay.  This means riskier borrowers pay more for their insurance. This common-sense, risk-based pricing structure will begin on January 1, 2008.  This is what happens when a person receives private mortgage insurance with non-FHA loans. Keep Reading...

Financial News Update – August 24th

John Thomas August 24, 2007 Tags:

Durable Goods Orders soared in July, rising by a far greater than expected rate of 5.9% and scoring their largest gain in about a year.  Transportation goods such as airplanes, autos, and trucks led the surge, but other long-lasting goods like machinery, computers, and steel products also showed strong demand.  When excluding vehicles, Durable Goods increased by a still-strong 3.7%. This report is volatile from month to month, so Bonds didn’t react much on the strong economic news.

Sub-prime news abroad – The Bank of China (BOC) revealed a far greater exposure to US sub-prime mortgage investments than expected.  The BOC disclosed about 10% of their US Dollar denominated assets consisted of sub-prime mortgage investments valued at $10 billion. This story will continue to develop. Keep Reading...

Four Major US Banks Borrowed $500 Million Each from Federal Reserve

John Thomas August 23, 2007 Tags:

Yesterday August 23, 2007, four major US banks stepped up to the Fed’s Discount Window and each borrowed $500 Million. Analysts believe the Discount Window borrowing by these huge banks was largely symbolic and designed to help calm all the nervousness in the credit and financial markets.

Now, remember that the Fed just cut the Discount Window Rate last week, and many expect them, in turn, to cut the Fed Funds Rate at the upcoming September 18, 2007, Fed Meeting.

Here’s an interesting tie-in…today’s Initial Jobless Claims number showed a little softening in the labor market, and since Fed Chairman Ben Bernanke has been so concerned about a strong labor market leading to wage based inflation, this is another indicator that the Fed will more than likely make a cut to the Fed Funds Rate at that next meeting on September 18th. Keep Reading...

Liquidity and Its Importance in the Mortgage Bond Market

John Thomas August 22, 2007 Tags: ,
In years past a borrower would visit their local Savings & Loan to obtain a mortgage. The Loan Officer at the bank would approve the mortgage and fund it with cash reserves from the vault. This system worked well until the bank ran out of money to lend. Borrowers came to the S&L looking for a loan and were told to come back when a current mortgage was paid off. What the bank needed was a way to sell the loans it made, freeing up the capital to lend to new borrowers. This way they could lend the same money over and over, earning an income from servicing the loans and assisting the community by offering a near limitless pool of money.

 

To address this issue, FNMA and GNMA were established. The goal was to provide cheap mortgage money to prospective homeowners and a high-quality bond for the investment community. The bond or Mortgage-Backed Security (MBS) takes mortgages with similar risk characteristics and pools them together. Investors in the MBSs know ahead of time the return they are going to receive, much like a Certificate of Deposit. To ensure the performance of the bond, each mortgage is underwritten to specific guidelines. By ensuring the borrower is both capable (VOE), willing to repay (credit report) the debt, has the cash to close (VOD), and the value is in the property (appraisal), the loans and thus the bond will perform as expected.

 During the recent real estate boom underwriting guidelines were relaxed giving way to a whole new menu of products such as the 100% N/O/O with credit scores below 600. In addition, to streamline the influx of applications, income and asset verification took a back seat to a borrower with strong credit. With housing prices rising rapidly, the basis for the mortgage, the property, could be sold to cover the note and foreclosure costs if this occurred. This cycle worked well until the price of houses moderated in 2006. Keep Reading...