My parents are trying to sell their house in California to move to North Carolina, but of course they are having a hard time of it. It's been on the market almost a month, and they've had two people look at it in that time. They want to have it sold by May/June of next year (when my wife and I will move as well), we'll see if it happens. I told my Dad to accept the first offer anywhere near their asking price if they actually get any offers. They aren't in any danger of losing any money though, they paid $270,000 for it, and it's "worth" (I use that term very loosely) $450,000 right now (it's on the market for a variable $430-450), and they don't have any kind of exotic mortgage. They don't have to move either, but they want to. So if push comes to shove, they just hold on to it until the market picks up in a few years.
Vic
Elite Member
- Jun 12, 2001
- 50,422
- 14,337
- 136
But Fannie/Freddie offer the most conservative of products by far. Their primary concern is with the borrower(s)' capacity to repay the loan. So no Pay-Option ARMs. Relatively conservative maximum loan amounts ($417k at this time). High credit scores only, no major derogs in recent years, no stated income, the tightest LTV limits in the industry, and at least some capital assets documented. That's why their default rates are the lowest by far.
Yeah, yeah, they've done more to automate the property review system than any others, which IMO is why so many appraisers are so bitter at them. But hey, they standardized the industry. So when they're doing the same property the 10th time over, they already know a little bit about it.
Vic
Elite Member
- Jun 12, 2001
- 50,422
- 14,337
- 136
You and I might disagree about the severity of today's current market conditions, but OTOH it is nice to see someone else on these forums who actually knows how the mortgage industry works.
I think it's important to note that about a decade ago HUD made it their primary agenda to increase the percentage of homeowners in this country. And that meant opening up the B/C market.
Being in the securitization area, seeing how FNMA MBS backed bonds perform and seeing the value of their collateral, they are very strong. FNMA issues approximately 25% of all MBS with the other agencies making up 25% more. Lenders like countywide and WAMU along with numerous CMO issues take up the remainder. The bulk of the garbage resides in the latter 50%. I know because I see the rating agency updates on a static pool basis, analyzing the collateral used. I also see that defaults across the market aren't represented in the FNMA collateral, which tells me that even if some does slip through, as a % of the total static pool, it's very small.
You wanna jack around in securitization and start blaming agencies, you'd better come with something more than anecdotal evidence and half-cocked theories, because when you start spouting crap and somebody like me around, who lives and breathes securitization (in a different sector, but I am intimately familiar) you are going to get called to the mat.
Fool around with your housing appraisals or whatever you do, but don't make speculation on collateral unless you got the brass to back it up.
Usually what happens is a mortgage broker or a smaller bank originates a mortgage. They then sell those loans, whole, to larger institutions, say somebody like Countrywide. Countrywide turns around and bundles those loans up into asset pools and puts them into trusts and issues bonds backed by those mortgages. All of the cash, principal and interest, from those loans goes to paying back the bonds or paying interest due.
Any asset that generates a future benefit, or cashflow, can be securitized. Student loans, home-equity loans/line of credit, credit cards, car leases, car loans, installment loans, timeshare loans, David Bowie even issued bonds backed by his future royalty and concert revenues.
The mortgages that are sold in the trust are moved off of the bank's balance sheet, they are now the property of the bondholder/investors. The bank records a small (or sometimes large) profit and retains a small piece of what is left of the interest, called the IO strip (interest only). They also usually service (collections, payment receipt) those loans, so they make money off of that.
The main process by which companies move these loans off balance sheet is FAS 140, which is a statement and accounting guidance put out by FASB.
Now, the IO strip, the remainder of the interest that isn't paid to bondholder/investors, and isn't consumed by defaults, gets paid to the bank. This revenue, paid up-front, can run into the hundreds of millions of dollars of revenue. However, it is highly volatile, since changes in interest rates or defaults could make the bank "write it down", or revise their assumptions. This change can impact earnings to a huge degree. So it's a double-edged sword, you make a ton of money up front but could pay for it in back.
Now, companies like Bank of America aren't huge mortgage backed security issuers. In fact BoA is a smaller player and most of their mortgages are very high quality, they often sell a lot to FNMA or other agencies. BoA is a very conservative bank.
If you want to look for bellweathers of the MBS market or housing in general, look at places like Countrywide, Ameriquest, or National City (acquired by Merrill Lynch). They are already starting to cut costs and revise earnings estimates.
Now, FNMA only acquires certain types of mortgages, called "conforming", they adhere to the highest standards of credit. High FICO, higher down payments, higher equity, better property, higher income...etc. The next classification is Alt-A, which is usually loans that didn't quite meet "conforming" standards, so FNMA wouldn't buy them even to later securitize them.
The final classification, B/C, are the true garbage of the industry. They are the ones with missing documents, 2nd liens, poor income ratios, high value, high risk, low fico...etc. Agencies won't touch these.
If they are lending on the same property the 10th time, then they better take a closer look at why. Are the borrowers serial refinancers or is the property being flipped over and over. They have automated the property review system by focusing on the percentages without really reading the appraisal report, that is why we are bitter.
First, This is the same Fannie Mae that cooked their books by reporting earnings in different quarters in order prop up their stock price?
Second, So you are pretty much repeating what I said without listening to it. ?All they seem to care about is your FICO and last few W-2?s. 50% Loan to Value, sure who needs an appraisal?? Now I don?t securitize thousands of loans like LK, so I can only speak about my experience from the trenches.
Here is one example: a house here locally was listed and sold way over market value so first this knocks your REAL LTV up to 75% from 50%. Then the Realtor and mortgage broker do their little ?lets raise the price by 6% and have the seller kick it back to the buyer so they don?t have to pay closing costs? dance, then the buyer/seller agree to raise the price to put some personal property into the deal and now you are loaning over 80% of the true value of the real estate. What type of report does Fannie Mae ask the appraiser for? A Form 2070 NON-appraisal that does not ask for an opinion of value, essentially a photo of the property and a statement from the appraiser that it is not in need of immediate visible repair or next to any hazards.
What LK is saying may be true about the borrower with a 800 FICO score having a very low percentage chance of going into default, but Fannie Mae is really making an over 80%LTV loan that should by their standards require PMI and are putting themselves at greater risk than what shows on paper.
I am not the one who ?Fools around with housing appraisals? Fannie Mae is by lowering the quality standards of what they will accept for proof of collateral. Everyone is all up in arms about ?stated income? loans being so risky, but they don?t bat an eye at ?stated value? loans.
Now I am not saying that Fannie Mae is about to go belly up, I am just pointing out that their MBS are not as "conforming" as you may think.
LOL. It is a good thing that BoA deposits are not propped up by their Mortgage Backed Securities (MBS). Now I don?t securitize thousands of loans like LK, so I can only speak about my experience from the trenches. Most major lenders have their own Appraisal Management Company (AMCs) to assign and review appraisals and act as a buffer between the commissioned loan sales person and the appraiser. CountryWide has LandSafe, Cendant has STARS, BoA has Valocity, etc.
Most work fairly well at keeping commissioned loan salespeople from directly pressuring the appraiser to inflate the appraisal. Bank of America?s Valocity is the ONLY AMC that has openly, repeatedly pressured me and other appraisers in my area to ?hit the value?. In my opinion most of the property that BoAs has lent on is overvalued as a result of this appraisal pressure. An example of email exchange: Edited for space and sales price.
Valocity: The estimated value on the order is $***,000 please look again, and per lender guidelines if the estimated value is not able to be meet then we must do another inspection. we can't not submit this as it voilates lender guidelines.
Me: I don't feel the market would support the $1,000 increase.
Valocity: The $***,000 is only a $1,000 more then you appraisal value and is within adjusted comps do you feel the market would support the $1,000 increase so we can send the report. We can't send a report that voilates the lender guidelines, that why they give us guidelines. Thanks
Me: The Real Estate Broker just called and wants to know what the problem is. The borrowers want to close THIS Thursday. Just send the appraisal report at $***,000 to them! This not meeting qualified value BS is unethical lender pressure.
Do you see the sh!t I have to put up with. Even when they had the price wrong they were still pressuring me to up the value! After a few go a rounds like this I decided not to work for them anymore. They now send most of their work to an out of the area appraisers wife (yes she is licensed, but I don?t know how since she can?t appraise for jack) who does a lot of high volume low fee work. Which brings up the weakness of AMCs, they tend to focus on squeezing down fee and turn time at the expense of appraisal quality.
So BoA sets up Valocity as a detached AMC to appear independent of lender pressure, but then they create guidelines for Valocity telling them NOT to submit reports to BoA that are not at or above the Estimated value. Not the basis for ?very high quality? MBS IMHO.
Now I am not saying that BoA is about to go belly up, I am just pointing out that their MBS are not as "conforming" as you may think.
WTF are you talking about " It is a good thing that BoA deposits are not propped up by their Mortgage Backed Securities (MBS).". Nobody's deposits are backed up by MBS. MBS takes assets off-b/s. If anything deposits prop up mortgages since deposits are the cheapest form of financing you can get. Therefore, why would you securitize assets? The biggest benefit of securitization is that it provides you with capital relief, since you are removing the assets from the b/s you don't have to withhold regulatory or rating agency capital. After that benefit is exhausted then the only benefit is cheaper financing, which is blown away by deposits.
You really have no idea about financing or securitization.
Further proof is your mentioning of Freddy. Yeah, they improperly smoothed earnings. However, smoothing earnings is not an indiciation of poor collateral or any trouble with collateral. They merely wanted to remove some of the volatility of their FAS 133 (Amended by FAS 155) accounting for Derivatives (interest rate and currency swaps).
Again, before you start making a bigger fool of yourself, you probably should just stop highlighting your lack of understanding.
I'd love for you to show some solid collateral evidence that LTVs for conforming mortgages exceed the 80% without PMI, because I have yet to see anything like this. Do you have anything but unreliable anecdotal evidence?
This discussion is like a cross-section of a big city financial district. In that metaphor LK is at the top of a skyscraper looking down at the big picture, everything is calm up there and the people look like ants moving in their predetermined patterns. Vic is on the 10th floor, in the middle trying to get the loans up to LK. HomeAppraiser is down in the street and is shouting up ?Hey it stinks!? LK to too far up to hear anything and Vic doesn?t want to hear anything that would slow down his hard work.. Yea, I said it. Mortgage bankers work very hard to try and get their customers loans. Sometimes when a fact reported by the appraiser gets in the way the loan does not go through and they don?t get paid for their hard work. That is where a lot of the lender pressure on appraisers comes from.
Now to clarify, I did not say that deposits are backed by MBS. I said it is a good thing they are not! LK don?t insult me if you do not bother to read what I wrote.
Dismissing my daily experiences with fraud in the mortgage lending industry as ?unreliable anecdotal evidence? is nothing more than intellectual snobbery. I am just reporting what I deal with every day. If LK wants to report that everything looks rosy from the top, well than that?s his view. Look at what dullard is reporting: Foreclosures up 24% in one month, 53% in one year. Before you get to complacent with your numbers multiply my experiences times 100,000 appraisers nationwide. ?Hey it stinks!?
Now to clarify, I did not say that deposits are backed by MBS. I said it is a good thing they are not! LK don?t insult me if you do not bother to read what I wrote.
Dismissing my daily experiences with fraud in the mortgage lending industry as ?unreliable anecdotal evidence? is nothing more than intellectual snobbery. I am just reporting what I deal with every day. If LK wants to report that everything looks rosy from the top, well than that?s his view. Look at what dullard is reporting: Foreclosures up 24% in one month, 53% in one year. Before you get to complacent with your numbers multiply my experiences times 100,000 appraisers nationwide. ?Hey it stinks!?
1. I see everything from my 10,000ft view quite nicely. I read ABS/MBS rating agency reports from Fitch, S&P, and Moody's every day. I also attend conferences such as ASF and ABS East/West every time.
2. If you had read any of the rest of this thread, you'd realize I have been saying things stink for quite some time, not to mention me saying we are on the cusp of a complete credit meltdown.
3. Your comment about deposits being backed by MBS is nonsensical. Deposits are liabilities that support assets. MBS bonds are liabilities that are supported by assets sold into a bankruptcy remote entity (BRE/SPV) that are usually regarded as true-sales under FAS 140. You don't support liabilities (Deposits) with liabilities (MBS). You support assets (mortgages) with liabilities (deposits).
In BofA's case, they have so many deposits (one of the largest deposit bases in the country) that they are considering paring back MBNA's securitization activities because after you get the capital benefit deposits are cheaper than securitization (and less risky).
Your statement highlights your lack of understanding of even simple balance sheet and capital management and also shows that you really don't have much of an idea of portfolio analysis or risk exposures of large asset backed pools.
4. It has nothing to do with intellectual snobbery. There are tons of people who know more about ABS than I do, I work with some of the best and I am a pretty big newb. You take your viewpoint and extrapolate it, when in fact your point of view is skewed. This is proven by your statements about FNMA, since their general health of asset pools suggest nothing to support your statements. I further tend not to believe your statements since whatever you say regarding that area ends up being BS.
The fact of the matter is that the rot in the industry has nothing to do with cheap funding or securitization, because supply has to equal demand. It's a two-way street, it's more the obligor's fault than the lender. To ignore that is to accept that nobody has free will, intelligence, or a grasp of simple math.
For the last time, I know that! I said it is a GOOD THING deposits are NOT backed by BoAs value pushed mortgages.
Truth is I usually don?t know where a specific loan that I appraised for ends up after closing. It could go direct to Fannie Mae, Freddie Mac, CountryWide or any number of funding sources. I do know that I am instructed to appraise properties to FNMA guidelines. What I have been saying if you bother to read it is: 1) the information that FNMA requires to evaluate the collateral has been drastically reduced; and 2) the quality of the ?automated? review process is lower since FNMA now only seems to focus on if the percentages fit.
Since Fannie Mae sets the standards for mortgage lending in the country they affect the housing market as a whole. We are required to use FNMA appraisal form for loans that don?t end up with FNMA also, therefore the ?blind spots? on the new forms affect the entire industry. Whether or not all of the above is going to affect your asset pools, we will just have to wait and see what happens after the ?credit meltdown?.
Pardon me for taking Science instead of Finance in college but many of us here don?t know what Fitch, Moody's, BRE/SPV or an FAS 140 are, yet you throw those acronyms and twenty dollar words around while insulting me for only taking a basic accounting class 20 years ago. I?d call that talking down your nose at us.
FYI an honest appraiser and home inspector are often the only ones NOT lying to you about the loan. I gave you two examples. One about how your precious Fannie Mae does not want an accurate assessment of the collateral they are lending on (what I call a ?stated value? loan or the credit is good so who needs an appraisal); and the for second I cut and pasted the exchange between BoAs appraisal ordering proxy and myself which exposed how they push appraisers to inflate the value. Because I ?don?t have much of an idea of portfolio analysis or risk exposures of large asset backed pools? you chose not to believe me from up there at 10,000ft. SNOB
And again you blame the borrower who was sold a bill of goods instead of the Realtor who pumped up the home sale price, the mortgage broker who packed the loan full of points and structured payments ment to fail or the finance executives who mis-represented the default rates of their MBS (Conseco).
Bad appraisers are to blame too. For every crook who wants me to write a fraudulent appraisal that I turn down, there is another appraiser out there that is either too hungry, too greedy or just doesn?t care that will be happy to make the appraisal as instructed. So show a little respect for the honest appraisers who are on the front line of fighting mortgage fraud will ya.
Why even say something so stupid? That's like saying "Good thing George Bush is President, my nails need trimming".
And there are multiple steps to ensure what they do acquire is good. Having worked on collateral/portfolio management, I have seen the extended checks that collateral goes through. If it doesn't fit they do whole-loan sales to other parties. Furthermore, even if the loan is underwritten to conforming standards doesn't mean FNMA purchases it from the orginal writer. Even if they did it doesn't mean they keep it.
Perhaps, before sounding the alarm bells or screaming "It stinks" you should edumacate yourself on the higher view of your industry. A great place to start is the rating agencies, who look at the collateral pools and stress them, they look quite closely too. Furthermore, if you are going to intone "MBS" you probably should know the accounting standards that dictate them.
FYI an honest appraiser and home inspector are often the only ones NOT lying to you about the loan. I gave you two examples. One about how your precious Fannie Mae does not want an accurate assessment of the collateral they are lending on (what I call a ?stated value? loan or the credit is good so who needs an appraisal); and the for second I cut and pasted the exchange between BoAs appraisal ordering proxy and myself which exposed how they push appraisers to inflate the value. Because I ?don?t have much of an idea of portfolio analysis or risk exposures of large asset backed pools? you chose not to believe me from up there at 10,000ft. SNOB
[/quote]
First off, it's not "my precious" Fannie Mae, I have no vested interest in the company, but I do have an interest in not helping to spread FUDD. I don't choose to believe you because I understand how the industry and asset pools work. According to all sources, both detailed and high-level, FNMA policies are still very strict and their loans are of good quality, this shows through their performance.
Interestingly enough, Conseco's IO's weren't only about defaults. Considering we were in a raising interest rate environment (forward curve) with increasing pre-payments due to a heating up market, it's natural that the IO strip would have to be written down. This wasn't about defaults, considering there defaults were pretty damn low (mortgage defaults are low overall) and not trending up.
Your lack of understanding of MBS is highlighted just a little bit more. If you want, I can give you a crash-course in IO strip accounting, explaining why their financial shenanigans had more to do with other factors than defaults of mortgages. In an IO strip default rates, especially in a hot market, are a *VERY* small piece of the pie. It more has to do with the expected pre-payment rate of the mortgages, the rates at which you are financing them, the types of mortgages (ARM vs 30-yr fix) and the interest rate environment going forward.
- May 21, 2001
- 25,904
- 4,492
- 126
http://money.cnn.com/2006/09/19/real_es..._drop/index.htm?postversion=2006091911
Interesting read there, although I disagree with Shiller's opinion on loss severity. If anything, I think the restrained outlook, fear of a significant downturn, and residual euphoria has mitigated a large negative outlook, to the point it's masking reality. Interesting that a midwest city not known for it's hugely overpriced R-E is among the potential leaders going in to negative territory.
Interesting read there, although I disagree with Shiller's opinion on loss severity. If anything, I think the restrained outlook, fear of a significant downturn, and residual euphoria has mitigated a large negative outlook, to the point it's masking reality. Interesting that a midwest city not known for it's hugely overpriced R-E is among the potential leaders going in to negative territory.
Slew Foot
Lifer
- Sep 22, 2005
- 12,379
- 96
- 86
That chart is a pile of crap. Sacramento down 7% by next year? It's already down over 10% off the peak.
edit: NVM, it's predicting a 7% drop from todays prices. Possibly, but unless the goverment intercedes with something ludicrous, it will probably be worse than that.
:laugh:
9-19-2006 Housing has just fallen off a precipice
"Housing has just fallen off a precipice," said Mark Zandi, chief economist at Moody's Economy.com, who said he believed the central bank would discuss this slowdown in the statement it releases after Wednesday's meeting.
9-19-2006 Housing has just fallen off a precipice
"Housing has just fallen off a precipice," said Mark Zandi, chief economist at Moody's Economy.com, who said he believed the central bank would discuss this slowdown in the statement it releases after Wednesday's meeting.
When economists formulate their mathematical models, including those built to determine the economic impacts of alternative fiscal policies, they use symbols, typically Greek letters, to refer to the variables or terms in their equations. One term might stand for how much the government consumes. Another might stand for how much the household earns. A third might stand for business profits. Regardless of what symbols are used, the implications of the model, once it?s constructed, can be discussed in whatever language one chooses?Celtic, Swahili, English, you name it. And whatever the model has to teach us about the economy doesn?t change based on the language used to discuss it.
Thanks for the lesson of variables languages, how does that help in the current bubble situation?
- May 21, 2001
- 25,904
- 4,492
- 126
National existing home prices down nationally 2% from this time last year. And so many people said that national prices have never fallen and will never fall. Existing home sales down a bit too.
Welcome to Anandtech. Thanks for joining my thread. But could you please explain the context behind your post?
TRENDING THREADS
-
Discussion Zen 5 Speculation (EPYC Turin and Strix Point/Granite Ridge - Ryzen 9000)- Started by DisEnchantment
- Replies: 25K
-
Discussion Intel Meteor, Arrow, Lunar & Panther Lakes Discussion Threads
- Started by Tigerick
- Replies: 21K
-
Discussion Intel current and future Lakes & Rapids thread- Started by TheF34RChannel
- Replies: 23K
-
-
Facebook
Twitter