Housing: 2007 Thread.

[LegendKiller]

Originally posted by: Trianon
I like how eloquiently they put that NAR analysts are CRAZY in the title of the article🙂

Bucking conventional wisdom, a trade group for real estate agents on Monday said the battered housing market is on the verge of stabilizing and inched up its outlook for 2007 and 2008 home sales.

The revised monthly forecast from the National Association of Realtors, which followed nine straight months of downward revisions, calls for U.S. existing home sales to fall 12.5 percent this year to 5.67 million ? the lowest level since 2002. Last month, the association predicted 5.66 million existing homes would be sold this year.

The Realtors' group also forecast sales will rise slightly in 2008 to 5.7 million, up from last month's prediction of 5.69 million.

Numerous other economists, however, are far less optimistic than the trade group. They predict weak sales and falling prices through next year and beyond and emphasize that those problems could worsen if the economy sinks into a recession.

Text

Here's another good quote...

Lawrence Yun, NAR chief economist, said the worst part of the credit crunch has already worked its way through the data. ?The unusual mortgage disruptions that peaked in August were clearly seen in lower home sales that were finalized in September and October, so the market was underperforming,? he said. ?Now that mortgage conditions have improved, some postponed activity should turn up in existing-home sales over the next couple of months, and I expect sales at fairly stable to slightly higher levels.?

This guy is just so funny. From what we are seeing and what you can see in the WSJ and every other finance publication, the credit turn is just starting. Prime mortages are starting to get dinged. Auto and cards are ticking up also, materially.

 

[mshan]

According to NAR, it's ALWAYS a good time to buy (they just forgot to add that you have to be price conscious and probably plan on holding onto and living in the home for at least a decade):

"After the last big run-up in house prices, in the 1980s, a long slump followed. In the New York area, prices peaked in early 1989 and then fell 9 percent over the next three years, according to government data. (Adjusted for inflation, the drop was much bigger.) Not until 1998 did prices pass their earlier peak."
http://www.nytimes.com/2007/04...state/11leonhardt.html

Recovery will probably be L shaped (rather than V bottom), and in any given area will depend on how overbuilt an area was, how quickly sellers accept that their homes aren't worth the peak MLS sale price that they listed at, and strength of local economy (job growth and quality).

Here's a link to how overpriced, relative to historic norms, many areas of the country are:
http://www.realestateconsultin...local/local200706.html
http://www.realestateconsultin...local/local200711.html

 

[mshan]

0.75% - 2% surcharge if credit score isn't at least 680 and less than 30% down: http://www.cnbc.com/id/22183392

1% discount point surcharge will probably be waivable for a 0.25% increase in rate as an add on, but remember 0.25% rate bump will be more costly over time (interest on interest) and discount point should be tax deductible. Don't know if 30% down is also going to be waivable for another rate bump increase (previously seen some loans where 20% downpayment was waivable for 0.25% rate increase).

 

[kmmatney]

Originally posted by: redgtxdi
BTW, $550K in 1982 was a ridiculous sum of money for a house. My folks bought a very nice home in Chino Hills in 1982 for $200K. That same amount of house is worth about 6 or 7 times that amount today!!

Yes, it was a huge amount, but the house had 1.5 acres of land, 3600 sq foot ranch house, 13 orange trees, tennis court, water fountain in the circular driveway, etc...I would guess it's probably worth $2M or so today, but I could be wrong.

 

[dmcowen674]

Originally posted by: Naustica
This bailout is mere bandage on a broken bone.

Lot more pain coming and the rich are rightly scared.

Really?

Links

I haven't seen any of the rich in here say they are scared.

 

[LegendKiller]

Originally posted by: dmcowen674

Originally posted by: Naustica
This bailout is mere bandage on a broken bone.

Lot more pain coming and the rich are rightly scared.

Really?

Links

I haven't seen any of the rich in here say they are scared.

Says the guy who owned a yacht.

 

[Slew Foot]

Originally posted by: dmcowen674

Originally posted by: Naustica
This bailout is mere bandage on a broken bone.

Lot more pain coming and the rich are rightly scared.

Really?

Links

I haven't seen any of the rich in here say they are scared.

Im not scared, but then again, Im a saver, not a lender.

 

[dmcowen674]

Originally posted by: LegendKiller

Originally posted by: dmcowen674

Originally posted by: Naustica
This bailout is mere bandage on a broken bone.

Lot more pain coming and the rich are rightly scared.

Really?

Links

I haven't seen any of the rich in here say they are scared.

Says the guy who owned a yacht.

============================================
You're crap is beyond old.

I don't have that boat and haven't had it since February.

What would you go with?

A Pontoon boat which cost $20,000 or a $78,000 32ft boat with a bathroom for $12,000?

A friend had traded up to a real yacht (36ft $225,000) and offered me the old boat just to finish the note.

 

[LegendKiller]

Originally posted by: dmcowen674

Originally posted by: LegendKiller

Originally posted by: dmcowen674

Originally posted by: Naustica
This bailout is mere bandage on a broken bone.

Lot more pain coming and the rich are rightly scared.

Really?

Links

I haven't seen any of the rich in here say they are scared.

Says the guy who owned a yacht.

============================================
You're crap is beyond old.

I don't have that boat and haven't had it since February.

What would you go with?

A Pontoon boat which cost $20,000 or a $78,000 32ft boat with a bathroom for $12,000?

A friend had traded up to a real yacht (36ft $225,000) and offered me the old boat just to finish the note.

I wouldn't go with either, I have too much student loan debt, which makes me "rich". Nevermind that my wife and I pay as much in interest as to pay that boat off in just over a year.

But then again, everybody who is educated, makes money, and tries hard, is "rich".

But, I guess, since you could afford that, then you are more "rich" than I am. That's a luxury good most of us common folks couldn't get.

 

[dmcowen674]

Originally posted by: LegendKiller

Originally posted by: dmcowen674

Originally posted by: LegendKiller

Originally posted by: dmcowen674

Originally posted by: Naustica
This bailout is mere bandage on a broken bone.

Lot more pain coming and the rich are rightly scared.

Really?

Links

I haven't seen any of the rich in here say they are scared.

Says the guy who owned a yacht.

============================================
You're crap is beyond old.

I don't have that boat and haven't had it since February.

What would you go with?

A Pontoon boat which cost $20,000 or a $78,000 32ft boat with a bathroom for $12,000?

A friend had traded up to a real yacht (36ft $225,000) and offered me the old boat just to finish the note.

I wouldn't go with either, I have too much student loan debt, which makes me "rich". Nevermind that my wife and I pay as much in interest as to pay that boat off in just over a year.

But then again, everybody who is educated, makes money, and tries hard, is "rich".

But, I guess, since you could afford that, then you are more "rich" than I am.

Until my hard working wife and I got swindeled by a criminal deputy sheriff and his co-horts for nearly $50,000 I would say yes we were.

 

[Vic]

Senate passes bill addressing mortgage crisis

Senate passes bill addressing mortgage crisis
Legislation that allows federal agencies to back refinanced loans for delinquent borrowers receives near-unanimous approval.

December 14 2007: 12:42 PM EST

WASHINGTON (AP) -- Thousands of Americans facing foreclosure because of the ballooning interest rates on their subprime mortgages would get help from the federal government under legislation overwhelmingly approved by senators Friday.

The legislation, approved 93-1, is the Senate's first attempt to address the looming subprime mortgage crisis through stand-alone legislation. Sen. Jon Kyl, R-Ariz., was the lone senator to vote no.

The bill would allow the Federal Housing Administration to back refinanced loans for tens of thousands of borrowers who are delinquent on payments because their mortgages are resetting to sharply higher rates from low initial "teaser" levels.

An estimated 2 million to 2.5 million adjustable-rate mortgages are scheduled to "reset" this year and next, jumping from low "teaser" rates for the first two or three years to much steeper rates that could cost borrowers their homes.

The wave of resets could crest during the presidential and congressional election campaigns next year, and the issue has brought politically charged debate in recent weeks over possible responses by the government.

The legislation will help the Federal Housing Administration "be a source of salvation for those families who were tricked into unaffordable loans," said Sen. Charles Schumer, D-N.Y.

President Bush last week announced an agreement with mortgage companies to freeze interest rates for certain subprime mortgages for five years. Democrats in Congress, however, criticized the White House plans as being too limited.

The Senate bill raises the maximum mortgage the FHA can insure in high-cost areas from $362,790 to $417,000 - the same level as loans backed by Fannie Mae and Freddie Mac.

The FHA currently insures 3.7 million mortgages, but critics say the size of mortgages the government agency can back is often too small to attract borrowers in expensive areas such as California and the Northeast. As a result, FHA's share of the single-family mortgage market has dropped to about 4 percent, down from 19 percent more than 10 years ago.

The House passed similar legislation back in September. The two chambers must now come to an agreement on the legislation before sending it to the White House for approval.

As I predicted long ago, the government will rush in to protect those who paid more than they could afford. Those who expected crashing home prices with the ready availability of easy financing will find neither. Home values have (and will continue to) declined in those super-heated markets, but will be propped up from crashing, while "easy credit" financing options will continue to tighten.

 

[BoberFett]

Originally posted by: dmcowen674

Originally posted by: LegendKiller

Originally posted by: dmcowen674

Originally posted by: LegendKiller

Originally posted by: dmcowen674

Originally posted by: Naustica
This bailout is mere bandage on a broken bone.

Lot more pain coming and the rich are rightly scared.

Really?

Links

I haven't seen any of the rich in here say they are scared.

Says the guy who owned a yacht.

============================================
You're crap is beyond old.

I don't have that boat and haven't had it since February.

What would you go with?

A Pontoon boat which cost $20,000 or a $78,000 32ft boat with a bathroom for $12,000?

A friend had traded up to a real yacht (36ft $225,000) and offered me the old boat just to finish the note.

I wouldn't go with either, I have too much student loan debt, which makes me "rich". Nevermind that my wife and I pay as much in interest as to pay that boat off in just over a year.

But then again, everybody who is educated, makes money, and tries hard, is "rich".

But, I guess, since you could afford that, then you are more "rich" than I am.

Until my hard working wife and I got swindeled by a criminal deputy sheriff and his co-horts for nearly $50,000 I would say yes we were.

Then you're just plain old stupid Dave, and get what you deserve.

 

[Slew Foot]

Originally posted by: Vic
Senate passes bill addressing mortgage crisis

Senate passes bill addressing mortgage crisis
Legislation that allows federal agencies to back refinanced loans for delinquent borrowers receives near-unanimous approval.

December 14 2007: 12:42 PM EST

WASHINGTON (AP) -- Thousands of Americans facing foreclosure because of the ballooning interest rates on their subprime mortgages would get help from the federal government under legislation overwhelmingly approved by senators Friday.

The legislation, approved 93-1, is the Senate's first attempt to address the looming subprime mortgage crisis through stand-alone legislation. Sen. Jon Kyl, R-Ariz., was the lone senator to vote no.

The bill would allow the Federal Housing Administration to back refinanced loans for tens of thousands of borrowers who are delinquent on payments because their mortgages are resetting to sharply higher rates from low initial "teaser" levels.

An estimated 2 million to 2.5 million adjustable-rate mortgages are scheduled to "reset" this year and next, jumping from low "teaser" rates for the first two or three years to much steeper rates that could cost borrowers their homes.

The wave of resets could crest during the presidential and congressional election campaigns next year, and the issue has brought politically charged debate in recent weeks over possible responses by the government.

The legislation will help the Federal Housing Administration "be a source of salvation for those families who were tricked into unaffordable loans," said Sen. Charles Schumer, D-N.Y.

President Bush last week announced an agreement with mortgage companies to freeze interest rates for certain subprime mortgages for five years. Democrats in Congress, however, criticized the White House plans as being too limited.

The Senate bill raises the maximum mortgage the FHA can insure in high-cost areas from $362,790 to $417,000 - the same level as loans backed by Fannie Mae and Freddie Mac.

The FHA currently insures 3.7 million mortgages, but critics say the size of mortgages the government agency can back is often too small to attract borrowers in expensive areas such as California and the Northeast. As a result, FHA's share of the single-family mortgage market has dropped to about 4 percent, down from 19 percent more than 10 years ago.

The House passed similar legislation back in September. The two chambers must now come to an agreement on the legislation before sending it to the White House for approval.

As I predicted long ago, the government will rush in to protect those who paid more than they could afford. Those who expected crashing home prices with the ready availability of easy financing will find neither. Home values have (and will continue to) declined in those super-heated markets, but will be propped up from crashing, while "easy credit" financing options will continue to tighten.

As long as easy credit is gone, there's no one left to purchase the overpriced houses.

 

[LegendKiller]

Originally posted by: Vic
Senate passes bill addressing mortgage crisis

Senate passes bill addressing mortgage crisis
Legislation that allows federal agencies to back refinanced loans for delinquent borrowers receives near-unanimous approval.

December 14 2007: 12:42 PM EST

WASHINGTON (AP) -- Thousands of Americans facing foreclosure because of the ballooning interest rates on their subprime mortgages would get help from the federal government under legislation overwhelmingly approved by senators Friday.

The legislation, approved 93-1, is the Senate's first attempt to address the looming subprime mortgage crisis through stand-alone legislation. Sen. Jon Kyl, R-Ariz., was the lone senator to vote no.

The bill would allow the Federal Housing Administration to back refinanced loans for tens of thousands of borrowers who are delinquent on payments because their mortgages are resetting to sharply higher rates from low initial "teaser" levels.

An estimated 2 million to 2.5 million adjustable-rate mortgages are scheduled to "reset" this year and next, jumping from low "teaser" rates for the first two or three years to much steeper rates that could cost borrowers their homes.

The wave of resets could crest during the presidential and congressional election campaigns next year, and the issue has brought politically charged debate in recent weeks over possible responses by the government.

The legislation will help the Federal Housing Administration "be a source of salvation for those families who were tricked into unaffordable loans," said Sen. Charles Schumer, D-N.Y.

President Bush last week announced an agreement with mortgage companies to freeze interest rates for certain subprime mortgages for five years. Democrats in Congress, however, criticized the White House plans as being too limited.

The Senate bill raises the maximum mortgage the FHA can insure in high-cost areas from $362,790 to $417,000 - the same level as loans backed by Fannie Mae and Freddie Mac.

The FHA currently insures 3.7 million mortgages, but critics say the size of mortgages the government agency can back is often too small to attract borrowers in expensive areas such as California and the Northeast. As a result, FHA's share of the single-family mortgage market has dropped to about 4 percent, down from 19 percent more than 10 years ago.

The House passed similar legislation back in September. The two chambers must now come to an agreement on the legislation before sending it to the White House for approval.

As I predicted long ago, the government will rush in to protect those who paid more than they could afford. Those who expected crashing home prices with the ready availability of easy financing will find neither. Home values have (and will continue to) declined in those super-heated markets, but will be propped up from crashing, while "easy credit" financing options will continue to tighten.

Please, those with good credit can get it. I have two colleagues that recently closed on houses, houses that were listed at 5-10% more a year ago.

Housing is declining everywhere, not just in super-heated markets. Additionally, political influences won't save this market, the "solutions" enacted so far are so narrow as to be useless, those that will be enacted in the future will be the same window dressing. Politicians don't want to help the 10% to get screwed by the 90% who perceive favortism and nanny-statism.

 

[Slew Foot]

Originally posted by: LegendKiller


Please, those with good credit can get it. I have two colleagues that recently closed on houses, houses that were listed at 5-10% more a year ago.

Housing is declining everywhere, not just in super-heated markets. Additionally, political influences won't save this market, the "solutions" enacted so far are so narrow as to be useless, those that will be enacted in the future will be the same window dressing. Politicians don't want to help the 10% to get screwed by the 90% who perceive favortism and nanny-statism.

I think that's his point, that only people with good credit will be able to get loans (kinda the way it used to be). The run up was because everyone who could fog a mirror could get a seven figure loan to buy as many investment properties as they wanted, with price increases gone, housing returns to its basic value as shelter, not an investment.

 

[LegendKiller]

Originally posted by: Slew Foot

Originally posted by: LegendKiller


Please, those with good credit can get it. I have two colleagues that recently closed on houses, houses that were listed at 5-10% more a year ago.

Housing is declining everywhere, not just in super-heated markets. Additionally, political influences won't save this market, the "solutions" enacted so far are so narrow as to be useless, those that will be enacted in the future will be the same window dressing. Politicians don't want to help the 10% to get screwed by the 90% who perceive favortism and nanny-statism.

I think that's his point, that only people with good credit will be able to get loans (kinda the way it used to be). The run up was because everyone who could fog a mirror could get a seven figure loan to buy as many investment properties as they wanted, with price increases gone, housing returns to its basic value as shelter, not an investment.

The problem with that reasoning is that even the homebuilders admit that the market is way overbuilt. The price *has* to come down significantly, not only because the subprime is locked out, but so are speculators and anybody else who wants anything more than a SFH.

The market is falling, precipitously.

 

[Slew Foot]

Originally posted by: LegendKiller

Originally posted by: Slew Foot

Originally posted by: LegendKiller


Please, those with good credit can get it. I have two colleagues that recently closed on houses, houses that were listed at 5-10% more a year ago.

Housing is declining everywhere, not just in super-heated markets. Additionally, political influences won't save this market, the "solutions" enacted so far are so narrow as to be useless, those that will be enacted in the future will be the same window dressing. Politicians don't want to help the 10% to get screwed by the 90% who perceive favortism and nanny-statism.

I think that's his point, that only people with good credit will be able to get loans (kinda the way it used to be). The run up was because everyone who could fog a mirror could get a seven figure loan to buy as many investment properties as they wanted, with price increases gone, housing returns to its basic value as shelter, not an investment.

The problem with that reasoning is that even the homebuilders admit that the market is way overbuilt. The price *has* to come down significantly, not only because the subprime is locked out, but so are speculators and anybody else who wants anything more than a SFH.

The market is falling, precipitously.

Ill agree there, I heard there are 110 million housing units in the US, and right now 7 million are for sale or in foreclosure. 6% of the the total US housing stock for sale, with inventory creeping up and sales creeping down. That alone will force prices down (especially when tighter credit is factored in) no matter how the government tries to bailout the idiots. And guess what.. the homebuilders are still building, they stop building(not to mention selling) they go out of business. Guess who's going to chop prices down to the bitter end?

450K-->275K in two years in sacramento for some stuff ive been looking at, 1.5 mill-->1.1 mill in San Ramon, CA in the last 4 MONTHS. WEEEEEEEEEEEEEEEEEE!!!!!!!!!!!

 

[dmcowen674]

Originally posted by: BoberFett

Originally posted by: dmcowen674

Originally posted by: LegendKiller

Originally posted by: dmcowen674

Originally posted by: LegendKiller

Originally posted by: dmcowen674

Originally posted by: Naustica
This bailout is mere bandage on a broken bone.

Lot more pain coming and the rich are rightly scared.

Really?

Links

I haven't seen any of the rich in here say they are scared.

Says the guy who owned a yacht.

============================================
You're crap is beyond old.

I don't have that boat and haven't had it since February.

What would you go with?

A Pontoon boat which cost $20,000 or a $78,000 32ft boat with a bathroom for $12,000?

A friend had traded up to a real yacht (36ft $225,000) and offered me the old boat just to finish the note.

I wouldn't go with either, I have too much student loan debt, which makes me "rich". Nevermind that my wife and I pay as much in interest as to pay that boat off in just over a year.

But then again, everybody who is educated, makes money, and tries hard, is "rich".

But, I guess, since you could afford that, then you are more "rich" than I am.

Until my hard working wife and I got swindeled by a criminal deputy sheriff and his co-horts for nearly $50,000 I would say yes we were.

Then you're just plain old stupid Dave, and get what you deserve.

Really. What gives the Vice President of a Bank a free pass?

Why is he not just as "stupid"?

He was the one given the numbers by the swindling couple and deputy sheriff first and approved them.

 

[Vic]

Originally posted by: LegendKiller

Originally posted by: Slew Foot

Originally posted by: LegendKiller
Please, those with good credit can get it. I have two colleagues that recently closed on houses, houses that were listed at 5-10% more a year ago.

Housing is declining everywhere, not just in super-heated markets. Additionally, political influences won't save this market, the "solutions" enacted so far are so narrow as to be useless, those that will be enacted in the future will be the same window dressing. Politicians don't want to help the 10% to get screwed by the 90% who perceive favortism and nanny-statism.

I think that's his point, that only people with good credit will be able to get loans (kinda the way it used to be). The run up was because everyone who could fog a mirror could get a seven figure loan to buy as many investment properties as they wanted, with price increases gone, housing returns to its basic value as shelter, not an investment.

The problem with that reasoning is that even the homebuilders admit that the market is way overbuilt. The price *has* to come down significantly, not only because the subprime is locked out, but so are speculators and anybody else who wants anything more than a SFH.

The market is falling, precipitously.

A 5% drop is not "crashing" nor a return to values of 10 years ago nor even remotely in line with that 2% per annum chart you used to link all the time. Your colleagues are just closing off the top of a market that is still going down. Plus, listings are meaningless as valuations. Unless they purchased 5-10% off an actual previously closed sales price, then whatever "reduced" price they paid has no more meaning that the "compare to" price on a sales tag at a discount department store. Someone might ask for that much, but it doesn't actually sell for that much.

We are seeing a drop in values, yes. I have NEVER denied that, despite all the times you have tried to paint me into that straw man. However, the government is (and will continue to) cushion that fall with inflation, which combined with more restrictive and more expensive financing options, will essentially wipe out whatever gains you were hoping on, while equity-protected homeowners (read: those who have owned for more than a decade and not dipped into the equity well too often) will be effectively and securely hedged. Are you following?

 

[Ozoned]

Originally posted by: DrVos
<blockquote>quote:
Originally posted by: Vic
...On that note, anyone with an ARM should refi into a fixed this year. I strongly recommend it.</blockquote>

Hi Vic,

This is exactly the position I'm in. My wife and I purchased a home when I was a senior in college. We got an ARM with a year of super low payments (we wouldn't have been able to afford a regular fixed mortgage while I worked part time) and gambled that I would get a good job as soon as I graduated. Fortunately, the gamble payed off and we are doing well money-wise.

What bothers me is that our interest rate has been ticking up .25% or so every month which has me wanting to lock in a fixed 30 year loan. The question that I have is: When? Should i wait until spring/summer/fall? Should I be looking for a certain rate?

Any light you could shed would be greatly appreciated

You should do it NOW.

 

[mshan]

If you've got good credit (say >680) and a good amount of equity in the home, I'd say now is a good time.

Wholesale par mortgage rates were as low as 5.5% about a week ago, but have jumped to slightly below 6% I believe.

Historic retail low for 30 year fixed was around 5.375% I believe.


http://themortgageinsider.net/podcasts/
http://www.amazon.com/Mortgage...&qid=1197752043&sr=8-1

This website's rates with no points seems to track wholesale mortgage rates and are updated a couple time a day:
http://www.navyfcu.org (click on rates. choose mortgages, and see conforming 30 year fixed with 20% down)

 

[mshan]

House bill may worsen climate for subprime borrowers

Vague rules create risk for lenders, higher costs for consumers

Monday, December 17, 2007

By Jack Guttentag
Inman News


In the wake of the subprime crisis, the market has turned against all except "cream-puff borrowers" -- those with no weaknesses. The cream-puffs can borrow today on pretty much the same terms as before the crisis. But borrowers with blemishes on their applications are paying much higher prices and face a much higher risk of being turned down altogether.

As if that is not bad enough, The Mortgage Reform and Anti-Predatory lending Act of 2007 (HR 3915), now winding its way through Congress, would worsen their plight. That is not the intention, of course, but the law of unintended consequences has a home in the home loan market.

Blemished borrowers have one or more of the following risk factors: They can make only a very small or no down payment; they cannot fully document their income and assets; their property is something other than a single-family home; their loan is intended to raise cash or to purchase an investment property; they have low credit scores; their income is low relative to their expected total obligations; and their mortgage carries an adjustable rate that will result in substantially higher payments in a few years.

During the go-go years (2000-2005), the mortgage market was extraordinarily tolerant of risk factors. It was not unusual to see five of them present in an accepted mortgage, a phenomenon termed "risk layering." Lending to a borrower who had no money for a down payment, who could not document adequate income and had a poor credit history was a kind of market insanity associated with the rapid run-up in house prices. Inflation of house prices converts even the worst loans into good loans. When the housing bubble burst in 2006, the chickens came home to roost in the form of mortgage defaults, which are rising to levels not seen since the depression of the 1930s.

Markets tend to overreact. Just as the housing bubble was accommodated by insanely liberal lending terms, the pendulum has now swung toward Scrooge-like stringency. The price increments associated with risk factors are now two to three times as high as they were a year ago, and risk layering has gone way down. Roughly speaking, if you have two risk factors, the price is substantially higher, and if you have three, the deal is rejected.

A major provision of HR 3915 establishes "minimum standards for mortgages," which include requirements that borrowers have an "ability to repay" and that they receive a "net tangible benefit" from a refinancing. What these rules have in common, in addition to their discriminatory impact on borrowers already victimized by misfortune, is their vagueness and lack of specific operational guidelines. In an article I wrote recently on the net-tangible-benefit rule, I gave example after example where the ultimate determinant of whether or not there was a net benefit to the borrower could not be known by the lender without reading the mind of the borrower.

The inability to know whether or not they are in compliance creates risk for lenders, which must translate into higher costs for borrowers. But HR 3915 also provides a way to avoid this risk. It offers a "safe harbor," which is a presumption that the standards have been met, provided that the loan at issue is a "qualified mortgage" or a "qualified safe harbor mortgage."

A "qualified mortgage" is one with an interest rate that does not exceed the rate on Treasury securities or an average mortgage rate by more than 3 percent* or 1.75 percent, respectively. On second mortgages, the maximum spreads are 5 percent and 3.75 percent.

A "qualified safe harbor mortgage" is a loan that is fully documented, is not a negative amortization ARM, and either meets an income adequacy test, has a fixed payment for at least five years or is an ARM with a margin of less than 3 percent. The overlap between a qualified mortgage and a qualified safe harbor mortgage will be very high.

The combination of vague standards and a safe harbor means that lenders will classify loans with regard to whether or not they belong to the safe harbor. Loans that do not belong will pay a higher price or not be made. Loans that won't qualify for the safe harbor are those with the most significant blemishes.

The safe harbor removes some of the sting from the imposition of vague standards, because most loans will qualify for the safe harbor. But not all will qualify -- a new subclass of mortgages will be created that will either be priced even worse than they are now or will disappear. These are mortgages with multiple blemishes. Already clobbered by the market, they will get the coup de grace from Congress.




My Edit: * according to Lou Barnes, historic spread between 10 year Treasuries and 30 year fixed mortgage rates should be 1.5% - 1.75%, though spreads have been wider than that during the subprime crisis. So this bill probably still protects bank's "service release premium" (typically 0.5% rate bump that is similar to yield spread premium, but that banks and other direct lenders (anyone who has money for your loan in house, even if it turns every month or so as last months mortgages are sold to investors to replenish cash reserves) do not have to legally disclose, I think because of RESPA passed in 1992 or so.

 

[mshan]

Service Release Premium ? Your bank?s dirty little secret
By Chip Parker, Jacksonville Consumer Attorney on Nov 8, 2007 in Predatory Lending

No one would disagree that people should be paid for their services, and mortgage brokers and banks are no different. Of course it is easy to see how these guys are paid. Just look at the closing statement on your loan document. It is right there ? the Origination Fee, which is the fee charged by a lender to prepare loan documents and qualify the house and the buyer for the deal. This fee is usually computed as a percentage of the face value of the loan. But is that all? Not usually, and it is often impossible to know what the broker and/or lender is really making on the deal.

Let us say that your mortgage broker is able to secure financing of your new home at a rate of 6.5%. If he then tells you that the best he can do is 7.0%, he has created an additional .5% profit for the bank, known as a Yield Spread Premium. According to a 2002 study of yield spread premiums, 90% of all residential mortgages have a .5% YSP which creates, on average, an extra 2% profit in addition to the Origination Fee already charged to the borrower. That?s a $4,000 profit on a $200,000 loan.

Much attention has been paid lately to the dirty little YSP, and as reported by Michigan Bankruptcy Attorney, Kurt O?Keefe, legislation before the House of Representatives seeks to do away with it. The Mortgage Reform and Anti-Predatory Lending Act of 2007 was recently introduced to Congress by Rep. Bradley Miller (D-N.C.) and co-sponsored by 16 members of the House including Financial Services Committee Chairman Barney Frank (D-Mass.). Interestingly enough, the legislation fails to address the more insidious Service Release Premium which continues to go unnoticed.

The SRP is to banks what the YSP is to mortgage brokers. In other words, the SRP is the markup banks add to their mortgage interest rates to make a hidden profit from borrowers. At least mortgage brokers are supposed to disclose the YSP somewhere on the HUD-1 Disclosure Statement. The Real Estate Settlement Procedures Act (RESPA) does not require banks to disclose the similar SRP markup because banks are exempt from the legislation.* Accordingly, you will never know how much you are overpaying on the mortgage with your bank.

Testifying before the Financial Services Committee, Marc Savitt, President-Elect of the National Association of Mortgage Brokers (NAMB), agued that the YSP ?helps many consumers who are ready to own a home but have to overcome the hurdle of significant closing costs, or for customers that choose to realize the savings of keeping their cash and financing their costs through their loan rate.? Savitt reminded the committee that rules issued by HUD in 1992 drew an ?artificial line? between YSP and SRP since HUD requires originators to disclose YSP on the good faith estimate and again on the HUD-1 but shields the banks? SRP from similar scrutiny.

I guess YSP is the Devil you know, and SRP is the Devil you don?t know. So maybe the real issue should be why Congress continues to allow banks to rip off consumers by allowing them to hide profits on loans. The current legislation does not go far enough, and Congress should eliminate both the Yield Spread Premium and the Service Release Premium.


http://www.mortgagelawnetwork....rvice-release-premium-?-your-bank?s-dirty-little-secret/


* I think direct lenders (mortgage lenders who have their own money for loans, even if it turns over every month) qualify as a bank according to this law. Unscrupulous mortgage brokers can do some trickery where they direct then redirect your loan through a lender to achieve same thing, I believe.

 

[Vic]

You can use as many loaded words as you want, but take away SRP and the "no fee" loan will disappear. Every borrower will have to pay upfront for the cost of every loan.

And look at it this way, if you're looking for a car and one car dealership wants $20k for the car and another wants $22k for the identical car, and neither will show you the true invoice, and you go ahead and buy the $22k car, were you actually ripped of by a hidden profit?

 

[mshan]

I believe the no closing cost loan you referred to typically adds an additional 0.25% (I forgot if rate bump is 0.25% or 0.5%) to the rate, above and beyond the legally allowed to be hidden service release premium.

If you don't have cash on hand and plan in staying on the loan only for a couple years, yes, the 0.25% rate bump in exchange for the lender paying closing costs may make sense. If you plan on keeping the mortgage for a long time, interest on interest will make that 0.25% rate bump much more expensive than just paying the closing costs up front at closing.

I don't have a problem with yield spread premium, or even bank service release premium, as long as it is explicitly and clearly revealed to the borrower when applying for a loan. Why did the banking lobby see it necessary to have laws to pass that allows lenders to hide this service release premium, while any mortgage originator who doesn't (at least temporarily) have the funds for your loan in house, have to reveal the same rate bump, and have it artifically called something else (yield spread premium)?

I believe mortgage brokers had like over 60% market share before the savings and loan debacle, and Congress (banking lobby) used the savings and loan debacle to try and destroy low cost mortgage brokers and maintain the high profit margins the banks need (read 3% per loan -> 1% loan origination fee, 2% additional profit via 0.5% bank service release premium rate bump over what you should qualify from; closing costs still additional and no idea how much junk profit is added here) to cover employees, all of those brick and mortar branches, and stock holders who expect ever increasing profits.

With this RESPA law, bank loan officer (unknowing kid who, like salesman at car store, really doesn't know true cost of funds, just numbers on the supposed "wholesale" rate sheet they are given, and has to go to manager who is only one who knows what each vehicle really costs) who only gets $400 commission for completing loan (bank keeps thousands and thousands of extra profit from jacking your rate 0.5% themselves) can legally point blank lie to you (probably doesn't even know it) that they are giving you wholesale rate and show you their rate sheets, which already have bank service release premium built into them.

I suspect this new legislation is designed to kill off the low cost competition (independent mortgage brokers), so banks can later jack rates further, because there is no where else to go except one bank or another (kind of like Lending Tree telling you win when banks compete with each other, you supposedly win). As another sidenote, I read that what DiTech supposedly used to do is charge you an upfront, NON-REFUNDABLE (non-charge backable) fee after they quoted you a certain set of fees and rate, but when you get actual documents, terms are higher than what you were lead to believe they would be - except you can't get your credit card to charge back their fee to your account).

Overall, buyer beware irrespective of who you get a mortgage from, but if you don't know what true wholesale rates are, and what reasonable profit margins should be, and generally speaking how much premium you have to pay because you are a blemished borrower, you can really get ripped off badly (we're talking thousands or even tens of thousands of dollars of mortgage interest / profits to lender that you probably didn't need to pay):

http://www.askcarolynwarren.com
http://www.amazon.com/Mortgage.../ref=pd_ecc_rvi_cart_1