The Mortgage Market is Collapsing...

[Whoozyerdaddy]

Been watching the product lines shrink for the last couple months... Now they are slamming shut. Option one isn't the only one. I've been getting other emails as well. Basically the entire subprime mortgage category is collapsing under its own weight. Stated income is about to become extinct. Other products are either going away or raising the qualifications to such high levels that most people are cut out.

Get ready... When the funny money dries up and all that's left is government and conforming money... the housing market is gonna tank like you can't believe.

I've been dismissing this concept specifically because this money was out there to be had. Not any more.

Product and Underwriting Changes Effective Immediately!
3-year ARM, Florida Condo Loans, Appraisal and other guideline modifications

As a result of recent market changes, Option One has made necessary changes to our current suite of products and underwriting guidelines as of Friday, August 3rd, 6pm (PST).

Product Changes:

3-year ARM: 3-year ARM loans in the pipeline will automatically be transitioned into 5-year ARMs at no cost to the borrower. Moving forward, the 3-year ARM will no longer be offered. This transition to the 5-year ARM provides a fixed rate for a longer period with the same 24 month prepayment penalty

Florida Condos: Option One will not accept submissions secured by condos in Florida

Underwriting Changes:
The following Underwriting Guideline changes will be managed by your Option One production branch. They are not in our PreQual and AU engines so while you may receive an approval, if affected by the changes below, the loan will be subject to further modification until in our AU/PreQual systems:

If there is no open mortgage or a rental history (verified by a non-private VOR or canceled checks), the loan will be considered an A risk grade for LTV and pricing purposes
Legacy will be limited to 80% LTV/CLTV

Funds available for asset verification (down payment/reserves) from a 401K will be limited to 70% of vested balance

Process Changes:
Effective immediately, Option One will begin calling the borrower directly in an effort to confirm critical contact information and review loan terms on all wholesale loans. The contact will occur after the clear to close is granted yet prior to the loan going to docs. This verbal verification call must be completed satisfactorily before the loan will proceed to closing.

Option One continues to be committed to your success with excellent service and experienced Account Executives to guide you. Let us show you how we provide the highest level of customer service.

The Florida condos thing is especially interesting. Basically, Option One wont finance a Florida condo anymore. Look for other lenders to follow suit.

The next few weeks will be very interesting.

Another email I got today from Colorado Fed:

FYI?

If you have loans with us or other lenders you may want to try to lock them today?

--------------------------------------------------------------------------------

From: Jim xxxxxx [mailto:jim.xxxxxx@xxxxxxxx.com]
Sent: Friday, August 03, 2007 10:48 AM
To: honolulu-all@xxxxxxxx.com
Subject: Secondary Market Woes

The secondary market is undergoing a meltdown and it would be prudent to lock any non-conforming loans (Alt-A, Jumbo, 2nd Mortgages) as soon as possible, meaning today!

Conforming and government loans are fine and actually having a good day from a pricing perspective.

Get ready...

 

[dmcowen674]

Originally posted by: Whoozyerdaddy
Been watching the product lines shrink for the last couple months... Now they are slamming shut. Option one isn't the only one. I've been getting other emails as well. Basically the entire subprime mortgage category is collapsing under its own weight. Stated income is about to become extinct. Other products are either going away or raising the qualifications to such high levels that most people are cut out.

Get ready... When the funny money dries up and all that's left is government and conforming money... the housing market is gonna tank like you can't believe.

I've been dismissing this concept specifically because this money was out there to be had. Not any more.

So I was right for many years and get screamed at that it's not true.

Funny how it works that way on just about everything.

By the way my friends in the oil industry are very happy with the bigger sized Yachts they were able to get from the $3 gas. They say thanks everyone.

 

[Whoozyerdaddy]

Originally posted by: dmcowen674

Originally posted by: Whoozyerdaddy
Been watching the product lines shrink for the last couple months... Now they are slamming shut. Option one isn't the only one. I've been getting other emails as well. Basically the entire subprime mortgage category is collapsing under its own weight. Stated income is about to become extinct. Other products are either going away or raising the qualifications to such high levels that most people are cut out.

Get ready... When the funny money dries up and all that's left is government and conforming money... the housing market is gonna tank like you can't believe.

I've been dismissing this concept specifically because this money was out there to be had. Not any more.

So I was right for many years and get screamed at that it's not true.

Funny how it works that way on just about everything.

By the way my friends in the oil industry are very happy with the bigger sized Yachts they were able to get from the $3 gas. They say thanks everyone.

Right about what? I can't feel the world spinning backwards. You must be thinking about something else. :laugh:

 

[StageLeft]

Originally posted by: dmcowen674

Originally posted by: Whoozyerdaddy
Been watching the product lines shrink for the last couple months... Now they are slamming shut. Option one isn't the only one. I've been getting other emails as well. Basically the entire subprime mortgage category is collapsing under its own weight. Stated income is about to become extinct. Other products are either going away or raising the qualifications to such high levels that most people are cut out.

Get ready... When the funny money dries up and all that's left is government and conforming money... the housing market is gonna tank like you can't believe.

I've been dismissing this concept specifically because this money was out there to be had. Not any more.

So I was right for many years and get screamed at that it's not true.

Funny how it works that way on just about everything.

By the way my friends in the oil industry are very happy with the bigger sized Yachts they were able to get from the $3 gas. They say thanks everyone.

4/5ths of your posts are stating the most ridiculous, you-must-be-on-another-planet statements and then 1/5th are lauding how you were right and made a prediction "years ago" and that everyone called you a quack and now you're being vindicated. Of course, that's not true at all and if among your 32,500 posts (~26000 of which are the you-must-be-on-another-planet statements) a few end up being accurate, that cannot begin to atone or absolve you of the insanity of other nutty things you say.

 

[Blain]

Tight money is good if you have cash laying around earning little.

 

[smack Down]

Florida Condos: Option One will not accept submissions secured by condos in Florida

A day late and dollar short. If they where smart they would stop accepting submissions for anything in FL.

 

[Rainsford]

I'm not sure the demise of non-standard loans is a terrible thing in the long run. In the short run it might hurt the housing market, but in the long run it will stop people from getting those ridiculous mortgages that they can't afford, which will keep the housing market more stable. All these idiots with interest only and ARM mortgages have been defaulting, which is why the housing market dramatically favors the buyer right now. If all you could get was a fixed rate mortgage that you could afford, we wouldn't go through these wild oscillations as a result of what's happening in the mortgage market.

 

[Blain]

Is the phrase "market is undergoing a meltdown" official Fed-Speak?

 

[Jhhnn]

The condo market seems to react most strongly, and to be indicative of market direction. As was the case during the S&L situation, I'd expect general housing prices to follow suit rather shortly, on the order of 15-20%. Worse for condos, the historical precedents already being in place.

That spells disaster for speculators and some mortgage investment concerns. Lots of distressed sellers are currently trying to avoid losses, but it's often already too late for that with cashflow and liquidity issues becoming severe... As homeowner defaults continue, mortgage investors will be forced to sell at a loss as well.

It's the nature of speculative leveraged markets.

Refi cashouts are a hidden component of the situation, with some long time owners having effectively become new owners at higher prices...

 

[Lemon law]

First of all, its not the whole mortgage industry thats melting, its just the sub-prime part.

But we have had these dual mantras for years---that home ownership and conspicuous consumption are unmitigated virtues. And both push many consumers into buying more housing than they can afford.

And when you have what amounts to very low interest rates front loaded, your market loses all balances. Normally the cure for too many defaults is for mortgage lenders to raise interests rates. And the increased rates pay for the defaults while driving some of the marginal from the market. And instead we offer super low teaser rates and when those later go up, everyone defaults. So the control then becomes the killer.

And we learn once again, inflating a bubble always leads to the later collapse of the bubble.

 

[smack Down]

First of all, its not the whole mortgage industry thats melting, its just the sub-prime part.

The whole industry is melting some is just started out a little colder then others. Anyone who got a mortgage for the "market value" of their house in the last 2 years would be wise to stop paying and walk away.

 

[Jhhnn]

It's the sub-prime part that has generated the runup of prices over the last several years, LL. Collapse in that sector won't be confined to it exclusively. Even recent buyers who put 10% down on conventional loans will be very adversely affected in the short term if prices drop to less than the buyout price of their current mortgage... which seems entirely likely if history is any sort of guide...

 

[nick1985]

Originally posted by: Skoorb

Originally posted by: dmcowen674

Originally posted by: Whoozyerdaddy
Been watching the product lines shrink for the last couple months... Now they are slamming shut. Option one isn't the only one. I've been getting other emails as well. Basically the entire subprime mortgage category is collapsing under its own weight. Stated income is about to become extinct. Other products are either going away or raising the qualifications to such high levels that most people are cut out.

Get ready... When the funny money dries up and all that's left is government and conforming money... the housing market is gonna tank like you can't believe.

I've been dismissing this concept specifically because this money was out there to be had. Not any more.

So I was right for many years and get screamed at that it's not true.

Funny how it works that way on just about everything.

By the way my friends in the oil industry are very happy with the bigger sized Yachts they were able to get from the $3 gas. They say thanks everyone.

4/5ths of your posts are stating the most ridiculous, you-must-be-on-another-planet statements and then 1/5th are lauding how you were right and made a prediction "years ago" and that everyone called you a quack and now you're being vindicated. Of course, that's not true at all and if among your 32,500 posts (~26000 of which are the you-must-be-on-another-planet statements) a few end up being accurate, that cannot begin to atone or absolve you of the insanity of other nutty things you say.

QFT.

 

[LegendKiller]

Originally posted by: Lemon law
First of all, its not the whole mortgage industry thats melting, its just the sub-prime part.

But we have had these dual mantras for years---that home ownership and conspicuous consumption are unmitigated virtues. And both push many consumers into buying more housing than they can afford.

And when you have what amounts to very low interest rates front loaded, your market loses all balances. Normally the cure for too many defaults is for mortgage lenders to raise interests rates. And the increased rates pay for the defaults while driving some of the marginal from the market. And instead we offer super low teaser rates and when those later go up, everyone defaults. So the control then becomes the killer.

And we learn once again, inflating a bubble always leads to the later collapse of the bubble.

I guess you can explain why jumbo loans that have prime obligors have just jumped about 20% in price? Or how a large part of Alt-A loans are starting to deteriorate?

I laugh at how people think that credit bleeds don't happen, it is counter intuitive. Nothing happens in a vacuum in economics. If that were true then in 2000 the complete collapse of the .bomb economy wouldn't have touched anything else.

Don't fool yourself, this is much much larger than subprime.

 

[LegendKiller]

Originally posted by: dmcowen674

Originally posted by: Whoozyerdaddy
Been watching the product lines shrink for the last couple months... Now they are slamming shut. Option one isn't the only one. I've been getting other emails as well. Basically the entire subprime mortgage category is collapsing under its own weight. Stated income is about to become extinct. Other products are either going away or raising the qualifications to such high levels that most people are cut out.

Get ready... When the funny money dries up and all that's left is government and conforming money... the housing market is gonna tank like you can't believe.

I've been dismissing this concept specifically because this money was out there to be had. Not any more.

So I was right for many years and get screamed at that it's not true.

Funny how it works that way on just about everything.

By the way my friends in the oil industry are very happy with the bigger sized Yachts they were able to get from the $3 gas. They say thanks everyone.

Dave, you're a moron. Just stop.

 

[IGBT]

..end result of making loans to people who couldn't even make the first payment.

 

[TraumaRN]

At least it favors me who is looking to buy in the spring of 2008...already prices are starting a head south, especially on condos and certain newer homes.

 

[Rainsford]

Originally posted by: DeathBUA
At least it favors me who is looking to buy in the spring of 2008...already prices are starting a head south, especially on condos and certain newer homes.

It will work out fine for most people, I'm closing on a condo in two weeks and I'm not worried. But that's because I bought a solid place in a growing area of the country, and did so with a fixed rate mortgage that I can afford. Short term market behavior isn't going to hurt people like me who take a reasonable approach to home ownership, no matter when they buy, but it will hurt the people who used goofey schemes to buy more house than they needed or could afford and people who bought places as short term investments.

The housing market is like the stock market, the wailing and gnashing of teeth seems to come mostly from the people who ignored both sound advice and historical precedents. An intelligent approach to either and you'll be fine no matter what short term fluctuations are going on.

 

[CPA]

Originally posted by: Rainsford
I'm not sure the demise of non-standard loans is a terrible thing in the long run. In the short run it might hurt the housing market, but in the long run it will stop people from getting those ridiculous mortgages that they can't afford, which will keep the housing market more stable. All these idiots with interest only and ARM mortgages have been defaulting, which is why the housing market dramatically favors the buyer right now. If all you could get was a fixed rate mortgage that you could afford, we wouldn't go through these wild oscillations as a result of what's happening in the mortgage market.

I have an ARM with an interest-only component (7 years) and I haven't defaulted (and won't). It was a tax strategy, which is working. Am I still an idiot?

 

[BarneyFife]

Originally posted by: DeathBUA
At least it favors me who is looking to buy in the spring of 2008...already prices are starting a head south, especially on condos and certain newer homes.

Yup... I'm shooting for September 2008. Perfect timing for me.

 

[1EZduzit]

Originally posted by: CPA

Originally posted by: Rainsford
I'm not sure the demise of non-standard loans is a terrible thing in the long run. In the short run it might hurt the housing market, but in the long run it will stop people from getting those ridiculous mortgages that they can't afford, which will keep the housing market more stable. All these idiots with interest only and ARM mortgages have been defaulting, which is why the housing market dramatically favors the buyer right now. If all you could get was a fixed rate mortgage that you could afford, we wouldn't go through these wild oscillations as a result of what's happening in the mortgage market.

I have an ARM with an interest-only component (7 years) and I haven't defaulted (and won't). It was a tax strategy, which is working. Am I still an idiot?

7 years from now is a long time. Nobody knows, but I do know several people who just walked away from their houses back in the 80's when their ARM's went through the roof. I think some people were paying as high as 18% interest on them?

 

[Whoozyerdaddy]

Originally posted by: Blain
Is the phrase "market is undergoing a meltdown" official Fed-Speak?

It's the phrase being used in official correspondence sent out by many of the lenders we work with. That particular phrase was from our Colorado Fed AE. And I don't know what else you'd call it. The rules for sub prime are changing on a daily basis right now. Many loans that would have been fine on Friday are not going to work on Monday.

I don't know all the individual markets across the US, I only know mine. And my market is financed with TONS of sub-prime stuff. Mostly stated income products as nobody here can qualify to buy a $700k house using conventional financing. Meaning they can scratch out the payments but they don't fit into the ratios of conventional/conforming loan products.

When that money dries up, the pool of buyers goes with it. Subprime helped to run the prices up over the last few years... now it's going to help bring them back down. And that's where you'll start to feel the ripples across the conventional loan market. As housing values come down to match the buyers and their smaller, stricter array of loan choices, many people will be trapped in houses they can't afford to sell. I don't think it will be as epic as what is happening in the SP market, but a lot of people are going to feel it.

Housing prices here have been slipping since 2006. Although, if you look at the general averages it doesn't look like it - we have a funny market full of gazillion dollar beach front mansions that never go out of style. So when your average 3/2/2 family home isn't selling, the mansions are, which pushes the average sales price UP even through the meat of the market is falling fast. The next year or two will be especially rough over here as ARMs start to ratchet up and people who bought in 04, 05 & 06 try to sell or re-fi their homes. I've already come across some sad cases. The first few pebbles down the mountain before the avelanche.

 

[OS]

"we have armageddon" - cramer

 

[Rainsford]

Originally posted by: CPA

Originally posted by: Rainsford
I'm not sure the demise of non-standard loans is a terrible thing in the long run. In the short run it might hurt the housing market, but in the long run it will stop people from getting those ridiculous mortgages that they can't afford, which will keep the housing market more stable. All these idiots with interest only and ARM mortgages have been defaulting, which is why the housing market dramatically favors the buyer right now. If all you could get was a fixed rate mortgage that you could afford, we wouldn't go through these wild oscillations as a result of what's happening in the mortgage market.

I have an ARM with an interest-only component (7 years) and I haven't defaulted (and won't). It was a tax strategy, which is working. Am I still an idiot?

We'll have to wait 7 years to know for sure, but the odds do not seem to be in your favor. Unless you have a crystal ball, you can't say for sure what the rates are going to do over 7 years, and "interest-only" as a tax strategy makes little sense when you consider that you're not building equity and you (presumably) can't deduct 100% of those interest only payments. Now I don't know everything about your particular situation, so maybe I'm wrong and that is the best deal for you...but the way ARMs are taking the legs out from under a lot of homeowners suggests it's not a particularly good solution overall.

The problem with investment schemes (whether in the stock market, real estate or anything else) is that they tend to be overly complicated and reliant on certain performance characteristics of the market that, late night infomercials to the contrary, are in fact very difficult to predict. It's a reality of the stock market that managed funds are outperformed by index funds the majority of the time, and managed funds are handled by professionals with years of training and experience. All these mortgage schemes seem to be the same way. So far as I can tell from the research I've done (and I did a lot before taking the plunge), no matter what kind of crazy thing you've cooked up, you are unlikely to beat a fixed rate mortgage for the largest amount you can afford.

 

[Pabster]

Originally posted by: Lemon law
First of all, its not the whole mortgage industry thats melting, its just the sub-prime part.

Well, yeah, duh. A lot of loans were made to people who never should have gotten them.

That said, a recent report noted a significant rise in defaults among "most creditworthy" customers, so while the sub-prime market is really sinking, it is affecting the entire pyramid.