Movin and Shakin

There's been a whole lot of movin and shakin goin on in the mortgage industry
since the beginning of 2006 and homeowners and those in the Real Estate business are going to be
feeling the effects of it soon. To date, 31 major mortgage lenders across the United States have
gone out of business or put the brakes on their wholesale lending divisions. Do you want to keep
track of what is going on? Visit http://mortgageimplode.com/

Most recently, the hit has taken place on the "sub prime market."

Sub prime mortgages are extended at rates at least 2 or 3 percentage points
above the safest, so-called prime loans, and they're given to people with
poor or limited credit histories or high debt burdens relative to their
incomes. Such loans made up about a fifth of all new mortgages last year,
the Washington- based Mortgage Bankers Association reported.

About 10 percent of sub prime loans were more than 60 days delinquent or in
foreclosure as of Dec. 31, up from almost 5.4 percent in May 2005, according
to a March 2 report by Friedman Billings Ramsey Group Inc. of Arlington,
Virginia. The rate was the highest in seven years, the report showed.

New Century, the Irvine, California-based home lender in default because of
losses from bad loans, said March 2 that U.S. prosecutors have begun a
criminal probe of accounting errors and trading in its securities. The
company also said it may not survive unless lenders ease terms for providing
new financing. New Century just laid off over 300 employees in its San Diego office this past week.

Fremont Investment and Loan, the Santa Monica, California-based lender said March 2 that a regulatory
order will require it to stop giving mortgages to people who can't repay. In laymen's terms, Fremont Investment
and Loan was just shut down by the FDIC.  I received an email on March 5th, 2007 from our Account Executive,
stating, "Good morning, my company has made the decision to cease originating and funding sub-prime mortgages
effective immediately. The decision was reached over the weekend as a result of the sudden material impact of
regulatory and market constraints on our business. I am sorry that there was no notice to this and as soon as
I get information regarding existing files I will contact each of you and let you know what we will be doing.
I cannot begin to tell you how disappointed I am. Fremont has been an excellent company to work for. My intentions are to quickly align myself with another lender with similar products and continue to service my market. "

New Century and Fremont are but a few of the major investors in California that were lending money to borrowers
considered "sub prime", which are those borrowers  that have below 620 FICO scores, high debt to income ratios
and little to no money for down payments. Many current and potential home buyers that fall under their approval
guidelines will now be at the mercy of investors and Wall Street. The lines of credit that are given to such
mortgage companies such as New Century and Fremont dictate the money available for sub prime borrowers.
Right now, it seems to be a 50/50 chance on whether they continue to offer the money or not.

The likelihood is that this will effect the decisions of other mortgage companies, banks and investors
on Wall Street, as to the amount of risk and exposure they will open themselves up to. In their eyes,
they are thinking, "is the risk worth the return?"  With home appreciation levels getting back into line
at healthy levels of 4-6%, but dramatically less than the all time highs we were recently realizing,
products that were once available on the marketplace for homebuyers and homeowners looking to purchase
or refinance will not be as widely available.

I have seen many investors that have "buckled up their belts", with stricter guidelines, offering lower
loan to value financing to protect themselves from becoming "overextended", which is likely what happened
 to the two companies above, with the percentage of loans defaulting in the 10% range! Yes, 1 out of every
 10 sub prime home loans didn't make their payments and received a late letter or notice of default for being
 60+ days late.

So what does it mean to us?

Less banks will now be offering 100% financing on homes.

Less "potential home buyers" will qualify with sub prime loan products, which equates to less home sales from the
sub prime market specifically.

Less people in the sub prime market will be able to refinance their existing home loans. This will have a major
impact on the California Real Estate market.
More homes will go on the market, due to existing home owners not being able to afford the increasing payments
 with the once "fixed" loans for 2, 3, 5 and 7 years, which are set to adjust. The idea that these borrowers were
sold into was, "get into the home with this sub prime loan, work on repairing your credit and refinance into better
 terms in a few years!" But, what happens to those that didn't take that advice and now won't qualify to refinance?
Yes, they are stuck in their current loan with a payment that will continue to increase.

Yes, there's a whole lot of movin and shakin goin on and it should be interesting to see how it all plays out.

Scott Gormley
Broker/Owner
Oak Valley Mortgage
2006 Chico Assoc. of Realtors Affiliate Chairman
Direct: 530.592.8362
Fax: 530.267.5555
Website: http://www.CALoan.com

Blog: http://www.CALoanBlog.com

"You find the perfect home, we'll find the perfect loan!"