Bill Black CMP

My apologies for lack of a daily report….things have been a little crazy trying to close loans and prepare other for the next dip in rates. We are seeing a steady increase in rates and credit scores have never been so important! I will be conducting some education classes on the new 2008 FICO changes that I think EVERYONE should be aware of. Please email me if you are interested in attending one of these courses.

The world’s financial markets remain fragile and vulnerable to further upheaval as a result of the credit crisis and the global recession. Following the announcement yesterday that Bank of America and Citi group are still facing stiff headwinds from the credit crunch and the staggering loss of 41B from the Royal Bank of Scotland (UK), traders are wondering what else lies ahead. Yesterday the Dow Jones Industrial Average dropped 332 points after financial stocks came in for another beating amid fear that governments world-wide will be forced to take more aggressive measures to rescue ailing banks. Bank of America shares dropped 29%, Wells Fargo plunged 24%, Citigroup fell 20% and J.P. Morgan Chase lost 21%. Remember, in order to fund the bailouts the US Government issues debt, which competes for available funds. Worldwide, traders are concerned about the massive issuances from world central banks.

One other thing to be looking at is that CITI has agreed on the “Cram down” bill that congress is trying so hard to implement and if this action occurs we could see some incredible shifts in the market and the beginning of stability for the homes- but not for the banks!

What is a CRAM DOWN?

Basically if person owes $500k with a 9% rate on a house and its value is $325K they file Bankruptcy… this new law would give the Judge the right to “CRAM DOWN” the $175K in negative equity and lower rate to a 5.7 rate (or current Freddie Mac rate.) You could see how this could make for some HUGE numbers of increases in BK but will also save a lot of homes from being foreclosed.

I have been working feverishly on putting together a service to try to keep more people in their homes and put the brakes on this foreclosure and short sale problem that affects our whole community so I will be sure to keep you posted as we should have copyrighted material and a rollout by the end of the month.

Question- What kind of options do I have to modify my own mortgage?

A: Here is a list ofsome different options

Capitalization of arrears: The past due payments -- and perhaps late fees and other charges arising out of past delinquencies -- are added to the loan balance. A new payment, which will be a little higher than the previous payment, is then calculated. This is the most common type of modification because it has very little cost to the investor. Its only value to the borrower is that it provides a new start by making him current. It works for a borrower who has hit a temporary rough patch and is now back on track, but not for a borrower who needs a lower payment.

Extension of the term: A term extension is the payment reduction modification that is least costly to the investor. However, if a loan was originally for 30 or 40 years and is now only a few years old, the payment can't be reduced very much this way. If the loan was originally for 10 or 15 years, a term extension to 30 years will reduce the payment materially, but 10- and 15-year loans make up a very small share of loans in distress.

Reduction in interest rate: This is a more effective way to get the payment down. Cutting the interest rate on a 30-year loan from 6 percent to 3 percent will reduce the payment by about 30 percent, whereas extending the term to 40 years reduces it by only 8 percent. Rate reductions are flexible, since they can be adjusted to the needs of each individual borrower. They are more costly to the investor than a term extension, and correspondingly they are more valuable to the borrower. To minimize the cost, rate reductions in some cases are made temporary. The modification may call for the original rate to be phased back over, say, five years. This presumes that the borrower's payment capacity will grow over the same period.

Freezing the interest rate: On adjustable-rate mortgages that are close to a rate reset date, where the new rate and payment will be well above the one the borrower is now paying, a modification can freeze the rate and payment at the current level. Many subprime loans have been modified in this way because they carried margins of 5 percent to 7 percent, which, when added to the current value of the rate index, would have resulted in substantial increases in rates and payments.

Reduction in loan balance: The mortgage payment declines in tandem with the balance. A 20 percent drop in the balance, for example, results in a 20 percent drop in the payment. Unlike a cut in the interest rate, however, a cut in the balance can't be temporary, which makes it the most costly modification for investors and the best modification for borrowers. Balance reductions do have one major advantage for investors: They reduce the borrower's negative equity, which increases the borrower's incentive to do everything possible to keep the house. It is very plausible that re-default rates on loans that are modified with a balance reduction are materially lower than on other types of modifications. New data compiled by the Office of the Comptroller of the Currency show that about half of all modified loans re-default within six months. I am told that breakdowns of re-default rates by type of modification will soon be available.

Modification decisions are made not by investors but by servicing agents under contract with investors, and the agents generally view balance reductions as a last resort. It is not in their own financial interest to cut balances because their servicing fees are based on the loan balance. A 20 percent cut in the balance also means a 20 percent cut in the fee. Probably more important to their decision process, the initial cost of balance reductions is higher than that of rate reductions, which imposes a burden of proof on servicing agents to justify balance reductions to investors. Their argument has to be that a balance reduction has a materially lower probability of re-default.

Remember, your submission package is one of the most important things that needs to be professionally completed and should include all the required information for the servicer to easily make a decision or pass the loan mod on to the investor.

The bad news-

Rates increased .50% Midday

Good News-

Our team was prepared and had everything within a 30 day close locked! We will see it come again in the next 2 months so make sure those looking to buy, refinance or just need some direction for a roadmap take the time to do this in advance. Rates were at 4.375% 13 days ago and lasted about 4 hours- Today they average 5.375%!

As expected the mortgage bond prices fell off their earlier highs in profit taking amid thin trading conditions this afternoon. MBS's (Mortgage Backed Securities) rallied nicely this morning but backed up throughout the day. This was just like we forecasted last week and you may even see more increased rates because of the automatic year end movement of money.

A NEW ISSUE- RATE FLUCTUATION? As a Broker we are really starting to see our true benefits of shopping the market for the client's specific needs. Each borrower is different and each loan should be different as well. We have the option of over 140 lenders and which is priceless in a volatile market that we are living! Rates fluctuated today from 5% (Preferred lender) all the way to 6.5% (No names but usually the big lenders) Now you may say "why would a lender set rates at 6.5% when the competition is at 5%"?

This upward movement in pricing is not based off the normal economic indicators and the typical MBS prices. There are two factors at play, rate renegotiations and swelling pipelines. For lenders the first deal you price each month is more aggressive than the 15th. As pipelines fill at lock desks across the fruited plain, it would not be uncommon to see the aggressive investors throttle back a bit.

I have heard that lenders set records the last 2 weeks with some over 1500 submissions in one day that usually average 30 loans a day. Some companies are taking this opportunity to move rates higher to allow some of the pipeline to clear and book some profits. The good news is that not all lenders do this and the ones that are positioned to handle the business and keep the rates low will be the lender of choice for us at America One Finance.

Remember, we are in unprecedented trading conditions. While the Fed is trying to push rates lower there are no guarantees, as we continue to see with the yo-yo market movements as of late. We expect the Fed to continue to keep course but the Fed isn't the only player buying and selling mortgage bonds so market forces can lead to some instability.

As we always warn, make sure you or your clients are working with an educated broker that has multiple channels of lending options and stays in tune with the market conditions. I ask realtors what the number one problem they have in this market and they say FALLOUT! My suggestion for this issue is to constantly develop a well educated team that consist of the buyer, seller, realtor, lender, appraiser, and title company- they all want the same thing but run into so many issues getting there.

Imagine how the transaction would be if the team of people involved could sit down at the table every couple days and report an updated status report- like most successful transactions require?

Bill Black CMP

America One FInance- Branch Manager/Certified Mortgage Plannner

Ok... So look up gas prices in 2001 when Bush came into place- $1.52/gallon.. now we see Bush leaving office and gas is back to $1.52/gallon. Hmmmmmm?

I am so looking forward to the changes that we are seeing in the near future- no more Bush gives more hope.