Archive for the 'Mortgage Boom 2.0' Category
The Economic Realities of Transparency for The Mortgage Brood
April 20th, 2008 Categories: Business Models, Mortgage Boom 2.0, Mortgage News, Tranparent mortgage pricing
Transparency in the mortgage industry has become a hotly debated topic over the past 18 months. With major corrections in the marketplace, declining home values, volatility in mortgage securities, and a white hot media focus on the viability of mortgage professionals in general, we are primed for the paradigm shift towards the type of market transparency that has taken over the economics of other commodity markets.
Searching Wikipedia, Transparency has no less than 17 definitions; focusing on the ‘Economics’ classification:
“In economics, a market is transparent if much is known by many about:
- What products, services or capital assets are available.
- What price.
- Where.
A high degree of market transparency can result in disintermediation due to the buyer’s increased knowledge of supply pricing.
Transparency is important since it is one of the theoretical conditions required for a free market to be efficient.”
I was going to delve into it’s philosophical definition and application, but that would cause too many peoples heads hitting their keyboard out of boredom.
‘Web 2.0′ is all about augmenting the speed and lucidity of delivering #’s 1-3. The very expensive technologies that ‘disintermediated’ traditional commodity brokers on Wall Street are now readily available at far less cost to most any industry that deals in information, this much we know. I can today, while being out of the industry as a practicing mortgage broker, monitor what’s going on in the industry better than I could when I was in the day to day grind. Much of the valuable information that was available in ‘expensive’ short supply just 2 years ago is now readily available in buckets.
To a great degree, the resourcefulness of the trusted crowd in the re.net space allows me to maintain a keen perspective about the industry in a fraction of the time. Any consumer who reads the mortgage websites indexed under my re.net tab could assimilate 90% of the knowledge they need to select a mortgage product that is fit for their personal situation.
It makes me smile when I read affluent bloggers post about how valuable their advice is as they simultaneously give it away. Here’s six figures worth of advice, for free. I’ll even expound on Roberts advice:
Next time you take out a mortgage, commit yourself to making the payment a 30 year fixed amortizing loan yields (20 or 15 year fixed payments are even better if you can afford it) that your situation qualifies you for. Execute a 5 year ARM Interest Only (or ‘cheaper’) product, take the difference between your ‘qualifying payment’ and your actual payment, and invest it.
Thats valuable counsel, now its out there for free…I just disintermediated myself 
The mortgage industry, with it’s migration into the Mortgage Backed Securities arena of Wall Street, is square in the same cross hairs that pre dot bomb ’stock brokerages’ found themselves. The environment is strikingly similar: market has recessed substantially, quality information is getting easier and cheaper to find, and its ‘brokers’ are fighting for their careers.
Remember when stock brokers repeatedly uttered how ‘people need my advice’ to choose the right investment vehicle? If someone would have told them then that they would be selling mortgages (or real estate) in the near future, they’d have laughed so hard at you they’d cry. Speculative investment vehicles are far more difficult to evaluate risk in compared to a mortgage, yet I hear many of todays current mortgage practitioners repeating the same ‘people need my advice!’ jargon. Mark Twain said, ‘History may not repeat itself, but it does rhyme’…this is straight-up Nursery style.
Brokering information inherently gets easier, faster and cheaper. If you’re in the mortgage business and you can’t deliver more information to consumers easier, faster and ideally cheaper than your competition, your value is diminishing. The quicker a mortgage (and real estate) professional learns to become an uber resourceful information broker, the more ‘future proof’ you and your business becomes. Banks have already clued into this, they’re positioning themselves to crush the small to mid size shops, continuing to keep Washington in their pockets by lining it’s pockets, to keep the unscientific disclosure laws in place.
How does one compete in an industry that has disparate transparency/disclosure rules? Get lean, efficient and be more transparent than the next guy. It’s always been about survival of the fittest, today is no exception…you must offer more information, be quicker, better and cheaper than your competition.
Mortgage professionals had best stop trying to refine their image on the outside and instead get real personal with how they do business internally, or it’s on to yet another career…
Sphere: Related ContentRising FHA and Conforming Mortgage Loan Limits Are Not Easy to Interpret or Implement
February 11th, 2008 Categories: FHA loan limit, Mortgage Boom 2.0, Mortgage News, conforming loan limit
There seems to be some varying opinion on how to interpret loan limit increases for Conforming and FHA type mortgages.
I’ve read articles here that suggest a $650k Conforming loan limit while FHA mortgages will set a new limit based on (max) 175% of the subject property’s County Median Home Price, while Matt Carter at Inman News posted his own thesis. I was admittedly confused after reading Matt’s article due to how he was interchanging the terms ‘FHA’ and ‘Conforming’, though after reading the Bill, it all makes a bit more sense…just a bit.
The Bill seems to indicate that both Conforming and FHA will adopt almost identical loan limit valuation methodologies-with a few intricate differences:
Conforming loan limits will adopt the greater of the current limit ($417k) or between 125% and 175% of the subject property’s County Median Home Price (TBD by HUD) value. So, Conforming loan limits will remain at least $417,000, with the potential to be as a high as $729,750., depending on where the property is located.
FHA approved loans will adopt limits between 125% and 175% of the subject property’s County Median Home Price (TBD by HUD) value. According to HUD’s website, the FHA mortgage limit for a home in Collin County Texas is $200,160 would be increased to $281,250 ($200,160 x 125%), unless some other provisional measures are met (which I’ve yet to interpret) allowing a higher loan limit all the way up to $729,750 (hypothetically, at least in Collin County Texas).
There are alot of variables still in play here. Carter raises a good question by asking ‘where the data will come from in determining the median values and how often will they change?’
This will be interesting to watch…
What’s clear is that the biggest beneficiaries of this Bill passage are:
#1 California (and other inflated real estate areas of the country).
#2 Borrowers who are solid sub-prime candidates in housing that is relative to their income and asset levels. The FHA changes stand to benefit a slew of otherwise ’stuck’ Alt-A and sub-prime borrowers, but not nearly all of them. If you are a borrower that got by on a NINJA (No Income, No Job or Assets) loan last go round and need another one, you’re still stuck.
#3 HUD’s secretary who shall garner the attention of many lobbyists.
Both sets of changes will be temporary, lasting until 12/31/08…although I don’t see how you step backwards once you’ve stepped through. In any case, check with a trusted mortgage professional sooner rather than later regarding whether you should refinance.
Here are the sections of the Bill straight from the Library of Congress’ website (read at your own risk):
SEC. 201. TEMPORARY CONFORMING LOAN LIMIT INCREASE FOR FANNIE MAE AND FREDDIE MAC.
(a) Increase of High Cost Areas Limits for Housing GSEs- For mortgages originated during the period beginning on July 1, 2007, and ending at the end of December 31, 2008:
(1) FANNIE MAE- With respect to the Federal National Mortgage Association, notwithstanding section 302(b)(2) of the Federal National Mortgage Association Charter Act (12 U.S.C. 1717(b)(2)), the limitation on the maximum original principal obligation of a mortgage that may be purchased by the Association shall be the higher of–
(A) the limitation for 2008 determined under such section 302(b)(2) for a residence of the applicable size; or
(B) 125 percent of the area median price for a residence of the applicable size, but in no case to exceed 175 percent of the limitation for 2008 determined under such section 302(b)(2) for a residence of the applicable size.
(2) FREDDIE MAC- With respect to the Federal Home Loan Mortgage Corporation, notwithstanding section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)), the limitation on the maximum original principal obligation of a mortgage that may be purchased by the Corporation shall be the higher of–
(A) the limitation determined for 2008 under such section 305(a)(2) for a residence of the applicable size; or
(B) 125 percent of the area median price for a residence of the applicable size, but in no case to exceed 175 percent of the limitation determined for 2008 under such section 305(a)(2) for a residence of the applicable size.
(b) Determination of Limits- The areas and area median prices used for purposes of the determinations under subsection (a) shall be the areas and area median prices used by the Secretary of Housing and Urban Development in determining the applicable limits under section 202 of this title.
(c) Rule of Construction- A mortgage originated during the period referred to in subsection (a) that is eligible for purchase by the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation pursuant to this section shall be eligible for such purchase for the duration of the term of the mortgage, notwithstanding that such purchase occurs after the expiration of such period.
(d) Effect on Housing Goals- Notwithstanding any other provision of law, mortgages purchased in accordance with the increased maximum original principal obligation limitations determined pursuant to this section shall not be considered in determining performance with respect to any of the housing goals established under section 1332, 1333, or 1334 of the Housing and Community Development Act of 1992 (12 U.S.C. 4562-4), and shall not be considered in determining compliance with such goals pursuant to section 1336 of such Act (12 U.S.C. 4566) and regulations, orders, or guidelines issued thereunder.
(e) Sense of Congress- It is the sense of the Congress that the securitization of mortgages by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation plays an important role in providing liquidity to the United States housing markets. Therefore, the Congress encourages the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation to securitize mortgages acquired under the increased conforming loan limits established in this section, to the extent that such securitizations can be effected in a timely and efficient manner that does not impose additional costs for mortgages originated, purchased, or securitized under the existing limits or interfere with the goal of adding liquidity to the market.
SEC. 202. TEMPORARY LOAN LIMIT INCREASE FOR FHA.
(a) Increase of High-Cost Area Limit - For mortgages for which the mortgagee has issued credit approval for the borrower on or before December 31, 2008, subparagraph (A) of section 203(b)(2) of the National Housing Act (12 U.S.C. 1709(b)(2)(A)) shall be considered (except for purposes of section 255(g) of such Act (12 U.S.C. 1715z-20(g))) to require that a mortgage shall involve a principal obligation in an amount that does not exceed the lesser of–
(1) in the case of a 1-family residence, 125 percent of the median 1-family house price in the area, as determined by the Secretary; and in the case of a 2-, 3-, or 4-family residence, the percentage of such median price that bears the same ratio to such median price as the dollar amount limitation determined for 2008 under section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454(a)(2)) for a 2-, 3-, or 4-family residence, respectively, bears to the dollar amount limitation determined for 2008 under such section for a 1-family residence; or
(2) 175 percent of the dollar amount limitation determined for 2008 under such section 305(a)(2) for a residence of the applicable size (without regard to any authority to increase such limitation with respect to properties located in Alaska, Guam, Hawaii, or the Virgin Islands);
except that the dollar amount limitation in effect under this subsection for any size residence for any area shall not be less than the greater of (A) the dollar amount limitation in effect under such section 203(b)(2) for the area on October 21, 1998; or (B) 65 percent of the dollar amount limitation determined for 2008 under such section 305(a)(2) for a residence of the applicable size. Any reference in this subsection to dollar amount limitations in effect under section 305 (a)(2) of the Federal Home Loan Mortgage Corporation Act means such limitations as in effect without regard to any increase in such limitation pursuant to section 201 of this title.
(b) Discretionary Authority- If the Secretary of Housing and Urban Development determines that market conditions warrant such an increase, the Secretary may, for the period that begins upon the date of the enactment of this Act and ends at the end of the date specified in subsection (a), increase the maximum dollar amount limitation determined pursuant to subsection (a) with respect to any particular size or sizes of residences, or with respect to residences located in any particular area or areas, to an amount that does not exceed the maximum dollar amount then otherwise in effect pursuant to subsection (a) for such size residence, or for such area (if applicable), by not more than $100,000.
(c) Publication of Area Median Prices and Loan Limits- The Secretary of Housing and Urban Development shall publish the median house prices and mortgage principal obligation limits, as revised pursuant to this section, for all areas as soon as practicable, but in no case more than 30 days after the date of the enactment of this Act. With respect to existing areas for which the Secretary has not established area median prices before such date of enactment, the Secretary may rely on existing commercial data in determining area median prices and calculating such revised principal obligation limits.
Passed the House of Representatives January 29, 2008.
Thanks to Library of Congress website…
Sphere: Related ContentGet Ready For Refi Boom 2.0
February 10th, 2008 Categories: FHA loan limit increase, Mortgage Boom 2.0, Mortgage News, conforming loan limit increase
On your mark, get set…Close!
Conforming and FHA loan limits are set to rise substantially, at least for a little while. ‘The economy sucks’, thus interest rates and their underlying indices shall remain low. Fertile grounds for a mini boom of refinancings and purchases are being tilled.
This time around borrowers and mortgage professionals can expect logical underwriting standards to prevail, no more NINJA loans (No Income No Job or Assets)…no more faking it. Refi Boom 2.0 won’t last years, probably months. This is a real opportunity for floundering, yet honest, MoPro’s to rise like a Phoenix and affirm their position amongst this new, less crowded, marketplace.
If I were still originating mortgage loans…I would:
- Find every borrower in my file cabinet (hopefully you employ a database marketing strategy) that has a loan amount between $417,000.01 and $650,000 (or the loan amount difference between new and old FHA guidelines)…also look for other positive indicators, like 660+ FICO scores, Full Income and Asset documentation, Primary Residences, <90% LTV’s, etc
- Send them a letter, an email and dial them up on the tele’ informing them of their good fortune.
- Be honest and show the client what they qualify for, Par Rate plus pricing.
- Close, close, close.
Fannie and Freddie are the big dogs on the street again. Learn to play their game by their rules and stay in business.
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