MOST IMPORTANT POST EVER

NEW -> Contingent Buyer Assistance Program
<p>Major,</p>

<p>I agree. That's what I like about this forum. For many a times, I would ask the most basic questions. And usually, I would get very informative responses without being talk down to. I have learn alot and thanks.</p>
 
<p><em>A good broker (not all) will pay for himself in value-added.</em> </p>

<p>Janet, I think that's the crux of the banks move, to squeeze the brokers. They're effectively saying we trust our paper, but brokers need to pay a point. Essentially, they're removing a huge chunk of the margin the brokers have to get a better deal for the customer and make money for themselves. Good brokers will remain, their margins are going to get squeezed, bad brokers are DOA.</p>
 
<p>I just checked their pay option arm rate sheet and the option to not have a prepay is gone from yesterday. Mandatory one year hard (sell or refi) prepay and the margins are way up. Without factoring in any adjustments the underlying rate margin 3.8% plus MTA 4.983% = 8.875% rounded up to the nearest .125%. $500k loan minimum payment = $1608 I/O payment = $3698 = $2090 added to the loan balance. Once the loan balance reaches 115% $575k the recast payment at current rates would be over $4575 a month. </p>

<p>Yep don't worry Paulson said it was contained. </p>
 
First post and I think this is now my favorite blog. The information handed out here (and Calculated Risk among others) is seriously priceless. I follow it daily with great interest.





I had to weigh in first time though about that Cramer video. I recommend you don't have anything to drink in your mouth when you watch it. That was a serious laugh riot.





Another question.... Why is it that when the word "bailout" is said a certain political party goes up in arms about how it's not the Federal government's job to "bail people out," but when it's Wall St. we hear about how much of a "bloodbath" it is and that the Fed needs to cut rates. Hello, ever heard of inflation? I guess you don't care about that though because Daddy Government can help bail you out because you're white collar and drive a Benz.





Frustrating.
 
Welcome jwbrown77,





We are glad you like the blog.





Wall Street's sense of entitlement was exacerbated by the "<a href="http://www.investopedia.com/terms/g/greenspanput.asp">Greenspan Put</a>."
 
<p>NSR,</p>

<p>Broker pricing is still the same as always on the products available. I don't know where the info is coming from that 'banks have different rates than brokers' right now. The wholesale brokerage rates for conforming paper are still much lower than what any bank has. I think people are mixing and matching alt-a loans and conforming paper to come to their own conclusions???</p>

<p>Alt-A is pretty much dead as of this moment. Want to buy that $600,000 irvine home? Ok, that'll be 20% down, minimum... OH, and you can't state your income anymore, so let's see those W2's and paystubs for the last 2 years. Hope they read in the $250,000K+ range per year! Also, make sure you have about $60,000 left over in your bank account AFTER your down payment... need to prove those assets! Oh, crap... you have a lot of credit card debt AND you are making 2 car payments? Sorry, no can do, too much debt. Try again at $500,000! That's literally what it is right now... no joke. </p>

<p>So conforming is all that remains. And a broker will not be 'squeezed' out of a business where they have superior pricing over their rivals. </p>

<p>As far as banks trusting their paper more... LOL. I know this is true, but must laugh at the irony of it. I will state again: Broker sub'd loans are scrutinized 10000% more than ANYTHING the bank does in-house. Banks are ripe with fraud at levels brokers can't even imagine. Again, when the guy making the gold is ALSO in charge of making sure he does things legally HIMSELF, what do you think happens? :)</p>

<p> </p>

<p> </p>
 
Masterofdemoney,





Have the DTI requirements dropped? I remember when they came out with their "guidance" they were still allowing insane DTIs like 55%. If lenders are starting to limit peoples ability to borrow at 28% on the loan and 36% overall, the market is truly dead. Of course, I have speculated this would happen, just not so quickly.





Sellers can hold to their asking prices all they want, if buyers can no longer offer bids anywhere near asking -- if they actually have to qualify based on proven income and tight DTI ratios -- prices will drop precipitously down to the level people can afford. Suddenly everyone will be on a level playing field, and those of us with good credit, good income, and savings will not be outbid for properties.





If that is the case, the time to buy may be closer than we realize, and it may be coming sooner than any of us expected.
 
<p>IR,</p>

<p>DTI requirements for conforming products have a SMALL amount of wiggle room. Basically, you need your back-end DTI to be 45% or less, depending on other characteristics. In many cases you will need to be under 40%.</p>

<p>This covers ALL reoccuring monthly expenses in addition to the mortgage, property tax, insurance, HOA, etc...</p>

<p>Here is an example:</p>

<p>Say you are going to buy a home worth $450,000. I think we'd agree that this would be a good price on a nice 2,200+ sq. ft Irvine home, right?</p>

<p>First off, you need to bring $90,000.00 with you to the table. 20% down.</p>

<p>Then, you are going to finance $360,000.00.</p>

<p>I will be nice and say you get a 6.5% right now on a 30 year fixed rate conforming loan.</p>

<p>Payment is $2,275.44 per month.</p>

<p>I will also be nice and assume the county immediately reasseses the property DOWN to land value around $400,000, in line with the new pricing (yeah, right... lol). Using a very nice 1% calculation for property taxes, we assume $4000.00 per year, or $333.33 per month.</p>

<p>Add in homeowners insurance for $600 per year, $50 monthly.</p>

<p>We will assume no HOA or other costs for the home.</p>

<p>Total payment is $2,658.77 per month for the mortgage and related.</p>

<p>Now we will add in some base items that almost everyone has:</p>

<p>2 credit cards, $10,000 high credit limit each, carry avg. 80% balance, payment at 2% principal (assuming 0% interest CC's!): $320 per month</p>

<p>1 car payment, $35,000 loan, 5 year term at 6.99%: $693.04 per month</p>

<p>1 misc. loan/revolving payment (student loan, personal loan, store CC, etc.), $4000 balance, $150 per month</p>

<p>Total monthly reoccuring expenses: $3,821.81</p>

<p>Please note that I am being EXTREMELY generous and conservative in the above estimates. The reality I see every day probably doubles or triples the debt and payments that are listed above. I am assuming a very financially conservative person who saves money and does not spend much.</p>

<p>If the above were true, to get a 50% DTI you need to be able to PROVE a monthly income of $7643.62 ($91,723.44 yearly income). 45% DTI (where you need to be) is $8492.75 per month ($101,913 yearly income). 40% DTI is $9554.89 per month ($114,658.68 yearly income).</p>

<p>In addition to this, you will need to show between 2 - 6 months of 'reserve money'. This is your savings, and must be IN ADDITION to your downpayment. This will vary from $7,543.62 - $22,930.86.</p>

<p>So, to summarize:</p>

<p>To buy a $450,000 home right now, assuming all of the above (which is a definate 'best case scenario'), you need $90,000 to drop on the down payment, have another $7,543.62 - $22,930.86 in the bank remaining after that, and be able to prove an income of approx. $101,913 per year for the last 2 year via tax returns and current paystubs.</p>

<p>And you need good credit, too. Those are CONFORMING requirements. Those exact same requirements would apply to someone just refinancing a $360,000 loan at 80% of their properties value.</p>

<p>How many people do YOU know that could do that? That's for a house price that is not even obtainable in Irvine right now. And assuming a very, very minimal amount of extra debt.</p>

<p>I look at hundreds if not thousands of W2's, paystubs, credit reports, etc. per year. I know what people make in OC, I know what level of debt they carry.</p>

<p>Based on the last 6 years of what I've seen while looking at Californians financials, and with ALL doc types but full doc pretty much gone...</p>

<p>Well, the picture of the bridge in MN collapsing would certainly fit perfectly with my housing forecast for the rest of this year. :)</p>

<p> </p>
 
Aw shit man, I'm offline for 3 days and it's the most newsworthy since I started haunting all the bear stuff a year ago.





I tried to explain the meaning of this to my wife. She gave me a "that's nice" in the 'glad you're excited about something even though I have no idea what you're talking about' way. I love her, glad I have you guys. LOL





I keep trying to imagine a world where house prices are in the conforming range. It hasn't been forever, but I truly can't remember.
 
<p><em>Please note that I am being EXTREMELY generous and conservative in the above estimates. The reality I see every day probably doubles or triples the debt and payments that are listed above. I am assuming a very financially conservative person who saves money and does not spend much.</em></p>

<p>Your example above is <strong>conservative </strong>for someone in OC?</p>

<p>I've been called "cheap bastard" more than once. This confirms it. </p>
 
<p>IR said:</p>

<p>>>>Welcome jwbrown77,





We are glad you like the blog.





Wall Street's sense of entitlement was exacerbated by the "<a href="http://www.investopedia.com/terms/g/greenspanput.asp">Greenspan Put</a>." <<<</p>

<p>And let's not forget!...</p>

<p>Main Street's sense of entitlement was exacerbated by the "<a href="http://biz.yahoo.com/pfg/e03greenspan/">Greenspan ARM</a>."</p>
 
<p> What I'm reading, hopefully not mixing and matching, is the info that Wells was saying Jumbo would be 8% will supposedly offering lower direct</p>

<p> I've been stuck trying to figure out what's PR spin of the banks and what the banks did:</p>

<p>A) Jumbos to 8%, Alt-A gone.</p>

<p>B) Jumbos through brokers to 8% (via rates remaining the same but the rebates shifting from 3% to -.1/4%), Alt-A gone, but keeping original rates for themselves.</p>

<p>I got conflicting news all day. Or maybe I should say, the mortgage industry was it's typical opaque self when trying to figure out what an interest rate really is. I appreciate all the info you share, it's always enlightening. </p>

<p>It sounds like your first post is what your saying which is across the board, Jumbo loans (over $417K in Cali) jumped 200 basis points. As you say in note 106, Alt-A is pretty much dead, that's the real news. Whether rates are at 6.5%, 8% or 5.5%, in Irvine and OC, if you need full doc and a down, you just eliminated the majority of potential buyers at current prices. </p>

<p>Is your broker rebate comment on note 1 going from 3% to -1/4%) i. e. An Alt-A Jumbo would have funded at high sixes (6.875%) Thursday and paid the broker 2-3% rebate. Today, that Alt-A jumbo at high sixes would require the broker to pay 1/4 point. So effectively the broker needs to fund that loan at 8% to make money</p>

<p>Is Alt-A dead because nobody will fund it or Alt-A dead because of the price tag on it? It's early and I haven't had coffee. Ie. nobody will fund Alt-A and full-doc/down jumbos jumped to 8% or Alt-A jumbos jumped to 8% and doc/down jumbos about the same?</p>
 
NSR,





You ask why alt-A are dead. Lemme see if I can take a stab at this.





Lemme back up a sec. Alt-A is less than prime and greater than sub. That seems like no-duh,.. but it means that it is not prime. If it is not prime, then the borrower is missing something e.g. income docs, 20% downpayment, debt-to-income ratio, etc. Freddy and Fannie said they will back loans that are conforming i.e. conforming to a set of standards, ALL the standards.





If a retail bank gets an applicant that is qualified in most, but not all categories, the bank now has to either keep and service this loan themselves or sell it. Previously, they would sell it to a broker. This news means that the market for selling loans has become cost-prohibitive for a broker. Now, the banks only option is to keep the loan or deny the applicant. That's why a previous poster was saying that the big banks, Wells, WaMu, etc. will keep going. The little guys do not have the resources to keep up.





Additionally, the big guys may keep offering alt-A loans, but the risk can no longer be sold off. Banks will/are changing policy and interest rates to account for the increased risk and cost. As the rates go up, the ability to qualify becomes even harder and as such the likelihood that someone will get an alt-a goes even lower.





It's a return to normalcy. Soon we will hear the new (old) standy. "28/36 rule"





Your monthly household debt service should not exceed 28 percent of your gross monthly income. Your total debt service, including your house payments plus all other payments, should not exceed 36 percent of your gross monthly income.





Even if Alt-A exists in the big banks, extremely few will be able to qualify.





So Alt-A is dead two ways. First to the broker by cost. Second to the applicant by an inability to qualify.
 
<p>NSR,</p>

<p>You pretty much get it. Check out <a href="http://blownmortgage.com/">http://blownmortgage.com/</a> to get a good break down.</p>

<p>Option ARMs are gone. 100% financing gone. First time home buyer needs 10% down. Interest only loans need to be qualified on the fully indexed (margin+index), fully amortized payment. Some lenders cut ARMs completely. 30 year fixed jumbo rates vary by the lender or bank.</p>

<p>Banks who hold their loans and don't need sell their loans right away will be able to keep rates down. Especially the banks with sound lending practices. Union Bank keeps all their ARM loans. They offer interest only and no doc loans. Surprisingly their no doc loans are performing better than the full doc loans and they have decreased their deliquencies down to .06% of their loan portfolio. So banks like that are not effected by the secondary market and can keep their rates down. It is the tradional banking model we have X on deposit so we have X to lend and we pay X for the deposits and we charge X for the interest on loans. </p>

<p>ALT-A is pretty much dead. Most lenders need to sell their loans ASAP and the pricing is determined by how the secondary market is trading. Mortgages trade in a very similar way to that of bonds. If the rate is 7% and trades at par 100 it is the break even point. If 7% trades at a premium say 102 the lender makes 2 basis points and if 7% trades at a discount say 98 the lender pays 2 basis points. What happened to ALT-A is no one wanted it and if they were even bidding on it would be at a deep discount say 75 or less. No lender would want to take that loss so they raise rates to say 8% and hope they can get some bids above par. But no one wanted it so because even then the risk was still too high so they have to become more conservative.</p>

<p>What I have heard is every lender has scrambled to re-program their automated underwriting systems so that all loans must meet Fannie Mae guidelines. The biggest change to this is the qualifing rate on interest only to the fully indexed and fully amortized payment. On a $650k loan amount at 7% qualifing on the I/O payment is $3792 and the 6 month libor index of 5.3% plus a margin of 2.25% rounded up would be 7.625% making the qualifing payment $4601. It may not seem like much but it will throw a lot of people out of a loan.</p>
 
So, you thought there was a squeeze in the credit markets last week? The yen/USD is at 117.58. I am going to guess that if yen opens any day below 117, last week will look like a good week for the credit market.
 
<p>Looking over the new Countrywide sheet, I'm amazed at how little it actually changed. FICO cutoffs didn't move. On the full doc side, hikes of 20bp (low LTV) to 80bp (high LTV). Some of the lowest FICO 5/25 stated stuff is up one full point. 100% Fixed full doc is still hanging around, rate's 10.95 to 12.65. Ouch!</p>

<p>The stated for W2 option is still on there, but it now carries a 60bp premium now instead of 35bp. Nothing got cheaper anywhere on the sheet, regardless of how low the LTV or how good the credit.</p>

<p>I expected to see a bunch of white space on this week's sheet... </p>
 
This is a great article in reaction to Cramer's diatribe.





<a href="http://www.cnbc.com/id/20145656">www.cnbc.com/id/20145656</a>





My favorite portion:





"Clearly the credit market needs some help. The fear factor is overwhelming some of the basic fundamental facts, but not all of them. I just worry that if you lower interest rates you're essentially reversing an important, albeit painful lesson. American homeowners got greedy, bottom line. They saw these low rates, they saw these "exotic" mortgage products, and they bought themselves homes they should never have owned in the first place. Now they're in trouble, and many of the them should be.

<p class="textBodyBlack"><strong>Yes, there was plenty of predatory lending and plenty of illegal and immoral practices going on in brokers' offices in every state of the U.S., but the bulk of the boom was driven by straight-up brokers with straight-up documents that just happened to offer very cheap money for a short time. People didn't read their papers, didn't take the time to understand their investments and now they're getting burned.</strong>"</p>

<p class="textBodyBlack">


</p>
 
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