Mortgage C.A.F.E.- Credit And Finance Expert

Yes, that's a play on words, because Lehman is nothing like Laymen.  As a matter of fact, they are the complete opposite based on the payroll of Mr. Fuld.  I'm sure his previous employees (minus the golfing buddies / executives) are replacing some letters in his four letter last name right now.  As I'm sure they're feeling they've been given that F word in return from their company. 

I would remind you though, that those people that screwed up the accounting system that brought down Enron got punished in the end.  One committed suicide, one got his name nixed from the Katy YMCA here in Houston area, and then had a heart attack before serving what would have been a long sentence.  Some would say Lay got off easy.  Others got ostracized in their own community.  That's the bad thing about being rich.  Reputation means a lot when money is like water.  Where you sit on a board, the ease of getting one of your kids into Ivy League through donations, etc.  The invites to the yacht club events, the golfing tournaments.   All of that goes south when  you're known as a scumbag rich guy. 

So, as the sign in today's Chronicle behind Mr. Fuld held up by a lady who was blunt enough to hang it pretty close to his head said, "shame".  He's the one that has to answer to God for his greed and his company's greed.  We're the ones that will suffer in the long run, but he'll suffer for yesterday's lack of humility to having earned more than $500Mil in the last couple years while his company was crumbling.  He'll be the one with slashed tires for the next 8 months wondering which employee found his car...again.  He'll the be the getting those stares that say, "how could you."  Maybe he can live with it, maybe he can't. 

I hear this question a lot, being in the finance world, and everyone expecting the right answer.  To put simply: imagine you give your friend a five dollar bill to borrow, and overnight you'd like to see a one dollar bill added and given back to you the next day with your principal, making it 6 dollars in return.  It was worth it right?  Well, that's the problem globally right now.  Banks are not able to give each other a nice return on those "loans" and therefore are hoarding their cash and waiting.  If you gave your friend that $5 bill, and you KNEW the next day he could MAYBE give you back the $5, or maybe you would take a loss, you're not going to give the $5.  You're going to hold onto it because it's starting to be a rainy day.  You might just need that $5.

Well your friend represents those people in commercial, retail, etc that need money on loan.  If the condition of getting loan gets so restricted, he will take those loans to the private sector (Guido) as his only resource.  This is what makes the rich richer and the poorer even poorer.  If I own a coffee shop and had to upgrade the A/C for that shop, it would normally require a certain type of equipment commercial loan.  With a 700 score that should be easy right?  Wrong.  If the anticipation from the banks is that we're in a depression and coffee shops are like Starbucks and will suffer, they assume that you're on a downward slope regardless of your credit now.  They won't approve it.  Normally I would have paid interest of 6% for that commercial loan, but now I need to go to Guido, or get a hard money loan.  Starting rate is twice that of the free market.  So now I'm paying 14% for the same loan, and have bumped coffee prices by 25 cents to make up for the overhead cost of my shop.  Now less people will frequent my shop since coffee is a luxury, not a necessity and those that do go into my shop, along with myself are considered the low to moderate income base.  We suffer. 

Good for me!  Good for many and most, not good for future.  That's my take on it.  There's a reason that Paulson didn't bail out F & F a few months ago and only stated that we're going to "offer the support be it needed" rather than just DO IT like they did this weekend.  They also DID IT ON A WEEKEND.  That should send chills down our backs when bankers work on a weekend, what? 

So why the money for everyone.  Rates are FANTASTIC GUYS!  Awesome rates today and yesterday and probably for weeks to come as the settling in of information comes flowing as to the new stability of F&F.  Think savings and loans, but with a much higher dollar amount and a smaller circumference.  Seriously, this bails out a huge issue, and will be laid on top of our children in the future when debt is finally seen as a BAD THING across the world.  If our 10 Trillion dollar debt (just wait till weekend to see this number come to fruition) doesn't grab attention I don't know what number will.  If you do the math that's exactly $30k per person in debt in America.  My sons are 4 and 6 and I don't see them come up with that ante anytime soon. 

So make those calls and get people energized about what's happening period.  Don't give too much detail, since the devil IS in the details and will confuse the client initially.  Just generate energy.  That's my plan for this week.

Subprime: At least 45% of subprime loans originated in the previous two years (2006,2007) are projected to end up in default. (WSJ)

By the Decade: The Cost of Living index in the USA increased 24% in the decade of the 50s, 28% in the 60s, and 103% in the 70s, 64% in the 80s, 33% in the 90s.  For the first 8 years of the current decade the COLI nationwide increased 25%.

OIL: In the past month oil has dropped 22% to Friday's close of $115.20, and the S&P has gained almost 5% to last week's close of 1296 (BTN Research)

That's right, I finally got myself in bold print.  Too bad it was doomsaying that got me into it.  I basically knocked legislation for the complete dismissal of seller-funded down payment assistance programs.  The woman mentioned in last week's article in the Houston Chronicle business section is actually my client that will be closing this Thur using THAT program.  This program allowed a seller to get out from under a home before it went to auction, and a buyer to get into a home and still afford her college student's tuition. 

Once again the reality was mentioned in today's Chronicle ABOUT the tuition these kids will be facing, ALONE!  Basically, by next year there's going to be higher credit standards, and lack of ability for college students to get loans from lenders.  This will make the schools have to jump in which will turn our education system into a welfare system which will eventually need backing by...can you say it...the government.  How many things will our government need to jump in and save before we get outselves out of this mess.  Your guess is as good as mine.  This will be a deepening rubber road that we're treading on, and I can only hope and pray that we get through it in Texas the way we have over this past year from the rest of the country.  Thankfully we've become the new melting pot for America.  "Where is there cheap housing?"  Come on ya'll!  Come to Texas!  We got the housing and you don't have to be in boons to live nicely here. 

So to quote the legislative mess:

• Any privately provided downpayment assistance (as opposed to DPA provided through government sources) will not be available on or after October 1. So DPA through Nehemiah and comparable companies will no longer exist and any loan with such assistance will not close after October 1. It would appear that loans with DPA through state or federal agencies will continue to be acceptable but we won’t know until an announcement is made. I do know that Nehemiah has begun a program for massive reform by asking customers to contact their congressmen, but I do not expect this to be effective nor can be make any decision based on proposed actions.
• The legislation, in effect, refers to increasing the downpayment requirement on FHA loans from 3.00% to 3.50%. It would appear that this is also subject to October 1 deadline, but it is uncertain. It is also unclear whether the change is to the minimum required investment including closing costs or just a change in downpayment.
• Other provisions include issues such as affordable housing through tax credits for first-time homebuyers. We will not know how or whether this will affect any loan until we get an announcement from HUD or Fannie, etc.

That's the important items affecting the mortgage industry.  Now someone explain to me how in the world this type of legislation:

1) helps the mortgage industry

2) helps buyers get into homes, especially the foreclosed ones in a streamlined process

3) helps HUD, FNMA, FHHLC get out their predicaments?

Apparently, limiting the purchasing power of Americans, taking away the 3% required down payment that has worked for about my whole career for FHA is a GOOD IDEA coming down from our government.  To boot, it costs so many dollars to implement this legislation that we're about to tap into a magical 11 digit deficit which we've never hit before.  Your kids calculators can't even do the math here.  My mortgage calculator which is BUILT for big numbers, can't fathom the number. 

Now for the GOOD NEWS for my buyers and realtors.  People need to get out and BUY while the getting is good.  IF they want down payment assistance, time is of the essence.  WE CAN'T DELAY. 

If you happen to pick up today's business section, although I get no kudos from my friend Nancy Sarnoff, I am the one that tipped her to today's headline about United and luckily she dug further (as the media tends to do) and got some more info for me. 

Why was is it so important to me.  I had a file that was supposed to close there on beginning of next week.  I had another one set for the end of next week, and their doors are shut, and I have no idea who has the earnest money for my buyers.  A little bit of a problem.

Title companies are like banks.  They're not only supposed to be solid, they are regulated to not ever go out of business.  Seriously.  Even when I was on the phone yesterday with Mr. Roger's, who's the deputy director of the title division of Texas Dept of Ins, he wasn't exactly in the know.  He actually acted like he'd just been steam rolled and didn't know what direction to go in afterwards.  He had obviously gotten many calls from people like myself wondering, WHAT'S GOING ON?

I've never seen a title company go out of business.  Not even a fee office with 2 workers.  In this case, it's like Ford Motors in the auto industry size.  This company's parent company, Mercury, is literally 1/2 the size of Stewart Title, which IS the largest mortgage company in the nation.  SO this company is quite frankly the "IndyMac" of the title business.  Does that mean futures on other title companies are in jeopardy.  Absolutely.  If FNMA/FHHLC is nearly bankrupt, FHA is nearly solvent (by Dec supposedly), and banks like WAMU and Wachovia are near "no pulse, Doctor, call time of death..." we need to have EXPERTS handling this crisis rather than dems/reps trying to figure it out with a WIJI board.

I'm now going to blog about the bailout (supposedly) that legislation just passed without obviously reading the fine print.  Who comes up with this stuff.  Read that Blog FIRST!

So congress is in a hurry to pass this new legislation that's supposed to help the housing crisis in some format before they take off to the beaches for their vacation time in August.  President Bush has had an odd change of heart and will probably not veto it.  So here's my dilemma;

I'm trying to wrap my mind around the benefit to those that are either facing foreclosure or IN foreclosure by offering first time homebuyers an interest free loan of $7500 a piece.  Granted, I love the idea of my first time homebuyers having access to free money basically (free for them, costing tax payers money in long run) but the reality is it's apples to oranges to deal with the crisis.  Putting more money into bonds for city/state levels just adds an additional level of bureaucratic paperwork to having access to those funds for helping those that need it.

I think our government needs to start throwing more serious dollars to revamping our education system to teaching our kids and college grads about credit, finance, life in general. 

I was talking to some high school students at Katy High School about goal setting.  I asked them to stop and set a plan of achievement around a specific goal.  It was like asking them to freeze melted icecream with their pens.  They didn't know how to touch the pen to the paper. 

And they're supposed to walk away from high school knowing how to set financial goals and savings patterns and understand the importance of credit?

If knowing trigonometry is somehow going to magically make today's kids not follow in the footsteps of their parents who are overextended (in general) those footprints will be left in murky mud, and eventual quicksand.  Plugging the hole doesn't fix the problem.  Eventually that plug will break down and cause a flood of a problem.  You have to go to the source of the issue and educate the system to not have future issues and to learn from past mistakes. 

Our country's declaration of Independence was written and voiced by two people, John Adams and Thomas Jefferson, and in it contained the lessons learned from a monarchy gone wrong.  Our country was built and established as a system of correction for a system of corruption.  We are now a system of "let someone else do it" and our kids are the same.  If we don't start teaching proper responsibility across the board, whether it be investors, banks, consumers, or even people like me, Loan Officers, and accountability be mandate, we'll tailspin further into demise. 

Sorry for such a glum blog today, but really, are we going to take the bull by the horns or let the system take us for a ride?

Be afraid.  Be very afraid. 

That's what the news is saying.  I actually agree this time.  If these two giants in the housing industry were to crash it would make the subprime typhoon look like a hosedown from my son's supersoaker.  Realize that the markets affected by the subprime crisis a year ago started a WAIVE of issues across the world.  When people were late on their credit cards, HSBC Bank, Citi, and other big credit card companies started doing writedowns in the billions of dollars.  HSBC is the largest bank in Europe.  Hence the issues in London, and the downturn of their economic times and housing market.  The largest bank in Canada, almost the same situation.  What do you think it did to their market?

If Fannie and Freddie were to fail as a SYSTEM of housing that has been balanced for many decades, it would throw our currently teetering recession into a downward tailspin.

I would highly suggest the gov't taking over the bodies it created a long time ago, and save the day, yes, with our tax dollars.  I don't see a choice.  Realize that at least our dollar is currently still OKAY.  What if these two giants tanked and the WORLD considered our dollar worth only 50 cents.  I'd rather pay a few extra dollars of taxes for everyone $100 earned, than to have $100 earned be worth $50 on the street, and inflation to sky rocket due to that trade issue. 

That's just my opinion....