Posted by Susan Fischer on 3/18/07 1:32pm
Msg #180487

Hey, everyone! Some GOOD NEWS here:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/03/18/REG82OMQTS1.DTL

Somebody please tell me it's actually something positive here...

Cheers?
Susie

Reply by Ndwa on 3/18/07 1:41pm
Msg #180489

FHA loans most often have PMI for which the most common reason people opted to go with 80/20. IMO...It's encouraging news, but the PMI is not going to help any as people already are having trouble making the (high) ARM payment.

Reply by Charles_Ca on 3/18/07 2:02pm
Msg #180492

The problem I see with FHA is that they require a down payment. Most loans of over 80%LTV required PMI anyway. The problem that I see is that an 80/20 requires no down and that is the market the non-prime (new name for sub-prime that the lenders are using to distance themsleves) have been doing most of their business. Also the FHA loans are capped and for the approximately $370,000 I don't know of many homes in my area that would qualify pricewise considering the latest figures last week indicate that our median home is $570,000. I don't know but I suspect that in your area Susan the homes might be pricier than the FHA cap, Oregon is a very desireable place to live. I know that in Mendocino County while the homes are less expensive they are still above the cap considering a 20% down and Mendocino is a lot less expensive than Orange County. but should be more in line with Oregon. The reason that FHA loans are usually god is becasue they are fully collateralized while a sub-prime 80/20 would not be so when a foreclosure occurs the sub-prime lenders lose money while the FHA eithere makes their money or breaks even (I've never seen the FHA lose money becasue the 20% down covers the loan costs and the foreclosure costs usually)

Reply by Judith Korff on 3/18/07 2:23pm
Msg #180496

Boy, am I glad I don't live where you do! You could buy most of my County for that kind of money LOL!

Reply by Susan Fischer on 3/18/07 2:40pm
Msg #180499

I think I understand. Andy's point too. Actually, maybe not. I was just hopeful for a minute there, as I really needed a bright spot in what is yet another gloomy, cold day full of gloomy, cold news.

So we, as Americans I mean, are going to have to really clean up the personal debt mess and get with a solid savings program in order to qualify for home ownership again? Like the olden days?

Let me ask you, when did the practice of selling/buying loans become the norm? Was it meant as a risk-sharing thing, or just profit centers? The whole world of High Finance is truly a mystery to me, and I worry some about the family's portfolio.

Thanks for your insights.

Cheers, I guess,
Susie

Reply by Charles_Ca on 3/18/07 3:08pm
Msg #180502

Some History, kinda long.

The programs to buy and sell loans were introduced by the Federal Government sortly after we entered the Great Depression. A lot of people lost everyting they had in the depression. It used to be that mortgages were renewed ach year. Once a year you wold go sit down with your banker and you would discuss your crops or you business and see how everything was going and then your banker wuld renew your mortgage for another year. Back in those days everything was hard money and the bank literally financed your property from the assets of the bank wich ws actually the savings of their customers. When the run on the banks ocurred there were no deposits and so the banks had to call their loans because they had to pay that moneyack to their depositors, if they were not able to then they were bankrupt (the origin of the term). Ther federal governement stepped in and bailed out what it could. Out of the depression we got a lot of excellent deals like the FDIC and HUD and FannieMae and Freddie Mac. That was the beginign of the secondary mortgagemarket.

Traditionally the federal goverment through its programs ran the secondarymortgage market. The banks would make property loans based on the criteria set by the secondary market. Traditionally one had to have a down payment which was cushion in case one defaulted on the mortgage and when the bank acumulated enough mortgages it would package them together and send them in to the federal government and then in turn would sell them to large corporations, historically nsurance companies and then the federal government would get its money back and make it available to the banks to lend more. For many years that worked very well.

Well enter the modern age and there were some very spart individuals who said well if the feds can do this we should be ableo do it better and so there was a new secondary mortgage market based on stock corporations and traded on the stock exchanges around the world. The lenders were not banks and they became very aggressive in their lending practices bcause of the increasingly greater funds available as the stocks grew in price. The banks still made loans but they wold not make loans to people wo cold not afford it those went tothe aggressive companies who made up products like the 80/20 loan, the 125%LTV loan, the various ARMs and some even more creative products. The business changed and to cover their potential financial losses which were considerable there was the rise of PMI or private mortgage insurance, wich insured the lender in the case of defaults. So now the scene was set, corporations were overextended and didn't pay much attention to the paper they were buying from the lenders and the lenders were under pressure to invest the ever-growing pot of funds that was being set in their laps. Lenders started telemarketing and trying to palce more and more loans and as the pol of traditional loan customers started to have all the loans they cold use the lenders went to non-tradtional markets: people who really didn't have the funds nor the personal parctices consistent with good fiscal management. LOs started to go to SISA (Stated Income and Stated Assets loans) and then would lie on the applications, after all it was "stated" and not "verified" and one cld state whatever they wanted. Of course a lot of people never read the small print about actually having told the truth. As the discoveries were made that the loans weren't worth the paper they were written and becasue of the slowing economy the major players started having an increase in defaults. New Century was one of the first casualties but others followed and as the defaults increased investor confidence decreased and the stock prices fell and the margins got worse and very soo what turned out to be a house of cards is now collapsing.

The fallout is going to be extensive right now we are seeng the finger pointing goingon but eventually the fingerpointign is goin to turn to prosecution and soon a lot of people willl be reaping the rewards of what they sowed. And so it goes.

Reply by Susan Fischer on 3/18/07 3:33pm
Msg #180505

I owe you some serious tuition for this class. So as more

homes are foreclosed upon, more homes are really in limbo? If the holders of the paper are defunct, who ends up truly 'owning' the real estate? Wouldn't you think that re-negotiating (like the banks did in the old days) with the hapless 'homeowner' would be a better solution than ending up with RE as home values decline and loans getting harder to qualify for?

Reply by Charles_Ca on 3/18/07 4:24pm
Msg #180507

Re: I owe you some serious tuition for this class. So as more

That is where PMI comes in. Private Mortgage Insurance is paid by the borrower and protects the lender in case of default. Interestingly enough there seems to be no lack of buyers for these foreclosed homes at least on the West Coast, I understand that the heartland has a different situation. The REO brokers in California are making a lot of money right now and the trading is ot and heavy. REO=Real Estate Owned and means the foreclosed upon real estate owned by the lender. For federally chartered lenders there is a ratio of loans to foreclosed homes that they must maintain and so some have incentives to sell quickly. Just as an aside even with the meltdown in the sub-prime mortgage area the appreciation for real estate has maintained its pace on the West Coast. The only thing that has changed is that homes are on the market longer than they were last year. People will tell you that prices are dropping but that is not correct. What has happened is that there was so much pressure on home sales last year that some people still are suffering from whiplash and continue to adjust their prices up but they are not selling for the original asking price. One has to be careful because there are real estate agents who are not particularly comfortable with the appraisal process. When you get a CMA from a real estate agent it is a Comparable Market Analysis which basically means that they look at the MLS and see what is on the market and tell you that is what your home will bring. The fallacy in this market is that the market is nflated and the true comparison should be in the sold listings and most real estate agents are not ambitious enough to go looking for recent sales. So if you are askiong your agent to determine a market value for your home you really shoujld ask where his price came from. If you compare apples to apples you will see that in Southern California the market continues to appreciate at about the same rate as last year.

Reply by Susan Fischer on 3/18/07 4:57pm
Msg #180510

Re: I owe you some serious tuition for this class. So as more

Ahh. I'm going to study for a while.

Can't thank you enough for your generous sharing. I know it's old hat to most, but I sure appreciate the background and analysis.

Hoping your week is fun and profitable, Charles.

Cheers!
Susie

Reply by Ernest__CT on 3/19/07 12:39pm
Msg #180604

Thanks, Charles! n/m

Reply by Laura Vestanen on 3/18/07 6:37pm
Msg #180515

Charles CA posts' were so important I just added them to....

the 33325 message thread.

Thank you, Charles!!!!!

Reply by Charles_Ca on 3/18/07 8:11pm
Msg #180519

Re: Charles CA posts' were so important I just added them to....

Wow! I'm honored, Thank you!

Reply by Sharon Taylor on 3/19/07 6:35am
Msg #180545

You learn something new every day - thanks, Charles!

Thank you for taking time to write that detailed and comprehensible background. The history of this aspect of our economy is a fascinating one.