We here at Common Goal Realty wanted to make sure we were keeping our clients up to date with the going-ons of the current market. We believe that an understanding of what is going on will increase our success and ultimately your success in this market. Here is an explanation from our friend Mark whose opinion and insight we respect and trust.
Hello everyone.I’m sending out this impromptu market update because many,many of you have been asking a lot of the same very good questions about our lending market recently and I wanted to shed some light on the situation for all of you. So here we go:So what happened to Jumbo loans? Well, with the exception of basically one portfolio lender ( which I am online with) Jumbo rates went virtually overnight from the 6.5ish range up to the 8% range. Now why did this happen? Because bad Alt-A loans ruined the party for everyone.
Remember the crazy 100% stated income, no ratio and no doc loans that were so easy to get with low credit on a purchase or refi a while back? Well, as we all have witnessed, when the market stopped appreciating like crazy many of these guys stopped making their payments. “But Mark! What does that have to do with my terrific 20% down full doc Jumbo borrower?!” Well unfortunately for good, God fearing, full doc Jumbo loans. they have been pooled together with these Alt-A loans for a long time. Maybe you’ve heard the term “non conforming”? So these Jumbo and Alt-A (Non Conforming) loans get put into a hundred million dollar pool of loans and sold on Wall Street,and Wall Street then securities them and sells them back to the public in the form of mortgage backed securities. Now when Alt-A started defaulting on their loans it ruined whole pools of these and consequently ruined the pricing for Jumbo too. Full doc Jumbo was in the wrong place at the wrong time.Now the good news is full doc Jumbo will find another way to get done.
When is the question, and as near as anyone can figure we are probably looking at between 30-60 days before the secondary market comes back around on their price. So Jumbo is still here, but most of it is ugly. My recommendation is to try to keep your single family loan amounts not more than 417K and supplement the rest with second mortgages.So what’s with all the banks closing? Well, that’s a good question. Let’s see, in the last 2 weeks we have seen American Home Mortgage, Aegis, ABC,National City Home Equity and First Magnus either close their doors outright or just stop accepting new loans. Just yesterday Countrywide (yes THE Countrywide) announced it was in some serious trouble and Merrill Lynch had said today that there is a real possibility they could go bankrupt. Folks,these were good banks. So what happened? With the exception of National City the common denominator in all of these banks was they engaged in a very high amount of Alt-A loan making. Yep, the same Alt-A that has tanked our Jumbo loans. When these institutions sell their loans to Wall Street they sign a kind of performance guarantee. If the portfolio hits a certain default rate Wall Street come back knocking either for the deficiency or sometimes the whole pool. So when the banks don’t have the money to cover these bad loans?….well we’ve been seeing it for months and months now.First the poorly run banks shut down and now some “well run” banks are shutting down.
So what does it all mean? All this means is we are returning to the “good ole days” of lending. Conforming loans 417K and under remain strong but get your buyers used to MI again because 100% 80/20 financing has virtually gone the way of the dodo. Look for FHA to come back strong, the 100% community lending products are still strong. If you’ve got a stated income borrower be prepared for them to bring 5% to the table. I’m sure you’ve seen it recently like I have: Sally doesn’t buy 100% stated income by herself anymore, Sally and Stevie buy 100% full doc together. Consumers react to the market conditions and we all move on with life. I know the changes can be frustrating at times when you are losing deals in escrow.
All I can offer is this: I or my staff will be more than happy to review any file you have had fall out of escrow to try to get you closed quickly. There are still miracles that can be made. It’s all in who you know. There is a terrific quote I heard about a year ago from whom I can’t remember: “A great mortgage broker is a luxury in a good market and a necessity in a bad one.” All of you need to have a great broker or two at your side during this period in lending. By the end of this transition period only the strong, smart and small will survive.
I would be happy to speak with any of you about anything discussed in this e-mail. I hope you have found this information helpful and feel free to let me know if you have. Thank you for your business and keep the faith.
Sr. Loan Consultant Phoenix Lending Group
2525 E. Arizona Biltmore Circle St. B128Phoenix, AZ 85016
P. (602)-374-7690 F. (602)-374-7695 C. (602)-391-9993