It Just Became a Little Harder to Help Homeowners

(Yes, there was too much alliteration in that title)


This week Countrywide, one of the largest lenders in the country, announced their new "soft market" policy. This policy, in effect, will reduce the loan-to-value that borrowers can qualify for by an additional 5% if the home is deemed to be a slowing or declining real estate market.

This isn't subprime I'm talking about. This affects all borrowers, including those with perfect credit, stable W-2 job history, and thousands of dollars in the bank. And it affects owners too, already worrying about a declining value there is one more thing standing in their way.

Why is this important? Homeowner's who are finding things tight and need to refinance have been hit with an additional penalty besides a lower home value than they anticipated. Homeowner's who were looking to buy will have to come up with 5% additional down payment, in many cases hurting a slumping real estate market even further. And if its harder for people to buy, it will be harder for people to sell... and the struggling real estate market just got a bit worse.

Many of these customers are already paying PMI, which insures the lender in case the borrower defaults (but gives no benefit or protection to the borrower). Now, they have to cough up 5% more dough. A couple who was putting 10% down on a $200,000 home now has to come up with an additional $10,000 of down payment. Their $20,000 they saved to put down is about 50% short. And the homeowner who was already selling the home for a loss is now faced with it sitting on the market even longer, or decreasing the price even more.

I don't blame Countrywide for this policy as they have to do what is necessary to protect their interests and investment. They are already losing millions in the agreement they made with the government in freezing many rate increases for five years. But the effect of this policy will be a further declination of the housing market and an additional strain on our economy.

And whether you are buying, refinancing, own a home now, pr plan on buying in the future... this should concern you. As it will be one more hit to the home values in already repressed areas... one more hurdle for customers trying to refinance... one more difficulty for those trying to buy. Everyone, the economy included, takes a loss.

Andrew Cuomo is a traitor.

I hate it when people throw that word around, its lost so much of its meaning. But in this case, its entirely true.

I've said it before and been accused of yelling it in the office. Now is not the time to try and achieve political gains, especially when you don't know what you are talking about. Any politician who uses the current crisis in the mortgage industry as a way to make a name for themselves or play political leapfrog over rivals is evil. There are good people facing serious hurdles paying their bills. There are hard working Americans, who have never missed a payment, suddenly facing lates on their credit report and the potential for foreclosure. There are countless workers in the mortgage, construction, and real estate industries facing smaller paychecks or unemployment. And these things spread.

Now is not the time to "pile on".

New York Attorney General Andrew Cuomo is coming out with both barrels against Fannie Mae, Freddie Mac, Washington Mutual, and the mortgage industry in general. And he's doing it with press releases and political maneuvering. You think there was a "credit crunch" going on now? Wait until Fannie, Freddie, WAMU, or some other large national outfit just decides to stop lending. That's what has already happened in the subprime market and with some smaller prime players. Just wait until the big boys in the conforming market follow suit. And you think getting a loan was hard now and foreclosures were bad.... if this kind of thing continues, you haven't seen anything yet.

The always animated Jim Cramer is right to use his platform to go after Cuomo. I saw him do it on tv last night, and he's continuing the drumbeat today. Cramer calls him a communist... I think he's even worse than that.

Politicians in Washington and around the country are coming up with new laws and regulations that will supposedly fix the mortgage industry. They are eliminating variable products, yield spread, stated loans, and other alternatives that helps consumers and their advisors structure a deal to make the purchase of a home a viable option. When the options left aren't attractive or feasible for the consumers out there who are trying to get out of a rental or trying to keep a home... they will have no where to go. Consumer confidence will continue to go down. Ownership rates will continue to go down. Credit scores will continue to go down. Other industries will be affected as people can't afford what they once could, or can't make minimum payments for what they now have. Prices and values will continue to fall. The only things that will increase will be the foreclosure rate and unemployment.

This is serious business, and a serious problem facing our country. While many in the media and elsewhere would rather discuss Rosie O'Donnell's job prospects or whether or not J-Lo is pregnant... our country is on the brink of a recession. And anyone who uses the backs of hardworking Americans facing tough times as a way to catapult into greater political capital is a traitor. Our country and its people come first. Don't sacrifice them and us... don't make the situation worse just because you think your political prospects will become better.

You want to make the situation better? Leave it alone. How many times can I say it... Lender's don't want to foreclose on a home. It is a zero-sum game at best. Changes need to be made, but they need to be made by the people who understand how this works... Washington, North Carolina and other state legislatures, and politicians around the country have proven they don't. The market can't work this out with the threat of lawsuits, increased regulation, and political posturing. The threat of bad debt is bad enough.

Keep meddling around and everyone will take their ball and go home... where do you think that will leave homeowners or the economy?

Rate Cut?

Today's Fed meeting is arguably one of the most anticipated in recent history. The market already assumes a rate cut today... what will happen if we don't get one? I guess we'll find out at 2:15.

UPDATE: .5 point drop in both the Fed Funds Rate and Discount Rate.

Stay Out...

So the drumbeat against mortgage brokers is about to ratchet up an additional notch as the President announces plans on broadening the FHA's role, increasing government regulations on mortgages, and tightening the noose on mortgage brokers.

One of many stories is here.

To be blunt... this is a bunch of crap. I'm not insensitive to people facing foreclosure, but this is not a problem relegated to third-party originated loans, and it is not something deserving of a bailout. That might not be what the article clearly said... but read between the lines and the rest of the press, and you will know what is happening.

Mortgage brokers are the people who work past 5pm, who consult with their borrower for hours or even days to find the loan that suits them. Mortgage brokers are not the evil of society and have not caused the current issue. The problem stems from stagnant or falling house prices, rising or stagnant interest rates, a steady increase in the prime rate along with new credit card/bankruptcy legislation that made credit card payments higher, and too many people thinking they could make a quick buck flipping houses. That coupled with regional property tax increases because government wanted to get in on a booming housing market too... and now the boom has busted and the hens have come to roost.

Mark my words... the last thing that will help homeowners is to tighten legislation on mortgage brokers and limit mortgage products. Think about it... if you have a homeowner in a crunch and you take away their refinance options, what is going to be left for them to do? If they can't afford to stay, and they can't afford to sell, the only option left is foreclosure. As the government gets more and more involved (it already has in North Carolina), the foreclosure rate is going to go up, not down. Count on it.

Sadly, George W. Bush might have lost the last bit of hope I had for his legacy. What true conservative believes the answer to society's ills is more government legislation and bureaucracy? That sounds like a liberal mindset to me. NO LENDER WANTS TO FORECLOSE ON A HOME. NO LENDER OR BROKER ORIGINATES A LOAN THINKING IT WILL GO INTO FORECLOSURE. LENDERS LOSE WHEN HOMES FORECLOSE. Get it. The market and the industry can take care of this and will if government stays out. Unfortunately, government isn't, and thus the industry is reacting faster and harsher trying to stem the tide. This WILL NOT end good for people in the mortgage business, and it will not end good for the typical homeowner who finds themselves outside of agency (Fannie/Freddie) guidelines.

Conservatives believe in limited government, free markets, self-determination, and personal responsibility. Where are those ideals? George? Anyone?