Club Chaos Agents - All Things Hollish, Wacked, and Jacked

 

Now, keep in mind, this post is a slight rant, will be based on my opinion based on knowledge and some research, and mostly to just make everyone aware on what is going on.

Yes, this post will have a negative tone within, but we can turn that around, but it will need to be a collective group effort country wide.

 

 

 

Not sure if any of you saw this intereview by 60 minutes on December 5th, 2010 regarding an interview with Ben Bernanke.

 

This video is a little scary because it sounds like Ben Bernanke wants to tell us what he truly knows and thinks.  Listen to his voice at times, when he is trying to answer a few questions. His voice gets a little soft and you can hear some hesitation.

Now, by all means, this is not to throw Mr. Bernanke under the bus. I don't care what degrees a person has, the level of their intelligence, what school they graduated from, etc, etc. You can certainly figure some of these complex issues out with just plain old common sense and by working in the trenches. But please watch this interview, because it seems like some truth is coming out. 

 

 

My Rant :

This summer we were told that we were out of a recession. Please read my post below on this topic. When 60 Minutes sat down with Bernanke, such things as a double dip recession, deflation, and struggling economy came up during the interview. But Mr. Bernanke said that it's highly unlikely that we will hit a double dip inflation. hhhhhhmmmm.. Feel good words? Possibly to curb consumers fears going into the holidays? But if you listen to him, the recovery could take 3+ years. So couldn't anything mentioned above happen? Have you noticed certain food items increase in cost?  I have and I know many of you have.

 

Let's continue with my biggest pet peeve. Some of you have indicated that business is very good and some of you are making more money, and good money. Real Estate is local, let's get that out of the way. Not all regions are doing well, just ask around. The media certainly doesn't help with this, nor does the government or NAR (National Association of Realtors).  But I want to focus on two main topics regarding our up-tick economy.

1.)  I am making more money and I love handouts that don't cost me much. - I had written a post about the home buyers tax credit on October 15th, which is listed below. Here is what one person stated : 

Hey, I don't mind opinions and debates, but what is wrong with this picture? Maybe someone not understanding the basic concept of money? Hey, I love it when I make more money. But just because I am making more money, or my neighbor is doing the same, doesn't always mean that our economy is doing great and or recovering. Just my opinion, but where does this person think the money came from for the home buyers tax credit?  Answer :  The American Tax Payer.  And just because someone didn't knock on his door at the moment and asked for the money now. It will come in the form of tax hikes down the road. For right now, this just gets added to our deficit.

 

2.)  My other pet peeve?  Some are telling me that the economy is getting better now because we are spending more. Okay, back to common sense. In the last 2 months or so, couldn't this be greatly attributed because of the upcoming holidays, such as Christmas?  I truthfully think this is the main reason, because previously, consumer confidence and spending was down again. All after the news that we were out of a recession. But listen to the interview with Bernanke, he doesn't seem so sure that we are greatly improving. He has a lot on his shoulders, but don't we also? 

Another thing to add about our economy that isn't talked about much are the unemployment numbers that could be misleading. If you do the research correctly and understand numbers, we are actually at 16% to 17% unemployment. And ask the small business owners. I talk to several ones a week, many are breaking even, if not, losing money. There are many reasons of which I talked about in some of my posts below.

 

 

 

It can only get better, right? But I truly think it needs to start with those of us in the trenches, to where we see this daily. Yes, we elect those to represent us, but we need to be much better at it. We need to look at such track records, we need to get to know each individual better, and not just except promises that can be broken so easily. 

To add to this, we need to stay in touch with those that represent us, calling them and writing them often, and not just when a significant problem occurs.  We need to show that we mean business.  We need to educate, to be responsible, to form groups, and to start such movements as the Tea Party movement. 

 

 

 

Conclusion : In some cases, it sounds like work, in other cases, it sounds like a no brainer.  We need to make an effort and not just sit back. I love to educate others, to open their eyes on certain issues, and to possibly add to a conversation so as to give more awareness to a specific issue. We are Americans and we should be damn proud. But waiting for others to correct our economy for us hasn't really worked in the last several years.  I know this might sound like a speech, but we need to start somewhere. So...

 

What can each one of you do? Thoughts? Opinions?  I can't give you too many details, but I currently have a client that is connected in several ways through a few relatives. One of them apparently is a Supreme Court Justice. And my borrower knows that I like to educate in my blog posts and said that she has already talked to someone to have a sit down with me. I am not pushing the envelope until we close her loan, but I am very curious to who I will be meeting with. She said it's someone that has connections on Capital Hill.

Seriously, I want all thoughts, opinions, and anything else. I don't want to be sitting around, waiting for "Black" to hit, do you? 

 

 

 

 

 

• Inflation vs Deflation - Is it criminal?   ~ November 20th, 2008
  

• I would like to interview Mr. Bernanke because I am scared!!!  ~ March 17th, 2009

• Call to Action - We must fix the real estate market ourselves !!!   ~ June 17th, 2009
  

• Yippie, we are out of a recession !!!!!   ~ September 24th, 2010
  

• The Tribe has SPOKEN...... The Home Buyers tax credit is like crack  ~ October 15th, 2010

• Do you know where your MONEY is going? QE II - Quantitative Easing  ~ November 16th, 2010
  

• Capital Hill or Hamburger Hill - Don't take my MID (Mortgage Interest Deduction) away from me !!!   ~ December 11th, 2010
  

  

 

 

Have we been in a crumbling economy in the last few years?  What about a crumbling real estate economy in the last 2 years?

In my opinion, I would say yes to both questions.

In some cases, do we have too much government prevention or regulation at times?  Jason Crouch wrote an excellent article the other day :

Is Congress Working to Create Yet Another Potential Hurdle to Real Estate Recovery?

In this post, Jason makes a great point about how the government seems to intervene and over regulate, thinking that it will help our economy and potentially our real estate economy.  So what is it that Jason brings up and what the government wants to try now?  It's eliminating the YSP, which is called yield spread premium. 

I wanted to write this post because there was so much information being tossed around that was misleading when it comes to who the government is trying to shut out with eliminating YSP and the fact that a lender could just add more costs.

This post might seem boring, but if you read Jason's post, this could open your eyes even further. If you haven't read his post, please read it before you read this one.

 

 

 

Let's first define YSP - Yield Spread Premium as defined by wikipedia - A “yield spread premium” (YSP) is the money or rebate paid to a mortgage broker for giving a borrower a higher interest rate on a loan in exchange for lower up front costs... This “may [be used to] wipe out or offset other loan costs,.....  The YSP is derived through the realization of a market 'price' for a loan that is above 100%.

 

 

 

Myths and Misconceptions about Yield Spread Premiums -YSP-

 

Major misconception - Congress in the last year has gone after YSP in general, and not just those brokers. Yes, this was true in previous years that the mortgage brokers were the main target by the larger banks, but their focus has changed 100%.

Mortgage Brokers aren't the only ones that receive yield spread premiums. Mortgage Bankers receive the same. The difference is that the mortgage broker has to disclose the YSP that they make on each loan and the mortgage banker doesn't. There are a few different types of mortgage bankers. Two examples :

Infinity Home Mortgage Company, a company where I work, we underwrite our own loans and close them in our name. But we sell the loan on the secondary market.

Mortgage companies such as Wells Fargo or Bank of America do the same as we do, except that they service their own loans.  But no matter who you use, we all still have to abide by the same regular guidelines that are set out for such types of loans as FHA loans, conventional loans, VA loans, and USDA loans.

 

 

Overall, the yield spread premium (YSP) is based on how the pricing is mandated through the investors on Wall Street who sell pools of loans. Each of these pools are sold as being securitized on the secondary market. All it comes down to is who wants to sell what rate at what price or profit margin to the originating mortgage company, no matter if they are a broker or banker.

The bottom line, the higher the interest rate, the higher the rebate that the lender will receive for such mortgage interest rate. And let's not confuse this with SRP's, which are called service release premiums that banks and brokers also receive.

 

 

 

 

Misconceptions on the fact that lenders could just charge more fees

 

Another misconception that I read in Jason's post and in many of the comments was that if the mortgage broker or the mortgage banker couldn't charge the yield spread premium, that they would just raise the costs of the loan.  Which would mean to add more lender fees and or points. This might sound good in theory and could happen, but depending on the State or the loan amount, that lender might not be able to add more costs. Or in some cases, refuse lending to that specific person based on the loan amount. 

What I am talking about is what is called a high cost loan. There is a term,  section 32 loans, which stated that any loan that resulted in anything over 7.99 percent in fees and costs to the borrower, that this was illegal.  In the last 7 years or so, many states have reduced this on a state level and not on a federal level.  Let me explain further.

In the state of New Jersey, our high cost is considered anything over 4.25 percent in total lender fees or costs. In other states such as Florida (5.00%), Pennsylvania (5.00%), and Georgia (4.99%), you can see that it varies and is much lower than the Federal Government's definition of High Cost loans.

One thing that many of you must realize is that there are some other fees that are associated with my percentage when it comes to high cost loans. Two fees that jump out are settlement/closing fees and any lawyer fees. So it's just not fees charged by the lender.

 

 

 

Summary : So how can this change on how some mortgages could possibly be refused to certain borrowers? Let's safely assume that every lender has a $4,500 profit margin on every loan, and this is to include all lender fees that are associated with mortgage financing.

Example : A borrower trying to obtain a $100,000 mortgage as opposed to a $300,000 mortgage.

 

If my high cost is 5%, that means that I can't make more than 5%, to include the closing fee associated with the title company and or a lawyer's fee.  Let's say the lawyer's fee was $500.  So in this example, if I was getting an additional 1 point, aka YSP, for an interest rate of 5.5%, which would keep the borrower's cost down, I would now have to charge this additional 1 point. But wait, my high cost is 5%, so that means I can't charge anything extra without going over the mandated high cost of 5%.  Hey, good for the borrower, because they might get a cheaper mortgage.  But what happens if the mortgage profits are driven down far enough to where it doesn't make sense for that lender to even do the deal. Then what happens to the borrower?  No financing options?  Maybe so....

 

 

 

If the government steps in and regulates YSP, as Jason stated in his post, this could have another major affect on our housing economy and on our economy in general.   

 

Your thoughts?

 

 

 

 

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- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- FHA Home Loans - Mortgages -

 

Experience & Knowledge at its BEST !!!

 

 

___________________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

 

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc

 

FHA LOANS need to go !!!!

 

FHA loans need to go....  so many defaults... GROWING by the thousands. If we don't kill FHA mortgages now, the economy will crumble. Sound confusing?

 

Okay Jeff, have you flipped your lid?  NOPE - I had written this blog last week, FHA loan rumors have become a reality. Because of this post, I have seen a few comments stating that we need to abolish FHA loans. Here are some comments in regards to these FHA changes in general...

"The FHA is basically bankrupt since they haven't figured out that making loans to people with lots of debt and practically no money isn't such a good idea."

"What continues to frustrate me is that all these government bank bailouts, loan purchasing, Fannie Mae and Freddie Mac guarantees, FHA expansion, tax credits, etc. are doing nothing more than temporarily artificially propping up the real estate market.  The government cannot continue with these policies and the result will be another drop when they stop."

"When just putting 3.5% down, the borrower is already underwater from day 1, because it costs more than 3.5% to sell a home. This does not factor well in a declining market. Homes purchased with FHA mortgages will experience lots of foreclosures and short sales. FHA loans need to be abolished."

"Sounds like FHA doesn't want to loan money because of these changes."

 

 

 

First off, I agree that we need to stop artificially stimulating the economy. I wrote about it here : The Welfare Mentality of the Tax Credit   We could spend a whole day just on this topic alone. But let's dig deeper in the comment that we should abolish FHA loans and to why we need to understand FHA and review some facts, not opinions of fear.

 

 

 

Quick History Lesson :

FHA was established in 1934. (directly from wikipedia) "The goals of this organization are: to improve housing standards and conditions; to provide an adequate home financing system through insurance of mortgage loans; and to stabilize the mortgage market."

Please read the rest of this, FHA being born, and how banks restructured loans and why FHA was brought into the mix after the banking system failed during the Great Depression.

 

 

 

 

The Economy has been crumbling.

Sorry people for negative news, but this is a reality. If we ABOLISH FHA LOANS, what do you think will happen?

Let's look at why some say we need to kick loose FHA mortgages.

• Thousands of more FHA defaults in the last year.

• Thousands of more homes with FHA loans have defaulted.
  

Let me ask you all this question... FHA has been doing pretty well up until the last 3 years. hhhhmmm.. just about the same time when the economy started crashing. Think about this before pointing fingers.

 

 

 

Now, let’s look at the reasons to why this might be happening more, why FHA loans are defaulting at a much higher rate than ever before.

 

• FHA Market Share - FHA has gone from about a 14% market share 5 years ago to about 40% just in the last year. This alone should be a no brainer to why we have see so many more defaults and foreclosures, especially in one of the worst and most challenging economic eras ever.
  

• Subprime loans disappearing - When subprime loans basically left the mortgage market 3 years ago, the next thing in line was FHA loans. How many times did you see a realtor or loan officer write that FHA loans are the next Subprime loans?  Rut row...

• Fraud - With many of these loan officers that focused on Subprime loans, some that pushed the envelope by committing fraud, this moved in the FHA sector. I have even heard loan officers before say that they placed a borrower in a subprime loan over FHA because it was easier for them, not the borrower.

• FHA DE Underwriters - Delegated Underwriters that can approve FHA loans have grown by an astounding number in the last 3 years. We have seen this number multiply 4 times over. This means many new underwriters that have no experience or the knowledge, make more mistakes, and who have their owners pushing them to make more loans at times. Yes, this happens. HUD needs to crack down on such lenders. Brian Anderson wrote about this : HUD terminates 3 lenders ability to originate FHA Loans
  

 

 

 

 

Summary :  I am not a big fan of government bailout. But there are times that we need to do this. What Mr. Bernanke did in the 3rd quarter probably saved our economy from a true collapse. (If I could interview Mr. Bernanke) 

Overall, yes, I partially blame HUD for allowing some of this to happen when it comes to the FHA capital reserves falling below their 2% cushion. You can't tell me that they saw this coming over a year ago? Why wait to the last minute? Maybe because the government doesn't want to cast fear so early, because we like to curb all negative news and fears, giving the general public a sense of security. But what about one of the biggest issues, to why even FHA loans are taking a major hit.

How about the ECONOMY in general. How about UNEMPLOYMENT. Isn't this affecting all mortgages?

Shouldn't this be taken into account to why we have so many FHA defaults?  Sure, I think HUD needs to make some changes, which has happened. I wrote about it here. New FHA changes & the Mortgagee Letter - Make your VOICE heard.  But we can also let our voice be heard in regards to some of these changes, so please read my blog post.

 

The ending result?  We need FHA loans… if we take this away, the REAL ESTATE MARKET will crumble and might not exist.

For those that might be semi lost on my opening statement.. I NEVER think that FHA loans should be abolished. I was trying to get my point across to what others have been saying. My beginning statement was an attention catcher. 

thanks

 

Ken Cook wrote this post - Dispelling Myths about FHA mortgages - Please read the 3rd paragraph about default rates.

 

Is Fannie Mae & Freddie Mac on Death Row?  by Esko Kiuru - We need to pay attention to what is going on around us...

 

 

                    

                                                                                               FOLLOW ME ON FACEBOOK

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

 

Experience & Knowledge at its BEST !!!

 

 

_________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

 

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc