Monday, August 17, 2009
Jan Luistermans looks at the problem with New Century Financial and what took them under
Maggie Hardiman cringed as she heard the salesmen knocking the sides of desks with a baseball bat as they walked through her office. Bang! Bang!
" 'You cut my [expletive] deal!' " she recalls one man yelling at her. " 'You can't do that.' " Bang! The bat whacked the top of her desk. As an appraiser for a company called New Century Financial, Hardiman was supposed to weed out bad mortgage applications. Most of the mortgage applications Hardiman reviewed had problems, she said.
But "you didn't want to turn away a loan because all hell would break loose," she recounted in interviews. When she did, her bosses often overruled her and found another appraiser to sign off on it.
Hardiman's account is one of several from former employees of New Century that shed fresh light on an unfolding disaster in the mortgage industry, one that could cost as many as 2 million American families their homes and threatens to spill over into the broader economy.
New Century has become the premier example of a group of companies that grew rapidly during the housing boom, selling working-class Americans with questionable credit huge numbers of "subprime" loans with "teaser" rates that typically rose after the first two years. This business transformed the once-tiny New Century into a lending powerhouse that was held up as a model of the mortgage industry's success.
But now, with home values falling and adjustable loan rates rising, record numbers of homeowners are failing to make their payments. And a detailed inquiry into the situation at New Century and other subprime lenders suggests that in the feeding frenzy for housing loans, basic quality controls were ignored in the mortgage business, while the big Wall Street investment banks that backed these firms looked the other way.
New Century, which filed for bankruptcy protection last month, has admitted that it underreported the number of bad loans it made in its financial reports for the first three quarters of 2006. Hardiman and other former employees of New Century interviewed said there was intense pressure from bosses to approve loans, even those with obviously inflated housing appraisals or exaggerated homeowner incomes.
"The stress in that place was ungodly. It was like selling your soul," said Hardiman, who worked for New Century in 2004 and 2005. "There was instant notification to everyone as soon as you rejected a loan. And you dreaded doing it because you paid for it. Two guys would come with a bat, and they were all [ticked] off because you cut their deals."
New Century officials would not publicly respond to the ex-employees' allegations. A senior executive, who spoke on condition of anonymity because of state and federal investigations into the company, acknowledged that the atmosphere in some branches might have been intense at times. But he said the firm had safeguards to make sure workers did not feel pressure to approve questionable loans.
Hearing what Hardiman went through, he said, was "upsetting" and "not representative of our offices."
"In an organization with this size . . . I'm not naive to think that [such behavior] didn't happen," the executive said. "But I find it highly implausible over the last 10 years that something systemic was going on and somehow it was disguised. . . . There were pressures, especially in a declining market, and those pressures became more robust. But we turned up our controls and our vigilance at the very same time."
Own Your Home Years Sooner is the incredible book Jan Luistermans and others have come across that has changed the way they think about interest payments.
This is definitely a 'must have' book for anyone who owns a home, wants a home, has a mortgage, has debts, doesn't have debts but wants to increase their investments, or, ahhh, did I leave anyone out? Heck, my mom, with just a bit of cash from selling the family home, could profit from this book even though she doesn't now have a mortgage!
What I really liked about "Own Your Home Years Sooner!" was the simple, step-by-step explanations of what could have been complicated financial hoo-hah to some of us, myself included. Usually I pass this type of stuff to my 'former banker' husband. But even I could understand how Harj's system works and was even able to talk to others about it in a coherent fashion.
If you are considering any of those bi-weekly or weekly payment plans and the like, you MUST read this. The author gives a great rundown on these programs and how they work (or don't work).
I read the first edition and talked with the author too and know he has even more helpful chapters planned for us. Be sure to see his website for the latest updates.
It's a quick easy read, but you'll be referring back to it as the potential of it begins to sink in. You really can own your own home sooner.
As I do not yet have a mortgage (we are looking for a home and mortgage right now), there was not a lot of specific advice for first time home buyers. Talking with the author, he really wrote the book for people with mortgages, but with the 80-100% LTV loans now available in the US, he may have to add yet another chapter to this book for us on the purchasing side.
Even without the specific advice, I was able to talk rather intelligently with a mortgage company owner using the lingo I learned in the book and that itself was worth the cost of the book! Now we also know what to look for in a mortgage as we shop. Get it, read it, apply it. It's simple really.
P.S. If you are a mortgage broker, PLEASE get this book so you can really help your clients 'own their own home sooner'. I am sure they will thank you by rewarding you with lots of referrals!
Fed Extends TALF Program for Commercial Real Estate
Posted by Jan Luistermans
The Federal Reserve extended by three to six months an emergency program aimed at restarting credit markets, a move that may cushion the commercial real- estate industry from rising defaults and falling prices.
The Term Asset-Backed Securities Loan Facility, with a capacity of as much as $1 trillion, will expire June 30 for newly issued commercial mortgage-backed securities, instead of Dec. 31, the Fed and U.S. Treasury said today in a statement in Washington. For other asset-backed securities and CMBS sold before Jan. 1, the plan was extended three months to March 31.
Property values have fallen 35 percent since peaking in October 2007, according to Moody’s Investors Service. That’s making it tough for owners to refinance almost $165 billion of mortgages for skyscrapers, shopping malls and hotels this year. The Fed is “paying very close attention,” Chairman Ben S. Bernanke said in congressional testimony last month.
While financial-market conditions “have improved considerably in recent months,” the markets for ABS and CMBS “are still impaired and seem likely to remain so for some time,” the Fed and Treasury said.
The central bank said it doesn’t intend to make other types of collateral eligible for the program, while not ruling out an expansion. The Fed also left the door open to prolonging the program beyond the new expiration dates, saying it “will consider in the future whether unusual and exigent circumstances warrant a further extension.”
Restart Market
The Fed began the so-called TALF in March to restart the market for securities backed by auto, credit-card and education loans. In June, the Fed expanded the program to cover as much as $100 billion in loans to support commercial mortgage-backed securities.
Under the plan, the Fed lends to investors to purchase new asset-backed securities as well as commercial real-estate debt.
TALF loans have helped reduce borrowing costs in some markets. The gap, or spread, on top-rated securities backed by consumer loans relative to benchmark interest rates has fallen as much as 2.15 percentage points to 0.60 percentage point since the TALF started in March, JPMorgan Chase & Co. data show.
Spread Plunged
Since March, the spread on AAA debt backed by commercial real estate has plunged 7.2 percentage points to 4.6 percentage points more than U.S. Treasuries, according to Barclays Capital.
As of Aug. 12, the Fed’s loans under the program totaled $29.6 billion. The central bank gave the TALF an initial capacity of $200 billion, backed by $20 billion of funds from the Treasury’s Troubled Asset Relief Program to shield the Fed from losses. In February, the Fed and Treasury said the TALF could grow to as much as $1 trillion in loans.
The commercial real-estate industry had asked for an extension of the TALF deadline, saying the program needed more time to get going. The lag time of three to four months to package loans into mortgage-backed securities means that September or October would be the effective end date if the TALF expired in December, according to Jeffrey DeBoer, president of the Real Estate Roundtable, a Washington-based trade group.
Also, 41 House members -- including Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, and Carolyn Maloney, a New York Democrat who heads the Joint Economic Committee -- signed a July 31 letter to Bernanke seeking a one-year extension through December 2010 and asking for a decision by mid-August.
The Federal Reserve extended by three to six months an emergency program aimed at restarting credit markets, a move that may cushion the commercial real- estate industry from rising defaults and falling prices.
The Term Asset-Backed Securities Loan Facility, with a capacity of as much as $1 trillion, will expire June 30 for newly issued commercial mortgage-backed securities, instead of Dec. 31, the Fed and U.S. Treasury said today in a statement in Washington. For other asset-backed securities and CMBS sold before Jan. 1, the plan was extended three months to March 31.
Property values have fallen 35 percent since peaking in October 2007, according to Moody’s Investors Service. That’s making it tough for owners to refinance almost $165 billion of mortgages for skyscrapers, shopping malls and hotels this year. The Fed is “paying very close attention,” Chairman Ben S. Bernanke said in congressional testimony last month.
While financial-market conditions “have improved considerably in recent months,” the markets for ABS and CMBS “are still impaired and seem likely to remain so for some time,” the Fed and Treasury said.
The central bank said it doesn’t intend to make other types of collateral eligible for the program, while not ruling out an expansion. The Fed also left the door open to prolonging the program beyond the new expiration dates, saying it “will consider in the future whether unusual and exigent circumstances warrant a further extension.”
Restart Market
The Fed began the so-called TALF in March to restart the market for securities backed by auto, credit-card and education loans. In June, the Fed expanded the program to cover as much as $100 billion in loans to support commercial mortgage-backed securities.
Under the plan, the Fed lends to investors to purchase new asset-backed securities as well as commercial real-estate debt.
TALF loans have helped reduce borrowing costs in some markets. The gap, or spread, on top-rated securities backed by consumer loans relative to benchmark interest rates has fallen as much as 2.15 percentage points to 0.60 percentage point since the TALF started in March, JPMorgan Chase & Co. data show.
Spread Plunged
Since March, the spread on AAA debt backed by commercial real estate has plunged 7.2 percentage points to 4.6 percentage points more than U.S. Treasuries, according to Barclays Capital.
As of Aug. 12, the Fed’s loans under the program totaled $29.6 billion. The central bank gave the TALF an initial capacity of $200 billion, backed by $20 billion of funds from the Treasury’s Troubled Asset Relief Program to shield the Fed from losses. In February, the Fed and Treasury said the TALF could grow to as much as $1 trillion in loans.
The commercial real-estate industry had asked for an extension of the TALF deadline, saying the program needed more time to get going. The lag time of three to four months to package loans into mortgage-backed securities means that September or October would be the effective end date if the TALF expired in December, according to Jeffrey DeBoer, president of the Real Estate Roundtable, a Washington-based trade group.
Also, 41 House members -- including Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, and Carolyn Maloney, a New York Democrat who heads the Joint Economic Committee -- signed a July 31 letter to Bernanke seeking a one-year extension through December 2010 and asking for a decision by mid-August.
Monday, June 22, 2009
NPI News
Posted by Jan Luistermans
April Home Sales Increase
Record low mortgage interest rates raised pending home sales for the third consecutive month in the U.S. The Pending Home Sales Index rose 6.7 percent to 90.3, and is 3.2 percent above April 2008.
According to the National Association of Realtors, Lawrence Yun, NAR chief economist, said buyers are responding to very favorable market conditions. “Housing affordability conditions have been at historic highs, but now the $8,000 first-time buyer tax credit is beginning to impact the market,” he said. “Since first-time buyers must finalize their purchase by November 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers.” Read more HERE
Thursday, June 18, 2009
Beware of Neighbor’s Home Foreclosure
WHEN it comes to selling your house or planning your next home equity line of credit, being a nosey neighbor could very well pay off.
That’s one implication of a recent report from the Center for Responsible Lending, a consumer advocacy group based in Durham, N.C.
The report, which was released in May, focuses on the ripple effects of home foreclosures, and suggests that homeowners who are concerned about their home’s value should watch for signs of trouble among their closest neighbors.
This year alone, it says, foreclosures will cause an estimated 69.5 million nearby homes to suffer price declines averaging $7,200 per home. The loss in property value could total $500 billion.
The resulting loss in financial flexibility is significant. “Homeowners who had counted on using their home equity to finance their retirement, cover tuition costs, start a small business, or pay medical bills in many cases no longer have this option,” the report said.
Ellen Schloemer, the executive vice president of the Center for Responsible Lending, said that over the next four years, foreclosures would affect an estimated 91.5 million neighboring homes.
“As the foreclosure crisis continues to worsen, the contagion is spreading,” Ms. Schloemer said. “You can’t just say those foreclosures are hurting someone else.”
The rate of home foreclosures has rise sharply since 2007, when the first subprime adjustable-rate mortgages began resetting to higher rates. But even borrowers with good credit have defaulted on their loans as the economy has faltered.
According to the Mortgage Bankers Association, an industry trade group, about 1.4 percent of all first mortgages entered foreclosure in the first quarter of this year, a 20 percent jump from the fourth quarter of 2008, and a record high.
The center’s report relied on forecasts from Credit Suisse, which said late last year that about nine million homes would probably go into foreclosure in 2009 to 2012. The center also used late 2008 data from the Mortgage Bankers Association to estimate this year’s foreclosure figures (about 2.4 million homes). Posted by Jan Luistermans
Read more HERE
That’s one implication of a recent report from the Center for Responsible Lending, a consumer advocacy group based in Durham, N.C.
The report, which was released in May, focuses on the ripple effects of home foreclosures, and suggests that homeowners who are concerned about their home’s value should watch for signs of trouble among their closest neighbors.
This year alone, it says, foreclosures will cause an estimated 69.5 million nearby homes to suffer price declines averaging $7,200 per home. The loss in property value could total $500 billion.
The resulting loss in financial flexibility is significant. “Homeowners who had counted on using their home equity to finance their retirement, cover tuition costs, start a small business, or pay medical bills in many cases no longer have this option,” the report said.
Ellen Schloemer, the executive vice president of the Center for Responsible Lending, said that over the next four years, foreclosures would affect an estimated 91.5 million neighboring homes.
“As the foreclosure crisis continues to worsen, the contagion is spreading,” Ms. Schloemer said. “You can’t just say those foreclosures are hurting someone else.”
The rate of home foreclosures has rise sharply since 2007, when the first subprime adjustable-rate mortgages began resetting to higher rates. But even borrowers with good credit have defaulted on their loans as the economy has faltered.
According to the Mortgage Bankers Association, an industry trade group, about 1.4 percent of all first mortgages entered foreclosure in the first quarter of this year, a 20 percent jump from the fourth quarter of 2008, and a record high.
The center’s report relied on forecasts from Credit Suisse, which said late last year that about nine million homes would probably go into foreclosure in 2009 to 2012. The center also used late 2008 data from the Mortgage Bankers Association to estimate this year’s foreclosure figures (about 2.4 million homes). Posted by Jan Luistermans
Read more HERE
Wednesday, June 17, 2009
Inflation cooling
The fall in construction was much worse than thought.
Meanwhile, the cost of goods leaving factories and the prices of materials bought by firms both fell in the year to May, hinting inflation is continuing to cool.
Output prices fell 0.3% in May from a year earlier, the biggest annual fall since June 2002, the Office for National Statistics said.
Input costs dropped 9.4% in May from a year earlier as the price of oil and imported metals fell at a record pace.
However, analysts said the recent rise in oil prices could hurt producers.
"May's UK producer prices confirm that cost pressures in the manufacturing sector are continuing to ease rapidly," said Jonathan Loynes, chief European economist at Capital Economics.
He said that this easing should also be felt in the consumer price index.
However, he added that the rally in crude oil prices, which are now close to $70 a barrel, could hurt manufacturers.
Both input and output prices rose 0.4% in May from April.
"The recent renewed rise in oil prices, if sustained, obviously raises a few concerns regarding the future path of producers' costs," Mr Loynes said.
More from Jan Luistermans HERE
Meanwhile, the cost of goods leaving factories and the prices of materials bought by firms both fell in the year to May, hinting inflation is continuing to cool.
Output prices fell 0.3% in May from a year earlier, the biggest annual fall since June 2002, the Office for National Statistics said.
Input costs dropped 9.4% in May from a year earlier as the price of oil and imported metals fell at a record pace.
However, analysts said the recent rise in oil prices could hurt producers.
"May's UK producer prices confirm that cost pressures in the manufacturing sector are continuing to ease rapidly," said Jonathan Loynes, chief European economist at Capital Economics.
He said that this easing should also be felt in the consumer price index.
However, he added that the rally in crude oil prices, which are now close to $70 a barrel, could hurt manufacturers.
Both input and output prices rose 0.4% in May from April.
"The recent renewed rise in oil prices, if sustained, obviously raises a few concerns regarding the future path of producers' costs," Mr Loynes said.
More from Jan Luistermans HERE
What To Do When Mortgage Rates Are Rising
Posted by Jan Luistermans
We've enjoyed basement-level interest rates for a while, but now rates are rising -- and no one knows if the era of low mortgage rates is over. If you're at the mercy of rising rates, you still have options to keep your rates and payments low. Here are seven things you need to know when rates are rising (or have risen); you might be able to help yourself to some savings. (Revised 07/03/06)
First: don't panic. Mortgage rates are notoriously fickle, following the whims of the bond market. While it's true that interest rates rise much more quickly than they fall, even a sharp jump in one day or week can be erased over the next week or two. The current 30-year fixed rate mortgage, now nearing 7% (as we write this), still ranks among the low points of the past several years. Plus, keep in mind that even a one-half percent rise (from 6.5% to 7%) is only a $33/month increase for a $100,000 loan -- and since most of your early payments are tax-deductible interest, you'll recoup some of that on April 15. View more here
We've enjoyed basement-level interest rates for a while, but now rates are rising -- and no one knows if the era of low mortgage rates is over. If you're at the mercy of rising rates, you still have options to keep your rates and payments low. Here are seven things you need to know when rates are rising (or have risen); you might be able to help yourself to some savings. (Revised 07/03/06)
First: don't panic. Mortgage rates are notoriously fickle, following the whims of the bond market. While it's true that interest rates rise much more quickly than they fall, even a sharp jump in one day or week can be erased over the next week or two. The current 30-year fixed rate mortgage, now nearing 7% (as we write this), still ranks among the low points of the past several years. Plus, keep in mind that even a one-half percent rise (from 6.5% to 7%) is only a $33/month increase for a $100,000 loan -- and since most of your early payments are tax-deductible interest, you'll recoup some of that on April 15. View more here
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