Explain progression of putting together some info—how to explain. What to talk about first. I explain the chicken or explain the egg—almost impossible. Some assumptions: have some knowledge of the US real estate sales/finance system. An unlimited topic, a variety of related topics, found myself adding, and adding more, and wanting to tell everything which could take years. everyone talks about it, gets annoying.
1996-2004—explain the hot market, losing offers to competitors, converted, new technology,
Even though a big housingboom—only a 5% difference in home ownership. Difference is equity positions and the young buyers. Generations prior—save, don’t pay interest, not always tax deductible, then older people cashing in/retiring/downsizing (booms in Vegas/Flordia/Arizona)—equity converting into debt—the equity then reinvested in securities/banking products (possibly MBS circles?) Downturn in the 80’s—discuss what old agents in my office say—gas/auto, prices did not dive because homes had much more equity (FHA embarassing, lots of repairs, points, difficult transaction), L/C’s, no due on sales clauses, assumptions, foreclosures/no upside down.
Former Chief Economist for National Association of Realtors. Met him, very smart, much smarter than me—instead of me trying to come up with it, will read synopsis of what he wrote for my “real estate insider” magazine.
Detroit earlier—discuss house bought in SCS—how I new—first time experienced it or just calculated wrongly, thinking election year)
Realtors—explain differences, code of Ethics, self-policing industry, state policing
Tell complaints I have filed—send copy to agent that I filed with State and then found not violation. Talk about Chairing Grievance Comm.
Minor discussions for designations, QSC. RE/MAX agent count and FIRST agent count.
History of pre-approval from agents to pre-qual by l/ to pre-app of l/o to commitment by l/o. Techonology progresssed and lending progressed to allow for pre-approval—quick turn around as opposed to committee decision. Lots of credit unions still lend on a committee based approvals. Explain appraisal not for the benefit of the consumer—contract does not state has to appraise—explain LTV. Then Regulation Z and ammendments.
Large amounts of small mortgage companies are gone. Don’t know the numbers but can assume. Discuss the “fakeness” of titles. I was technically a Sr. Loan Officer (1st day), loan officer typical term for banks’ employees that do loans (entrusted), mortgage broker (more salesmany) Now their will be licensing for l/o’s (State of Michigan—this year)—able to track, min. education, con ed, etc..
Components of the mess. Go over briefly then explain each component more, expalain lending guidelines.
Fair Isaac Corporation (Public, NYSE:FIC), the developer of the FICO score, which is used to calculate the risk factor when lending to consumers, has gotten some heat lately. The FICO score is used by 80% of mortgage brokers to determine the likeliness of default. Now that the credit markets have gone haywire, big mortgage players like Washington Mutual (WM) and HSBC (HBC) need a scapegoat – and who better to blame than Fair Isaac’s FICO score? The company promised to identify risky consumers and obviously it didn’t quite work out that way. But Fair Isaac strongly defends its product. &quot;We don&apos;t think FICO scores have caused or contributed to the subprime mortgage problem,&quot; says CEO Mark N. Greene. Lenders that followed traditional underwriting standards, he says, steered clear of subprime issues.&quot; So what will happen to Fair Isaac’s FICO score? Amid the increased scrutiny and criticism, they decided to revamp the FICO score this year. FICO 08 will give more credit points to consumers who maintain multiple lines of credit, such as a credit card, auto loan and home loan, while penalizing more heavily those people who use a lot of their available credit, according to the Wall Street Journal. But the question is, will the big mortgage players still rely on Fair Isaac Corps FICO score? If their scapegoat is the FICO score, will they start using another way of scoring risk – Equifax’s Vantage score for example?
Share same 1003—URLA—Uniform Residential Loan Application. Fannie has DU, Freddie has LP Guaranty Fees by paid by lenders—investors/purchasers of MBS let FNMA keep the fee. No Explicit guarantee by US GOVT???? But possibly guaranteed because US would not let it fail. Major financial repercussions. Does not receive govt. subsidies but given special priviledges worth millions (taxes, etc.) and Also less restrictions like other financial institutions (can sell MBS with 50% less capital backing)
Formed under FDR’s New Deal to bring US out of depression. Was part of federal govt. and made into pub. Corp in 1968—had a monopoly on secondary market for 30+ years. US needed to balance the budget so basically “sold “ part of it to public, the other portion (HUD)???? Non-conforming—does not conform to FNMA or conventional lending guidelines.
Discuss other programs, concesessions in old days how not reported in MLS—artificially bumped values, most appraisers did Not check because form had no area for this. Debt to income always based on gross, okay for some, not for all.
Discuss “seasoning” and how can borrow down payment but just not instantly (private loan/family) EA-1, EA-2, EA-3—borrower receives an Eligible Approval of Level-1 (slightly off guidelines), 2, then 3. Each level producing a higher interest rate thus higher payment.
Slide for ARM products (non-fixed rate products)—find it and make a slide.
I have no idea why so much in Alaska or Guam?? I’ve never been in a high costs area or had to be concerned about exceeding any limits, so don’t exactly know right now.
Discuss changes in appraisal process. Should put more weight on “active competition” and PENDINGS.
Explain how Fannie/Freddie found themselves needing to compete with subprime. Guidelines and DU system approving so much more than ever before. EA-1,2,3, could do a lot with the higher credit scores. Keep playing with it until you get results you want. Don’t put in too much info, more info, more have to physically document—explain 2 months reserves for refinance—why shoe $100,000 401K, and $50,000 cash value life insurance, etc.. Would help in loss mitigation????
Discuss 59%, Matt Czarnecki PIW, not putting in too much info because have to document—system does not care about other items.
REMIC=Real Estate Mortgage Investment Conduit issues MBS (Mortgage Backed Securities) (Securitized Investment Vehicles) (Collateralized Debt Obligation) sold to pension funds, banks, insurance companies, private investors (rich people) REMIC—First Franklin owned by Merrill Lynch
Predatory mortgage lending is when a dishonest financial institution willfully misleads or deceives the consumer. Some mortgage consultants, processors and executives of mortgage companies have been involved predatory lending. It is neither Some signs of predatory lending include: Falsifying income/asset and other documentation. Not disclosing Yield spread premium or other hidden fees BEFORE the settlement/closing. Failing to provide all RESPA documentation, i.e. , Special Information Booklet, Truth in Lending, etc so the borrower may clearly understand the mortgage terms and lender policies. Convincing borrowers to refinance a loan without any true benefit. Influencing a higher Loan Amount and inflated appraisals (usually in tandem with an appraiser). Unjustly capitalizing on a borrower&apos;s relative ignorance about mortgage acquisition.
Robert just got a raise and has big dreams for a big house, or did he get a raise?
This is a calculator for the CONSUMER!!!!
Redemption periods vary state by state.
Discuss “deed in lieu” of foreclosure. (45-60 days process) Lenders are now waiting an additional 3 to 9 months longer before going to sherrif’s sale. They do not want them back now. This is the quickest it will be in ideal circumstances—usually a month or two longer.
Vandals and inside job—lockbox codess. Copper—stealing pipes, hot water heaters. Furnaces.
Explain the foreign factor on this house--$140,000 mortgage, offer for $20,000, left 10 cats in there until animal control
No one noticed, house empty for months.
Built in 2005, could not take pics of inside—filled with black mold top to bottom, inside like a terrarium. (Mehltau/schimmel: geschlossen fur 7 monat)
Abandon, pipe froze in basement, water running for months—note the line—in process of pumping, four weeks later. Explain the mold upstairs and how this was a $150,000 house with a $175,000 mortgage.
Average costs outside of the loss is an additional $3000-TENS OF THOUSANDS.
Irony in the quote by Jamie Dimon. Discuss the MLS and implication of showing bank owned—solution around this. If another seller would have a written authorization to use words like desperate, divorce forces sale, make any offer, etc..
Discuss dualling MLS systems, double entry, but mostly Macomb of the Tri-County.
1,642 properties for sale in Tri-County are between $3,000 and $20,000 or E$13,000
Tri-County area: 6,045 between $3,000 and $100,000 or E65,000
Homes dropped 17% in Tri-County area and Condominiums dropped 45%: WOW.
Show next slide and explain, buyer does not know, agent did not inform, payment can rise hundreds of dollars, or even worse (May1 cutoff) and subjected for 1 year. Don’t care, not prorate, no retrocactive, the law is written one way.
SARS: Suspicious Activity Reports filed by federally-insured financial institutions and Department of Housing and Urban Development Office of Inspector General (HUD-OIG) MARI: Mortgage Asset Research Institute
Property flipping: quickly sold and appraised at a fraudently higher value,or one of the following: doctored loan docs, inflating buyer income, kickbacks to buyers, etc –to all involved. Silent 2nd.—borrow $$ from seller in non-disclosed 2nde mtg., lender believes down payment is borrower’s own money, 2nd not recorded or forgiven. Straw buyers—person allows someone else to use their name, credit history, identitiy, etc.. Stolen Identity—without person’s knowledge to buy/refinance, could be a ring. Or a seller is not the real seller. Inflated appraisals: Appraiser acts in colusion with a borrower, mortgage broker, etc.—inflated value to the lender of property’s true worth. Erroneous appraisal does not show true picture of subject property (only bath in basement or 3 bedroom is actually a 2 bedroom or 1 bedroom. Foreclosure Schemes: preying on those at risk of defaulting or in default—tell them they can save their homes in exchange for deed transfer and/or up-front fees. Remortgages property or pockets fees and does nothing. Equity Skimming: More complex: investor uses straw buyer, false docs, false credit, etc to get mortgage, then right after closing straw buyer signs property over or not, to investor via quit claim deed, investor makes no mortgage payments and rent the property until end of foreclosure process. Air Loans: The ultimate con in mortgage fraud. A peron/persons this smart should have no problem making money honestly. Mortgage broker invents borrowers and properties (not real), establishes accounts for payments, custodial accounts for escrows, phony title company, seller, appraisers, etc. in a fictitious world—pockets money to the sellers or intercepts via title company loan funding. Mortgage debt elimination: advertisement promoting help elimiante mortgage loans, credit card, other debts—upfront fee
Con picks a house (vacant) or 2nd home (vacant) or someone living in. Assume identity of owner, create fake id’s, transfer deed into their own name using false docs/forging/record deed, now own home to sell, refinance. OR, prey on someone in default promising to refinance it, but buys the house on a mortgage using false identities/documents (cashes check as owner, borrwed as buyer—owner loses title, bank loses money loaned
Lots of products out there, but in disguise—a lot of it seems subprime or risky lending. Most lenders and Realtors will argue need liquidity, need to keep homeownership open.
Unheard of before having a credit score adjustment on FHA—if you had 520 or better—just as good as 700
Programs exist by FNMA or FREDDIE, but no investors to sell them to securitize so no pricing/commission. EA-1 is only thing left, 2 & 3 gone. ARM products higher rates than fixed.
Interest rate hit for
Estimations on resets—the assumptions, 225,000 resets in rate. Does not matter what type of mortgage—even regular conventional ARM’s.
Must be at least 2 months late, Unsecured loan up to lesser of 15% UPB or $15,000 for delingquent PITI payments, 6 months HOA, attorney fees/forc. Fees (not late charges), applied directly to arrearages, 5% interest, 6month 0%-no payments, $600 paid to servicer, mortgage must have been seasoned 6 months
AAPW (Average American’s Personal/Psychological Wealth)—if not financial, mental. If real estate is not good, it plagues the psychy. Homeownership is such a large, vital part of our culture.
A Main Street Perspective on the Wall Street Mortgage Crisis
What do you want to know about
residential real estate, finance,
valuation, or the mortgage crisis?
Homeownership is central to the American dream, and
Republicans want to make it more accessible for
everyone. That starts with access to capital for
entrepreneurs and access to credit for consumers. Our
proposals for helping millions of low-income families
move from renting to owning are detailed elsewhere in
this platform as major elements in my program for a
New Prosperity. For those families, and for all other
potential homebuyers, low interest rates make
mortgages affordable and open up more housing
opportunities than any government program.
-George W. Bush August 3, 2000
“Everyone should own a home.”
The mentality pushing the train down the track.
• REPUBLICAN PLATFORM 2000
• Renewing America's Purpose. Together.
The American Dream: Prosperity With a Purpose
Old Truths For The New Economy
The Republican Congress
Taxes And Budget: Render to Caesar, But Let The People Keep Their Own
Small Business: Where Prosperity Starts
Work Place of the Future
Trade: The Force Of Economic Freedom
Technology And The New Economy: The Force For Change
Privacy and Secure Technologies
US Census Bureau, homeownership rate since 1960
• 4th Quarter 2004—all time high 69.2%
• 1960: 62% 2005: 69%, only 7% difference
• The financing behind it changed . . . .
Why did it happen?
The 12 Step Program
• John Tuccillo
• Great summary—article in RE Pro
• We are not brothers.
• We belong to the same club.
1. Gen X, better homes/price, loosen credit.
2. Unique mortgage instruments, not widely used, yet!
3. Homebuilders go public.
4. Home prices vs. personal incomes not keeping up.
5. Get in the game. Prices high, how to afford?
6. Back to step number 2.
7. Alphabet soup money . . CDO, MBS, SIV, risk shifted.
8. Builders, hot markets, phantom demands, flippers.
9. Mid-2005 (Detroit earlier), prices too high, buyers
withdraw, inventories rise, prices falling.
10. Economy slows, less jobs.
11. Teaser rates adjust + equity erased + can not
refinance + can not make payments=
12. Problems on Main Street ripple effects on Wall Street.
• Real estate agents.
• Appraisers (human) (non-human)
• Lenders-banks, mortgage bankers,
mortgage brokers, loan officers.
• Too easy to enter the game.
• “Greed is good!” -Gordon Gecko Wall Street
Real Estate Licenses
• Salesperson—30 to 90 hours class (most
states), Pass exam.
• 40 in Michigan, $300-$1,000
• Broker—90 hours class, 3 years full-time real
estate experience, pass exam
• 6-12 hours continuing education per year. $40-
• Mostly self-policed by local Association of
Realtors, Code of Ethics, Standards of
Practice, minimal fines.
• State Licensing Board (DLEG-Michigan)
Department of Labor & Economic Growth
Hard to be good.
• 80/20, 90/10 rule
• 50% turn over every 2 years . . .
Dr. James Webb, Cleveland State University
• RE/MAX Int. & RE/MAX First, Inc.
• Metro Detroit: 1/3 drop in members
since January 2007.
Source: Walt Baczkowksi, CEO M.C.A.R.
Real estate industry allowed
the lenders to take more
control & take the lead in the
• 50,000+ mortgage brokerages
• 400,000+ employees (Mom/Pop)
• 70% of all residential loans (broker)
• 30% lender retail channels. (banks)
“Home Loan Centers”, many
• Loan officer vs. mortgage broker.
• Typically no licensing for individual
employees or education required.
Start your own
• Some states small amount of
classroom study/short test, surety
bond, minor fees, background
• Michigan--$450 application fee,
personal investigation, background
check, financial net worth $25,000+
• Net branching, instant start up, per
deal fee, nationwide lending
possible, access to
• Most changed in last 15 years.
• Use to give the license away.
• Many are still practicing but
• Multiple levels of licensure. As little
as 75 hours training.
• Effective January 1, 2008 changes to the
Real Property Appraiser Qualification Criteria
by the (AQB) Appraisal Qualifications Board of
The Appraisal Foundation—for minimum
qualifications for all states.
• Limited Appraiser—75 class hours including
15 hours U.S.P.A.P. (Uniform Standards of
Professional Appraisal Practice) Rights
• State Licensed—90 class hours including 15
hours USPAP, 2000 hours appraisal experience
including 1500 hours residential appraisal
experience. Pass state exam. Rights
• Certified Appraiser—120 class hours including
15 hours USPAP, 2500 hours appraisal
experience including 2000 hours residential
appraisal experience over 24 months. Pass
state exam. Rights
• Certified General—180 class hours
including 15 hours USPAP, course
covering narrative writing and at
least 90 hours non-residential
course(s), 3000 hours of appraisal
experience including at least 1500
hours of non-residential experience
obtained over a minimum of 30
months. (Commercial real estate appraisals)
Good loans gone bad.
• FICO (Fair Isaac & Co.) (The determiner.)
• Concessions (legal fraud)?
• Fannie/Freddie (FNMA/FHLMC)
• Govies (FHA & VA) (GNMA)
(Federal Housing Administration & Veteran’s Administration) (Government National Mtg. Ass
• Down Payment Assistance
Programs (Nehemiah Foundation, Ameridream, Dove
Foundation, et al in conjunction with FHA)
• Appraisals--fault in the process of
valuating residential real estate.
• Order process, P.I.W., A.V.M., U.R.A.R., Drive-by only.
(Fair Isaac & Co.) (The determiner.)
• 350 on up to around 850
• Some people—no score (Alt-Doc)
• Jesus Christ, Bill Gates, Warren Buffet
• Magic numbers: 580, 620, 720
• Middle score (Trans/Exper,Equifax)
• Almost nothing else matters or
• Government sponsored entities.
• Do not lend money directly.
• Provide liquidity, standards, guides
• Packages/sells securities
• Entity guarantees payments of
principal & interest to investors.
• Misconception—no explicit or implicit
guaranteed by USA.
F.N.M.A (Fannie Mae)
• Federal National Mortgage
• Created in 1938, Government Agency
• Known as “conventional loans” or
“prime”-better borrower/better interest
rates, only buys “conforming” loans.
• Provides the engine (DU) and
• Compete with sub-prime or non-
• 20% down pmt.
• <20% down pmt. (PMI)
• 620+ credit score
• 3% limit on seller concessions
• 1 year job, 2 year* job history
• 28% housing/36% debt to income
• Max. loan amount: ?
• 140 pages—if this, then that
FNMA Basic (cont.)
• No reserve requirement however 2
months for lower interest rate
• 2 paystubs or phone VOE
• 2 months bank statements (season)
• Gifted funds okay, 5% investment
• EA-1 (now), EA-2, EA-3 (before)
• Typically mortgages above
$417,000 (FNMA limit)
• Up to $650,000 in Alaska, Hawaii,
Guam, US Virgin Islands??
• Until 31.12.2008—Bush Stimulus
Package up to $729,750 (high cost
areas or 125% median??)
• Private bank portfolio
• Federal Home Loan Mortgage
• Formed to expand mortgage market
and competition to FNMA
• Similar guidelines to FNMA but has
unique and varying products,
different money pools, different
names, similar products.
• Now buying small portion subprime
ARM mortgages (max. rate qualify)
The Best Bet
• Government owned (HUD)
• Guarantees on MBS consisting of
loans made by FHA, VA, Farms,
Public Housing, Indian* Housing
• Cut out of FNMA in 1968
• MBS of GNMA—risk of 0, USA
• 35+ Million homes, $2+ Trillion
• GNMA I—all same, GNMA II-varies
FHA Basic Guidelines
• 97.75%LTV, 2.25% Down Payment
• Self-insured, financed and monthly MIP
(1.5% and .50%)
• 29/41 Debt-to-income ratios*
• Medical collections okay, installments less
than 10 months, not considered debt.
• Ability to pay more important than FICO
• No EA-1, 2, 3 but REFER
Inside Fannie Mae’s D.U.
Federal National Mortgage Administration Desktop Underwriting/Electronic Underwriting
• Borrower or loans do not meet
conforming or conventional lending
guidelines—poor credit, high debt,
income, interest rate, special terms
• Typically by mortgage broker or
mortgage banker—via a warehouse line
of credit passing on risk to investors via a
REMIC’s which issues MBS’s, SIV’s,
• REMIC-”controlling class”/controlled by
financial institutions servicing the
mortgage, making fees for managing
payments, taxes & insurance escrows.
• Interest only
• 40 Year, 50 Year
• N.I.N.A. (no income, no asset verification a/k/a NO DOC)
• 125% LTV (-25% equity position, not a joke)
• B/C paper (bad credit, grade of loan, 5%-15%, ARM/FIX)
• Option ARM (adjustable interest with a twist)
• Stated Income (Can a waiter make $125,000/year?)
• JUMBO’s (big-ass mortgages)
• ALT-Doc (alternative credit scoring, income verification)
• 1-DOB (one day out of bankruptcy mortgage)
• Seller 2nd
• Pre-payment penalties
• Loaning in the best interest of
commission, not consumer need.
• Is subprime lending predatory
lending? Hey buddy, wait!
• 2006-61% who received
subprime loans qualified for
Key Subprime Culprit
1. Option ARM Calculator
2. Option ARM Amortization
A Losing Battle
• Default factors, payment issues
• Help me! Why workout, what workout.
• Loss Mitigation, loss initiation.
• Short sale (shorting mortgage) …
as good as it gets.
• Asset management (special servicers of
“controlling class” workouts, process foreclosures, manage/sell
properties for lenders—lots of fees)
• Next—Foreclosure process &
Day 1 Missed payment.
Day 30 Late fee, contact borrower.
Demand letter-pay past due, all
fees, impending doom.
Day 121 Referred to lawyer, pubic notice
Day 148 Sheriff's sale, start of redemption
Day 237 End of redemption if abandoned
Day 329 End of redemption occupied
Day 343 Start eviction process.
Day 523 +4 units or +3 acres
• Homeowner’s insurance
coverage for these damages?
• Extremely high cost vac prop/
liability insurance (get costs) and
compare to owner occupied.
• Attorney fees, winterization,
property securing, taxes (back),
insurance, asset management,
utilities, grass/snow removal.
“Buying a house is not the
same as buying a house
that is on fire.”
-Jamie Dimon, CEO
JP Morgan Chase
• Talking about low bid for Bear Stearns?
• Sums up the real estate market, buyer’s market, vultures.
of the Big D
• Ford, Chrysler, GM, loss of manufacturing
• Tax Base—leaving, not attracting
• Gas prices
• Operation Iraqi Freedom
• Taxes (business, property, etc.)
• Unemployment (highest in U.S.)
• City of Detroit—29% graduation rate
• Kwame Kilpatrick—mayoral scandal
• Election year blues.
Metro Detroit stats
March 24, 2008
• 3 Major counties: Macomb/Oak/Wayne
• For Sale: 19,413 (Single MLS)
• 4,000 to 6,000 is normal
• Pending: 2,880 w. avg. list price
• Closed last 30 days: 1,481 avg. sold
• Saturation rate: 14 months
Oakland County Stats
• One of richest counties in USA.
• For Sale: 13,912
• Pending: 1,448
• Sold: 2,134 since 1/1/2008
• Sold 04/2007-04/2008: 10,034
w./avg. sale price: $250,916
• Sold 04/2006-04/2007: 9,605
w./avg sale price: $226,419
Minimum Credit Scores
EFFECTIVE MARCH 19, 2008 1. The minimum acceptable credit
score for FHA & VA mortgages is 580. 2. Government loans with
credit scores less than 580 must have a DU, LP or Clues accept
decision. 3. A limited number of investors will continue to accept
manually underwritten FHA mortgage applications with no credit
score and a non-traditional credit file; however significant price
adjustments will apply. 4. Streamline refinances are unaffected
by the minimum credit score requirements.
• Do most people want to keep it?
• Pushing off foreclosure.
• How to refinance upside down.
• Lenders and services-outside the
• Write-downs, new terms, forget
traditional loss mitigation.
• Next slides—more debt is first step.
FHA to the rescue?
• FHA expands loan limits allowing
consumers to borrow more (+35%)
• Up to $700,000+ in some areas.
• Is it a government bailout?
• Govt. assumes risk, good/bad?
• The most recent news below:
So what’s out there?
Estimated Purchase Dollars Originations,
Source: Mortgage Bankers Association
So what’s out there?
Estimated Purchase Dollars Originations,
Source: Mortgage Bankers Association
Future of Financing
the American Dream.
• Better mortgage lending may continue
to damage property values, less
buyers for a long time.
• Prices in line with income, but not
• More government guarantees.
• Lower returns on mortgage securities.
• 5% of GDP, but most of A.A.P.W.
It is not the strongest of
the species that survive,
nor the most intelligent,
but the one most
responsive to change.
- Charles Darwin