Clarifying Mortgage Mess

W

wallstprodigy

This question is pretty much for anyone who would know the answer, mortgage broker or not.

What exactly is the problem with this whole mortgage mess? Is it that there are no people trying to get mortgages because rates are to high? Or is is that they simply can not approve anyone for a mortgage and customers are trying to get more money then what they can afford?

I ask this because I am trying to predict when is the correct time to get into any of these mortgage companies..... if the time ever comes.
 
Virtually all mortgages going forward will conform to Fannie/Freddie standards because the bid in the secondary market is gone.

That means the problems for refinancing arm/jumbo holders just went to the next level.

:D

If you are buying mortgage stocks here you are the bid for short-sellers.
 
the RTC S&L mess took years to work out and that's small stuff compared to the 7 million subprime loans out there........

me thinks you have awhile to go before this debacle is resolved
 
When I got out of college I was a mortgage originator. The Rules were pretty simple, you could use 28% of your income for PITI, principle, interest, taxes and insurance and 36% for PITI plus all other debt, car loans, credit cards student loans etc….

If you made 60k a year and had no or low debts, you could spend $1400 per month on PITI. That equates to around a $170k mortgage at 6.25 % if you could put 5% down. Using the nonsense going on with sub prime loans, reverse amotorisation etc… they would get you a $320,000 mortgage and no money down.

This total breakdown in lending standards resulted in the real-estate boom. Folks could now afford 2x as much so what happened, prices doubled. Using the old 28/36 standard, you could only afford more if you made more so real-estate values were somewhat tied to income level rises.

If the lending standards are reintroduced, the real estate market won’t recover until incomes rise enough to offset the old price rises. This can happen through inflation or just time. People won’t sell because they won’t be able to get a mortgage for what they can buy the same house for unless they have big down payments. New buyers won’t be able to buy at all as they will never get mortgages for the inflated house prices.

The real winner in all this was the lenders who now collect interest on much more money. This was all a big scam that was just a way to get you to pay and owe more. Now the market is flat and will remain so for many years. I will buy mortgage company stocks in 1 year; everyone who is going to fail will be gone then. I will also start buying 2 families in 1 year, first for rentals, then for condo conversions.
 
It's going to be interesting to see how this plays out over the next year or two. In my market 30% of all mortgages are subprime. That's gone now, or at least severly curtailed. One benefit of the subprime loans was that it made it easier for move up buyers to sell their house. This will filter all the way up. Now combine that with all these loans resetting to higher rates (remember base rate based on long rates, but adjust on short term rates like LIBOR) and people can't refi because a) they no longer qualify for loan or b) their house has dropped in value and they have no or negative equity. I think we are just beginning to see this train wreck unfold.
 
Quote from wallstprodigy:

This question is pretty much for anyone who would know the answer, mortgage broker or not.

What exactly is the problem with this whole mortgage mess? Is it that there are no people trying to get mortgages because rates are to high? Or is is that they simply can not approve anyone for a mortgage and customers are trying to get more money then what they can afford?

I ask this because I am trying to predict when is the correct time to get into any of these mortgage companies..... if the time ever comes.
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I'd suggest you follow charts of your regional and local banks - though they might well not reflect how dismal loan demand conditions will be for the rest of the decade. My guess is we go back to a level of loan and sales activity more like the mid/late 90s and the two years before 9/11. This was a big real estate credit bubble. If I tried to give you a mental pic of some figures I use it would be the Nasdaq bubble chart at 25,000 or so - not 5,500 - that has been falling by 50-70% each year since a top in summer 03.

Also, there's the global angle. Look for the real estate bubble executioner to visit europe, especially the UK, but not Germany which never had a bubble. Also Canada and Australia. Plus nobody is looking at the coming mess in US commercial real estate - lot of reckless lending there. They will soon enough.
 
The fallout from the last UK property collapse was brutal and devastated the whole economy. It was like the ice age came in. Things just stopped.

Having been through (debt free) that I have total disgust and contempt for commercial bankers having seen how they behaved. A large part of their revenues came from sending out a letter every month to anyone who missed a payment/was overdrawn and charging them $50 or so for the letter and booking that as"revenue". Every month.
 
Now take these numbers and look at bubble areas like SoCal.

Median salary is around 55K
835K average price of a detached home
With only 5% down, you still need over 40 grand down

At 5.75% fixed, a 795K mortgage, is gonna cost you $4639 a month, not including taxes which adds $835 a month = $5474/month

Even with dual median incomes, you cant afford the median home here. You have to get a condo, which is a joke in my opinion, since you lose most of the benefits of owning a home.

When a home is 55 times the median salary, you have serious problems. This bubble just priced several generations right out of the market.

Who is going to keep buying to support these prices? Salaries need to quadruple, or prices need to be slashed like crazy. Market will go nowhere for at least a decade it seems. With rent at half price, and home appreciation dead or negative, I cant believe anyone will buy now.


Quote from Mr Pain:

When I got out of college I was a mortgage originator. The Rules were pretty simple, you could use 28% of your income for PITI, principle, interest, taxes and insurance and 36% for PITI plus all other debt, car loans, credit cards student loans etc….

If you made 60k a year and had no or low debts, you could spend $1400 per month on PITI. That equates to around a $170k mortgage at 6.25 % if you could put 5% down. Using the nonsense going on with sub prime loans, reverse amotorisation etc… they would get you a $320,000 mortgage and no money down.

This total breakdown in lending standards resulted in the real-estate boom. Folks could now afford 2x as much so what happened, prices doubled. Using the old 28/36 standard, you could only afford more if you made more so real-estate values were somewhat tied to income level rises.

If the lending standards are reintroduced, the real estate market won’t recover until incomes rise enough to offset the old price rises. This can happen through inflation or just time. People won’t sell because they won’t be able to get a mortgage for what they can buy the same house for unless they have big down payments. New buyers won’t be able to buy at all as they will never get mortgages for the inflated house prices.

The real winner in all this was the lenders who now collect interest on much more money. This was all a big scam that was just a way to get you to pay and owe more. Now the market is flat and will remain so for many years. I will buy mortgage company stocks in 1 year; everyone who is going to fail will be gone then. I will also start buying 2 families in 1 year, first for rentals, then for condo conversions.
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