March 30, 2006

Dialing for Dollars - German Style

It looks as if I have finally found the solution to my telemarketing problems. Our local girls should be able to give those Indian call centers a run for their money and help clean up the industry’s image. Those Germans are so progressive, it blows my mind (no pon intended).

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BERLIN (Reuters) - German prostitutes are signing up for a career change, training to become nurses to tend to the country’s aging population or working phones as tele-marketers.

Thirty prostitutes have enlisted in a church-funded project in the state of North-Rhine Westphalia and more are on a waiting list, project coordinator Gisela Zohren said.

“Competition in prostitution is fierce and the days when one could make a decent living out of it are long gone, especially once you hit the thirties,” Zohren said.

She said prostitutes’ fees had hit rock bottom and they were well suited to jobs on offer in the retraining program.

“After years of prostitution, they know how to listen, look after people and are savvy in selling over the phone,” she said.

Experts in the care industry for the aged also welcomed the initiative.

“We have more and more old and fewer and fewer young people, so there is a strong demand for people working in care professions,” said Franz Wagner, head of the German association of care professions.

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March 28, 2006

The Danger Zone

As reported by CNN 

 Although borrowers are often told that the first year is the hardest, delinquencies have historically reached their highest points during the third and fourth years of mortgages, according to Doug Duncan, chief economist for the Mortgage Bankers Association (MBA).

“As a mortgage ages, things can go wrong,” he says.

The are a few forces at play: After years of strained budgets, borrowers may have little in savings to draw on to handle a crisis; this is also the period when major repairs begin to crop up; finally, many home buyers go through life changes, including starting a family.

The number of Americans affected by the coming danger years could be huge. Half of all mortgage loans are three years old or less, according to the MBA. Nearly $3 trillion in mortgages originated in 2002, $4 trillion in 2003 and $3 trillion again in 2004. Many were refis, but there were also record totals of new purchases as well.

In addition, many of these transactions involved risky loans, such as interest-only ARMs and no-down payment loans.

A recent report from the National Association of Realtors found that the median new home buyer put down just 2 percent in 2005. Forty-three percent put down no money at all. And according to SMR Research, some 25 percent of loans were interest-only, do nothing to reduce the debt on the house.

“Lenders used to offer interest-only loans to only the best credit-quality prospects. That’s no longer true,” said Stuart Feldstein, founder of SMR Research.

Adjustable rate loans accounted for nearly half, by dollar volume, of loans issued in 2004 and 2005. Because interest rates have risen and are expected to increase further, those loans will adjust upward and monthly payments will be higher.

With a $200,000 loan adjusting upward from 4 percent to 6 percent, the monthly bill would increase to about $1,200 from $955.

“There are very vulnerable groups out there,” says Allen Fishbein, Director of Housing and Credit Policy for the Consumer Federation of America. “We found many consumers severely underestimated what their payments would be when they adjusted. Some didn’t even know how to calculate what their payments would amount to.”

Most homeowners are safe

Duncan tends to downplay the perils of non-traditional mortgages. He points out that 35 percent of all homeowners carry no mortgages at all and another 50 percent have traditional fixed-rate loans, which leaves only 15 percent of all homeowners at risk.

And, he points out, some who have opted for nontraditional mortgages are affluent and choose these products to free up cash for more lucrative investments. The risk to these financially savvy individuals is low; most can pay off their mortgages any time.

Furthermore, those who bought a few years ago in hot markets may already be in safe territory, as the value of their homes has grown enough that they now have enough equity to ride out financial storms.

Out-sized gains in housing prices lately has probably helped keep delinquencies as low as they’ve been.

But even if the percentages of borrowers who may go into default remains modest, even an increase of a few percentage points can add up to millions of households.

Big price gains are ending

And housing markets seem to be headed, if not into a decline, at least into a period of much more stable, slower growth. The median home is predicted to inch up by only a few percent in 2006, according to NAR. In many markets, prices may fall. Home buyers cannot count on increasing home equity to bail them out of tight situations.

Fishbein recommends that most mortgage borrowers convert to fixed rate loans as soon as practical. “Consumers have enough uncertainty in their financial lives,’ he says, “Nailing down their housing payment is a good course for most consumers.”

“People are really stretched,” says Dean Baker, macroeconomist and Co-Director of the Center for Economic and Policy Research. “They are banking on everything turning out right for them. That they won’t lose their jobs, that they won’t run into unexpected expenses. They’re betting that the housing market will continue to appreciate.”

“The problem is that few people recognize it for the gamble that it is,” says Baker.

Filed under News, Mortgage Brokers, Market Update, Trends, Blogs, Mortgage News by Godfather

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March 27, 2006

Mortgage Market

The Mortgage Market This Week Monday, March 27, 2006 - The Bond Rate Monitor
 

Last week, rates were volatile but when all was said and done rates ended close to where they began.  The big news this week is of course, the Federal Reserve’s Open Market Committee meeting scheduled for Tuesday of this week.  However, this meeting will be the first that Chairman Bernanke will chair.  Will he stay the course and raise rates?

Although it appears that inflation is under control and the brakes are now being applied to the economy, it is expected that the Fed will in fact boost rates again on Tuesday.  However, the most attention will be fixated on the statement the Fed releases with the rate hike.  Investors will analyze the statement for any clues as to when the rate hikes will cease.  If Mr. Bernanke hints that this is the final rate hike expect rates to become extremely volatile.

We believe that while the Fed is likely to raise rates again on Tuesday it is unlikely that Mr. Bernanke will adjust the Fed’s statement to give us a hint of when the rate hikes will cease.  Therefore, if the economic news continues its trend of a slower economy in conjunction with a rate hike by the Fed it is very likely we will enjoy lower mortgage rates by week’s end.

 

The Bond Rate Monitor is a service that monitors the MBS market place in real time for mortgage professionals. The service alerts subscribers to rate movements before investors can re-price, thereby allowing originators to lock their client’s rates at substantial profits.

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March 22, 2006

Forty years …

Maybe it’s because they got more than their share of liberal arts majors – maybe even more than the restaurant business. Whatever the reason, you have to hand it to the mortgage industry for being so innovative. In fact, the mortgage industry is so clever that if the whole industry could be condensed down to one person, that individual would be so freakishly smart that he could travel from State Fair to State Fair, attracting thousands of onlookers and astounding them all with answers to the world’s most difficult questions. 

The performance might go something like this: 

Carnival barker: Ladies and gentlemen! I have here in this chair America’s Mortgage Industry. It is an industry unlike any other. It is an industry that does not run after customers - its customers run after it. It is an industry beloved by the high and the low, the rich and the poor, the politically connected, the disaffected the unreflective and several vegetarians. 

Now ladies and gentlemen, I’m going to ask the Mortgage Industry a series of questions. There has been no rehearsal. No discussion. No prompting. The Mortgage Industry will simply respond as best it can. I must warn you, the answers will astonish you. Please do not faint on your neighbor. Okay, Mortgage Industry, are you ready? 

Mortgage Industry: I am ready. 

Carnival Barker: Ok, here we go! Suppose that the homeownership rate is stuck in the 64-65% range. What could you do to get the rate to nearly 70%? 

Mortgage Industry: Make it easier for borrowers to qualify for mortgages, of course. 

Carnival Barker: Fair enough. But if housing prices go up, up, up and borrowers can’t come up with the down payment necessary to get a mortgage loan, even under the relaxed requirements, what could possibly be the solution? 

Mortgage Industry: Lower the downpayment. Duh! 

Carnvial Barker: Brilliant! And if prices keep going up? 

Mortgage Industry: Eliminate the downpayment! 

Carnival Barker: Even more brilliant! 

Mortgage Industry: Better yet, loan the borrower more than enough to buy the house and let him spend the extra money finishing out his Star Wars action figure collection. 

Carnival Barker: Ladies and gentlemen! Is there no limit to this creativity? Okay Mortgage Industry, try this on for size. What if 30-year mortgage rates start going up, even as housing prices continue to rise. Suddenly, fewer people will qualify for traditional mortgage loans, downpayment or no downpayment. What then? 

Mortgage Industry: Traditional? Who says we have to do things traditionally? Did America’s revolutionaries don red vests and march in pretty formations? I think not. The answer is to provide adjustable rate mortgages, based on short term interest rates. 

Carnival Barker: But what if home prices continue to rise and even short term interest rates move higher? What if they move so high that new borrowers have a hard time making even an ARM payment? What do you do? 

Mortgage Industry: (yawning) You let the borrower choose how much principal to pay each month. He can catch up on the payments later. 

Carnival Barker: Brilliant again! You let the borrower assume that “things will get better eventually.” Just like Congressional budget writers and slot machine players! 

Now ladies and gentlemen, I have one more question for the Mortgage Industry. One more question that’s tougher than all of the others combined. And that question is – what if regulators don’t let lenders make so many of those fancy ARM loans? Or worse, what if borrowers decide that they are too risky? 

Mortgage Industry: My, that is a long question. 

Carnival Barker: So, you have no answer? 

Mortgage Industry: I just said it was a long question. But it’s also an easy one. You simply offer forty and fifty-year mortgages. 

Carnival Barker: Forty and fifty-year mortgages, ladies and gentlemen! Of course, the longer the term, the lower the payment. The Mortgage Industry really does have an answer for everything! 

— 

While 40 and 50-year mortgages have been getting a lot of attention since the Treasury resumed issuing 30-year bonds in early February, Fannie Mae has had a 40-year program since the middle of last year. That’s a big deal because, according to the American Banker, 40-year loans have been around since the ‘80s, but banks have had no place to sell them. With Fannie committed to the product, particularly after losing market share by avoiding the exotic ARM market, 40-year mortgages could become a lot more common. 

It sure looks like they’ll be popping up in California. The California Housing Finance Agency is also getting into the 40-year mortgage business. The housing agency wants to help residents who can’t otherwise afford California real estate by offering them the loan of a lifetime for most of a lifetime. Already the agency offers 35-year loans, so it has had some experience explaining the concept of eternity to borrowers. CalHFA is so keen on the 40-year product, that according to Andrew LePage of the Sacremento Bee, the agency thinks 40-year loans will account for 15-20% of its lending within the first year. 

That’s pretty amazing considering these numbers: 

a. Total interest paid on a 30-year mortgage loan of $300,000 at 6%. $347,515 b. Total interest paid on a 40-year mortgage loan of $300,000 at 6%. $492,308 c. Amount monthly payment is lowered by going the extra 10 years: $148 

And then there are these numbers: 

a. A borrower who turns 60 when his 30-year mortgage is paid off, will turn 70 by the time he pays off the 40-year version. b. Principal on the 30-year loan described above is reduced by $49,000 after 10 years. c. On the 40-year loan, 10 years of payments take the principal balance down by less than $25,000. And it takes almost 30 years to cut the principal balance in half. 

Of course, as with most borrowers saddled with pay option ARMs, those who go for the 40-year loan probably anticipate moving into a conventional loan down the road. But at least with the fixed 40-year product, borrowers don’t run the risk of a spike in monthly payments like those who sign onto adjustable or interest only products. 

In fact, ARM borrowers who find themselves in trouble may find the 40-year fixed alternative to be the perfect antidote to their financial stress. And the mortgage industry will be happy to relieve that stress by drawing up new loan documents for just a few basis points. 

Now that’s innovation. 

Written by: Rob Peebles 

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