White Horse is Coming for Subprime Borrowers

President Bush chimed in today and is talking about a plan to help diminish the effects of the "Great Mortgage Debacle of 07". Imagine that!

I had commented on a post on Activerain by Jay Beckingham yesterday regarding his belief that there will be no replacement for the subprime mortgage. I had suggested that upon further review and analysis, investors will recreate and deliver a new set of subprime mortgage vehicles that will perform. When I wrote that post I imagined that these new sub prime mortgages would start to show up in 3-6 months. Now I am even more confident that we will see a new set of mortgage products aimed at the sub prime borrowers because now, our president is getting into the mix. For more about Bush's plan, you can read the AP article, Bush Outlines Aid for Mortgage Holders. I'm not sure exactly how this will help home buyers but it is definitely something that needs to happen to help keep a lid on the foreclosure rate.

Mark my words, we will see a re-emergence of the subprime category in the mortgage industry in the near future, 3-6 months, but it will definitely be more conservative than the flimflam of the past 5 years.
Thanks Mr. president, now maybe Wall street can have a good day.

100% Financing Alive and Well in Minnesota!

Contrary to popular belief, it is still possible to purchase a home in Minnesota with no down payment. There are two great programs for Minnesota home buyers and most people can qualify for one or the other of these programs. While the 100% sub-prime loan is currently very hard to find if not completely gone, the FHA program still makes purchasing a home possible, even for people who don’t quite fit into the conforming or “A” credit” box. If you’re a Minnesota First Time Home Buyer or buying your next home, check out these great Minnesota mortgage options.

Below are some of the features of these two great Minnesota home buyer programs, feel free to call me if you have any questions about either one in Minnesota.

MY Community Program
Allows up to 100% financing
Low credit scores allowed
Higher qualifying ratios
40 Year Amortization available
Up to 6% seller contribution
No MI options available
2-1 buy downs allowed
Loan size up to $417,000
Standard appraisal requirements
Purchase or refinance (cash-out not allowed)
No Pre-payment penalties

FHA Program
No credit score requirements
No income limit
Fixed rate and ARMs available
97% financing with 3% gift funds
Up to 6% seller contribution allowed
2-1 rate buy down available
$263,150 loan limit on single family
Co-signed loans allowed (must be relative)
Higher qualifying ratios
Manufactured homes allowed
Controlled closing costs
Purchase or refinance
No Pre-payment penalties

If you need a real estate agent to help you buy or sell your home, use our real estate agent directory

Will Falling Home Prices Mean Lower Property Taxes?

Well if there is any silver lining in the current home market it is that falling home prices should lead to lower property taxes right? We’ll see. It is pretty unlikely that the counties are going to be quick to spend the money to re-value anyone’s home only to find out that the county is going to receive less in property taxes. It is going to be up to us, the home owners to do our own checking and if there is a glaring discrepancy, we’ll need to get a new appraisal and go to the county to ask for an adjustment.

Just a thought.

Use the links below to check average home prices for your metro area and to find links to your counties web site so you can double check your tax appraised value.

City and county links – for property tax information

Median sales prices of existing single family homes

Another purchase closing delayed

I participated in a purchase closing today that should have gone better than it did. We started closing about a half hour late and ultimately got the purchase closed and funded. Fortunately the sellers had already had their purchase closing a week earlier so this delay really didn't inconvenience anyone too terribly bad. That said, It was troubling to me to be the quarterback on a deal that got delayed, especially since we had our clear-to-close and good-to-go 5 days before. So what happened?

The lender I used, who I picked because of their phenomenally low rates has a policy of getting a verbal VOE (verification of employment) 24 hours before closing. All they need to do is get someone from the company on the phone who will verify that the borrower is still working there. Seems easy enough right? Wrong.

What happens if the lender calls the company for the VOE and the only person who can provide that information is gone for the day. Hard to believe in a company with thousands of employees that only one person can verify employment, but in this case it was true.

No big deal, just call the company first thing in the morning and everything will be fine as the closing package is all ready to go, the lender simply needs the VOE to release it. The closing isn't scheduled until 10:00a.m. so it won't be a problem, right? Wrong.

What if the next morning, bright and early your lender calls the employer and gets voice mail? We'll you say, simply leave a voice mail and they will call you right back, after all, the HR person probably doesn't have much else going on, right?

OK, so now it is 9:30a.m. and we still don't have our VOE or the closing package. The client is calling, the title company is calling, things are starting to heat up. So I ask my assistant, who is really good at her job, to try to get through to a decision maker so we can get or VOE and close this on time.

Oh she gets through alright only to have someone in HR tell her they do not do verbal VOEs and that we will need to send them the VOE as a document, and someone will fill it out and get it back to us in 7-10 days. Which is sort of a problem for us since we are scheduled to close this purchase loan in about 10 minutes.

So how did it finally end you ask? My assistant was able to get the HR person on the phone and explain the urgency of the situation and how it would have been difficult to plan ahead as this last event was lender driven and it is their policy to check for employment 24 hours before the close. Some how this person was able to miraculously give us our VOE in a matter of minutes and we were able to sit down and close only 30 minutes behind schedule.

So what's the lesson learned here? I think it is a lesson I have learned about 50 time in this business which is no matter how well prepared you or the other parties to a closing are, it never fails that something can and/or will go wrong and it's not about who's fault it is or who is to blame, but how can we quickly resolve the issue and get the job done.

Minnesota Mortgage Rates for 8/27/2007

Wow! Good news for home buyers, 30 year fixed rates are closing in on the 6% mark again. As you may have seen recently, mortgage rates have been coming down and today, in Minnesota the mortgage rates are as follows;
30 year fixed rate = 6.125%

15 year fixed rate = 5.875%

These are conforming rates which means the loan amount must be under $417,000. Not to be confused with the purchase price. These rates are also based on 80% loan to value (LTV) whether a purchase or refinance and the borrowers must be able to prove income with pay stubs and w-2s, or tax returns.

These rates are from one of my conforming lenders who typically beats all other lenders in the Minneapolis metro. This lender offers great rates for other types of mortgages as well.

Call for rates on other programs, Ken Horst@ 952-842-8100

Sun Trust Eliminates 100% combo mortgages

In response to growing industry-wide concerns regarding the uncertainty in today's secondary market, effective Monday, August 27, 2007, SunTrust Mortgage is eliminating the Combo 100 loan program.

So what does this mean to Minnesota Realtors?

Fewer borrowers will be able to buy homes.

Sun Trust is just one of many lenders who have been cutting their high loan-to-value programs lately. I would say by the end of September, there will be few if any options for people who don't qualify for conforming financing, Fannie Mae or Freddie Mac, and who don't have any money for a down payment. This is a category known as Alt-A and it is quickly disappearing as investors are running for cover as home values are flat or declining in many markets. The 100% financing category, while still alive through Fannie Mae and Freddie Mac, will all but disappear in the Alt-A and sub-prime markets. As a result, fewer people will be able to qualify to buy a home.

Now more than ever it is important for Realtors to quickly refer their buyer prospects to a capable mortgage professional for pre-qualifying and preferably a broker who has access to many different lender just in case the lender they are using goes out of business or cancels the mortgage program your buyer was qualified for.

For more information about which types of mortgage programs are still available and which are gone, contact Ken Horst at 952-842-8100.

Minnesota Mortgage Professionals?

I got a call from a woman on Wednesday of this past week wanting to refinance her home. It turns out she had already gone through all the steps with another Minnesota mortgage professional but was puzzled when he stopped returning her calls, even after she paid for an appraisal and completed all the paper work.

At first I suspected that the appraisal didn't come in with a high enough value, or she simply didn't qualify for any programs that would benefit her so the other guy simply slipped away in search of a better mortgage prospect. On further analysis, I discovered that there was plenty of value in her home, as a matter of fact, she was only borrowing 65% of the value of her home. Additionally, she had good solid income and job history, a low debt-to-income ratio, and a descent credit score. Where did the other guy go? If anyone runs into him around town, please thank him for me.

As a result of his unprofessional service to his client, I not only gained a client for August, but as a result of my follow-up, honesty, and speed of delivery, I expect to earn some referrals as well.

I think people looking for mortgages in Minnesota will be running into this "disappearing mortgage guy" scenario more and more in the coming months as more mortgage lenders go out of business and many of the loan programs that we were able to offer only three months ago are no longer available to Minnesota home owners and home buyers.

I would have said you can thank the Minnesota Attorney General for this but unfortunately for us and for her, as she put a lot of work into saving the people of Minnesota from the evil independent mortgage broker, Wall Street beat her to it by simply not offering mortgage programs that didn't perform well for investors.

In a future post I will cover all the mortgage programs that are no longer available and what affect this is going to have on home owners in Minnesota and around the country.

Why Use A Mortgage Broker?

Because if Countrywide were to declare bankruptcy, your local experienced mortgage broker still has great mortgage products from quality lenders like Wells Fargo. Here is a recent memo from Wells Fargo to the mortgage broker community;

Together, We’ll Succeed

Since 1852, Wells Fargo has been delivering superior service to its customers based on their business needs. In today’s mortgage market, Wells Fargo stands out as a lender who is committed to its clients – one with a long track record of strength and stability.

Wells Fargo is a well capitalized, diversified financial services company – the only bank in the U.S., and one of only two banks worldwide, to have the highest credit rating from both Moody's Investors Service, "Aaa," and Standard & Poor's Ratings Services, "AAA." In other words, we have the financial strength to succeed in this market and continue to serve your lending needs.

There is no question that Wells Fargo Wholesale Lending’s success comes from our relationships with you, our quality brokers. We remain strongly committed to you and to the wholesale business.

Here’s How Wells Fargo Can Help You Be Successful

Products and Pricing: We remain committed to offering a range of lending options, including conforming, government and home equity loans and lines – with competitive pricing to help you fulfill the needs of your customers. Plus, we recently announced price improvements on some of our products, giving you even more to offer your customers.

Our Veteran Sales Team: Our account executives have tremendous mortgage experience and they’re eager to work with you to create a plan for success in this challenging market. They can answer any questions you have about our product sets, our pricing specials, program options, and our Direct ExpressSM loan feedback tool.

Operations and Customer Support: We have great teams prepared to serve you – experienced people to underwrite and process your files quickly and smoothly. And, we have knowledgeable support teams ready to answer your questions, discuss scenarios and smooth out any wrinkles that might arise.

Today, more than ever, you need a lender you can count on. Wells Fargo’s been going strong for more than 150 years. Rest assured we’re ready to deliver on the needs of your business, now and in the future.

Regards,
Kathleen Vaughan
Executive Vice President, National Manager
Wells Fargo Wholesale Lending


Don't be to quick to kick your mortgage broker to the curb. The good ones are in this business for the long haul and will continue to protect you and your home buying clients by maintaining many lender relationships to cover any catastrophe caused by a giant like Countrywide going out of business.

Liquidity Crisis Explained

It was just a short time ago that investors from all over the world were hot for US Mortgage Backed Securities (MBS). Historically these investment vehicles performed well as US home owners made good on their mortgage payments. Think about it, in the olden days home buyers needed at least 10% down to even qualify to buy a home. Anyone who could manage to save a 10% down payment obviously had to be very responsible with their personal finances, and this fact played out in the return and relative safety of the MBS.

All of the sudden, there was more money available for people to buy homes than consumers were demanding, a liquidity surplus you might say, and with no room to muscle in on the "A" paper conventional mortgage markets, clever investors decided to create new and different types of mortgage loans to take advantage of all this investor money. Hence the birth of the Sub Prime mortgage industry.

With very little history as to the performance of these MBS, and a very hot US real estate market, investors and home buyers plunged into the market with reckless abandonment, ultimately leading to a person who was one day out of a chapter 7 bankruptcy with only a 580 credit score qualifying for a 100% home loan. (Credit scores range from 350 -850). By all known standards, this was a loan destined for default and in the past, no investor in their right mind would have made this loan. But money kept pouring in and an endless stream of home buyers and now people wanting cash out refinancing kept showing up at their local mortgage companies door and more recently at all the internet mortgage sites that promised hundreds of thousands of dollars for unbelievably low monthly payments.

It took a while but eventually, as history started to accrue for these sub prime loans, there appeared to be higher than expected rates of delinquency and default, which brings us to today and our current liquidity crisis. As more and more investors stop investing in these sub prime MBS vehicles, there is less and less money in the US for people who want to buy or refinance homes. Couple this with the fact that even some of the conforming or non-sub prime lenders are seeing higher rates of delinquency and default, and you have a situation where the mortgage arena, which recently had more available money than it knew what to do with, now is left with only a handful of investors who only want to buy the most secure of the MBS, those made up of people with high credit scores, a good solid track record of income, money in the bank and either a down payment or significant home equity in the case of refinance.

So there you have it, Liquidity Crisis, and if you are a real estate agent or mortgage professional, boy does it hurt!

MN Mortgage Blog Continues!!!

I'm glad to be back blogging about the mortgage business. A lot has changed in the short time since my last post on this blog but I can assure you that I will contribute on a very regular basis in an effort to help home owners, home buyers, Realtors and other mortgage professionals navigate these stormy seas.

Feel free to comment on my blogs and Iwill do my best to respond to your comments and keep an open dialogue. Also, if you want to email me with questions, comments or suggestions, my email is khorst@thegreatrate.com

That's all for now but check back tomorrow.