Upside Down Mortgage

Archive for June, 2008

Mortgage Fraud Dallas

Looking back now as we approach the end of April, this was an active month for the real estate scene. Here are some of the highlights of the April housing scene – some good, some not so good:

Short Term Interest Rates Exceed Long Term:

Finally for the first time in decades, it is cheaper to lock into a long term mortgage rate. Imagine that – mortgage financing that helps the buyer!

According to the latest results of the Primary Mortgage Market Survey (PMMS) released by Freddie Mac, the 30-year fixed-rate has dropped down to an average of 4.80 percent. Same time last year, the rate was 6.03 percent.

A one-year Treasury-indexed adjustable-rate mortgage (ARMs) averaged at 4.82 percent. Same time last year, the same mortgage was 5.29 percent.

A five-year Treasury-indexed hybrid ARM averaged at 4.85 percent, down from 5.68 percent last year, and the lowest rated since January 2005.

House Prices Rise and Fall

For the months of January and February, house prices rose consecutively. The last time this happened was in April 2007. Then March came along and the median home price declined by 12% from the previous year.

Record Price Cuts:

The famous Bailey Mansion in New York (previously owned by circus owner James Bailey), has dropped in price from $10 million to $6.5 million in less than 6 months.

Washington's most expensive home listing, Evermay, has dropped its asking price from $49 million to $39 million. This 3.58-acre, 12,000 square foot Georgian Revival estate has been on the market since September.

Probably the largest price reduction for a piece of U.S. real estate, the Greenwich, Conn. mansion formerly owned by the late Leona Helmsley can be had for only $75 million. This is a far cry from the original asking price of $125 million.

Foreclosures See Record Highs:

After seeing foreclosure rates dip in January, they shot up by 44 percent in March, increasing to record high 175,199. Apparently there is still a backlog of unprocessed claims that will be appearing in the next couple of months as lenders scramble to deal with the volume.

Freddie Mac Executive Found Dead:

David B. Kellermann, the acting CEO at Freddie Mac committed suicide, leaving behind his wife and daughter. Sadly, he was only one of the many victims resulting from this global financial crisis.

Jumbo Loans More Plentiful

It appeared jumbo loans had fallen by the wayside, but now lenders are looking at these loans as a new opportunity to make money, and they are definitely making a comeback. Among the many banks offering them, ING has a 30-year fixed rate loan running in the upper 5% range.

The Mortgage Reform Bill

This much awaited bill was introduced in early April in an effort to change the way lenders do business and encourage no frill mortgages with lengthy terms. It's a shame this bill wasn't introduced 7 years ago, much of the housing crisis may have been averted.

Incidences of Real Estate Fraud Spikes

Our vulnerable market has created a perfect climate for real estate fraud and other types of scams. Following right on the heels of Bernie Madoff, who was convicted of committing the largest investor fraud by a single person, spring has sprung with a new collection of real estate related "tom foolery".

In early April twenty-four people in San Diego were charged with racketeering in an elaborate mortgage scheme. In Dallas, the Stanford Financial Group was recently accused of selling certificates of deposit that were never invested, in addition to numerous other fraud allegations. A Twin Cities realtor was recently convicted of mortgage fraud. A Georgia attorney recently pleaded guilty to a $28 million investment fraud scheme.

The seemingly endless flow goes on, touching on every aspect of the real estate and investment industry, from appraisers, to real estate agents, attorneys, investment brokers, mortgage brokers, and bank managers.

About the Author:

Begin your search for Montgomery County MD real estate at LaurenKlineRealEstate.com. Her team will help you find the perfect Penn Quarter DC real estate.

Source - Spring Real Estate News

Dallas Criminal Defense Lawyer Patrick J. McLain Texas Attorney

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Mortgage Default Model

After the steep rise in subprime lending in the 2001-2006 period, followed by the credit crunch of 2007, some might ask, "If their borrowers can't pay, why did the lenders make these loans in the first place? Did they not want to be paid back?" To get to the bottom of this question, people need to understand how real estate lending has changed and what motivated the various participants.

Historically, a borrower went to a local bank or credit union when they bought a house. These institutions would typically require 20% or more as a down payment on the property. They would want a borrower to have good credit, documented income, and anything questionable like a collection would need to be cleared up and explained in great detail. A borrower might be able to purchase a home with as little as 10% down, but it would require extra money be paid to mortgage insurance from a highly rated financial institution. Most loans would be sold to quasi-government home loan institutions, Fannie Mae and Freddie Mac, which required strict underwriting guidelines. Loans that could not be sold to these institutions (such as jumbo loans - those exceeding a certain amount) would likely need to stay on that local bank's books, so the underwriting would end up being even more stringent, since a default would impact the bank directly.

Over time, large interstate banks and thrifts such as Bank of America, Wells Fargo, and Washington Mutual grew to dominate residential home lending. Local banks focused more on commercial real estate, small business loans, and other types of loans. While more impersonal, the underwriting was still sound. These institutions starting doing huge volumes of loans, and participating in packaging up and selling big batches of their loans (100 or more) to institutional investors like pension funds, insurance companies, and even hedge funds. These groups had huge appetites for these income-producing investments, especially those that were highly rated as "investment grade" by rating agencies like Standard & Poor's or Moody's. As long as you are packaging up 100 high quality loans, these loans might warrant an investment grade rating. Many financial institutions, however, decided they could greatly expand the amount of loans they could sell by lowering the bar on the underwriting standards. They would simply make loans to people with lower credit ("subprime"). They could also be flexible on documenting income, lax with historical income requirements or down payments, and allow people to obtain loans that they could afford only prior to the interest rate adjusting in the future. However, 100 low quality loans packaged up are not going to get an "investment grade" rating.

That was where the financial engineering came in. Imagine splitting a pool of 100 loans in to fourths: sections A, B, C, D. A was guaranteed to get paid first, then B, then C, then D. If A was guaranteed a certain return (such as 8% interest per year plus the original principal of the loans), even if a certain number of loans went bad, you would still have first priority to the interest and principal on the good loans. A could end up making its return without losing any principal, while D might end up taking a huge hit. Through this financial engineering, even batches of subprime loans could be packaging in such a way that the majority (the A, B, and maybe C) of the sections or "tranches" were considered investment grade and could be sold to a pension fund, while the low grade tranches could be sold to large risk-takers like hedge funds.

For awhile, this all worked out perfectly. Property values were soaring and people made their payments or paid back the loans by refinancing or selling their properties. Everyone involved made money. Then it all stopped. It turns out that people with poor credit eventually start missing payments. Property values started to decline and people owed more on their loan than their house was worth. People could not refinance and many just walked away from their homes. Financial models forecasting the amount of delinquencies and foreclosures were way too low and none of them forecasted a huge decrease in property values. It turns out, all tranches of subprime debt had problems, including the highest rated pieces. Also, many financial institutions like Citigroup and Merrill Lynch that were packaging and selling the loans ended up holding onto some of the lowest rated and now worthless pieces of subprime debt because they could not sell it, as many investors were skeptical of the ratings even before the real estate market started experiencing problems.

So the answer to the question, is yes, the lenders wanted to be paid back. They wanted to keep making money from selling these loans. However, they should have looked to history to know that some loans, no matter how you package them up, should never be made. They probably won't make that mistake again, at least for many years or until they forget the lesson learned.

About the Author:

Donald Plunkett is a real estate broker with Congress Realty, a
flat fee listing
company which serves the states of Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, Texas and Washington. Donald is a Certified Residential Specialist® and has been licensed since 1994. For more information, please visit
Congress Realty
.

Article Source: ArticlesBase.com - Understanding What Happened With Subprime Mortgages

Authors@Google: David Wessel

upside down mortgages help

Question: How would you handle a upside down mortgage of $130,000?

My husband and I bought our home in the Northern Virginia area in June 2006 with no money down and a 30 year fixed rate. We're thinking about walking away from our house. I know this will ruin our credit, but it seems to be worse to live in a home that isn't worth NEAR what we paid for. Please don't comment on how this wouldn't be the morally right thing to do. We're just regular middle class people and our house is/was our only investment. We bought our house for the going rate of $400,000 and now our house is only worth $270,000. How would you handle a upside down mortgage of $130,000?
I should have also said that we would like to move a state away to be nearer family, because my father had a stroke and I need to be able to help my mother.

Answer: I agree with the others. Stick it out for a while and see what happens with home values in your area. There are bound to rise in the future

Upside down on your house? You have options.