Investors!

[otisotisotis]

i could be wrong, but i thought agencies like fannie mae backed up loans that were no more than $400k or thereabouts.

[timmgirvan]

417K

[SuffolkGirl]

Mortgages have (had?) become a big business. The loans are written and then bundled together and sold on the secondary market in a Mortgage Backed Security (MBS), thus generating additional money that could be lent out again. With most real estate in the country appreciating there was little risk that the payments on the underlying security (the loan) would not be made. Recently, values have softened if not declined. People who were in a 2/28 (fixed for 2 years then adjusted for 28) were facing murderous increases in their interest rates (the Fed has raised interest rates 17 times!! - although just dropped .5% this a.m.). These people then tried to refinance but the value of their home no longer supports the loan amount. So now they are faced with a criminally high interest rate on a property that is not worth what they owe on it.

FNMA (FannieMae) and FHLMC (FreddieMac) are quasi public entities that were created to alleviate the credit crunch that we may very well be experiencing. Each year they survey the real estate market and set a limit for the amount of the loan that they will buy. This becomes the "conforming" loan amount limit. At present it is set at $417,000 for a single family/condo. One can purchase a property for whatever amount, as long as the first lien does not exceed $417,000 then it is considered a conforming loan. Because FNMA and FHLMC are nominally backed by the government, investors have decided that they only want to purchase mortgages that fit this guideline.

Given the softening RE market, large institutions that purchase MBS have completely lost their appetite for any security that is not backed by FNMA or FHLMC. These institutions have gotten into lots of bond trouble recently, check out Bear Sterns and Goldman Sachs.

This is a very far reaching problem right now. Those individuals and institutions that have a good supply of cash and are not over leveraged should be able to weather this storm.

[wiphan]

Originally Posted by SuffolkGirl

Recently, values have softened if not declined. People who were in a 2/28 (fixed for 2 years then adjusted for 28) were facing murderous increases in their interest rates (the Fed has raised interest rates 17 times!! - although just dropped .5% this a.m.). These people then tried to refinance but the value of their home no longer supports the loan amount. So now they are faced with a criminally high interest rate on a property that is not worth what they owe on it.



This is a very far reaching problem right now. Those individuals and institutions that have a good supply of cash and are not over leveraged should be able to weather this storm.

Alot of what you said is true, however some is not. The Fed did not drop the Fed Funds rate, which it has raised 17 times, it dropped the discount rate .5%today temporarily which allows banks to borrower $, not consumers. This will have no direct affect on the consumer yet, however the stock market will like this today

Non-conforming or Jumbo loans(over $417k) are sold separately and Fannie and Freddie do not buy these types of loans. The biggest problem in the industry is companies that offered option ARMs or negative amortization loans. These loans people did not pay the all of the interest on the loan, they actually add principal to the loan. Many companies like Countrywide and WAMU offered these loans and when home prices slipped or fell, consumers are finding themselves owing more than the home is worth. The home they bought 1 year ago for $500k, is now worth $450k and they owe $510-525k. Imagine that a lot of customers will just let the house go into foreclosure. I personally work in the mortgage industry for another more reputable company and we never offered these types of loans and have not been affected by these problems. The other issue with Non-conforming or Jumbo loans is that investors currently are scared to buy these loans due to uncertainty of their performance. This has driven the price/interest rates up.

Working with a educated mortgage professional you can still find great advice and low interest rates. Currently I am structuring blended Jumbo loans with 2 mortgages and both mortgages on 30 year fixed rates around 6.75%, this is a way around the increases in Jumbo loan pricing.
I hope that helps clarify things

I think all of this is a lesson in how volatile the stock market can be. We have put in all sorts of controls and still we get pretty big swings. The housing market was driving a lot of the highs, and now it turns.

Fundamentally I feel with all the innovation that occurs in this country the long term will be good. Lots of drugs, electronic consumer products, new types of cars, etc... yet to come that will be wildly different, innovative and highly sought. Just my feeling. Even with China and India becoming energy gulpers just like we are.

[pmacdaddy]

Originally Posted by wiphan

Alot of what you said is true, however some is not. The Fed did not drop the Fed Funds rate, which it has raised 17 times, it dropped the discount rate .5%today temporarily which allows banks to borrower $, not consumers. This will have no direct affect on the consumer yet, however the stock market will like this today

Non-conforming or Jumbo loans(over $417k) are sold separately and Fannie and Freddie do not buy these types of loans. The biggest problem in the industry is companies that offered option ARMs or negative amortization loans. These loans people did not pay the all of the interest on the loan, they actually add principal to the loan. Many companies like Countrywide and WAMU offered these loans and when home prices slipped or fell, consumers are finding themselves owing more than the home is worth. The home they bought 1 year ago for $500k, is now worth $450k and they owe $510-525k. Imagine that a lot of customers will just let the house go into foreclosure. I personally work in the mortgage industry for another more reputable company and we never offered these types of loans and have not been affected by these problems. The other issue with Non-conforming or Jumbo loans is that investors currently are scared to buy these loans due to uncertainty of their performance. This has driven the price/interest rates up.

Working with a educated mortgage professional you can still find great advice and low interest rates. Currently I am structuring blended Jumbo loans with 2 mortgages and both mortgages on 30 year fixed rates around 6.75%, this is a way around the increases in Jumbo loan pricing.
I hope that helps clarify things

Just curious. That is a conforming fixed loan and second mortgage with 30 year fixed amortization? Had not heard of that. What is rate on second mortgage?

[wiphan]

Originally Posted by pmacdaddy

Just curious. That is a conforming fixed loan and second mortgage with 30 year fixed amortization? Had not heard of that. What is rate on second mortgage?

Correct. 30 yr fix 6.75% on 1st mortgage and 3 yr fix on the 2nd at 6.75%. The 2nd mortgage can be 30 yr amortization, 1.5% balance payment or interest only. This is kind of a creative way of getting around some of the higher rates on Jumbo loans. I personally believe prime is going to start coming down, so I would be more willing to accept a 3 yr fix on the 2nd mortgage at that rate and obtain a better rate on the $417k. Now it is a different story if you are looking at loans that are in the $750k+ range, you might not want the risk on a huge 2nd mortgage that is only fixed for 3 yrs. It is entirely up to the customer, but my job as a mortgage professional is to find all of the available options and make suggestions to the client. I hope that helps

Originally Posted by wiphan

Correct. 30 yr fix 6.75% on 1st mortgage and 3 yr fix on the 2nd at 6.75%. The 2nd mortgage can be 30 yr amortization, 1.5% balance payment or interest only. This is kind of a creative way of getting around some of the higher rates on Jumbo loans. I personally believe prime is going to start coming down, so I would be more willing to accept a 3 yr fix on the 2nd mortgage at that rate and obtain a better rate on the $417k. Now it is a different story if you are looking at loans that are in the $750k+ range, you might not want the risk on a huge 2nd mortgage that is only fixed for 3 yrs. It is entirely up to the customer, but my job as a mortgage professional is to find all of the available options and make suggestions to the client. I hope that helps

30 years is a long time. I realize many people sell and move before 30 years but man that just does not seem attractive. But I guess if you really want a house. I would just rent if it came to that.

[SentToStud]

Originally Posted by wiphan

Correct. 30 yr fix 6.75% on 1st mortgage and 3 yr fix on the 2nd at 6.75%. The 2nd mortgage can be 30 yr amortization, 1.5% balance payment or interest only. This is kind of a creative way of getting around some of the higher rates on Jumbo loans. I personally believe prime is going to start coming down, so I would be more willing to accept a 3 yr fix on the 2nd mortgage at that rate and obtain a better rate on the $417k. Now it is a different story if you are looking at loans that are in the $750k+ range, you might not want the risk on a huge 2nd mortgage that is only fixed for 3 yrs. It is entirely up to the customer, but my job as a mortgage professional is to find all of the available options and make suggestions to the client. I hope that helps

How does this help the guy with no equity in a home he paid 500k for that is now worth 450k? Are you saying you are moving people off theirr adjustables into a $0 down package that is 50k above what the property will appraise for?