Mortgage Probes Face Big Hurdles

That’s funny (previous comment) I believe I’ve seen fake boobs and people lacking character in all the states I’ve been to in the last 20 yrs. Besides plenty of good people too. It’s all in your perspective.

As far as neg-ams in Cali, yes I have one , yes I’m a hard working single mom trying to achieve the American dream. No I don’t want to walk on my loan; but when I called American Home Mortgage in July of ‘07 and told them…when this time bomb resets it will explode, can we work on a loan mod. Their answer was “no, you’re current on your mortgage”.
According to the various people I spoke with at American Home Mortgage in order to get any loan mod…etc. one has to be behind 60-90 days.
My answer to that was, if I’m that behind on my loan payment and my credit is getting destroyed what incentive would I have to work things out. I’d rather take it all the way down to the NOD and let’s keep going to the foreclosure.

That is not the road I took. I have had my house on the market since then with not 1 offer and reducing the price every 25-30 days. I will be contacting the bank for a short sale in Feb. since the amount the sale will bring including selling costs will be under what my loans are for.

I am prepared to go to 1) short sale (better) 2) foreclosure and bk (not good) or 3) deed in lieu (ok)

I will not be insulted by people’s comments on the character of people that take out certain types of loans; you have not walked a day in my shoes and you have no idea how my life is.

I do know Moe is correct in saying this is yet to explode for California…my loan won’t reach the 110% til June of ‘08. Hopefully the house will have sold but if not it’s on to choice #2 or 3. And yes when I think of losing the home we’ve had for almost 4 years, it hurts my heart. But I have to be practical…since I wasn’t with this loan (thought I could refi this past summer) I know there are long term effects from this and that’s ok too.

I love reading the success stories on Moe’s website, I first came looking for hope for my situation. He has great advice for many people. I’ve been researching my brains out to find a constructive way out of this situation. There are many websites dealing with short sales too and that helps.

I just noticed today on realtytrac that the owner of my old beach cottage had an NOD filed on the property. I feel for all the homeowners that are being destroyed by the Wall St. PONZI scheme. Remember those; the people at the top (originators) make a killing and the people at the bottom are left holding the bag.

Have a great 2008…much is in store for the economy in the US and California.

Love your family and take care of your health because those are the most important commodities we have…..

Here’s a link to a list of lenders loss-mitigation department phone numbers I came across today:

http://www.homeloanlearningcenter.com/ForeclosurePreventContactInfo.htm

Moe, I’m so glad you took the time out to write this very detail, informative article. Know what I found out over the holidays?

Every one of my brother’s and sisters has a Pay OPtion ARM. Now, I’m in New York and they’re in Jersey, but they facing the same high payment woes.

My sister spoke about a friend of hers who is facing the same trouble.

IMO, these Pay Option ARMs were designed to fail the average American homeowner, and they are failing them. I see this crisis deepening in ‘08. It’s like a hurricane. They’ll be calm in the eye of the storm, and then when these ARMs start exploding, disaster.

BANKING

DEPARTMENT OF BANKING AND INSURANCE

DIVISION OF BANKING

General Provisions

State Bank and Savings Bank Parity

Proposed Repeal and New Rule: N.J.A.C. 3:6-12.1

Proposed Repeals: N.J.A.C. 3:6-12.2 and 12.3

Authorized by: Holly C. Bakke, Commissioner, Department of Banking and Insurance

Authority: N.J.S.A. 17:1-8.1, 17:1-15e and 17:9A-24b.1

Calendar Reference: See Summary below for explanation of exception to calendar requirement.

Proposal Number: PRN 2002-150

Submit comments by June 14, 2002 to:

Karen Garfing, Assistant Commissioner

Regulatory Affairs

New Jersey Department of Banking and Insurance

P.O. Box 325

Trenton, NJ 08625-0325

Fax: (609) 292-0896

Email: Legsregs@dobi.state.nj.us

The agency proposal follows:

Summary

The Department of Banking and Insurance (“Department”) proposes to amend N.J.A.C. 3:6-12.1 to implement the new parity provisions enacted in P.L. 2000, c. 69, \’c2\’a7 3 (known as the “Parity Act”), and codified at N.J.S.A. 17:9A-24b.1. The grant of parity contained in the statutory amendment involves powers, rights, benefits and privileges that are possessed by Federal or out-of-State chartered financial institutions. The Department has carefully reviewed the underlying policy decisions that have led to the current regulatory system and the series of laws enacted by the Legislature to protect consumers and maintain the safety and soundness of New Jersey State chartered banks and savings banks.

After careful review and consideration, the Department has concluded that the grant of parity was not intended to free New Jersey banks and savings banks from operating within the general regulatory structure that currently exists through the Department. The Department has also concluded that the grant of parity by the Legislature was not intended to repeal by implication important New Jersey State consumer protection laws, such as usury laws.

Consistent with the Parity Act, the rule proposed for repeal and new rule address both New Jersey State chartered bank and savings bank parity with Federally chartered and out-of-State banks, savings banks, and savings associations. Any such power must be exercised upon the same terms and subject to the same conditions as are authorized for Federally chartered or out-of-State banks, savings banks, and savings associations. To exercise a power, right, benefit, or privilege afforded to an out-of-State bank, savings bank, or savings association, the exercise of which the Commissioner of the Department of Banking and Insurance (“Commissioner”) has not previously approved by rule, banks and savings banks will be required to submit a notice of intent to the Department, supported by information specified in the new rule, which the Commissioner may, within 45 days, approve, disapprove, or condition on safety and soundness grounds or on other grounds established in the new rule.

The proposed new rule makes it clear that certain areas of this State\’e2\’80\’99s regulation of banks and savings banks are not included in the scope of application of the Parity Act. These proposed limitations apply to both Federal and out-of-State powers, rights, benefits, and privileges. The Department notes, for example, that some national banks operating in New Jersey have claimed that they are exempt from the requirement of offering consumer checking accounts established in N.J.S.A. 17:16N-1 et seq. Consumer checking accounts are low cost personal checking accounts that require only minimal amounts of money to open and maintain. The accounts provide a substantial benefit to young, low income, and elderly people. The Department does not believe that the Legislature intended to permit New Jersey State chartered banks and savings banks to use parity to avoid their responsibilities to comply with this or certain other consumer protection laws. Accordingly, in the proposed new rule, the Department has identified the type of consumer protection laws and administrative rules that shall not be subject to parity. The Department views these proposed limitations on the exercise of parity as reasonable and necessary generally to discharge the Commissioner\’e2\’80\’99s statutory responsibility to promulgate rules for the appropriate regulation of institutions within the Department\’e2\’80\’99s jurisdiction. In addition, the new rule implements the legislative authorization to promulgate rules with the objective of achieving substantially competitive parity, while preserving the existing framework of the dual banking system, which there is no evident intent to disrupt, especially with respect to consumer protections enacted by the Legislature over many years.

The limitations also serve to establish grounds for disapproving a notice of intent, in accordance with rulemaking authority specifically granted in the Parity Act.

The application of the proposed new rule to N.J.A.C. 3:6-12.1 to both banks and savings banks would make unnecessary the provisions set forth in recently readopted N.J.A.C. 3:6-12.2 and 12.3 (see 33 N.J.R. 2079 June 18, 2001), and those sections are, therefore, proposed for repeal.

The Department believes that the limitations on parity set forth in the proposed rule are consistent not only with legislative intent, but also with provisions of Federal law, including the 1999 Gramm-Leach-Bliley Act which reconfirmed the principle of functional regulation of certain activities traditionally regulated by the states. The Department welcomes public comment on these provisions of the proposed new rule so that the final rule adopted will provide the appropriate balance between the grant of powers under the Parity Act and reasonable restrictions on their exercise, consistent with applicable state laws for the protection of consumers and the administration of the Department\’e2\’80\’99s regulatory responsibilities.

A 60 day comment period is provided in this notice of proposal and, therefore, pursuant to N.J.A.C. 1:30-2.2(a)5, the notice is not subject to the provisions of N.J.A.C. 1:30-3.1 and 3.2 governing rulemaking calendars.

Social Impact

The proposed new rule and repeals would apply to all New Jersey chartered banks and savings banks, assuring them substantially competitive parity with their Federal and out-of-State counterparts. The proposed new rule will permit the Department to continue to require banks and savings banks to adhere to safe and sound banking practices and key consumer protections, while enjoying such substantially competitive parity. The new rule and repeals therefore, should have a beneficial social impact on the industry and consumers. Consumer reaction is expected to be positive.

Economic Impact

The Department expects that the ability to exercise powers, rights, benefits, and privileges authorized now or in the future for Federal or out-of-State institutions will have a positive economic impact. Banks and savings banks will be able to offer services and products that may not be specifically authorized by applicable New Jersey statutes and rules, but which may enable banks and savings banks to increase their business, their market share and, therefore, their profitability and competitiveness with their Federal and out-of-State counterparts.

Banks and savings banks that seek to exercise parity with out-of-State institutions will incur costs in order to submit a notice of intent with the required supporting information. The Department expects that associated administrative costs will be marginal. Consumers should benefit economically from resulting increases in service and product options and marketplace competition.

Federal Standards Analysis

Banks and savings banks may, in the future, become subject to Federal standards pursuant to a proper exercise of parity in accordance with the proposed new rule and repeals. While the Federal standards applicable in such cases cannot be identified at this time, there will be no applicable State standards that may exceed them because parity with Federal institutions entails application of the pertinent Federal standards.

The proposed new rule, however, also removes certain State statutory and regulatory consumer protections from the scope of parity. In some cases, these limitations may exceed Federal standards applicable to Federally chartered banks, savings banks, and savings associations, in the sense that the limitations may restrict New Jersey banks and savings banks from certain types or levels of activity in which their Federal counterparts may conceivably be permitted to engage at present or in the future. Notwithstanding the proposed limitations, under parity, banks and savings banks should soon be able to offer services and products not specifically authorized by applicable New Jersey statutes and rules, and reap the resulting economic benefits.

As a matter of policy, however, the Department views the proposed limitations as reasonable and necessary generally to discharge the Commissioner\’e2\’80\’99s statutory responsibility to promulgate rules for the appropriate regulation of banks and savings banks, and specifically to implement the legislative authorization in the Parity Act to promulgate rules with the objective of achieving substantially competitive parity while preserving the existing framework of the dual banking system, which there is no evident intent to disrupt, especially with respect to consumer protections ratified by the Legislature over many years. The costs that may result from promulgating the proposed limitations are speculative at best. Such costs, even if realized, are outweighed by the solid benefits afforded to New Jersey consumers by, for example, the continued viability of laws addressing consumer checking accounts, criminal usury, mortgage loan prepayment penalties, medical and financial records privacy, and the safety and soundness of state-chartered banks and savings banks. In addition, the Department sees no technological obstacle to the regulated industry\’e2\’80\’99s continued compliance with these limitations.

Jobs Impact

The Department does not anticipate that any jobs will be lost as a result of the proposed new rule and repeals. If banks or savings banks increase their business or market share as a result of the parity permitted by the proposed new rule, additional jobs may be generated.

The Department invites commenters to submit any data or studies concerning the jobs impact of the proposed new rule and repeals together with their written comments on other aspects of this proposal.

Agriculture Industry Impact

The Department does not expect any agriculture industry impact from the proposed new rule and repeals.

Regulatory Flexibility Analysis

Some New Jersey banks and savings banks are small businesses as defined in the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq. The proposed new rule will impose compliance requirements on these entities if they seek to exercise a power, right, benefit or privilege authorized for out-of-State banks, savings banks or savings associations. The compliance required will consist of requiring the bank or savings bank to provide notice to the Commissioner of its intent to exercise such power, right, benefit or privilege and will require the bank or savings bank to provide a description of the intended activity, a copy of the regulatory authority that governs the out-of-State institution that the bank or savings bank proposes as the basis of parity, and a business plan and statement describing the general or specific experience of the bank or savings bank that establishes how the proposed exercise of parity will be conducted in a manner consistent with safe and sound banking practices. If banks or savings banks seek to exercise parity with out-of-State banks, savings banks or savings associations, professional assistance in the form of attorneys and accountants may be necessary. The cost of compliance will vary from professional to professional depending on the services needed.

The proposed new rule and repeals will grant New Jersey banks and savings banks flexibility yet require them to operate in a manner that is responsible to the industry, its customers and the general public. The Department does not believe that the compliance requirements are unduly burdensome and finds that they are consistent with prudent banking practices. The purpose of these requirements does not vary based upon business size. Accordingly, no differentiation based on business size is provided.

Smart Growth Impact Statement

The proposed new rule and repeals have no impact on the achievement of smart growth and implementation of the State Development and Redevelopment plan.

Full text of the proposed repeals of N.J.A.C. 3:6-12.2 and 12.3 may be found in the New Jersey Administrative Code at N.J.A.C. 3:6-12.2 and 12.3.

Full text of the proposed repeal and new rule N.J.A.C. 3:6-12.1 follows (additions indicated in boldface thus; deletions indicated in brackets [thus]):

3:6-12.1 State bank and savings bank parity with [national banks] and Federal and out-of-State institutions

[In addition to other authority granted by law, and unless contrary to State law, a bank may exercise any power, right, benefit or privilege which is now or hereafter authorized for national banks pursuant to Federal law or rules or regulations of the Comptroller of the Currency, the Federal Reserve Board and the Federal Deposit Insurance Corporation. Any such power shall be exercised upon the same terms and subject to the same conditions as are authorized for national banks. The powers, rights, benefits or privileges shall be automatically exercisable upon the expiration of 30 days from the date of adoption by the Federal regulatory agency, except if the Commissioner of Banking and Insurance within that 30 day period provides notice that the power shall not be granted to State banks. Such notice shall be provided to each bank, and to the trade publications of the New Jersey Bankers Association and the New Jersey League Community and Savings Bankers, and/or their successor organizations, if any, for publication. The Commissioner of Banking and Insurance may permit banks to begin exercise of a power prior to the expiration of the 30 day period by providing notice of permission to each bank and to the above mentioned trade publications.]

(a) Banks and savings banks may exercise those powers, rights, benefits or privileges authorized as of (the effective date of this rule) and thereafter for national banks, Federal savings banks or Federal savings associations, either directly or through a financial subsidiary or other subsidiary, to the same extent and subject to the same limitations as national banks, Federal savings banks or Federal savings associations may exercise those powers, rights, benefits or privileges. Except as otherwise provided in this subchapter, pursuant to N.J.S.A. 17:9A-24b.1, banks and savings banks may exercise such powers, rights, benefits or privileges, notwithstanding the provisions of N.J.S.A. 17:9A-1 et seq. or any other law.

(b) Banks and savings banks may exercise those powers, rights, benefits or privileges as of (the effective date of this rule) and thereafter authorized for out-of-State banks, savings banks or savings associations either directly or through a financial subsidiary or other subsidiary, to the same extent and subject to the same limitations as out-of-State banks, savings banks or savings associations may exercise those powers, rights, benefits or privileges, provided that before exercising any such power, right, benefit or privilege, the Commissioner has approved, by rule, the exercise of such a power, right, benefit or privilege by banks and savings banks generally, or the bank or savings bank provides notice of its intent to exercise such a power, right, benefit or privilege to the Commissioner and, on a case by case basis, the Commissioner either approves the activity or does not determine within 45 days of such notice that the power, right, benefit or privilege is not to be exercised by the bank or savings bank on grounds of safety and soundness or on other grounds designated by the Commissioner by rule. Except as otherwise provided in this subchapter, pursuant to N.J.S.A. 17:9A-24b.1, banks and savings banks may exercise such powers, rights, benefits or privileges, notwithstanding the provisions of N.J.S.A. 17:9A-1 et seq. or any other law.

(c) The parity provided by N.J.S.A. 17:9A-24b.1 shall not permit a violation of:

1. Any provision of the New Jersey Code of Criminal Justice, N.J.S.A. 2C:1-1 et seq., including, but not limited to, the criminal usury limits established at N.J.S.A. 2C:21-19 as applied to loan products.

2. New Jersey statutes and rules providing for the structure and corporate governance of banks and savings banks, including, but not limited to, those governing amendment of a certificate of incorporation and adoption of bylaws, and those establishing rights of shareholders and members and the membership of a board of directors;

3. New Jersey statutes and rules providing for the safety and soundness of banks and savings banks, including, but not limited to, the limitations on liability to a bank as set forth at N.J.S.A. 17:9A-60 et seq., limitations on leeway investments set forth at N.J.S.A. 17:9A-24.12, and those providing for reports to and examination by the Department, including, but not limited to, N.J.S.A. 17:9A-252 et seq.;

4. New Jersey statutes and rules providing the Department with supervisory powers over banks and savings banks, including, but not limited to, the power to issue orders and apply for relief from a court of competent jurisdiction established at N.J.S.A. 17:9A-266 et seq.;

5. New Jersey statutes and rules regulating real estate appraisers, real estate brokers, real estate salespersons, and real estate broker-salespersons, including, but not limited to, the licensing and other provisions of the Real Estate Appraisers Act, N.J.S.A. 45:14F-1 et seq., and the licensing and other provisions of the Real Estate License Act, N.J.S.A. 45:15-1 et seq.;

6. New Jersey statutes and rules regulating insurance companies and insurers, including, but not limited to, the authorization and other provisions of N.J.S.A. 17:17-1 et seq., N.J.S.A. 17:46B-1 et seq., and N.J.S.A. 17B:17-1 et seq., provisions of the trade practices acts, N.J.S.A. 17:29B-1 et seq. and N.J.S.A. 17B:30-1 et seq., and provisions of the Insurance Information Practices Act, N.J.S.A. 17:23A-1 et seq.;

7. New Jersey statutes and rules generally regulating insurance producers, including, but not limited to, the licensing and other provisions of the New Jersey Insurance Producer Licensing Act, N.J.S.A. 17:22A-1 et seq.;

8. New Jersey statutes and rules regulating health maintenance organizations, including, but not limited to, the Health Maintenance Organizations Act, N.J.S.A. 26:2J-1 et seq. and the Health Care Carrier Accountability Act, N.J.S.A. 2A:53A-30 et seq.;

9. New Jersey statutes and rules regulating viatical settlement brokers, representatives, and providers including, but not limited to, N.J.S.A. 17B:30A-1 et seq.;

10. The prepayment penalty prohibition established at N.J.S.A. 46:10B-1 et seq. as applied to mortgage loan products;

11. The provisions of N.J.A.C. 3:1-16 as applied to the processing of mortgage loan applications and loans;

12. The provisions of N.J.A.C. 3:1-2.15 as applied to the closing of an office;

13. The provisions of N.J.S.A. 17:9A-316 prohibiting the establishment of a de novo branch office by a foreign bank;

The provisions of N.J.S.A. 17:16N-1 et seq. regarding Consumer Checking Accounts;

The provisions of N.J.S.A. 17:9A-1 et seq. and 17:12B-1 et seq. requiring any application or approval process; and

The provisions of the Uniform Commercial Code as adopted in New Jersey at N.J.S.A. 12A:1-1 et seq.

Prior to the exercise of any power, right, benefit, or privilege exercised by an out-of-State bank, savings bank, or savings association, a bank or savings bank shall submit a notice of intent for the Commissioner\’e2\’80\’99s approval. Such notice of intent shall include: a description of the intended activity and a copy of the statutory or regulatory authority, including any pertinent regulatory interpretation of such authority, that governs the out-of-State institution that the applicant bank or savings bank proposes as the basis for such exercise of parity, and a business plan and statement of the general or specific experience of the applicant that establishes how such exercise of parity would be conducted in a manner consistent with safe and sound banking practices. The items submitted as part of the business plan and the statement of exposure shall be treated as confidential by the Department and shall not be public records pursuant to N.J.S.A. 47:1A-1 et seq. The Commissioner may disapprove the exercise of any power, right, benefit or privilege on the grounds of: an incomplete notice of intent; safety and soundness; or other grounds as provided in this subchapter. The Commissioner may condition the exercise of any power, right, benefit or privilege on the grounds of safety and soundness; or on other grounds as provided in this subchapter.

A bank or savings bank that violates the provisions of this subchapter shall be subject to the enforcement provisions of N.J.S.A. 17: 9A-267, 268 and 269.

Pa683b/inoregs

I stand by my initial comment that California is disproportionately populated by people lacking in moral character. That doesn’t mean most Caifornians are ethically deficient. It simply means that a higher percentage of people there are ethics-challenged than elsewhere in the country. This is widely understood.

Okay…..I have to pipe in. This is most innane post I have ever read! Good grief! California has an inordinate amount of people of questionable moral character therefore, that is reason we are in the crisis we are in? Okay, let’s throw out some more ridiculous generalizations: Nevada’s housing slump is because it allows gambling and there are immoral people there. New York deserves everything they are experiencing because of the immoral, greedy people there. New Jersey should sink because they have greedy, immoral people there…..I could go on and on but you get my point…….But let’s go live in the midwest……yes, that is where we should live because it does not have immoral, greedy people living there who did not sell sub-prime loans and Option ARM products?

Hey, there are immoral, greedy people in every state of the union. Moe……any comments from a fellow Southern Californian?

NCLO

Most referral based loan officers, who are career oriented, did not sell inappropriate loans to anyone with a credit score. Most of the people I know and work with keep their compensation to 1 to 1.25 TOTAL points (origination and YSP) and only used YSP to offset costs to the borrower (which was thoroughly explained and disclosed). YSP was not used to increase compensation and gouge the borrower. It was always the borrowers’ choice if YSP was used.

If you read through the posts, most of us could count on our hands how many POA were sold to our clients and most of them were to real estate investors who knew exactly how to work them. I personally have a 7-year interest-only product and like the flexibility of paying the interest-only payment if I need an increase in cash flow (which of course comes in handy now) OR I can pay down the principal in however large a payment I want and have the next month’s payment based on the new balance, not the original balance. These types of loans are invaluable to people, such as myself, who are commissioned only/self-employed and may need the flexibility of lower payment to increase cash-flow…..

I have been in the mortgage industry for 15 years. Underwriter for 5 of them. I have seen all different borrower income brackets, credit and situations. I have worked with a TON of broker offices. Several years ago when the Option arm was at it’s height Brokers were making a killing on the back end without blinking. They did not have to even know what the Option Arm was!! They just knew they could make a ton. There were disclosures that would be signed by the borrowers regarding these Option Arms that even the most educated people would be confused by. It was quite alarming how many people that these loans were being offered to. When I first started U/W these loans we were given very brief information on these. We were told “These loans are truly for the business savvy borrower”. We were told these loans will help people save for college for little Johnnie and give borrowers cash flow to “Invest”. It was all “Bull”!!!! I think out of the tens of thousands of loans that I U/W maybe a handfull were “Business Savvy”!! The borrowers I U/W did not currently have any savings, most did not have the same job for 2 years and their credit was less than perfect. They could NEVER qualify for the loan if the recast payment was used to qualify them. I made several comments to brokers letting them know these loans were quite dangerous. I asked them if they had “educated” their borrowers on the terms of these. Almost all said “No”. They just knew they could make a Ton of money and that I just needed to U/W the loan and pretty much keep it to myself. I even brought it to the attention of the Upper Mgmt that the borrowers were really not being educated on these loans. That borrowers should know what they are getting into. It did not matter to them either. They just saw the dollar signs and not the people. Greed has taken over and now it is time to pay the piper!! Unfortunately the innocent will suffer.

This is a great article. I used to blame the people that were taking out loans for not reading through the details or understanding what they were getting themselves into. But then I had another thought…

Working in investment banking, you do forget that the terms like “Option” and “ARM” are not widely understood. Now, before you blast me, I have nothing to do with the packaging of mortgages or other types of debt but rather in share trading. The whole area of Options and ARMs is incredibly complex. Negative amortisations and lots of other complex terms are often bandied about but when it comes down to it, yes people have some responsibility to understand what they are signing BUT the person selling them has more responsibility, especially if they are being not completely truthful with all the details – probably because they do not understand it themselves.

So who can we blame – the people that took out the loans? A little but to be fair, these people were after a loan.

The groups that are responsible and should also bear the burden is the people that had the money to lend. Let’s think of this a little bit differently. I walk into a bakery store and buy a loaf of bread. If I do not have the money, the baker will not sell it to me. If I become a good customer at the bakery, then the baker will give me a little credit but never too much.

So, if the baker is being very careful with giving me bread up to $20, you have to wonder why a bank would be handing over $200,000 without any hope of repayment? In my example, the baker would assume the loss if I decided never to come back, so shouldn’t the bank as they should have been more careful with their own money (hence their shareholders)?

In a free market system, the people making the loans should have been more careful. Their own fault. No bailouts. If politicians had the guts, they would say this clearly to the original loan companies.

Now, the loans were packaged and sold the way shares are around the world – however there is no reason that the companies/funds that own the mortages do not start to pre-empt things and talk to the people with the loans, then they should take the hits as defaults rise.

If I was in a situation, I would not want to ruin my credit history by defaulting. However (some of you are really going to hate this) being a rational free marketer, if I had assets of $200,000 and the loan is $500,000, with equity of $100,000 – does it make any sense to pay this off? NOPE! As long as there is a reason for not destroying my credit (such as not working in certain professions), any rational individual would be crazy not to default. This does not mean people are morally bankrupt or have fake boobs or male members, it means they are acting rationally.

Making moral judgements of people based upon stereotypes and lack of understanding of people’s individual scenarios is unfair, and given this is now the 21st Century, it would be nice to move away from this.

I do wish people in difficultly my best wishes. It is not easy going through the uncertainty that the next few months will bring, but there is more to life than material things. If the worst should happen and you loose your home, you should be willing to rely on your friends and concentrate on things that actually make you happy.

As far as the generalizations about fake boobs and lack of moral character in Southern California, I stand by these claims because it is the truth. Just like this is the land of the slimy broker, 745 beemer driving, sushi eating, never, ever should have sold a loan in your life capital of the world.

This is not a blanket comment because there are a tremendous amount of good people, good brokers and natural beauties who have plenty of moral character in California. I am proud to be a Californian.

There were more loans churned out in places like Quick Loan Funding, Bridge Capital, Ameriquest and other chop shops that churned the toxic crap out by the thousands.

Thanks for the comments Jackie and JacMac. It’s nice to hear from the homeowners. In no way am I bashing anyone that took out these loans. Many were sold to borrowers who did not understand them and even the loan offciers selling them didn’t . They only understood the commission they were making.

Virginia – I did not say that California is in this crisis because of questionable moral character. But the reason that California is in so deep is because of the fact that lenders targeted this state to make as many loans as they can and a huge number of POA’s. Which I have more than supported with data.

There are definitley people of questionable moral character in every state in the union and Southern California is a great place to live and I love it here.

But there are just too many people living way above their means and living on credit and pay option ARM’s.

NC, Eric, Bob, great comments. Paul,

Kim – It’s nice to hear from the underwiters too. They always seem to agree with my observations.

To comment #17… No I am not a “speculator”. Once again someone ASSUMING they actuall know about my life. Due to a personal situation I got into a POA with the obvious intention of refinancing this past August. I have worked in the same business for 15 years and have a great son. If you read about the lending business and how the brokerage firms were involved you might see the bigger picture.

Viginia

I have read many of the posts and it makes me feel better knowing that there were other LOs that felt the same way I did and used these products properly.

I too see great value in this, I/O and ARM loans… but when used by the right people in the right way. I sold a few I/O loans becuase they made sense and the people understood the pros and cons. Nice to know we weren’t all out for the quick buck and some LOs were really trying to help clients.

It was hard seeing all the people pitching Option ARMs (and fraud) making the easy money while we had to work for our clients. I lost a few deals when the client would not see past the payment… to have them come crying to me over the last year for help. Most times, there was nothing to be done unfortunately, but I guess people are starting to see the difference between listening to a good sales person and a mortgage consultant.

To Moe – great article warning more people who didn’t already know about the disaster looming large. To strike a crude analogy: when the option ARM crap really hits the fan it will make Katrina look like a brief rain shower like San Diegans experience once in a great while. The repercussions on Wall Street will far exceed a “correction” and many people who have no stake whatever or no connection with option ARMS will suffer investment losses as a result of the implosion.

So where does the culpability lie? Before I posit my opinion, I’ll say that I have been engaged in banking, consumer finance, and mortgage origination for 30+ years. For the last 5 years I have originated primarily rehab loans, both conventional and FHA 203K’s. Most of my business comes from referrals of REO brokers, and thanks to the necent wave of foreclosures and the coming tidal wave, business has been good and will get even better, not that I would wish the loss of one’s home on anyone.
I have never originated an option ARM.

That said, I feel obligated to comment on the culpability question, and yes, someone should be blamed for what’s coming! Simple answer, all parties! Lenders, borrowers, and brokers. The motivation is a common one: GREED. Except for the examples given above by Paul in New Jersey, about option ARMS to savvy borrowers. There are a very few out there who know how to make this vehicle work as it can and Paul’s client is the rare example.

I want to comment on post #1 Midwesterner.

I happen to agree that some Californians are the Hedonists who thought that their POA’s would help them reap the benefits of the promised land. Not all but some! And for these I have no pity whatsoever! In fact, it serves the San Francisco liberals right (no pun) to get thrown out on their behinds. After all, they are the same people who disdain our military, allow the sacrileges in churches, and look down on the “have nots”. Idiots like poster Michael, #21 suggest we impeach the VP! Real bright! Also it must be the President’s fault, right Einstein? The same San Fran liberals will be seeking a fed bailout and a mortgage freeze if the Dems come to power. Hell, Hillary already said she would “freeze” mortgages.

The whole point is, people get what they deserve! Shame on the bank for hawking this toxic product for growth and profit. Shame on the borrower who didn’t invest some diligence in exploring what was being sold. Shame on the brokers who unlike Brad, #5, didn’t give a damn what the financial future could bring the client after they left the closing table. There’s hell to be paid, and it’s coming soon.

The option arm is a necessary tool with today’s borrower. Self employed or salaried. With people running up credit card debt (18%-21%), no money in the bank and nothing going toward their children’s college education, this product allows borrowers the opportunity to decide where their money goes. I didn’t read anywhere in anyone’s blog about Wachovia’s exclusive Equity Builder feature which allows borrowers to eliminate interest over the life of the loan. No tricks there. The loan re-ammortizes every 14 days, therefore the borrower only pays interest on what they owe. And don’t get me started on fixed rates. If the average borrower is in their MORTGAGE for 5 years, what do you think the effective interest rate is on their wonderful loan? Let’s say the borrower took a $300,000 mortgage at 6.00% for 30 years. That’s a monthly payment of $1,798.65. SOUNDS great, but look at it more closely. The rate is only 6.00% if the borrower stays in the loan for 30 years! If the borrower stays in the loan for 5 years they’ll pay:

$87,082.16 Interest

$20,836.93 Principal
_________________

$107,919.09 Principal and Interest

$279,163.07 Balance at the end of 5 years

Now solve for the true EFFECTIVE INTEREST rate if they’re in the loan for 5 years…

Type in the numbers on your mortgage calculator

Type in $20,836.93 then hit loan amount (principal paid)

Type in 5 then hit term (in mortgage for 5 years)

Type in $1,795.65 then hit payment key (payment they’ve made)

Solve for/hit interest key and what do you get???

Really, 102.84%

Congratulations on a phenomenal product.

Now that I just made all of you sick who refinanced out of a fixed rate into another fixed rate…relax. You still have time to take an option arm. Just keep an open mind and talk to someone who will take the time to explain it and show you how to use it as a tool.

Take care

Options are Good

You are bad!!!!!! Do you sell cars???? Nice creative accounting!!!! The borrower paid 6% on the money he owed…period!!!! I will try and make it SIMPLE FOR YOU!…..If you put 300K in a cd for 1 year at 6%, do you know what the bank would give you at the end of the year??????$18,000 worth of interest…..So if you borrow 300K at 6% , you owe the bank 18,000 for use of the money for the year!!!! So on a 30 year fixed 300k loan @6%, you payback lets say JUST FOR SHITS AND GIGGLES 3000 IN PRINCIPAL FOR THE YEAR(BECAUSE I DO NOT FEEL LIKE GETTING THE PROPER AMOUNT) tHE NEXT YEAR YOU PAY 6% ON THE 297K YOU OWE….YOU DO NOT COMPOUND THE INTEREST RATE!!!!!!

If I put 300,000 in a CD for 60 months at 6%…do you know what I would have in dollars after 60 months?????? $401,466…Is my rate of return 102%…………. or 6% …THE ANSWER IS 6%

I hope you are not a loan officer!!!!!!!

Whoops, this is a bailout situation, however, this new entity should include law enforcement of imvestigation of fraud and collection of assets from all the fraudulent brokers, appraisers, loan officers, loan “clerks”, etc. to help pay for it. There should also be a “mortgage fraud” tax on these guys instead of jail time. In other words, no jail, but they pay extra taxes every year that goes into the bailout fund. Also community service too… Our jails are too full with other criminals. Hit em where it hurts in THEIR pocket book.. Oh, and throw a few years of probation…. or instead of sexual predator, it could be financial predator, registered. Lets face it, that is what they were.

Options are good

One more point, the 87,000 (@6) in interest in on 300k not the principal that has been paid back!!!!!

Drum roll please . . .

Paul????

Interesting article re: foreclosure rates per capita per state. It includes a heat map: the pinker the state the more foreclosures per capita. While California does rank #5, the top three states are Nevada, Florida and Ohio. To round out the top ten we also have Colorado, Michigan, Georgia, Arizona, Indiana and Illinois.

Here is the link to the article and map:

http://biz.yahoo.com/prnews/071219/law017.html?.v=101

I guess there are a lot of big boobed, amoral hedonists everywhere….even in the midwest!

Hey Paul,

Nice reply. This is where you lose me though. Anyone who is or isn’t in the mortgage business can tell you that on a 30 year fixed rate the interest is frontloaded, right? Right. That’s why my example isn’t creative financing. Again, they’re not paying at 6% if they’re only in the loan for 5 years. Gotta be 30 years my friend. Try getting your arms not only around the payment, but also how it’s applied. Bashing option arms is the hip thing to do right now. Fine. The lenders who underwrite and appraise the properties properly will sustain this current crunch. There are plenty of people who have and love the loan. Not because they’ve been able to live above their means, but because it’s helped to change their financial future. Why should a self employed borrower be the only one who should enjoy all the benefits that come with payment flexibility? Correct, you don’t have a good answer for that one. That’s why I will continue to be successful. I educate my borrowers. I don’t simply answer the phone and quote a rate. If you take the time to show borrowers all of their options, then you will have repeat customers for life.

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Option ARMs are a dangerous option

When daredevils are about to perform a hair-raising stunt, they often admonish viewers: “Don’t try this at home.”

We think a similar warning should accompany one of the newer twists in mortgage financing: option adjustable-rate mortgages or option ARMs. Unless you are extremely well-versed about these complex loans, you risk a nasty surprise that could cost you your home.

An option ARM is a type of adjustable-rate mortgage with as many as four different monthly payment options and, depending on its underlying index, an interest rate that could change every month.

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In most cases, each month the homeowner gets to choose one of four ways the mortgage check can be treated:

A conventional 15-year loan in which your payment covers all of the interest and some of the principal.

A conventional 30-year-loan in which your payment covers the interest and a little less of the principal.

An interest-only loan, where you pay enough to cover the interest but none of the principal.

A minimum-payment loan where you don’t even pay enough to cover that month’s interest, with the unpaid portion being added to the principal, which increases the amount you owe. Some loans will even let you skip a payment altogether with the entire interest charge being added to your principal.

The goal of the option ARM is “to get the payment as low as possible,” explains George Yacik, a vice president at SMR Research, a New Jersey firm that studies the home mortgage market and home equity lending.

The latest and most deceptive advertising for option ARMs calls them “1% mortgages.” That’s not the real interest rate. It’s just the interest rate the minimum payment is based on. So if the real interest rate is 6%, the additional 5% is being added to the borrower’s debt.

Amazing as it may seem, some lenders are even promoting their option ARMS as “Negative Amortization Loans,” like that’s a good thing. They’re just counting on consumers not understanding what that means.

The option ARM is a direct result of skyrocketing house prices across the nation. Since many first-time buyers need help buying their first home, more of them are turning to option ARMs.

While fewer than one in 100 borrowers took out an option ARM in 2003, more than 12 in 100 did so in 2006, according to LoanPerformance, a company that follows lending trends.

“Without them, a lot of people would be shut out of the housing market,” Yacik says.

But lenders often attract borrowers with startling low initial rates of 1% or 2% and the promise of a minimum monthly payment that is far less than any other mortgage could possibly offer.

Borrowers, especially those who signed up for an option ARM because they couldn’t afford a more traditional loan, could quickly get into trouble when:

Their interest rate immediately goes up, making their payment options more expensive. Traditional ARMs fix initial interest rates for one to seven years, and then reset once a year. Option ARMs usually begin resetting rates right away and adjustments are made every month.

They repeatedly choose to make the minimum monthly payment — or skip a payment — adding hundreds, and in some cases more than a thousand dollars a month, to their debt.

Some ARMS periodically require borrowers to catch up on all unpaid interest as well as any interest that has accrued on that interest with a type of balloon payment.

Others have “principal caps.” If your debt reaches 110% of what you originally borrowed, the minimum and interest-only options disappear and you have to start paying all of the interest and part of the principal every month.

Don’t have it? Want to refinance and get out of the loan? Many option ARMS also impose penalties of $10,000 or more if you try to pay them off early.

So if you don’t understand how an option ARM works in general, and how your lender’s loan works in particular, you could slam into a financial wall in just a few years.

Let’s look at how different repayment schemes affect an option ARM loan for $100,000 with a starting interest rate of 4.75% amortized over 30 years.

At the end of the first 30 days, you will owe $396 in interest. If you made the standard monthly payment, treating it like a conventional 30-year loan, you would send the lender a check for $521. That would pay that month’s interest and reduce the total amount owed by $126, leaving you with a balance of $99,874.

If you treat an option ARM like a 15-year loan and pay $778, your interest would still be $396, and the remaining $382 would reduce the principal to $99,618. Both of the above examples whittle down the principal amount owed and also cover all the interest due.

But if you choose to make an interest-only payment, such as $396, that means you still owe $100,000 to the lender and have not built any equity in your home. Given that the interest charge could change every month, you also run a very real risk of facing larger monthly payments that don’t reduce the principal.

Now let’s look at what happens when you opt to make a minimum payment of $200 a month. Since that payment is less than the interest owed, the excess unpaid interest of $196 gets added to the principal.

In month two, you owe the interest on $100,196. At 4.75%, that is $397. If you make only the $200 minimum payment again, you get the unpaid interest — this time $197 — added to your principal so you would then owe $100,393.

As you can see, the longer you make minimum payments that do not cover the interest, the larger your debt.

You end up owing your lender thousands of dollars more than you initially borrowed. You could also face balloon payments or huge monthly payments that you can’t afford on a house in which you have built no equity.

It’s little wonder that George McCarthy, a housing economist at New York’s Ford Foundation told Business Week that option ARMs are “like the neutron bomb.” They’re “going to kill all the people but leave the houses standing.”

By Stef Donev

Interest.com Contributing Editor

Have a question about your finances? Ask us at editors@interest.com

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National
mortgage rates
1/3/2008 2:42:40 PM

Fixed ARM Interest Only

30 Yr Fixed 5.70%
15 Yr Fixed 5.22%
30 Yr Fixed Jumbo 6.67%
15 Yr Fixed Jumbo 6.15%

3/1 ARM 5.39%
5/1 ARM 5.48%
7/1 ARM 5.69%
10/1 ARM 5.94%

3/1 ARM (I/O) 5.41%
5/1 ARM (I/O) 5.52%
7/1 ARM (I/O) 5.69%

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Joke appraisals- yes, lower payment to get into the property- yes, it was eaiser to qualify- yes.

I never said you make 4-5. I never said you dealt in fraudulent activities… but many brokers do!

If you pay the min. payment you NEG AM!!! Cost of loan goes up!

If you make IO payment or a fixed payment you are paying the interest on the orginal loan amount!!!! Same as your 102% effective rate!!!!

COFI index for Dec. 2007 4.5217+ margin 2.25-2.75…your rate is higher than a 30 yr fixed!!!!

6 month LIBOR…4.60+MARGIN 2.25-2.75…YOUR RATE IS HIGHER THAN A 30 YR. FIXED.

How is this better than a 30 yr. fixed????? OR CHEAPER?????

The effective rate on a 30 yr fixed is not 102%!!!!! I do not know what else to say!!

WHAT DOES EVERYONE ELSE HAVE TO SAY ABOUT THIS???
WOULD LOVE TO HEAR OTHER PEOPLE HAVE TO SAY!!!!

Optionsaregood

As you have stated in earlier post…people with credit card debt18-21%, no money in the bank, no money for the kids college education…this products allows the borrower the opportunity to choose were there money goes…….WHAT?????? If they have no money, credit card debt, no money for the kids….MAYBE, JUST MAYBE THEY SHOULD NOT BUY A HOUSE!!!!!!!!! Just a thought!!!!!!!

Just my opinion.

AND THE PLOT THICKENS: (As investors get hit in the pockets, we’ll see a large CRY for change, I bet ya)

“The State Street Corporation, which manages $2 trillion for pension funds and other institutions, ousted a senior executive on Thursday and said it would set aside $618 million to cover legal claims stemming from investments tied to mortgage securities.
Skip to next paragraph
Photographs by Boston Portrait

James S. Phalen, left, will succeed William W. Hunt at State Street.
Related
Times Topics: Mortgages and the Markets

State Street made the announcement after five clients sued it, claiming they had lost tens of millions of dollars in State Street funds that they were told would be largely invested in risk-free debt like Treasuries. One fund lost 28 percent of its value during the credit troubles in the summer after placing big bets on mortgage-related securities, according to the lawsuits.

The move by State Street highlights the legal challenges that lie ahead for financial firms that were involved in the origination, packaging and sale of complex mortgage securitieS . . .

READ THE COMPLETE ARTICLE HERE: http://www.nytimes.com/2008/01/04/business/04state.html?_r=1&th&emc=th&oref=slogin

Paul,

No one else is chiming in because I’m right about the effective rate if your borrower doesn’t stay in it for the full 30 years. Frontloaded with interest my friend. Look at my example from earlier. I simply said how much of their money went to pay down interest and how much went towards principal. Those numbers are facts. Nothing tricky there. No need to be “CREATIVE” when you’re being honest.

I love the mortgage calculator.

Jesus, how many brokers actually use it as a tool as opposed to using it to figure out the 30 year P+I payment. So dumb.

OptionAre Good

As of today: 300,000 loan

COFI……………………….4.172%
Margin……………………..2.750%
Fully Index Rate…………6.922%

Minm. Payment………….999.76 Deffered Int…..730.74
IO Payment………………1730.50
30 yr Fixed……………….1980.22
15 yr Fixed……………….2683.42

And do not tell me your margin is less…if it is, your client paid points!
Libor is at 4.6…so that does not work either!!!!!

30 YEAR FIXED AS OF TODAY 5.75%=1750.72…..$230 CHEAPER!!!!!!Than a fully index option arm!!!!!!

If they took a option arm for the benefit of the… Min. payment, the client is in real trouble!!!!!!!!How long can they make the min. payment before all of there equity is gone?????????

Where is the benefit????

options are good!!!!! if used properly

now granted i have seen pay option arms with 3.5-4% margins paired with a market driven index and that is scary with a low (1%) start rate, but to lump option arms in general with a 2/28 or 2/38 that was written when the index was @ 1% with a margin of 5% giving you a 6% FIR – how could investors not realize that the index was going to come back up. that same index flash forward 2 years is @ 5.375 giving that borrower and FIR of 10.375 if the adjustment caps allow. Now with the index receeding it will help the borrowers that thier FIR is @ 9.7%.

It all is dependent on the index you base your mortgage on (cost)
&
the margin that you negotiated (lender profit)

my favs are the COSI, and the COFI – both cost driven indexes
the others are the LIBOR and MTA the market driven indexes

the amplitude of activity on the cost driven are generally much lower

example

COSI was highest on 1/01 @ 5.54% and at it’s lowest on 5/04 @ 1.85%
difference is 3.69% this is the max loans based on this index could swing irregardless of adjustment caps.
COFI amplitude = 3.91%

The 1 mo LIBOR however was @ 6.64% on 5/00 and bottomed out @ 1.09% on 3/04 — That’s a Swing 5.55%!!!
MTA amplitude = 4.90%
Notice also the dates that they peaked and dipped for insight on how quickly the index adjusts-

A refi is upwards of a $7,500 transaction – What intellegent person will not want to understand at least the basic interworkings of a transaction that carries this much liability?
They know what size the engine in their car is!
They know that 1080p is far better than 720p!
They even know muzzle velocity! and megapixels! and Blue-ray! Football stats! how many carbs are in miller lite as compared to bud select!

But they didn’t know the most basic things about the financing of their biggest investment!?!

Pay Option ARMS only give the potential to go negative. if you use the min payment as a way of life to afford your house- you’re screwed!

If you use it as a saftey net or as an investment vehicle then you already know the benefits of pay options and aren’t concerned with forclosure cause you’ve made more using that money in more effective ways.

Alot of Brokers are crooked and will lie as soon as look at you – you know this – it’s same for car sales or insurance sales or any sales for that matter. So why listen to them? Give them a set amount you are prepared to pay and make them stick to it- it should be around 1.5 – 2%. they are providing you a professional service and deserve to be compensated accordingly. Ask what rebate they are getting to sell that rate.
If you’re lookin at forclosure your loan officer either A) Screwed you because they knew that you were a dumbass. or B) HAD to lie to get you approved and closed.
The latter (actually more of a combination of the 2) is the reason we’re at where we’re at in California. Pay Options were the only way for borrowers to afford the huge run-up in price. If the Pay options were sold like they are today the market would still be solid because the borrowers want more and more and more but can’t afford more.

In 03 and 04 Chevy Chase was selling Pay Option ARMs on the LIBOR index with a 1% start rate with a stated Doc type pushing the margin up to 4%!! HOLY CRAP! Are you kidding me?! These recast @ 115% of the original balance! That would take about 2 years to recast! (recast is the point that you lose the potential to defer intrest and sometimes lose the IO option).

The biggest reasons for the state of affairs today is Stated Income
and ignorance. It’s everybodies fault–

You want a good read about the “evils” of Pick-a-Pays
go here

http://www.businessweek.com/bwdaily/dnflash/content/sep2007/db20070921_855992.htm?chan=search

My sources moneycafe.com

OptionsAre Good

You did not address my example!!! No answer????

Paul,

Okay. I sell the Pick A Payment loan offered by Wachovia (formerly World Savings.) We use the CODI index which is derived from using the 12 month rolling average of the nationally published 3 month CD. The index is currently at 5.293 (which will drop tomorrow) and the margin at par is 2.25 (with the borrower paying points up front.) This has NO PREPAY. All of my customers use the Equity Builder feature. It is the only true bi weekly program in America. They have a patent for the product. Other bi weekly programs claim to help reduce the interest on your loan, but the fact is that all you wind up doing is making an extra payment over the course of the year. With Wachovia’s EB you only pay interest on what you owe, every 2 weeks Wachovia goes into your account, takes a half payment, then applies it immediately to your loan. Your loan actually re-ammortizes every 14 days. Only loan in America to do it. And…you can “advise” your borrowers to pay their fixed rate every two weeks, but 99.9% won’t have the discipline to do it. And the interest is already calculated anyway. Doesn’t matter. Bank still collects the same amount of interest. True or False? Right, true.

Now forgive me, but I don’t have the 10 year history of the CODI index in front of me, but I will give it to you tomorrow. What you’re going to tell me is that fully indexed this loan is at 7.543%. Great. What I’ll tell you is that the index’s average over the past 7 years is under 5.293. But for informational purposes I’ll give you an example tonight of what the bi-weekly feature does.

On a traditional 30 year fixed rate loan w/ your example the borrower pays $329,916 in interest.

Care to take a guess how much interest the borrower pays if they take my loan as is, with the 7.543% rate, paying bi-weekly @ 7.543%? $336,434. That’s a difference of…$6,815. An effective interest rate of 5.86. Not creative financing as you call it. That’s it. That’s the power of using the Equity Builder feature with this product. Oh, by the way, the loan pays off in year 24. A nice product for someone who wants to retire in 24-25 years and not have a mortgage payment to worry about. Not bad for an option arm, eh? Now imagine how the loan performs with a fully indexed rate that’s lower on average over the life of the loan.

The other thing that you fail to mention in your last post is that most borrowers aren’t going to get a rate of 5.75%. That’s a rate for the borrowers with A paper credit. It’s easy for the people who aren’t educated to throw out rates like that, but that’s okay. It’s been my experience that the people who have the most to say really like the product and want me to overcome their objections.

I’m curious to know what you do. Do you work for a bank or are you a broker? So many benefits to this product it’s scary. I don’t know why I’m trying to convince you though. The more people that become educated about the product means more people that I have to sell against. As it stands now I don’t get shopped and have no fear of getting shopped. You have to offer this product from Wachovia to compete and many brokers are afraid. $$$$$$$$$$$$$$$$$ for me!!!

I hate to sound arrogant, but I truely believe in this product. Been selliing it for years and my people always come back. Amazing.

Big Daddy,

It’s clear that you’re informed as well. COSI and CODI are both good. The margin is a little lower on CODI, so that’s what I go with. Thanks for the info.

Later

OAG

Lets See……
codi……………….5.293
margin…………..2.250

RATE…………….7.543….Not Good!!!! And paid points!!!!!!!!

30 yr fixed….5.750% !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!NO POINTS!!!!!!!!!!!!!!!!

Yes your client is paying every 2 week at 7.543%%%%

Well, what if they made 13 payments in 12 months at 5.75%. I am sure they will like this MUCH BETTER AND NOT HAVE PAID POINTS!!!!

If they are willing to make payments every 2 weeks at 7.543%, then why wouldn’t they make 1 extra payment every 12 months AT 5.75%??? THEY COULD EVEN ADD THE DIFFERENCE BETWEEN THE PAYMENT OF 7.543% AND 5.75%…NOW THAT WOULD REALLY BUILD UP EQUITY!!!! Or fund a IRA…….Remeber OPTIONSAREGOOD, you stated in a eailer post your clients have crediT card debt 18-21% and no money to save and no money for college…SO HOW ARE THEY PAYING EVERY 2 WEEKS?????????? WHY WOULDN’T THEY PAY OFF THERE HIGH INTEREST CREDIT CARDS FIRST, INSTEAD OF PAYING OFF SOME OF THERE PRINCIPAL AT 7.543%…NO THAT WOULD BE TRULY SMART!!!

Lets ee, should I pay off my mortgage at 7.543% or keep paying the min. payment on my 18% CREDIT CARD!!!!! I hope you have learned something here!!!!!!!!!

OAG

WACHOVIA HEADED DOWN WRONG PATH!!!! LOAN LOSSES 4X GREATER THIS QUARTER!!

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$1.3B in losses hurt Wachovia; bank signals more trouble
Posted 79d ago | Comments22 | Recommend17 E-mail | Save | Print |

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Digg del.icio.us Newsvine Reddit Facebook What’s this? CHARLOTTE (AP) \’e2\’80\rdblquote Wachovia (WB), the nation’s fourth largest bank, said Friday its profit fell 10% in the third quarter, hurt by $1.3 billion in losses and write-downs related to turmoil in the credit markets.
The company also quadrupled its loan-loss provisions in the quarter and signaled increasing credit troubles ahead.

Wachovia said net income fell to $1.69 billion, or 89 cents per share, in the July-September period compared with $1.88 billion, or $1.17 per share in the year-ago period.

Revenue grew 4% to $7.35 billion.

After-tax expenses related to the bank’s acquisition of Golden West Financial amounted to 1 cent a common share.

FIND MORE STORIES IN: Revenue | Wachovia | Golden West Financial
Earnings in the third quarter also include a $249 million gain from correcting results from earlier this year.

Wall Street expected earnings of $1.03 a share on $8.02 billion of revenue, according to analysts polled by Thomson Financial. The earnings estimates typically exclude one-time items.

Chief Executive Ken Thompson said the summer’s fixed-income markets “clearly had a disappointing impact on the results of market-oriented businesses, but the strength in our core banking and brokerage businesses continued to serve us very well.”

He added, “we’re taking the appropriate steps to ensure that as markets remain unsettled, we focus intently on actively managing our exposures and controlling costs.”

In the quarter, Wachovia recorded a provision for credit losses of $408 million, up from $108 million, reflecting modest deterioration in credit quality, a more uncertain credit environment and loan growth. Net charge-offs were $206 million, or 19% of average net loans.

Corporate and investment banking operations saw earnings sink 80%, as revenue tumbled 51% to $819 million. The business unit had earnings of $105 million, down from $428 million, driven by the $1.3 billion effect of the market disruption.

Wachovia’s general bank saw earnings jump 33%, with revenue climbing 30% to $4.5 billion. Results were driven by increased loans and deposits and reflected the bank’s October 2006 acquisition of Golden West Financial.

Net interest margin, a measure of the difference between Wachovia’s borrowing costs and lending rates, dropped to 2.92% from 3.03%.

Third-quarter results included the full-quarter impact of Golden West. Results do not include the effect of the bank’s acquisition of retail brokerage A.G. Edwards, which closed on Oct. 1 of this year.

For the first nine months of the year, net income was $6.33 billion, or $3.30 a share, up from $5.49 billion, or $3.43 a share, in 2006.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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Comments: (22)Showing: Newest first Oldest first

Woo.. wrote: 58d ago
ain’t that sumthin….the creditors are having credit problems…wonder what their FICO scores are?

Recommend | Report Abuse

rainman07 wrote: 78d ago
…isn’t it interesting that all of these financial institutions losing money in the billions don’t seem to affect “Wall Street”….it’s all rosy as long as buy and sell commissions are paid.

Recommend | Report Abuse

commonpurposecon wrote: 78d ago
Join a credit union, community bank. These International Banks should not be in business. The Global Union goes after countries in trouble through agencies such as the UN and rapes the environment and its human resources. These finaincial institutions help do the job for them.

Recommend | Report Abuse

BEZA2424 wrote: 79d ago
I WONDER IF THEY WILL FIRE ALL THE EXECUTIVES RUNNIG THIS COMPANY ? FAT CHANCE AND IF THEY DID THE OLD GOLDEN PARACHUTE WOULD HELP THEM LAND SOFTLY SO MUCH FOR CONSEQUENCES THEY ARE FOR THE LITTLE GUY

Recommend3 | Report Abuse

brianronjon wrote: 79d ago
This is my own bank- – - I think they should reloacte their headquarters to Dingbatville. The day of reckoning is here. Without a thought for tomorrow; how financially irresponsible can Wachovia ( and many other financial institutions) be to make millions of dollars in mortgage and other loans to OBVIOUSLY unqualified individuals. What happened to common sense when a bank would check your earnings, outstanding bills, etc.? This is the result of Hot-Doggers- – - all they are interested in is the quick bottom line numbers without regard to being able to sustain the unsupportable numbers. God help us.

Recommend3 | Report Abuse

Madd Maxx wrote: 79d ago
Hopped Up Harry wrote: 24m ago
Another NC bank in trouble.
~~~~~~~~~~~~

They are in FL too and I bet that’s what killed them. Stalled projects, foreclosures and hotsy totsy rich stuff like that. One in every 68 homes in this area is under foreclosure.

I’m a renter : )

Recommend1 | Report Abuse

happy1212 wrote: 79d ago
Stop writing those darn ARM’s and you’ll see your bottom line become steady!!

Recommend1 | Report Abuse

Hopped Up Harry wrote: 79d ago
Another NC bank in trouble.

Recommend3 | Report Abuse

TxGulfCoast wrote: 79d ago
Consumers are just stupid or at best ignorant if they keep paying banking fees, interest payments and etc.

As ZoomZoom says, it is easy to avoid them.

Recommend3 | Report Abuse

ZoomZoom Diva wrote: 79d ago
Charlie, if you don’t like the fees, don’t pay them. They are all avoidable, most very easily.

Recommend | Report Abuse

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$1.3B in losses hurt Wachovia; bank signals more trouble
Posted 79d ago | Comments22 | Recommend17 E-mail | Save | Print |

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Digg del.icio.us Newsvine Reddit Facebook What’s this? CHARLOTTE (AP) \’e2\’80\rdblquote Wachovia (WB), the nation’s fourth largest bank, said Friday its profit fell 10% in the third quarter, hurt by $1.3 billion in losses and write-downs related to turmoil in the credit markets.
The company also quadrupled its loan-loss provisions in the quarter and signaled increasing credit troubles ahead.

Wachovia said net income fell to $1.69 billion, or 89 cents per share, in the July-September period compared with $1.88 billion, or $1.17 per share in the year-ago period.

Revenue grew 4% to $7.35 billion.

After-tax expenses related to the bank’s acquisition of Golden West Financial amounted to 1 cent a common share.

FIND MORE STORIES IN: Revenue | Wachovia | Golden West Financial
Earnings in the third quarter also include a $249 million gain from correcting results from earlier this year.

Wall Street expected earnings of $1.03 a share on $8.02 billion of revenue, according to analysts polled by Thomson Financial. The earnings estimates typically exclude one-time items.

Chief Executive Ken Thompson said the summer’s fixed-income markets “clearly had a disappointing impact on the results of market-oriented businesses, but the strength in our core banking and brokerage businesses continued to serve us very well.”

He added, “we’re taking the appropriate steps to ensure that as markets remain unsettled, we focus intently on actively managing our exposures and controlling costs.”

In the quarter, Wachovia recorded a provision for credit losses of $408 million, up from $108 million, reflecting modest deterioration in credit quality, a more uncertain credit environment and loan growth. Net charge-offs were $206 million, or 19% of average net loans.

Corporate and investment banking operations saw earnings sink 80%, as revenue tumbled 51% to $819 million. The business unit had earnings of $105 million, down from $428 million, driven by the $1.3 billion effect of the market disruption.

Wachovia’s general bank saw earnings jump 33%, with revenue climbing 30% to $4.5 billion. Results were driven by increased loans and deposits and reflected the bank’s October 2006 acquisition of Golden West Financial.

Net interest margin, a measure of the difference between Wachovia’s borrowing costs and lending rates, dropped to 2.92% from 3.03%.

Third-quarter results included the full-quarter impact of Golden West. Results do not include the effect of the bank’s acquisition of retail brokerage A.G. Edwards, which closed on Oct. 1 of this year.

For the first nine months of the year, net income was $6.33 billion, or $3.30 a share, up from $5.49 billion, or $3.43 a share, in 2006.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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Posted 79d ago E-mail | Save | Print |
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Comments: (22)Showing: Newest first Oldest first

Woo.. wrote: 58d ago
ain’t that sumthin….the creditors are having credit problems…wonder what their FICO scores are?

Recommend | Report Abuse

rainman07 wrote: 78d ago
…isn’t it interesting that all of these financial institutions losing money in the billions don’t seem to affect “Wall Street”….it’s all rosy as long as buy and sell commissions are paid.

Recommend | Report Abuse

commonpurposecon wrote: 78d ago
Join a credit union, community bank. These International Banks should not be in business. The Global Union goes after countries in trouble through agencies such as the UN and rapes the environment and its human resources. These finaincial institutions help do the job for them.

Recommend | Report Abuse

BEZA2424 wrote: 79d ago
I WONDER IF THEY WILL FIRE ALL THE EXECUTIVES RUNNIG THIS COMPANY ? FAT CHANCE AND IF THEY DID THE OLD GOLDEN PARACHUTE WOULD HELP THEM LAND SOFTLY SO MUCH FOR CONSEQUENCES THEY ARE FOR THE LITTLE GUY

Recommend3 | Report Abuse

brianronjon wrote: 79d ago
This is my own bank- – - I think they should reloacte their headquarters to Dingbatville. The day of reckoning is here. Without a thought for tomorrow; how financially irresponsible can Wachovia ( and many other financial institutions) be to make millions of dollars in mortgage and other loans to OBVIOUSLY unqualified individuals. What happened to common sense when a bank would check your earnings, outstanding bills, etc.? This is the result of Hot-Doggers- – - all they are interested in is the quick bottom line numbers without regard to being able to sustain the unsupportable numbers. God help us.

Recommend3 | Report Abuse

Madd Maxx wrote: 79d ago
Hopped Up Harry wrote: 24m ago
Another NC bank in trouble.
~~~~~~~~~~~~

They are in FL too and I bet that’s what killed them. Stalled projects, foreclosures and hotsy totsy rich stuff like that. One in every 68 homes in this area is under foreclosure.

I’m a renter : )

Recommend1 | Report Abuse

happy1212 wrote: 79d ago
Stop writing those darn ARM’s and you’ll see your bottom line become steady!!

Recommend1 | Report Abuse

Hopped Up Harry wrote: 79d ago
Another NC bank in trouble.

Recommend3 | Report Abuse

TxGulfCoast wrote: 79d ago
Consumers are just stupid or at best ignorant if they keep paying banking fees, interest payments and etc.

As ZoomZoom says, it is easy to avoid them.

Recommend3 | Report Abuse

ZoomZoom Diva wrote: 79d ago
Charlie, if you don’t like the fees, don’t pay them. They are all avoidable, most very easily.

Recommend | Report Abuse

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The point is you can probably get your clients a greater return on their money than what they’re paying on their mortgage. Defer interest on their home and invest money in an avenue where the rate of return is higher than whatever the mortgage rate they’re paying at. Makes perfect sense.

With the equity builder the borrower makes an extra half payment 2 months out of the year. Borrowers can swing that. Easier than sending in 2 payments in 1 month. How many people can do that?

By the way…Wachovia’s neg am cap is 125%. They’ve NEVER had an involuntary recast on their loan (the customer’s payment has never had to be reset so it would pay off in the original loan term.)

Paul’s kind-a dumb – - CC rates? ane you taking cash from equity to pay off credit cards? Negam? do your borrowers qualify for 5.875 or 5.75 with no points – that’s not avail for Cash-out unless you’re under like 70% ltv and these borrowers qualify for MUCH better CC rates than 18% – as a matter of fact I’ll go as far as to say if you’re trapped in an 18% credit card- you don’t qualify for 5.75% first-
You do not understand the significance of a 14 day amortiziation period, you see bi-weekly you think 1 extra payment a year?!?! your poor clients- if you can make a broad generalzation about the needs of ALL of them then you’ve failed in your fiduciary responsibility to them. It’s not magic to stick a FNMA 30yr fixed with a full doc good credit borrower-

I hope YOU’VE learned something here today

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\’c2\’ab Qualifying for FHASecure and Refinancing in a Changed Mortgage WorldConsumer Groups Push for Loan \’e2\’80\’9cFreezes\’e2\’80\’9d \’c2\’bb
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Wachovia Follows WaMu, Bank of America Down, Down, Down
Published by Morganat October 19, 2007 in Wall Street and Mortgage News/Insight.
Tags: credit crunch, mortgage mess, wachovia, world savings, write downs.

Wachovia is the latest bank to take massive write down charges for loan loss reverses relating to mortgage lending – adding $1.3 billion to the write down pile in what will be remembered as one of the worst weeks for banks for a long time to come. From Reuters:

Wachovia Corp posted on Friday a 10 percent decline in third-quarter profit, missing forecasts, as the fourth-largest U.S. bank suffered $1.3 billion of write-downs at its investment banking unit.

The drop was the first in six years. It concluded a dismal week for large U.S. banks, which have been battered by increases in bad loans and capital market disruptions that resulted in losses on mortgages and other kinds of debt.

Profit fell 57 percent at Citigroup Inc and 32 percent at Bank of America Corp. It rose 2 percent at JPMorgan Chase & Co and 4 percent at Wells Fargo & Co. Results and outlook for all but JPMorgan disappointed investors.

One thing to keep an eye on is Wachovia\’e2\’80\’99s performance over the next 24 months. Wachovia acquired World Savings last year. World is a large portfolio-lending Option ARM bank that makes Option ARM loans to worse credit risks than other Option ARM players. While most Option ARM lenders require 660 minimum FICO scores World has made a living on writing Option ARM negative amortizing loans to people with 640 credit scores. This could cause a lot of problems for World Savings and Wachovia as these Option ARMs reset to fully amortized payments over the next 24-36 months.

While World Savings may have hedged their bets by being ultra-conservative on appraised value; the latest downturn in housing prices (particularly out west) may end up much greater than even the most conservative predictions of 5 years ago. If these Option ARMs start going bad (which there is no doubt they will) look for Wachovia to suffer more than the others due to their newly acquired exposure via World Savings.

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8 Responses to \’e2\’80\’9cWachovia Follows WaMu, Bank of America Down, Down, Down\’e2\’80\’9d
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1 tom stone
Oct 19th, 2007 at 5:22 pm
I have to agree with your opinion of Wachovia.I worked as a new LO in early 05 and recall meeting the AE from world the first time. here is a quote \’e2\’80\’9cIf the underwriters have a problem with the income,they will put the file on my desk,I\’e2\’80\’99ll give you a call and we\’e2\’80\’99ll fix it\’e2\’80\’9d I told him I wasn\’e2\’80\’99t interested in going to prison,and asked how they stayed in business with that kind o business model?He told me that they were \’e2\’80\’9ctight\’e2\’80\’9d on appraisals,and that real estate always goes up\’e2\’80\’a6..A month later y boss asked me if I thought there was a bubble in real estate?and when i said \’e2\’80\’9cshit yes!\’e2\’80\’9d I found my days free,for a while.

+0
2 Ann
Oct 20th, 2007 at 5:19 am
Again..only the beginning of a long road down financial hits for many of these lenders/banks. I think that 2008 will bring back the days of mergers as many companies become vunerable to take overs. 2008 is going to be the year that this country will have to admit the \’e2\’80\’9cR\’e2\’80\’9d word. As all industries continue to layoff workforce, consolidate and take financial troubles. I still believe that the unemployment numbers are not reflecting the true state of the economy as other sectors report each week and the reports are not encouraging.

+0
3 Morgan Brown
Oct 20th, 2007 at 10:13 am
Tom – it\’e2\’80\’99s an all too common story, which is the scary part. It will be interesting to see how World\’e2\’80\’99s portfolio impacts Wachovia moving forward.

Ann – you are right we\’e2\’80\’99ll see major consolidation in the banking industry as a result of this mess. I know in Orange County, CA they have made a special request to the state for emergency employment funding for retraining, etc. of all the displaced workers\’e2\’80\’a6

+0
4 MattJ
Oct 20th, 2007 at 10:25 am
Morgan-

Do you see Wachovia\’e2\’80\’99s troubles as a problem for stockholders or for depositors? In other words, will they be losing money or failing over this?

+0
5 Scottsdale real estate
Oct 20th, 2007 at 3:22 pm
I think this could spell real trouble for Wachovia. It seems like there will be a tough road ahead for a lot of these lenders who engaged in risky lending practices.

+0
6 S Hallman
Oct 22nd, 2007 at 4:38 am
Morgan, I know you are out in California, but since you are talking about a South Eastern bank in Wachovia – Can you tell us what you hear about Suntrust cleaning up its balance sheet to possibly be bought. Like Ann pointed out, looks like the set up for lots of mergers next year and beyond!

+0
7 Gina G
Oct 31st, 2007 at 6:59 pm
not that big of a deal losing 1.3 billion when you have 753 billion to spare

+0
1 The Feed Bag – Tree Saving Mode
Pingback on Oct 20th, 2007 at 2:49 pm
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Options on a loan only work when a person has extra money to pay. The problem w/ many homeloaners who were put into a loan they can’t afford is that they just don’t have that extra cash — never did.

MY LO stated that I made $14k a month to get my loan to fund. If I made $14k a month, I wouldn’t have a care in the world.

Part of the Disclosure package required for a loan done by a mortgage broker, is the Certification and Authorization form. The following is the first portion of the Certification and Authorization form:

1. I/We have applied for a mortgage loan through ______________. In applying for the loan I/We completed a loan application containing various information on the purpose of the loan, the amount and source of the down payment, employment and income information, and the assets and liabilities. I/We certify that all of the information is true and complete. I/We made no misrepresentation in the loan application or other documents, nor did I/We omit an pertinent information.

2. I/We understand and agree that ___________________ reserves, the right to change the mortgage loan review processes to a full documentation program. This may include verifying the information provided on the application with the employer and/or financial institution.

3. I/We fully understand that it is a Federal crime punishable by fine or imprisonment, or both, to knowingly make any false statements when applying for this mortgage, as applicable under provisions of Title 18, United States Code, Section 1014.

Item #3 of this form is very clear and easy to understand. If you were not provided with this form and/or your loan officer signed it for you and completed the application erroneously, then I would say you have a very good case against the broker….please see a lawyer and get him/her out of our business. If you signed the application and this form, knowing that your income was inflated, then you are guilty of a Federal Crime, per item #3 above.

If the LO is lying about the income and using false documents to substantiate that income, they’re not qualifying the buyer at the fully indexed rate.

I meant moot, not mute

CTAN,

You’re quick to judge. A lot of people’s opinions would have them fall under the category of dumb ass.

The fact is that regardless of the reason option arms were created, they can be a valuable “tool” to help establish long term wealth. I hate having the same conversation over and over again, but I’m tired of people killing this product.

Anyone can and should be able to go stated. Period. All borrowers have different needs, so why would you throw a blanket over everyone and say that a fixed rate is the best product?

OptionsAreGood,

Ever heard about liability/asset duration mismatch ? That’s what you advocate with going further in the hole on POA and investing the difference. Borrowing at short term rate and investing at higher rate of return sounds cool on paper but exposes investor to great risks. That’s what is actually burying commercial paper conduits at the moment: they borrowed short money and invested into higher paying medium/long term notes. But suddenly when risks re-appear with vengeance leverage stings quite badly. If you think that you can outsmart market CONSISTENTLY for 30 years I heard Warren Buffet is looking for heir apparent. But I bet you are just average moron who mistakes monkey luck for being smart.

Paul, Alan and CTAN
You are haters and that is why you should NOT be advising ANYBODY on thier mortgage – EVER!

Hey Mr Potter! how’s the Ol’ Building & Loan going?

Come on dipshits- this is a new time and your stupid outdated thinking is getting pretty old and lame-
New MMAs are revolutionizing the business and a combination of products, with discipline, will pay off a 30 year mortgage in 19 yrs! Pay a fully amortised 30 year @ 6.125 rate and pay off in 19 years?! you dumbfucks don’t even have a clue how to present that. The Industry is busting out with fresh new concepts and cutting edge products. You will be crushed just like the dinosaur and buried, and good riddance to you –the world is a better place without idiots like you locking these people into one payment —oooo but look at the rate– who gives a shit about the rate? It’s forclosure time!!!!! – -

Just like OAG and I have said thru the whole discussion Pay Option ARMs are a very simple concept -Index – this is the cost and risk (Borrower risk), Plus Margin -this is the profit for the lender. you could pay interest only or they carry the potential to neg am — that’s all, no voodoo no witchcraft -Just poor combinations of the 2 main componets and too low of a minimum pay rate– all this is negotiable with the lender- you just have to not be a dumbass and approach this like it’s a major purchase because IT IS a major purchase. Lazy people got screwed on these, Not good intellegent borrowers that don’t have thier head up thier asses.

Here’s a thought for the bankers pen -How many people would be in a bad way in California right now if this program would have been used properly? NONE – the borrower could always hit the lower payment in the lean times. No chance of that with the 2/28 or even your low rate 30yr fixed for that matter.

You all seem to forget that these people couldn’t afford thier homes when they bought them. The lenders had a low reserve requirement (for them to hold in time deposits and cash reserves not for borrower qualifications) and got as much money into the market as possible. The lenders don’t want thier house though – they wanted the interest. When the investors didn’t get thier money they stopped buying MBS and they (the bad loans) couldn’t be sold on the 2ndary market -Credit Crisis!!!! The 2/28 borrower (shitty credit or SIVA W2) 3 years ago could not buy a house today(shitty credit SIVA W2) thus they cannot Refi. They got to live good for awhile but not it’s back to reality- live with-in your means.

Hey Virginia And Options are Good! good talkin with you – It’s nice to have some open minded people to discuss an innovative product in a constantly changing industry.

Hey Bankers Pen — CNUT, Paul, & Alan – have fun callin me a dumbass and flaming me and cuttin and pastin stats since you don’t posses a single original thought in your big dumb closed minded head -we’ll visit you in the old dumbfuck mortgage retirement home- use some ointment and you won’t get bed sores–
Peace -BDD

Big Daddy

Why are 80% of the people with option arm’s making the min. payment???????????

* They bought too much house.
* They have no money.
* They borrowed too much.
* There LO put them in a loan they do not understand.

Or maybe they are smater than all of us and investing the difference??? I do not think so!!!!

Or maybe they are taking advantage of the equity builder option…NOT!!

If 80% are making the min. payment does that means 80% of the people should not have been in this loan to begin with!!!!! It is a good bet!!

To BDD, question, are you that idiot Broker that submitted those crummy files to me, all Option Arms, all Stated/Stated? Damn I glad I declined them all, just keep it up, I will too. DECLINED.

Well Big Daddy,

I have one of these, said it before, but if you’re a broker and quailify your buyers at the fully indexed rate – AND they understand full and well what that fully indexed rate is – my hat’s off to you. I know the loan officer on mine understood what the fully indexed rate was because she bumped my income up on my application to reflect I could afford it. I can see where this loan may have its benefits, and I finally got my own head outta mine own arse and now understand it. Nonetheless, when I signed it 18 months ago I didn’t really have this same level of understanding. No real surprise there, hindsight is always 20/20.

It is payback time, for me and many others. These option arms are/were toxic. I did buy more home than I could afford. Bad on me, but I was led to believe that my home was worth what I was paying for it and I knew I would move in three to five years – so in my personal case I thought for me it made sense. Truth be told, prices were artificially inflated by the “creative loan products” on the market to everyone with a pulse. Call it keeping up with the Jones’ or whatever hype you want to call it. When you can get a loan with an initial teaser rate of 3% or so, yes you are going to be in payment shock when you have adjusted to the market rate, etc. The deal I know I was pitched is you just refinance when it adjusts out of your price range, etc. Well right now refinancing isn’t an option for many, nor is selling.

More importantly, there are many folks out there that bought homes that they COULD afford but because they weren’t PRIME (for whatever reason) they were told take this crappy high interest ARM and once you pay on it for 18 months – 2 years and aren’t late you can refinance into a fixed rate. Well, now that their values have gone down and they’re upside down or their LTV may have been wiped out by a huge percentage they are unable to refinance. Hence, the demand for the loan modifications. Realizing, this particular article is suited mostly to the Option Arm, I’ll end that line here – but that is real problem at hand. Although, I think these option arms are very much one of the key instigators in the huge inflated prices you see in pricier markets, like Southern California. Lots of folks made out well, others won’t be so lucky. Don’t take any of this so personally.

If these loans were used as intended, I think they would be fine too. Seems like a good option for an investor in a realistic market where homes are actually worth what the asking price is. In my particular market ‘buying’ is nearly 2.5 the cost of what renting is. This is surely an artificially inflated market value on the prices of homes. Once prices come down to realistic levels and the rental rates rise a little bit – here I could see where this loan is a good deal for an investor. Or I guess what I’m really trying to say is that if buying is about the same cost of renting (or at least cost effective with the tax breaks, etc.) then yes I could see where this would be a good product to have if the place were vacant, between tenants, or when you were strapped for cash. GOT IT!

But these loans were sold to people who were qualified on their ability to only pay the minimum payment. Truly not what was intended. But since the folks making the loans were only packaging up a bunch of forged documents to bulk up, throw a figure at, and sell them as securities on Wall Street – who really cares if they can afford it anyway. Maybe that’s not what really went on, but it sure seems so.

Have a great day.

Tom

Tom

Sorry this happened to you. I have been made fun from Bid daddy and options are good but they just do not get it…when things go wrong it really hurts financial lives. I am a mortgage banker and a financial planner so I have different outlook on this product. If my client can not afford there purchase I just tell my clients to walk away and give them my reasons for it. If they ask me about a option arm I say 199 out of 200 times..this is not for you!!!I hope most financial planners would not advise there clients to neg am a loan and invest this difference….to much risk in my opinion!!!! I suggets that clients know what there fixed debt will be….no guessing to what the future holds!!!!! If they what a option arm to invest the difference I tell them they have the wrong financial planner!!!

Option arms work for the very few and hurt the masses…as the proof is now showing!!! If Big Daddy and OptionAreGood were right we would not have most of today’s mortgage problems!!!!! Please do not tell me the client signed the paper work so they should have known!!!! The LO knows the truth!!!! and should give this loan only to the truly educated borrower!!!!!!!!!! and if one of your borrowers wants this loan they have to show me they truly understand the product!!!

Tom, exactly.

But any seasoned industry professional knew exactly what you’re saying and can it explain better than you and I can. The fact is it’s easier to point to the buyer and say, your bad than it is for some to say “my bad”.

That these loans were doomed to fail for the average working American, in the current over-inflated market was crystal clear.

JacMac,

It’s not even “my bad.” Most L.O.s don’t even know that they are doing this to borrowers. My introduction to Opt Arms was a medical tech trainee, doing loans on the side who told me that she has a product that would steal all my business. She knew nothing of 2/28’s I/O or even the Option Arms itself. She called it the MTA loan. Her whole argument was she could provide her customers 1% rates. I said hell no. And if so, what’s the catch? She got that gibburish from her broker. She didn’t even know what MTA stood for.

To stay up on emerging products I quickly discovered she wasn’t lying and added it to my arsenal. She was an idiot, but she wasn’t lying and there was a catch to this. I took two in-service classes on this product and realized that this was very, very dangerous. You need to be financially agressive and fearless. This product should not come out unless you absolutely know your customer can handle this.

However, its medical tech/L.O./clowns that sold 1% to the public. That’s it. 2/28s suffered the same hate because assholes sold people on the teaser rate and neglected to say: in 18 months you’ll get a letter stating your rate in sixt months will go from 6% to 8.5%. Adjustable rates do just what they say, but if the customer doesn’t know that or understands that then give something more solid.

Tom,

That’s the genius of the product. it’s not funny. You have several options. You are qualified on just one. Next month your payment could be anything on any of those options, so limited disclosure can hide behind that and everyone can say: who knew? Bullshit. yes.

I hope you can get out of mess with your home in your possession. But here is my extra opinion:

Good customer, wants better things in life, nothing wrong with that…….crazy product…….bigger home. 750k for example. I’ll take that, most did. I can’t pay house note…….lose my house…..value drops. House is worth 500k. Time goes by, lender resells home for cents on the dollar……….bought at a foreclosure sale for 200k cash during the recession. Are we going to have a recession this year ladies and gentlemen?

Cash buyer(unknown) is buying the neighborhood………….times goes on and a few years later……..my neighborhood is sexy again and my house is on the market for 750k. Does anyone see this coming?

Paul:

I wasn’t pointing fingers :0). I enjoy reading cogent posts from mature, intelligent people without the venom I have seen in some posts. Everyone has an opinion and the majority on this site are well thought out and interesting.

1. Know your loan product: Fixed-Rate vs ARM
Your loan officer should provide you with a HUD-Booklet, CHARM Booklet (HUD-ARMS) or HELOC Booklet (HUD-Home Equity Line of Credit), a Good Faith Estimate and Regulation Z disclosures and ARM Disclosure if Adjustable Rate Mortgage. If a fixed-rate, know the term: 10-15-20-25-30-40 years. Does it have an interest-only option? The shorter the term on a fixed-rate, the better the interest rate. Conversly, the longer the term the higher the rate. An interest-only option will make the rate higher by .25 to .375% (estimate). If you are getting an adjustable rate mortgage, know if it is fully amortizing, has an interest-only option or have potential negative amortization. Does is require impounds (escrows) or have a prepayment penalty? Can you buy out of either? Escrows buyout is typically around .25%, if granted and prepayment penalty buy outs can vary. What is the index, or cost of funds to the bank (COFI, MTA, LIBOR, CMT, CODI, COSI, etc). What is the current value of the index today? What is the margin (profit to the bank)? What are the interest rate caps: 1st adjustment cap; bi-annual or annual cap; maximum interest rate cap? When is the 1st Adjustment? If you have an interest-only option, know that you have the “option” of making the interest-only payment. You can pay down the principal without penalty at any time during the interest-only period. When that period is over, your loan will be recast at the 1st adjustment period at the new fully indexed accrual rate: $500,000 on a 5-1 ARM with an interest-only option on a 30-year term. If you make the interest-only payment during the first 60 months, then in month 61, the lender will take the current value of the index plus your margin and amortize the remaining balance for the next 25 years under the terms of the ARM (index+margin adjusted every six or 12 months, fully amortizing). Pay Option ARMS (potential neg ams) are extremely complicated and should never be considered unless thoroughly educated in their complexities.
2. Demand a Good Faith Estimate, Regulation Z and ARM (if applicable)disclosures and an amortization schedule. Some states only require a loan officer to provide a state form for GFE and do not require a Reg Z. This is because when the broker submits the loan, either through automated underwriting or physical file or lock, disclosures are generated by the lender the loan is being submitted to. Even if the broker is not required to provide you with one, demand to see the Reg Z. The Good Faith Estimate should be complete with all estimated fees completed for lender, broker, appraiser, insurance (property-mortgage insurance), title, escrow, attorney, taxes. These forms are required to be send to you either by mail or email within 3 business days (including Saturday) of the date of the application. Ask for the Reg Z explanation sheet that should be included with all Reg Z’s. This form may answer a lot of questions you may have regarding the Reg Z.
3. When you are ready to lock in a rate, ask for it in writing. It should confirm the terms of your loan program: Interest Rate, Lock Expiration Date, Term, Fixed-Rate or Adjustable, Escrows/Impounds Required, Prepayment penalty, origination and discount points (origination fee to LO and discount is cost to obtain the rate from the investor-or the cost to buy down the rate) and mortgage broker fee (if applicable), Index and current value, margin, interest rate caps (initial rate change, 6 or 12 months change cap and life cap), fully amortized or interest-only option. Does the lender offer an interest-rate float down (where the borrower will get the benefit of the best rate offered under the locked-in terms during the processing of the loan up to the day loan documents are drawn.
4. Shop around. Know who you are dealing with! Get at least three referrals from people you know and trust. Check the loan officer/broker out with the DRE in your state. Make sure you are dealing with a reputable loan officer. Let the LO know what type of loan program you are looking for. If you don’t know, provide them with enough information to determine what program will work best for you. Make sure you provide them with accurate income, asset and property information so that they can provide you with an accurate quote. Let them know you will need them to email you the GFE, Reg Z, ARM Disclosure (if applicable) and an amortization schedule. If they try to tell you those forms are not required, thank them and move on to the next reputable loan officer. Let them know that you require the TRUE COST of the loan and want to see the origination and discount fees, the broker fees (if applicable) and any YSP/SRP premiums. Make sure to check your amortization schedule to see where your payments will for the life of the loan.
5. Know what your property is worth. For a purchase: Make sure your realtor provides you with at least 5 closed sales of similar properties in the subject properties immediate neighborhood and five pending sales of similar properties. Make sure you are not overpaying. For a refinance: Drive around your neighborhood and jot down the realtors names and phone numbers that are listing on the for sale signs. Contact the realtor and ask them about the values in your neighborhood: pending sales, closed sales, marketing time, foreclosures. The realtor shouldn’t mind giving you this information and they should see you as a potential client down the road. Currently, in declining markets, most lenders are reducing their maximum LTV’s by 5%. Make sure you ask your loan officer whether that will affect your loan request.
6. Know the condition of the property. Appraiser’s are looking for anything that would affect the health and safety of the occupant (empty inground swimming pool, no heat, no appliances, construction in progress). Does it need a new roof? Does the chimney work? Are there obvious plumbing leaks? Is the property overrun with vegetation? Peeling paint with exposed wood? Obvious dry root and termite damage? Foundation cracks or structural problems? Earth stability? Appraiser’s must note any deferred maintenance (they don’t care if the clothes are on the floor of Jimmy’s toys have not been put away).
Any of these may cause issues with your appraisal. Advise your loan officer of any concerns you may have.
7. There are still a few stated income loans available. Typical eligibility requirements are: Self-employed/commissioned only for a minimum of 2-5 years (depending on lender’s guidelines), credit scores over 740, 6-12 months reserves in liquid assets (some require 6-12 months reserves of income, some of the principal, interest, taxes and insurance, some require total debt-ask your LO). What the stated income should represent is your determination of your cash flow from the past two years and expected cash flow in the next three years. Remember, you are the one that should state your income, NOT THE LO. Look at your amortization schedule to see where your payments will be in the future. Go over it with your LO to be sure you understand what will happen to your payment on an ARM at the 1st adjustment period.
8. Most loans currently require full income and asset verification. Be prepared to provide the following documentation:
A. One month’s most current, consecutive pay stubs
B. Most current two year W-2’s
C. Self-employed borrowers must provide most current two years federal and business tax returns (state returns are not required). A profit and loss and balance sheet may be required
D. Up to three months complete, most current bank statements (all pages). Be prepared to document any large increase in deposits with a paper trail. Quarterly statements for retirement accounts. Be prepared to document where the down payment is coming from (purchase). Gifts from close relatives and gifts of equity are allowed. Borrowed funds that are secured by an asset may be allowed with documentation. Monthly payment must be calculated in borrowers ratios.
E. Rental, lease agreements (fully executed) if rental property information is not included in borrower’s 1040’s.
F. Complete BK papers (if applicable) with discharge and explanation for the BK.
G Complete Divorce papers
H. For refinance: copy of most current mortgage coupons
I. For refinance: copy of most current property insurance policy
This is not a complete list of what may be required and this list may be significantly reduced with the lender’s automated underwriting approval.
9. Ask questions! If something does not make sense or it seems too good to be true, STOP and ask questions. If the LO offers you explanations, booklets and disclosures READ THEM! If you are at closing, and the documents do not reflect the terms/fees provided by the LO, STOP! Do not let anyone force you to sign documents that you do not agree with. If you see on the final application that the LO has changed any of the information you provided to him/her STOP and do not proceed. You are ultimately the one responsible ONCE YOU SIGN THOSE DOCUMENTS!
10. If find a reputable, honest, ethical loan officer who provided you with excellent advice, an excellent loan with competitive rates and fees, TELL PEOPLE! Those are the people you want to succeed and have around. Conversly, if you find a disreputable LO/BROKER/ BANK, TELL SOMEONE! It is going to be up to all of us to help get our industry to a level of honest business people selling honest loans to honest people

Virginia,

The thing you did leave out was for the customer to enter into their transaction serious and prepared to do real business. Make sure you are a viable customer. The complete customer has a 700 fico score, established credit history, 20% in reserves ready to be spent, two or more years on the same job or in the same field.

Other than that, that\’e2\’80\’99s it. There isn’t much you left out. The biggest thing is do your homework first (#4). Customers must be totally honest with there info to received honest answers. There are many customers who come in lying and then get mad at the end when the loan is something else. The truth. The truth.

I never understood why the GFE and TIL wasn’t given on the first run. It saves me time as an L.O. and an unnecessary step. Time is of the essence in real estate. GFEs are just that, but if the numbers are real, then in the end your final hud should reflect the same thing. Make sure your L.O. gives you a copy of the GFE you sign. Keep it as a reference. As the process goes on, things change and you can stay abreast of your numbers every step of the way. Bring your GFE to the closing. If the L.O. knows what he/she is doing the only real change should be insurance and daily interest which isn’t much.

On the refi, its the same thing unless you have title issues or your insurance doesn’t meet lender requirements. The L.O. won’t know that until later.

#5 you might have an issue with the agent on giving out info and not being compensated. On a purchase, agents typically will get you to sign agency forms before they start helping. Unless it’s your cousin or sibling, don’t look for an agent to give free info, even in this market condition.

But you said it again in #4, do your own homework. On a purchase, whatever your price is make sure you can logically back it up. And be honest. Don’t throw number out there for the sake of throwing. People will not take you serious.

#6 you need a house inspector. The appraiser will look for obvious defects, but the nitty gritty stuff like plumbing and roofing and internal problems should be probed by an inspector. They will go from roof to slab.

Your list is dead on but the customer must know what they want and be ready to be told no if they don’t honestly qualify beforehand. Once they get into the grey realm and start stretching their requests or demanding they want a property or product they should not have, then they need to be prepared for the sexy stuff.

Even a crooked L.O. can be made honest if you come to them straight. But the minute you stray even by a little bit you risk danger.

FYI: In my neck of the woods, agents don’t have any issues giving out closed and pending sale info (for pending, you just need to know the listing price and property info-square footage, room count etc etc which is public knowledge…..

my pleasure. I think there are glossaries available on line that provide mortgage industry terminology. You can probably cut and paste from that. If I see one, I will let you know.

LIKE PAUL SAID EARLIER, OPTION ARMS ARE GOOD FOR CERTAIN BORROWERS. THESE BORROWERS HAVE TO BE A VERY SAVVOY BORROWER/INVESTOR. I was with WAMU when they rolled out the Option Arm, and in our area in NJ we sold A LOT of these loans to very savvoy educated investors. At the time, we didn’t wack them with hard PPP or even soft PPP, we didn’t charge PPP’s period. The investor got in, did what they had to do and got out. We still have the same investors calling us for the same cash out loans they received 5 years ago.

It’s the brokers that sell these loans to the “everyday jones’s”. It’s the brokers that only see the paychecks. It’s the brokers that lie to the homeowners and tell them this is a great loan. In all of the years I’ve been writing mortgages, I’ve NEVER told a client how bad an option arm was for them and they replyed, “oh, thanks for your advice…give me the loan anyway”. it’s up to US as the lenders to educate our borrowers and let them know how dangerous this ARM really is!!!! I know that i’m not a top producer or a millionaire, but there is PLENTY of people that i refused to give the option arm too regardless of how big the paycheck could have been — and as we all know, it would have been a very big check, especially in my area of jersey.

-chris

Hi everyone,

Options Are Good, you are a lost soul !!!!!Hey Chris did you know Mr. J Regan at WAMU …NJ wholesale ???

Paul-

it is a simple concept- certain products fit certain clients. Period.

The reason we are in the mess now is also very simple- unchecked greed…by banks, investors, wall street and yes even the average homeowner in some cases. Not everyone who sold an option arm is a crook and not every investor or buyer was a liar. Unchecked greed consumed the industry and a lot of bad apples jumped in and created the downward spiral we have been in for the past year. The government also had a mandate to the lending industry to put more families into homes (CRA, FHA, Home initiative grants, etc). It was a policy for almost a decade to put people in homes. At almost any cost.

Not every broker was making 3-4 points off the back end with a 3 year prepay. in fact it was very common to make 1-1.25% ysp with no prepay. What you have said in prior posts indicates you had access to the lower quality POA that were offered.

option arms (esp the fix pay variation) are a good choice for the high net worth client looking to leverage….yes i did just say leverage, their money in certain wealth building techniques. It is not for the average person although if structured correctly with discipline it is also a great tool to build their wealth. Granted the average person does not have the discipline so it is clear they are not a candidate for this product.

So the fact you may suggest the option arm product to 1 out of 200 indicates to me your client base is not of the high net worth calibre, which is fine , however to bash the POA as a horrible product is a clueless comment. As a financial planner I am sure you can see the potential benefit of deferring interest to pick up at a later time to offset some capital gains, income or other potential tax liability.

If you look at some of the wealthiest and most savvy business people you will often see the POA as a tool used to properly leverage risk.

Chris- you mentioned you were with WAMU when they “rolled” out the option arm. The option arm was the offspring of the step rate loan from the 70’s.

It is unbelievable that we are seeing lenders and institutions that have been around for 85-100 years being wiped out or exiting the lending business esp when that was their foundation.

we have a crisis of confidence that was created by unchecked greed….. we are going back to the days of quasi government lending- fannie/freddie/FHA (FHA was the first subprime lender). We will be in this cycle until unchecked greed again rears it’ s shameful head and we will see lending again become lax…. As has been said by many economists- financial systems go through cycles of euphoria and fear. We are in the fear cycle and it is unfortunate but more regulation will hold back many hard working families. We need to enforce the laws we have and punish those who were predatory. What is happening now is that the credit market has swung too far towards tightening and until the new FHA standards come out, many quality borrowers will be out of luck for awhile.