Tell me what you think.
Lenders kept making loans into an inflationary spiral. They knew that eventually that bubble had to pop. They didn’t care as long as the prices kept going up. If a loan went bad, they could get out whole, maybe even MAKE money. They knew that they were financing homes at multiples of the cost to construct. They were allowing the price of land to be financed at increasingly growing prices. I know that a piece of land is worth what someone is willing to pay for it, but at some point the rate of escalation of prices had to be addressed.
Well, finally the bubble burst. Values collapsed. Home owners were facing loans that far exceeded the devalued price of their homes. Loans were defaulting at an alarming rate. The banks came to the Government to ask for help with the huge inventory of loans that had questionable value. The Senate isn’t the most astute of financial gurus. They knew that something needed to be done, but I don’t think that they knew, or still know what to do. Huge gobs of money were thrown to the Banks with little guidance or restriction. Banks have been using that money to acquire other banks, but money still doesn’t seem to be being lent. And the homeowner is still asking what can be done for them!
I was thinking. What if the Government looked at each homeowner with an upside down loan? What if they calculated the cost to construct that home and added 35% for the value of the land. In my estimation there are very few pieces of dirt that are worth the astronomical prices that were being charged. A new loan could be made for 100% of the cost to construct that house plus 35% for the land. That loan would finance the new closing costs, so the borrower would not be asked to come up with any money. The lender that made that old, inflated loan would be instructed to accept as payment in full the net proceeds of the new loan and would be told to charge off the excess balance remaining on the old loan. They should have known better than to make these loans in a “feeding frenzy”. They were not looking at the long term health of their company, or the Country.
They should be given LOANS to supplement their needs for survival, but NOT be allowed to sell their portfolios of mortgage backed securities to the Government. They should have known better to make those loans!
Wednesday, December 17, 2008
Thursday, December 11, 2008
Cheap money doesn't always mean you will SAVE money!
All this talk of cheap money "on the horizon" is causing some dislocation in the activity in the current market.
If you are waiting and talking about how much better interest rates "are going to be" I have a suggestion. Think about what will happen to the price of homes when everyone is charging out to buy them with all this "cheap money". Think about what will be the end result in the TRUE cost of the home that you want to buy.
It has been a while since I received my degree in Economics, but I think that it should be obvious when one gives it a little consideration, that the cost of Real Estate will rise as the demand increases due to lower interest rates. There is no free lunch. A good deal is a good deal. Interest rates are currently VERY attractive. Don't wait too long and miss your opportunity to purchase a home at historically low prices.
If you are waiting and talking about how much better interest rates "are going to be" I have a suggestion. Think about what will happen to the price of homes when everyone is charging out to buy them with all this "cheap money". Think about what will be the end result in the TRUE cost of the home that you want to buy.
It has been a while since I received my degree in Economics, but I think that it should be obvious when one gives it a little consideration, that the cost of Real Estate will rise as the demand increases due to lower interest rates. There is no free lunch. A good deal is a good deal. Interest rates are currently VERY attractive. Don't wait too long and miss your opportunity to purchase a home at historically low prices.
Tuesday, November 11, 2008
Purchase a home with a Reverse Mortgage
A Purchase Program that uses a Reverse Mortgage
There are many Seniors that want to purchase a home, but do not have enough money to pay cash for the home. They may have a substantial down payment, but still cannot qualify for a loan. Their credit may not be good, or their pension may not qualify them for a re-payment program. The “Hope for Homeowners” legislation that was passed and signed into law by President Bush on July 30, 2008 made mention of a purchase program for Reverse Mortgages, and we have been waiting since then to see when we could start making these loans, and how they would be structured. When HUD released their Mortgagee Letter #2008-33 we now have some of the details of the program that will become available on January 1, 2009.
Beginning in 2009 Seniors (over 62) will be able to purchase a home with a Reverse Mortgage. Credit and income will not be a factor. A down payment, based on the age of the borrower, will enable the purchase of a home with a loan not requiring any repayment plan. The home will be theirs to own for the rest of their life as long as they live in it. They will own the home, and be able to pass any equity to their heirs. Upon the sale of the house should there be any shortfall between the value of the home and the amount owed (possible through decline in value) the FHA will pay that difference. At no time will the borrower ever be faced with a short sale scenario, or will the heirs ever worry about a shortfall attaching any other assets. The loan is a NON recourse loan. Only the house that has been encumbered by the mortgage can be looked to for repayment.
Down payment sources can even come from gifts or other FHA allowable funding sources. We may even see the return of the seller paid down payment programs at some time in the future, but currently these are not allowed on any FHA loan.
With the beginning of the new year Seniors can move closer to family, purchase homes with wider doorways, or even downsize to meet their current housing needs. For more information on this, or any other loan program, please give me a call at Tomasso Mortgage.
Bob Tomasso
Licensed Mortgage Broker, Principal Broker
Tomasso Mortgage
A Licensed Correspondent Mortgage Lender, since 1989
239-945-4348
bob@tomasso.com
www.tomasso.com
There are many Seniors that want to purchase a home, but do not have enough money to pay cash for the home. They may have a substantial down payment, but still cannot qualify for a loan. Their credit may not be good, or their pension may not qualify them for a re-payment program. The “Hope for Homeowners” legislation that was passed and signed into law by President Bush on July 30, 2008 made mention of a purchase program for Reverse Mortgages, and we have been waiting since then to see when we could start making these loans, and how they would be structured. When HUD released their Mortgagee Letter #2008-33 we now have some of the details of the program that will become available on January 1, 2009.
Beginning in 2009 Seniors (over 62) will be able to purchase a home with a Reverse Mortgage. Credit and income will not be a factor. A down payment, based on the age of the borrower, will enable the purchase of a home with a loan not requiring any repayment plan. The home will be theirs to own for the rest of their life as long as they live in it. They will own the home, and be able to pass any equity to their heirs. Upon the sale of the house should there be any shortfall between the value of the home and the amount owed (possible through decline in value) the FHA will pay that difference. At no time will the borrower ever be faced with a short sale scenario, or will the heirs ever worry about a shortfall attaching any other assets. The loan is a NON recourse loan. Only the house that has been encumbered by the mortgage can be looked to for repayment.
Down payment sources can even come from gifts or other FHA allowable funding sources. We may even see the return of the seller paid down payment programs at some time in the future, but currently these are not allowed on any FHA loan.
With the beginning of the new year Seniors can move closer to family, purchase homes with wider doorways, or even downsize to meet their current housing needs. For more information on this, or any other loan program, please give me a call at Tomasso Mortgage.
Bob Tomasso
Licensed Mortgage Broker, Principal Broker
Tomasso Mortgage
A Licensed Correspondent Mortgage Lender, since 1989
239-945-4348
bob@tomasso.com
www.tomasso.com
Wednesday, October 15, 2008
The Right Doctor
If you go to a retina specialist when you are having trouble with your eyes, chances are that Doctor will tell you the problem is your retinas.
I was having trouble with my eyes. My vision was decreasing, and I was having crippling headaches. Light bothered me and I was wearing sunglasses. I went to a retina specialist and he told me that I had macular degeneration. For a year I was “treated” by him for this incurable disease. My vision continued to deteriorate, and my headaches and sensitivity to light became worse.
In desperation I went to another Doctor. He was a Neuro Ophthalmologist. One look by him and he diagnosed me with an entirely different condition. He told me that I had a Pituitary tumor that was pressing on my optic nerve. Surgery followed, and my condition was cured.
We are having an economic crisis. The government is asking us to treat our Economy. The “Economic Doctor” that we are going to is a previous employee of a large bank holding company that engages in investment banking. He has diagnosed our current economic crisis as being caused by a “Banking Disease”. He feels that if we direct our attention to the Banking sector that we can cure our problems. He is asking us to wear sunglasses to treat our macular degeneration. He is treating the symptom, not the disease.
We need to go to another Doctor. We need to go to a Neuro Ophthalmologist to diagnose our REAL disease. We need to stop treating the symptoms and treat the disease. That doesn’t mean that we should stop wearing our sunglasses until the light no longer hurts our eyes. But it does mean that we need to address the underlying problem that is causing the light to hurt our eyes.
JOBS!
The task of creating new jobs is one that will have to be handled by our next President. It will be up to him to create an atmosphere conducive to the creation of jobs to replace the jobs that have been lost to cheap labor in other countries. It will be his task to design programs and conditions that will create new industries that will surpass what foreign countries are doing. I wish the next President, whoever he will be, much success in that task, as the future of the country that we will pass on to our children and grand children is at stake.
Sunday, October 12, 2008
Gridlock
`The problem loans that are causing the "meltdown" are not loans made due to CRA motivation.
The loans that are going bad are suburban area loans. Not the type of loan that one would think of as being made under CRA. The loans that are currently causing the market to choke are loans that banks made in areas of rampant speculation. These loans were made for the purchase and re-finance of properties in areas that attracted "flip" type buyers. The "flip" buyer was looking to make a quick buck buying and then selling a house that he couldn't afford in the first place. The flip buyer was borrowing money with artificially low initial payment terms. At these low payment rates, if he was able to sell the house during that period of time, his profit would be maximized. (More rate of return if you lower the money invested).
The banks were motivated by the short term profit that would hit their bottom line by the recognition of yield spread premiums (Points) collected at time of closing and service release premiums collected when they sold the loans and the servicing of those loans. The long term effect of loading up the system with risky loans was not a consideration in their profit model. Corporate executives that were dictating lending policy were not concerned with the long term health of the Bank for whom they worked. Their compensation was based on bonuses they received based on quarterly profit numbers. As long as the bonus rewarded short term numbers the long term viability of the Bank was never given any consideration.
Yes, that is right, trillions of dollars of these loans were made and sold to foreign investors through the creation of Mortgage Backed Securities (MBS) As long as these foreign investors were able to place a realistic value on their investment, money continued to flow. The placement of a true value on ANY asset is mandatory for commerce to continue. There was a problem. These investors relied on Bond Rating Companies to tell them the current value of the MBS. United States bond rating companies were hired to value the MBS's that were being created. These SAME Bond Rating Agencies were receiving a commission when the MBS's were sold! - CONFLICT - It was beneficial to them if they gave high ratings to the MBS's. Once it became evident that their investments were of questionable value they stopped buying them. They began to realize losses on the ones that they had already purchased. The Bond Rating Companies started to collapse. Banks stopped lending because they had no one to buy their loans.
In order to continue to lend money, even though they had their money tied up in the MBS's that they couldn't sell, the Banks looked to each other to borrow money. The Banks that were in a position to lend money were not willing to lend to the Banks that needed the money, because they were concerned about the troubled Bank's ability to repay the loan.
Gridlock
Recently a European solution was announced. It places the government in guaranty of new loans being made to the Banks. Voila! The banks now have money to lend. Money flows. I am not as confident that the "bailout" or "rescue" legislation that was recently passed is as simple or easily put into play to assist Banks in raising Capital. We will see.
There are other problems in the United States that complicate our economic woes.
JOBS!
For any Capitalistic society to survive we must have consumers and motivated business owners to sell to them. When jobs started to flow overseas in search of cheap labor the fundamental soundness of the Economy faltered. Answers to the Jobs problem must be dealt with as a separate issue in solving our Recession.
The loans that are going bad are suburban area loans. Not the type of loan that one would think of as being made under CRA. The loans that are currently causing the market to choke are loans that banks made in areas of rampant speculation. These loans were made for the purchase and re-finance of properties in areas that attracted "flip" type buyers. The "flip" buyer was looking to make a quick buck buying and then selling a house that he couldn't afford in the first place. The flip buyer was borrowing money with artificially low initial payment terms. At these low payment rates, if he was able to sell the house during that period of time, his profit would be maximized. (More rate of return if you lower the money invested).
The banks were motivated by the short term profit that would hit their bottom line by the recognition of yield spread premiums (Points) collected at time of closing and service release premiums collected when they sold the loans and the servicing of those loans. The long term effect of loading up the system with risky loans was not a consideration in their profit model. Corporate executives that were dictating lending policy were not concerned with the long term health of the Bank for whom they worked. Their compensation was based on bonuses they received based on quarterly profit numbers. As long as the bonus rewarded short term numbers the long term viability of the Bank was never given any consideration.
Yes, that is right, trillions of dollars of these loans were made and sold to foreign investors through the creation of Mortgage Backed Securities (MBS) As long as these foreign investors were able to place a realistic value on their investment, money continued to flow. The placement of a true value on ANY asset is mandatory for commerce to continue. There was a problem. These investors relied on Bond Rating Companies to tell them the current value of the MBS. United States bond rating companies were hired to value the MBS's that were being created. These SAME Bond Rating Agencies were receiving a commission when the MBS's were sold! - CONFLICT - It was beneficial to them if they gave high ratings to the MBS's. Once it became evident that their investments were of questionable value they stopped buying them. They began to realize losses on the ones that they had already purchased. The Bond Rating Companies started to collapse. Banks stopped lending because they had no one to buy their loans.
In order to continue to lend money, even though they had their money tied up in the MBS's that they couldn't sell, the Banks looked to each other to borrow money. The Banks that were in a position to lend money were not willing to lend to the Banks that needed the money, because they were concerned about the troubled Bank's ability to repay the loan.
Gridlock
Recently a European solution was announced. It places the government in guaranty of new loans being made to the Banks. Voila! The banks now have money to lend. Money flows. I am not as confident that the "bailout" or "rescue" legislation that was recently passed is as simple or easily put into play to assist Banks in raising Capital. We will see.
There are other problems in the United States that complicate our economic woes.
JOBS!
For any Capitalistic society to survive we must have consumers and motivated business owners to sell to them. When jobs started to flow overseas in search of cheap labor the fundamental soundness of the Economy faltered. Answers to the Jobs problem must be dealt with as a separate issue in solving our Recession.
Friday, May 16, 2008
Understanding your Mortgage
Recently a wonderful gentleman called my office. He was very upset about the Reverse Mortgage that he had recently obtained. He wanted to obtain a conforming “Forward” mortgage and pay off the Reverse Mortgage.
I had not made the Reverse Mortgage that he currently had, so I asked him to gather all of the loan documents and get them to me so that I could review them for him. I asked him if he had access to a fax machine. He told me that he would bring them by my office. It was then that I discovered he was 91 years old. I told him that I would be glad to stop by his house, but he insisted that he was quite capable of driving to my office, so he did!
I looked at the documents that he brought to me and reviewed his interest rate and terms of the loan. It was a very well structured loan. I asked him what it was that he did not like about the loan. It was then that I realized it was only because he did not UNDERSTAND the loan that he was unhappy. I took a little time with him and discussed how his loan worked. I sat with him and called the customer service number listed on his documents and confirmed a few of the features of his particular loan. The features of his loan were exactly as I had told him.
I told him that I only made money by making new loans, but that I would not be able to sleep at night if I made him a new mortgage. I told him that my main goal was now to convince him not to go to another mortgage broker to get a new loan. He told me that he would definitely NOT go elsewhere, because he now understood that he already had EXACTLY the loan that he needed!
I had not made the Reverse Mortgage that he currently had, so I asked him to gather all of the loan documents and get them to me so that I could review them for him. I asked him if he had access to a fax machine. He told me that he would bring them by my office. It was then that I discovered he was 91 years old. I told him that I would be glad to stop by his house, but he insisted that he was quite capable of driving to my office, so he did!
I looked at the documents that he brought to me and reviewed his interest rate and terms of the loan. It was a very well structured loan. I asked him what it was that he did not like about the loan. It was then that I realized it was only because he did not UNDERSTAND the loan that he was unhappy. I took a little time with him and discussed how his loan worked. I sat with him and called the customer service number listed on his documents and confirmed a few of the features of his particular loan. The features of his loan were exactly as I had told him.
I told him that I only made money by making new loans, but that I would not be able to sleep at night if I made him a new mortgage. I told him that my main goal was now to convince him not to go to another mortgage broker to get a new loan. He told me that he would definitely NOT go elsewhere, because he now understood that he already had EXACTLY the loan that he needed!
Sunday, April 27, 2008
How a Reverse Mortgage Works
If you are over 62, you should take a minute to learn about this.First and foremost, I want to dispel a common misconception about Reverse Mortgages. Some people still think that when you obtain a Reverse Mortgage you "sign over" your house to the bank. This is FALSE! A Reverse Mortgage merely places a MORTGAGE on your home. It is no different in that respect than any other mortgage product you are familiar with.Even if you already have a first mortgage on your house, you may still be eligible for a Reverse Mortgage.A percentage of the value of your house is subject to availability of acceptable equity in your home. The most common type of Reverse Mortgage is the "Home Equity Conversion Mortgage". Otherwise called the "HECM". The HECM is GUARANTIED by FHA. That guaranty assures both YOU and the bank of some critical things.First and foremost, that guaranty assures the homeowner that they will NEVER owe more on their home that it is worth. Whether that home goes down in value or not! At no time will you ever have to worry about selling your home in a "short sale" situation. No worry about passing your home to your heirs with a balance owed in excess of its value.Second, the FHA guaranty assures you that if you chose to receive monthly payments under the conditions of the loan, you will receive them whether the bank that arranged that loan stays in business or not. FHA obtains documents at the closing that enables them to "pick up" the responsibility of that loan without any delay.Some of the payment options of the HECM are:- A line of credit (only earns interest if it is used)- A lump sum payment (up to 100% of the allowable equity is disburseddirectly to you in one payment)- "Tenure" payment (Payments will be received by you until you sell, or moveaway from your home)- "Term" payments (Payments are made to you for a specified length of time)- A "Modified Tenure" or "Modified Term" is one that combines either lumpsum, line of credit and Tenure or Term payments.I have been lending money since 1975, and I feel that this loan program is the most well regulated and conservatively designed of any that I have known. Seniors that may want to consider this product should be assured that this product does not jeopardize their ownership of their home.
Tuesday, March 4, 2008
The Effect of Foreclosures on the Rental Market in Southwest Florida
As properties continue to be added to the list of foreclosed properties, what is the overall effect on the rental market?
Some would think that the effect is neutral, or even negative in regard to rental rates, but they would be wrong. As an investment property owner receives his notice of foreclosure, the tenant of that property is also advised that the ownership of his home is in the process of changing from his old landlord to a new owner, that being “The Bank”!
These tenants would logically have between 3 to 6 months before their old landlord is no longer the owner of the house. A considered reaction could be to stop paying rent altogether. The landlord is in no position to spend money to evict them. He has already stopped making his mortgage payments, and “The Bank” has not yet taken ownership. They could “Live for Free” in that house if they so chose. The actual result is that the tenant quickly re-enters the rental pool in search of a new house. The foreclosed property will eventually be added to the list of homes for sale, but until that house is sold to an end user, either owner occupied, or investor it has effectively been removed from the houses available for rent. Banks are not in the Landlord business, and are not known to seek tenants for the houses that they own through foreclosure.
We can see that as more houses are added to the list of foreclosed properties the supply of available rental properties is decreased. With the demand for housing increasing due to continued growth of the Lee County area (approximately 2,500 per month) and the influx of displaced tenants, the rental rates in the area are likely to continue to rise from their historical lows.
I am convinced that opportunities are presenting themselves in not only the owner occupied sector of the Southwest Florida housing market, but in the rental arena as well.
Some would think that the effect is neutral, or even negative in regard to rental rates, but they would be wrong. As an investment property owner receives his notice of foreclosure, the tenant of that property is also advised that the ownership of his home is in the process of changing from his old landlord to a new owner, that being “The Bank”!
These tenants would logically have between 3 to 6 months before their old landlord is no longer the owner of the house. A considered reaction could be to stop paying rent altogether. The landlord is in no position to spend money to evict them. He has already stopped making his mortgage payments, and “The Bank” has not yet taken ownership. They could “Live for Free” in that house if they so chose. The actual result is that the tenant quickly re-enters the rental pool in search of a new house. The foreclosed property will eventually be added to the list of homes for sale, but until that house is sold to an end user, either owner occupied, or investor it has effectively been removed from the houses available for rent. Banks are not in the Landlord business, and are not known to seek tenants for the houses that they own through foreclosure.
We can see that as more houses are added to the list of foreclosed properties the supply of available rental properties is decreased. With the demand for housing increasing due to continued growth of the Lee County area (approximately 2,500 per month) and the influx of displaced tenants, the rental rates in the area are likely to continue to rise from their historical lows.
I am convinced that opportunities are presenting themselves in not only the owner occupied sector of the Southwest Florida housing market, but in the rental arena as well.
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