April 4, 2008
Happy Friday! I do hope you all have something fun planned for the weekend!It’s been another fun filled week in the Mortgage Business even though nothing has changed. Of course, no change means that markets have continued their volatile tendencies, and loans products continue to change or disappear from rate sheets.
SISA, MAY THEY REST IN PEACE
The last few lenders that still offered Stated Income, Stated Asset loans have all but pulled out of that market as investor appetite has disappeared on Wall Street. A Stated Income, Stated Asset or SISA loan is one in which a borrower is not required to provide any documentation regarding income or assets, and loan decisions were based primarily on credit rating and the appraisal of the home. It makes sense then that since so many housing markets have slowed or even declined that lenders are no longer willing to take on the risk associated with a loan in which the borrower was unable or unwilling to show all their financial cards like tax returns or bank statements. I’m sure lenders would offer the product if there were BUYERS of Mortgage Backed Securities for these loan products, but as one industry analyst put it the Mortgage Backed Securities Market is a "ghost town," and traders are "slowly and cautiously backing away from their desks."
MI COMPANIES
Many Mortgage Insurance companies have backed away from 100% loans as they’ve taken tremendous losses around the country in markets where home values have dropped, foreclosures have increased, and they’ve been required to repay the lenders on the loans which they insured for the loss. Most have also identified several "Declining Markets" around the country where they have reduced the maximum loan to value on their products by 5% of the maximum conventional LTV for a specific loan product. This means that the Government loans, like HUD’s Federal Housing Administration, Veterans Administration and USDA’s Rural Housing Loans are just about the only programs left where a borrower can finance 100% of a home’s purchase price
So how does this impact us here in Oregon? Remember that the mortgage industry and the loan’s we all apply for is a cycle in our economy. We get our loans from Wholesale Lenders, who sell them to huge Government Sponsored Enterprises like Fannie Mae and Freddie Mac, or large private banks or institutions. Fannie, Freddie, and the large banks then securitize the loans in pools, and then offer those pools on wall street where they are purchased by investors in the MBS exchange, and those transactions are brokered by traders.
WE CAN LEARN A LOT FROM QUAIL
With as many changes as we’ve seen over the last year in our business, the best analogy I can use to explain the behavior of the mortgage industry of late is that it’s like a covey of quail. As an outdoorsmen, I enjoy watching the covey’s of quail that inhabit the area where I live, and every year I learn something new about their behavior and habits. Right now it’s mating season so the cocks—No, really, a male quail is called a "cock"…I’m not being vulgar—are eager to gain the adoration and partnership of the hens. Since quail find comfort in numbers, the mating season is pretty interesting because you’ll see a couple dozen birds that want to stay together for safety, but the males are also territorial and once enamored with a hen will chase other males away to the fringe of the covey. This gets played out every morning around our house with the cocks strutting, their plumage fluffed, calling for the affection of the females who seem to go on feeding and grooming without a care in the world, unimpressed with the loving gestures of the males. All of this changes when just ONE of the birds senses danger. A car buzzing by, a dog barking, a door slamming—and then as a GROUP they forget their rivalries, their urge to mate, and their appetite, and rush to the safety of a nearby juniper. Once they feel safe, a few cautious birds re-emerge poking their heads around for the cause of the commotion, and slowly they all resume their activities of eating, strutting, dusting themselves, etc.
The mortgage industry and the players that create and trade the commodities I broker are behaving in much the same way. When one lender has problems in a certain category of loans, the covey of lenders will flee with them for safety. When One Pool of a certain variety of mortgages shows poor earnings, No one wants to buy that product anymore. When one MI company pulls out of the 100% market, most will follow suit.
The good news is that we know our industry will emerge from the proverbial juniper bush at some point! There are still lots of loans to choose from, and the rate environment, while volatile, still remains favorable. As always, if you or anyone you know is thinking of getting a mortgage in the next 6 months, it’s best to get prepared NOW. Give me a call if you have any questions, and have a safe and relaxing weekend!
Carl Salvo
Mid Oregon Lending
497 SW Century Drive · Suite 104
Bend, Oregon · 97702
Ph. 541-728-0390 · Fx. 541-728-0395
Oregon License ML-4707 · NMLS # 277334
