Monday, July 28, 2008

Bush Ready To Sign Mortgage Bailout

An article titled 'Homeowner Rescue Awaits President Bush's Signature' written by Julie Davis, an Associated Press Writer, covers the mortgage bail out better than most articles I have read.

WASHINGTON (AP) -- Congress approved mortgage relief for 400,000 struggling homeowners Saturday as part of an election-year housing plan that also aims to calm jittery financial markets and bolster the sagging economy. President Bush said he would sign it promptly, despite reservations. Read the article here

I'm not familiar with Julie Davis or past articles by her but this one is really on target.

The foreclosure rescue program has some good stuff and some not so good stuff.
  • It includes $3.9 billion in funds to lenders (that caused the problem!) to purchase and fix up foreclosures so neighborhoods would not be dragged down in value. With this funding, won't they be more likely to foreclose than to work with the homeowner?
  • $180 million for pre-foreclosure counseling
  • The Federal Reserve will oversee Fannie Mae and Freddie Mac
  • $15 billion in tax cuts and tax credits for first time home buyers
  • $800 increase to the limits set on national debt

There are other issues with the program, one of which is that the tax payers will be the ones paying for Fannie and Freddie bail out. This is just wrong in my opinion. I don't think they should be bail out at all or by any means.

Here is another quote from the article and I include it because it cannot be said better:

Conservative Republicans were vehemently opposed to the bill, particularly
the help for Fannie Mae and Freddie Mac. Critics charge the companies enjoy
lavish profits in good times and wield their outsized political clout to resist
regulation while depending on the government to bail them out should they

Sen. Jim DeMint, R-S.C., delayed the final vote because Democrats refused
to allow him a vote on a proposal to ban the companies from lobbying or making
political donations to lawmakers.

"We can't have the people who are supposed to watch over these
organizations getting money from these organizations," DeMint said. "At least if
we're going to ask the American taxpayer to be on the hook for billions,
possibly trillions of dollars, let's stop this."

You should really read entire the article. I have the Foreclosure Rescue Program in pdf format if you would like a copy of it. Just send an email to and I'll send you the file.



Wednesday, July 23, 2008

The Credit Crisis Explained

I found and article posted on that totally pissed me off. Sorry for being so blunt but there really is no other way to to express how I felt. It was an article in cartoon format that attempts to explain the mortgage crisis in layman's terms.

This cartoon actually explains it very well except for the first entries blaming Mortgage Brokers for making Bad loans to people that didn't qualify. This is so incredibly wrong, false, untrue, and a total misconception of how mortgage brokers operate.

The captions labeled "Mortgage Brokers" should have been labeled "Subprime Lenders, lenders, or Fannie Mae and Freddie Mac"! Let it be know to all ... that mortgage brokers do not determine or set underwriting guidelines or loan qualification requirements. The guidelines or qualification requirements or lack there of are set by the lender or investor!!

The Mortgage Broker is obligated and required to follow those rules and they do not have an option to deviate from them!! HELLO ... !! In today's market crisis the independent mortgage broker is as much a victim as the consumer.

Yes, a few dirt bag Brokers, lenders, and investors may have committed fraud, which is falsifying documents and misrepresenting products, but that is not what this cartoon is about. Fraud is found in every industry that involves man. Fraud is not what created the mortgage crisis.

In all fairness I might add that perhaps the author of this article is not familiar with the role of a mortgage broker in the united states.

So, take a look to see a good explanation of the credit crisis. Just remember it's not the mortgage broker, it's the lenders. The Credit Crisis Explained in Black and White.


Saturday, July 19, 2008

Underwriters Originating Loans - Good or Not So Good?

I received the following question from an underwriter. I do not know what mortgage lender she works for nor do I want to know.

I did not respond to her question for several reasons, the main one being I do not give legal advice. However, I do have an opinion and perhaps this is a good place to put it. Here is the question:

What, if any, are the ramifications to the Lender if the Lender requires the
mortgage underwriter to originate loans to walk in clients, then underwrite
and approve and/or deny those said loans? thank you...

Wow, that is a loaded question and if it is indeed a common practice me thinks it is an accident waiting to happen. I see that there are at least two ways to look at this.

An underwriter should be totally unbiased when underwriting a loan. That may be difficult if they also originated the loan and liked or disliked the borrower. It would take very strong character to not be influenced one way or the other.

On the other hand, as a person with years of management experience in balancing budget and controlling overhead and costs, I can see why the lender would need for employees to take on duel roles ... especially in today's market. Is it a conflict of interest? What do you think?

Are there legal ramifications? ... I don't have a clue!

Please, leave your opinion.


Thursday, July 17, 2008

Global Funding Crisis

I read an article on the that was titled: "US faces global funding crisis, warns Merrill Lynch". I personally found this article disturbing in that we, the US, have placed our financial stability in the hands of countries that in my opinion are not considered good allies and would like nothing more than to see us destroyed.

Here is a short quote from the article:

The US Treasury is running out of time before foreign patience snaps,
writes Ambrose Evans-Pritchard.

Merrill Lynch has warned that the United States could face a foreign
"financing crisis" within months as the full consequences of the Fannie Mae and
Freddie Mac mortgage debacle spread through the world.

The country depends on Asian, Russian and Middle Eastern investors to fund
much of its $700bn (£350bn) current account deficit, leaving it far more
vulnerable to a collapse of confidence than Japan in the early 1990s after the
Nikkei bubble burst. Britain and other Anglo-Saxon deficit states could face a
similar retreat by foreign investors.

This was a very interesting article that every one should read. The comments were even more enlightening.


Wednesday, July 9, 2008

FHA Debt Ratio

I received the following question from a mortgage company yesterday. I'm sure many of you may have, or will encounter the same issue someday. I hope this helps.

To Whom It May Concern,

I've got a guy that I'm trying to get approved thru FHA, but I'm having an issue with his debt ratio since the underwriter is telling me that we have to count a child support payment against his ratios even though we've documented that the child turns 18 in less than 10 months and he'll no longer have to pay that obligation at that time.

Since it's less than 10 months my argument is that it shouldn't count against him. If I were trying to do a loan for the lady receiving the child support she wouldn't be allowed to use that as income since it won't continue for 3 years. The underwriter is
saying that the government counts this as a debt regardless of the amount of time left, which doesn't seem right to me.

According to the Child Support section in the credit guidelines on your website it looks like I'm correct. Can you please give me some clarification on who is right here and if it's me if you could provide some type of documentation that I could show the underwriter I would greatly appreciate it.

Thanks for your help.

Pete, You are right to a point. Below is a link to the 4155 and an exert. Note the red...

Good Luck page II-51


2-11 TYPES OF LIABILITIES. The following are types of liabilities that must be considered in qualifying borrowers:

A. Recurring Obligations. The borrower's liabilities include all installment loans, revolving charge accounts, real estate loans, alimony, child support, and all other continuing obligations. In computing the debt-to-income ratios, the lender must include the monthly housing expense and all other additional recurring charges extending ten months or more, including payments on installment accounts, child support or separate maintenance payments, revolving accounts and alimony, etc. Debts lasting less than ten months must be counted if the amount of the debt affects the borrower's ability to make the mortgage payment during the months immediately after loan closing; this is especially true if the borrower will have limited or no cash assets after loan closing.