Tuesday, December 13, 2005

Does your house have one of these signs?!?!?


Not really, but it sure seems like it. Of the 8 loans I looked at today 6 were stated and 2 were full doc. The "full docness" of the loans was about all they had going for them. On one, the bwr had multiple mortgage lates, and a sub 520 FICO score. At least the LTV was under 60%. At least I could actully price that loan out. It wasn't a great rate, but it was a decent diving or gymnastics score! On the other full doc deal, the bwr, who incidentally refi'd only 5 months ago, wanted to do a 100% refi, to pull the last remaining 10-15k out of his property. I guess he has one of the signs above parked in front of his house.

Of the other 6 stated deals, 4 were high LTV refi's, and 2 were high LTV purchases. The purchase deals were for $700,000+ homes. The refi's were all 90 LTV plus deals. People trying to tap that last little bit of equity. Needless to say, high LTV stated deals are not pricing the best right now...and my company has tightened standards more than some of our competitors.

Nothing surprises me anymore. I used to think that "people can't be that stupid"...but they can. Have you ever had one of those friends that pulls out only $20 bucks when they go to the ATM? You watch them spend a $1.50 five different times over the course of a weekend because they don't plan ahead and take out $80-100 bucks at one time. I see the same thing with many borrowers doing refinances. I don't know if they don't plan, underestimate that there are costs for doing a loan, don't account for pre-pay penalties, or just plain don't care. Either way, they are spending tens of thousands of dollars on nothing but fees to pay for their poor planning.

This borrower is a prime example. They payed 15k for a refi 4 months ago, turned around, decided they wanted more cash, and refi'd again. These people have no idea that they spent 50 cents to borrow a dollar. Or maybe they do know...but they just need money so bad. The problem is that most lenders will not do a loan unless the cash out is at least 2x the amout of fees charged for the loan (including pre-pay penalties that usually run 6 months interest, or 80% of 6 months interest). Lenders have to be careful of the perception of "predatory" lending, or taking advantage of borrowers. It doesn't make sense to spend 8k to get 10k cash...even if that is what the borrower wants.

The ones that really get me are the people that had a $68,000 dollar mortgage balance in 1994. Fast forward 10 years, and they have a $600k loan! You might think they used their equity wisely, but since the same broker has done all of their loans over the past 20+ years, they told me that the bwrs just upped their lifestyles and that is about it. They remodled this, drove that, visited there. I'm sure it was fun, but to think you were $68,000 away from being free and clear on a piece of property in Southern California. They still have plenty of equity, but $600k is not a cheap mortgage.

All I know is that the FEDs meeting today and the one in January will be very telling as to what we will probably see this "spring" season when everybody is banking on things taking off again after this 4-5 month "return to a more normal market". If the fed raises at both of these meetings, watch the house of ATM start running pretty dry, as it will be empty, or the "withdrawl fee" will be too much for many borrowers to handle.

Some people are going to see that the "ATM is out of service" here very soon.



Blogger Elizabeth said...

>These people have no idea that they spent 50 cents to borrow a dollar. Or maybe they do know...but they just need money so bad. <

My coworker who helps his mortgage broker wife told me today after my obvious incredulity at his latest round of FB stories over the weekend that they **do** know, but they're strapped. Or they don't really care. I asked him if he or his wife sat down with these FBs and talked to them about all of the charges they slapped onto these loans (some are in the neighborhood of 30-50K in fees) and what the consequences were of selling them neg ams. He told me that they just don't care. All they want is the cash. He gave me a little sample of his sales pitch, and I said, "No thank you, Satan! I prefer to keep my soul!" I swear, he's pretty persuasive though... if I was an FB, I'd probably take him up on it.

Creepy stuff. I'm getting a bit too much insight into the dark side of the human soul. What follows in the shadow of greed is desperation.

12/13/2005 2:25 AM  
Blogger Mark said...

Wow... to both the original post, and to elizabeth.

This leaves me wondering if Christmas 05 will be seen as the last hurrah of the spendthrift US consumer.

This paycheck-loan game cannot continue indefinitely. At some point reality will take over, and US consumers will have to retrench for a while. It won't be any prettier to watch than the last RE downturn.

12/13/2005 3:35 AM  
Anonymous Anonymous said...

I just love your blog! PLease keep up the good work

12/13/2005 6:50 AM  
Blogger David said...

Amazing posts. Who are these FBs?

Suburbs, City?


12/13/2005 8:22 AM  
Blogger SoCalMtgGuy said...


I agree with, and have seen what you talk about.

I know that many borrowers don't CARE...they just NEED money.

I have also seen the brokers that are "slick" over the phone...and are great at steering borrowers to do what they want (take the loan). I need to sleep at night, so I can't use many of the techniques they use.

Yes, many people have sold out whatever integrity they might have had to make a dollar.

12/13/2005 8:42 AM  
Blogger SoCalMtgGuy said...


The point of the FB's is their "faceless" financial situation. Many of these are in CA, but I have brokers that are doing loans for people all over the country.

I don't want to make it specific enough so that people could identify a specific borrower. They borrowers are of all races, ages, and locations.

I have been surprised by the amount of people that are maxed out on $120,000 to $160,000 homes in other parts of the country as much as the 500-800k loans in CA.

I'm sure you can understand why I don't publish exact info regarding the bwrs. Even when I post the FB's I use "ballpark" fico scores, etc.

I'm not here to "out" people as I am here to help others not make the same financial mistakes.


12/13/2005 8:51 AM  
Blogger David said...


Obviously you cannot 'out' people. What I wanted to know was there a certain patttern or majority of fbs certain age, race, or location.

You have answered it with "They borrowers are of all races, ages, and locations"

Wonderful Blog. Thanks

12/13/2005 9:00 AM  
Anonymous Anonymous said...

This blog is awesome. You should have a call-in show like Suzie Orman, except all you say to the callers after a long explanation of their situation is, "Sorry, you're f***ed."

Keep up the good work... and more stories of FBs!

12/13/2005 10:02 AM  
Blogger SD_suntaxed said...

Your insights are invaluable Socalmtgguy.

Your posts add a great perspective on the madness that's still driving the market. I'm glad to hear that lending practices are starting to tighten up finally.

I'm looking at y-o-y in San Diego climbing up again for last month after trending downward for awhile. Having a peek at the ways that people are still desperately reaching for more in this market makes it much easier for me to sit this one out.

Just curious, but do you have any idea how far in advance Fed rate increases are 'baked in' to rate sheets in general?

12/13/2005 10:25 AM  
Blogger SoCalMtgGuy said...

Sd suntaxed...

It all depends on how things are looking with capital markets. There were many times rates went up...and rate sheets stayed the same, and even went DOWN in some areas.

Right now for example, we seem to be raising in anticipation of the Fed, or right with it. Remember, this is on the Subprime side of things which is not rate sensitive like the A-paper business.

We normally get 0-1 rate changes in a month, now we are getting 2 and sometimes a 3rd smaller change.

It all depends on how the loans are executing financially in capital markets with the investors.


12/13/2005 10:35 AM  
Blogger Silver Lightning said...

I don't know what to do. Shake my head, laugh, or just sit in amazement as these people are about self destruct. One day the shocking revelation will hit them. They're totally broke with no options and are sinking deeper into debt daily. I'd say the day of reckoning is this spring when the housing market stumbles and heads south.

12/13/2005 11:13 AM  
Blogger Out at the peak said...

In a scenario where house prices decline...
When the ATM breaks, they will be forced to sell or proceed with the foreclosure process. This will be added on top of the speculators racing to get out. Will the bank refi to people who have resetting ARMs? Probably just to the lower LTVs.
2006 is probably going to be messy.
2007 is probably going to be ugly.

12/13/2005 2:56 PM  
Blogger SoCalMtgGuy said...


That is easy. Since real estate only goes up, they will sell, take all the equity, and THAT will be their retirement money.

...or at least that is what some people think.

I just hope that people are held accountable for the money that they borrowed. I know that is the ultimate pipe-dream...people taking responsibility for their actions, but that is what SHOULD happen.


12/13/2005 4:53 PM  
Blogger chickelit said...

breakthespeculators said...
"it sounds like we could be looking at the bankrupting of a sizeable percentage of a couple of generations here."

Umm, somebody needs to put a number on that because it is important. Is it 10, 20, 30, 40 % across all generations?

And we need more than anecdotal evidence. We need more than recent statistics of I/O loans in the last year. We need a statistic like, "a recent analysis has determined that x% of of all houses in southern California are highly leveraged." Otherwise, I will continue to maintain that the unexamined majority of homeowners are unfazed by the "sky- is-falling" talk because it just isn't a bankuptcy threat to them.

12/13/2005 5:11 PM  
Blogger chickelit said...


$260 k investment, $1.1k/ mo return works out to about a 4-5 %/yr rate of return, depending on closing costs and upkeep AND if cash is paid. It's just an unlikely scenario, but shows that many, many people do have that kind of cash kicking around. Too lousy a rate of return? Why do people buy bonds?

12/13/2005 5:28 PM  
Blogger chickelit said...

chill-out broker hater, no need to piss these guys off.

About my call for meaningful statistics: we're not talking data on global warming here, these sorts of numbers should be available to any savvy loan originater trying to gauge future prospects, if there are any left fools left out there...come on guys!

12/13/2005 6:41 PM  
Blogger SoCalMtgGuy said...


The stats you speak of, are not easy to compile, nor are they free to compile.

I think Professor piggyton has a "fee" based site with the statistics you wish to see.

You can also subscribe to some of the mortgage newsletters out there. Most cost about 700-1000 bucks or more per year.

They actually compile stats from the major lenders.

Plus, it is hard to tell how leveraged a person is, just by looking at loan stats.

I'm not evading you. If I find something close to what you are looking for, I will post it here.


12/13/2005 7:03 PM  
Blogger SoCalMtgGuy said...

Thanks Karen!

12/13/2005 7:34 PM  
Blogger 41cadillac said...

Caught the Nightly Business Report 12/12/05.

Rather long copy and paste, however Schultze's last statement is LOL.

" On balance the outlook is good, but it holds risks. I`m Charles Schultze."

CHARLES SCHULTZE, SENIOR FELLOW EMERITUS, BROOKINGS INSTITUTION: Over the last four years, employment expanded slowly. Despite large productivity gains, real wage rates for workers also grew slowly, while the share of income going to corporate profits rose much more rapidly than usual.

Yet despite the slow growth of wage and salary incomes, consumer spending increased handsomely. Early on, large tax cuts helped fuel this growth.

More recently consumers found another way to raise spending in the face of lagging wage and salary incomes. The sharp rise in home prices since the year 2000 produced huge gains in the equity value of household real estate...............,

A large portion of the capital gains from rising home values are still untapped and mortgage borrowing could help keep consumption growing nicely for a while even with continued weak growth in wage incomes. .....................

But this kind of expansion is particularly subject to a slowdown should there by a major rise in mortgage interest rates and should the rise in home prices come to a sudden halt. On balance the outlook is good, but it holds risks. I`m Charles Schultze.

12/13/2005 7:55 PM  
Blogger 41cadillac said...

Jim: Your point is important.

" how many months of appreciation in equity. "

These last in the "Bubble Game" will shake out fast.

12/13/2005 8:13 PM  
Blogger Silver Lightning said...


You sound like you got screwed or should I say you screwed yourself and won't admit it.

12/13/2005 8:32 PM  
Anonymous Anonymous said...

Broker Hater
Unless you're SoCal's employer, why hell do you care that he has this blog?? It seems very strange that someone would spend their time spewing such vitriol as you have on this blog and yet not believe that there is a Housing / Credit Bubble. If you don't like what he's doing, then shut the F&ck up and move on Moron.

12/13/2005 9:38 PM  
Anonymous Anonymous said...

I'll second that.

12/13/2005 9:42 PM  
Anonymous Anonymous said...

Broker hater said:

"Did your father not teach you anything, son, or are you, like most of your generation, a woman-raised-boy?"

I'm a women-raised-boy. I've come to the conclusion that man-raised-boys must be @#$%'s such as yourself.

Bring facts and ideas to the discussion. Not men-raised nonsense. Perhaps a little self reflection would go along way. Look in the mirror.

Great Blog!!!!

12/13/2005 10:23 PM  
Blogger SoCalMtgGuy said...

r patrick

I was getting the total costs from what I see on lots of loans out here in CA. ONe thing to remember, the larger the loan, the larger the fees (generally).

Most brokers on an option-ARM are getting 2-3 points on the back (from the lender) and whatever they charge up front. On a 500k loan, just the points add up to 10-15k.

Most brokers charge 1pt origination fee, and try to get .5 to 1 pt back from the lender.

The $2500 for tile/escrow is about right. Then there are the Lenders fees of about 795 to 1295 (if a combo loan 80/20). Then you have whatever fees the brokers charge.

Most of the fees are in relation to the loan amount. Doing a $700,000 loan, most charge 1pt up front, and get one on the back (at least they used to until rates really started jumping up). That is 14k right there, before any other fees the broker charges, and all other fees.

This assumes that there are NO prepay penalties. If you have a loan with a 2k a month I/O payment, you are looking at 10-12k in penalties for refi'ing.

I hope this helps some

12/13/2005 11:08 PM  
Blogger Elizabeth said...


My coworker tells me that he deals with people from all walks of life, but mostly professionals. He deals with attorneys, IT people, people who have inherited wealth or homes from their parents. He deals with anyone from their twenties into their late fifties and sixties. Most of them are leveraged to the hilt or are about to be. Many of them hold more than one job just to make the mortgage payments: he told me about this one Systems Admin who works the graveyard shift at a gas station and only averages 4 hours of sleep a night just to pay the minimum mortgage payment each month. The people he deals with live all over the East Bay, primarily in suburban locations. I can't imagine that the cities (especially San Fran) would be any different.

I'd love to see some hard statistics just to see if these anecdotes and the picture I've gotten from him really are true and not just a local or California trend.

12/13/2005 11:29 PM  
Blogger Elizabeth said...


I think what shocked me the most about what my coworker told me was that people know exactly what they're doing. They're not as clueless as I'd think they would be in dealing with real estate or loans. I'd have personally thought that many of them were naive and easily exploited by a slick sales pitch, but they're perfectly aware of the consequences, and aren't being taken in. A couple of his older clients apparently told him, "This is all coming to an end soon, and we might as well live it up while we can!"

There's a weird fatalism in the air now-- I get the feeling that it's like Nero fiddling while Rome burned. People buy SUVs subsidized by McMansions they've leveraged to the hilt and can't afford to heat, and they drive them everywhere as global warming is worsening and natural resources are failing. Rather than tightening their belts and conserving, it's like they're determined not just to live it up, but to take us all with them when this house of cards tumbles to the ground. And they're not just conscious of what they're doing, they're embracing the time before the collapse and just hastening it all the more.

Sorry to be so pessimistic! I've heard the "live it up before everthing dies" refrain so many times now from so many different sources (my coworker says he's heard it a bunch of times himself from his clients) that I'm really starting to fear for what will happen to this country when the inevitable crash happens. The housing crash is going to impact so many industries, from insurance to construction to banking to lumber to heating/cooling manufacturing to farming, and so on...

12/13/2005 11:47 PM  
Blogger SoCalMtgGuy said...


A lot know exactly what they are doing. Many that just want to own a home to live in, do not. They were not chasing the buck, they were looking to own their own home...and feared being priced out forever.

12/14/2005 12:24 AM  
Anonymous Anonymous said...

It's interesting to also note that creditors really pushed through the agenda to revamp bankruptcy laws in this country. Not to say that was essentially bad from abuses inherent in the system - however it really wasn't a social problem needing critical fixing in the way it was done.

Say all the impending doom we have in this thread comes, we will have a large group of society that will truly be hit to the streets. Unfortunately it is the middle class that is leveraging themselves into the depths. However this can cause opprotunities for those who can jump in, as bad as that may sound to some.

brokerhater - stop being an ass yourself. Talk some facts or else go into the quiet room chump.

12/14/2005 1:00 AM  
Anonymous Anonymous said...

"brokerhater" isn't bringing anything useful to the discussion. You have a delete option!

12/14/2005 5:55 AM  
Anonymous Anonymous said...

brokerhater -

You need a hug, bigtime! Obviously daddy wasn't handin' out the love......or was it the uninvited visits from Uncle Tickles? Get help, or at least a perscription to Prozac.

By the way, what's your point?

12/14/2005 8:40 AM  
Blogger chickelit said...

Elizabeth, Karen et al. I see you're right back to sanctimonious speculation about the masses.

My training in the hard sciences will not let me to just believe what I want to believe about the state of the union.
And ss the man said, he'll publish the statistic when he finds it. Until then,
Great blog Socalmtg!

12/14/2005 9:55 AM  
Blogger SoCalMtgGuy said...

r patrick,

if the broker is getting paid from the lender, then the bwr will be "paying" for it through higher rate.

.25 add to the rate adds .5% rebate
.5 add to the rate adds 1pt rebate.
add .75 to the rate for the 2nd and 3rd points.

Not many brokers are doing 2-3 back right now. MOst are at par to 1 back. It is hard to sell rebate to the borrower in a rising rate environment. Adding that .5 (1 back) or 1.25 (for 2 back) or 2.0 (for 3 back) will make the rate really high.

1pt is 1% of the loan amount.

12/14/2005 10:18 AM  
Blogger moonvalley said...

I love your blog..I just finally got around to looking at it today after seeing it listed. I immediately added it to my toolbar and told my husband about it and he's now added it to his toolbar also. I'm so glad to not be any sort of f@ckedborrower.

12/14/2005 11:02 AM  
Anonymous Anonymous said...

The recession is an illusion, the housing market will "correct", everyone will start making money and your credit score will bounce right back up again very soon. Just ask the FED. But for now, I'm investing in a REPO TRUCK. All those nice toys that were bought with all those refi loans, those are the fruits that are ripe on "The Lending Tree"...no pun intended, of course.

2/19/2008 7:40 PM  

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