Thursday, January 19, 2006

FB Friday

Another week has gone by and it is time to look at some possible FB's. It has been a busy week and I'm ready for the about you!?!??

Let's get moving...

How about the borrower I looked at this week that had 11 mortgages on his credit report. The broker told me it really wasn't that bad because they had just sold 3 of the places, and were buying one new one, so there would only be 9 mortgages when it was all done. The borrower had credit in the mid 600's. The problem is that the remaining 8 mortgages totaled well over 4 million combined. I could tell from the credit report that 4 were neg-ams, 3 were interest only, and 1 had actually been paid down several thousand dollars. How did I know they were neg-am? Easy, on a credit report there is a column that says loan amount, and then there is a column that says loan balance. If the loan balance is higher than the loan amount, then wallah! know the borrower was making the neg-am payment. The other 4 mortgages were several months old, but the loan balances were the same as the original loans. Then there was the lone loan (ha ha) that actually had the balance paid down 10's of thousands of dollars. There wasn't really any way for me to know the LTV's of all those loans, but several of the loans were in the 600k-900k range and I assume they were in the 80-90% range. Aside from the problem that this person owned too many properties, and needing to do a stated income / non-owner occupied property / with I/O, they were also losing about 10k a month on the properties they were renting. Needless to say, I didn't need to get into all of the specifics with this one, as I knew I couldn't do the deal.

This situation took place not to long ago, and it is one of those situations where I was actually able to help an FB. There was nothing out of the ordinary with the file, except that they had a 1st, a 2nd, and a 3rd lein on the property. Ok, no big deal, the 2nd and 3rd were small loan amounts, there was plenty of equity, we'll just pay them off. Things got interesting when I got a call from my account manager on the inside. They informed me that when they pulled title, there were multiple (5+) hard money leins on the property! Somehow this borrower got behind on making payments to his hard money lender, so they just kept borrowing against their property to pay their loans. Fortunately for them, they had enough equity and a solid appraisal. It took some work on my part, but the deal made sense, and it really did help the borrower get back on their feet, and have a loan with a 'legitimate' lender again.

I looked at 2 loans today where the borrowers had the same problem...having 90-day mortgage lates, and then wanting/needing to refinance and pull 100k or more out. It doesn't take a rocket scientist to see what is happening when somebody can't pay their mortgage, and they want to refi, and pull out 100k or more. No matter what they say, what do you think they need the money for?!?!?

All in all, I'd say that activity is picking up some, but whether or not that translates into business is yet to be seen. Seems that people are waking up from the holidays and looking at credit card bills and the upcoming tax season. Seems that brokers are seeing mostly A-paper deals and some ugly subprime. I have gotten more calls this week than ever before with this question: "my borrower has a loan with your company, if they refinance it with you, will you waive the pre-pay penalty??" Unfortunately, the pre-pay penalty is generally there to compensate the investor, but there are some cases where lenders will make an exception, but not usually on the subprime side. It will be interesting to see how it all pans out.

I hope everybody has a great weekend!



Anonymous Anonymous said...

Warenter, haven't you heard of freedom?

We are now free to take as much loan as we want. Soon we are all free of our assets and jobs also. It's freedom! It's liberating! It's wonderful, it's the american dream!

1/20/2006 1:41 AM  
Blogger Silver Lightning said...

I think the reason they don't sell is that they still believe that their properties will continue to go up in value. Also they couldn't allow themselves to be renters what would the neighbors think? Everybody thought they were making the big bucks driving the new cars but come to find out they were refi junkies!

1/20/2006 5:27 AM  
Blogger Rob Dawg said...

There's a complicating factor in California. You cannot buy smaller to lower your costs. My house for instance would cost the same in taxes as the current mortgage and taxes combined. So basically if I went from my current place to a sh@tb@x with no mortgage I'd still need to keep the equity in a T bond to pay the new taxes.

1/20/2006 7:06 AM  
Blogger Lou Minatti said...

How about the borrower I looked at this week that had 11 mortgages on his credit report.

SoCal, how does this happen? Seriously. I have a spotless credit record and when I bought my house 10 years ago for a comparatively piddling amount I had to provide everything except my blood type.

Where are the banking regulators? If the FDIC (my tax money) is insuring the safety of the accounts in these banks (hello, WaMu!) and they fail due to these absurd loan practices, this will cost ME money, even if we don't bail out the stupid homeowners.

What sanctions are there? Criminal? If not criminal, surely these assholes can be sued into poverty. I cannot express fully how much this pisses me off.

1/20/2006 7:52 AM  
Blogger drwende said...

Back in the olden days (5 - 10 years ago), didn't you have to have pristine credit, and lots of assets with cash flow in order to be able to borrow several million dollars? But now anybody can do it?

Two speculators I watch in our hinterlands...

One currently owns 8 rentals, all of which have to be losing money unless some other shenanigans are going on. For down payments, she sold three older rentals (bought in the early 1990s and held until they regained value), then refinanced her primary residence (in a much more expensive region) to cover the other down payments. Didn't banks used to dislike having the down payment come from a loan? But it gets better -- 7 months later, with higher interest rates, she did a second refi. I think this one is to cover her losses. She's on the hook for around $3 million in mortgages, possibly more.

But #2 is better. He's a realtor. Has been buying frantically for the past year, occasionally swapping various partners' names on and off deeds. My conservative estimate is that he's losing $10,000 a month. He has a dozen or so mortgages (it takes a spreadsheet to keep track) and just bought a $700,000 new home from the builder. He also "bailed out" a over-leveraged client of #1 by getting his name on their mortgage.

I shake my head. I'm writing fiction about the bursting bubble, and my MADE-UP characters are doing LESS wacky things than what I see in real life.

1/20/2006 9:49 AM  
Anonymous Anonymous said...

I don't believe how people could assume that there are no risks at all. Don't they ask themselves what if? What if property values took at 10%+ decline in 2006, wouldn't all those happy flippers lose it all! Amazing how people can get to such a gambling level.

If you put a frog in a pan full of water, then put the heat on underneath. The frog will cook to death without even feeling it.

The heat is coming !

1/20/2006 10:21 AM  
Blogger drwende said...


Someone did the frog experiment for real. The frog jumped out. Frogs can't rationalize themselves into believing that if they just stand the heat for a couple years, everything will return to normal.

Today's Sacramento Bee included realtors rationalizing that the huge number of expired listings in December (exp = 86% of sold, up from 12% a year ago) all belonged to people who were just testing the market and didn't really want to sell, so those houses won't be listed in the spring.

Oh, and a professor saying that the $400k houses will remain at that price. Never mind that they were $200k three years ago... and that Fair Market Value Rent is still consistent with the $200k value.

1/20/2006 10:55 AM  
Blogger drwende said...

I remember when, if you got the down payment from a family member they had to submit a letter stating the money was a gift, not a loan.

Yeah -- we had to document up the wazoo when we bought a house in 1999. And we had great FICOs, were buying a less expensive house than we sold, and could have qualified for triple the mortgage. (I talk about renting because we sold in 2002 and moved cross-country.)

BUT WAIT! In my yahoo mail, Countrywide is now running BIG animated ads promising "4 out of 5 applicants approved. The page it links to offers subprime, no-doc, 125% LTV seconds, debt consolidation... everything risky. How desperate is a mortgage lender when they run big banners in yahoo mail?

1/20/2006 11:07 AM  
Blogger SoCalMtgGuy said...


The banks are driving forward by looking through the rear view mirror.

They see the low default rates, and keep lowering standards and lending away.

They will probably be thinking twice in 2007-2008 when they start seeing what they have been "driving through" in their rear-view mirror.

Also, the banks would NEVER rationalize something that was making them lots of money at the moment. After all, every other bank is doing it, so it can't be wrong!


1/20/2006 11:28 AM  
Anonymous Anonymous said...

Mtnrunner2 -- To address your question on gold. You said" But since gold is no longer tied to money as a reserve currency, isn't it just another commodity? "

This is a complicated issue, but those of us who own gold would say that "gold is in fact money" The US $ is THE reserve currency but that could be coming to an end soon. Alot of the recent action in gold has been spurred by foreign buying. Think about it this way--- considering the fact that many of these countries are holding huge amounts of $'s because of their trade surplusses with us they are starting to wonder why they should hold the bag and watch their holdings decline in value,which will inevitably happen as the US inflates its currency (creates more $'s out of thin are--which is what the Fed does).Thus gold is viewd as an alternative--really the only currency not controlled by politicians. My suggestion is you go to Jim Sinclair's site and look around. he is known as Mr Gold and does a great job educating on his site.

1/20/2006 11:56 AM  
Anonymous Anonymous said...

Here's a great article that proves exactly what this blog has been saying all along - borrowers don't know what they're doing!

1/20/2006 12:12 PM  
Blogger grim said...

Centex Home Sale Ad Parody

You'll get a kick out of it.


1/20/2006 4:38 PM  
Anonymous Anonymous said...

A little bit of Interest Only, a sprinkle of Negative Amortization and a dash of an ARM and WALLLAH!!! Juan the Mechanic get the keys to his new 700k home in Fontucky California. I mean VOILA.

1/21/2006 12:14 AM  
Blogger ocrenter said...

"How about the borrower I looked at this week that had 11 mortgages on his credit report. The broker told me it really wasn't that bad because they had just sold 3 of the places, and were buying one new one, so there would only be 9 mortgages when it was all done."

Socal, this senario sounds just like the extreme flippers on my blog. seems like they are all over the place!

1/21/2006 12:53 AM  
Anonymous Anonymous said...


you decide.


1/21/2006 10:47 AM  
Anonymous Anonymous said...

The lack or risk premium in the current low interest rates on mortgages compared to the fed funds rate reminds me of the old blonde joke:

Accountant: According to my figures, at these prices you LOSE money on every sale.

Blonde Businesswoman: That just shows that you don't know anything about business, we make up for it in volume.

Funny. I didn't realize that the CEO's of F and GM were blond women.

1/21/2006 5:32 PM  
Anonymous Anonymous said...

Regarding gold:

Please remember that EVERY paper fiat currency has lost ALL of its value. Every one. No exceptions. The same is coming to the US Dollar. Buy your CD's at your own risk.

Gold has been money for 5000 years. That speaks for itself.

Why did gold drop in terms of dollars in the 1990's? The central banks were selling (or leasing) their gold to drive down the price to convince 'investors' that the dollar was a safe currency. It is becoming more obvious that they are running out of gold to sell or lease, which explains the price rise over the last four years.


As for gold being cheap, that doesn't prove it's a bad investment; it proves that NOW is the time to buy. You ever heard of buy low and sell high? Gold is going to $4000 and silver is going over $200. Then the US dollar collapses, and then we use gold and sliver as money.

1/22/2006 7:42 AM  
Anonymous Anonymous said...

Centex seems to be having problems unloading their properties. They are offering discounts up to 25% in

SAVE $105,000 - Centex Close Out - NOW $294,000 - NEW Single Family
Home in Martins Crossing - 4 Bedroom, 2 Bathroom, 2 Car Garage - 1,695 sf. - BEST DEAL OF THE YEAR!

SAVE $65,000 - Centex Close out - NOW $239,000 - NEW Town Home in Lexington Lakes - 3 Bedroom, 2.5 Bathrooms, 1 Car Garage - 1,777 sf - BEST DEAL OF THE YEAR!


1/22/2006 11:12 AM  

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