Here’s a post from a lady who manages a sales team for Aames Home Loan which will become Home Funds Direct in about 2 weeks, and be a part of Accredited Home Lenders. The merge of the companies will make them the 6th largest originator in the nation according to Wall Street
I am posting her insider’s view, because I think that understanding the depth and breadth of exotic lending will go a long way in predicting how this housing market shakes out. The majority of Americans will default when their loans adjust, in my opinion. After all, if we could handle the 50% – 100% higher mortgage payments, the IMF would not be warning of global recession due to the US housing market, and Greenspan would not have warned of systemic risk to the financial system. The risk being written about are due to the loans whose principal rises, and whose payments will shoot up. I believe Business Week called them neutron mortgages.
My office of 7 loan officers takes +/- 100 loan applications per week, 90% of that coming from cold calls.
Of the last 100, I have taken some simple statistics and have found the following:
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68/100 had LTV’s over 80% at time of application
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16/100 had LTV’s over 100% at time of application
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78/100 had back end DTI’s over 55%
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31/100 had back end DTI’s over 70%
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23/100 had FICO’s under 500
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81/100 had credit card debt above $10,000
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54/100 had credit card debt above $20,000
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18/100 had credit card debt above $50,000
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66/100 had Pay-option ARMs
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27/100 had Pay-option ARMs and mortgage lates
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22/100 were either in forbearance or had been in forbearance within the past 12 months
We took 14 applications today and we cannot qualify a single borrower for any type of loan. We are sub-prime, in fact, sometimes I say we are sub-sub-prime. We can qualify almost anyone for a loan. Not today.
Let me tell you about just one borrower from today:
* Husband and wife
* Husband on fixed income military retirement $1800/mo
* Wife makes $9500/mo as a registered nurse
* 5 properties with $3,400,000 in mortgages
* All mortgages currently have prepays
* 8 interest-only mortgages
* 1 option ARM deferring $3500/mo
* 3 in Chula Vista and 2 in Escondido
* No more than $75,000 equity in any of the homes (verified by comp checks with 3 appraisers)
* All properties with front end LTV over 90%
* $65,000 credit card debt $672 Mercedes payment
* One property had 3 mortgages, one of them hard money
* 621 mid FICO
* 2×30 in the past 12 months
* Not a dime in the bank
They have been making mortgage payments with their credit cards and refinancing to pay off the credit cards. They are at the end of their rope, but refuse to throw in the towel.
This is not even an “extreme” example. I could show you dozens of these every single week.
I just wish the experts would see what I see. I think the statistics released would be different.
Granted, I only see applications from San Diego and Imperial Counties, but this is just getting out of hand.
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She goes on to explain that many people do not understand their principal is increasing, and that elderly people who had a house almost paid off, now have a much higher loan that is about to reset. This is the same stuff I have been writing about for months now.
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The bread and butter of my office is selling people out of option arms and IO and back into a “real payment.” The broker office next door simply can’t believe that we stay in business without an option arm to sell.
I will say this without any hesitation: 9/10 borrowers who currently have Option ARMs have no real understanding of what their loan is doing. I have had more than a few old ladies cry in my office when I show them the amount of deferred interest on their loan.
They were careless enough to sign a bad loan (ultimately the responsibility of the borrower to read the docs before signing), but it doesn’t help that every hack broker out there is pitching the option arm just because the rebate is so high.
Almost daily I see 70-year-old+ borrowers who used to owe $50k on their home now owing $600k on option arms.
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That last part is just amazing. I think the number of refis into Option ARMs is going to be a surprise to the general public. The perception that these loans are held by new buyers is simply wrong. As Kelly Bennett reported in the Voice last week, Loan Performance records show that 68% of refinances in San Diego in 2004 and 2005 were Option ARMs.
