Mortgage Lender to Answer Questions that You May Have

[X1Y2Z3]

Hi all,

I noticed someone asking for a mortgage lender to participate in these forums. I have been in the mortgage business for 10 years. I have worked at a mortgage banker, that funded their own loans with their own warehouse line of credit and then sold the loans to various investors, and for one of the top 3 direct mortgage lenders in country. If you have any questions, please feel free to ask. I may not answer everyday but I will try to get back to you. I will give you the real scoop on mortgage lending and real estate. BTW I have a real estate license as well.

[PerryChase]

Please air all the dirty laundry and tell us why borrowers might not be able to afford their loans in the next few years. Remember, you’re anonymous as long as you want to remain that way. So no one will call you at the office.

Did borrowers get in over their heads and take on debts they could not handle. How much are buyers depending on appreciation? Are they refinancing ARMs into other ARMs in order to yet again delay making higher payments? Were “investors” getting loans as “residents” then ending up with 2 mortgages?

What’s your personal take on the RE market?

[X1Y2Z3]

Ok here goes. Yes, most major RE markets are in housing bubbles IMHO. It was like the dotcom frenzy of the late 90’s. People thinking they were geniuses because the values of their homes were going up. Once the bidding wars started up, I knew the bubble was getting way out of hand. The worst situation that I heard of was a house that had 36 offers on it. Who in their right mind would bid against 35 other people for a house? It wasn’t even in a nice location, in fact it was in a bad location. Here’s what would happen. A couple would get approved for a mortgage. Then the agent would help them make an offer, they would lose the house because they didn’t bid high enough. Then the agent had them, they would say, if you only add an escalation contract you will win the next bidding war. So the buyer probably would lose another house, then they would ask, how high can I go over the list price? It was ridiculous. One agent I worked with called it a “vertical market”, prices were going straight up. So you have everyone trying to outbid each other and virtually no one taking the time to assess whether the prices increases were sustainable. BTW I was an in house Loan officer meaning I worked in a real estate office so I saw everything.

So initially, the low housing supply/low rates got the bubble started. Then the lenders made it much worse than it had to be by loosening guidelines. When the interest only loans started getting popular a vicious cycle began. They allowed people to buy more home, which drove the prices higher. Then, as the prices rose, people had to use the I/Os or they couldn’t afford the house. Now, remember that regular guidelines were very easy to begin with. At my bank, we allowed debt ratios (mtg payment+ monthly debt/income) of 45% and didn’t even bother with a front ratio (mtg payment/income). When I started in 94, FNMA guidelines were 28/36 for ratios. And I can tell you that the majority of people who got a regular loan were at 44% or so. I had to be very careful with my estimates for monthly tax and insurance or someone could end up at 45.1%. Then as people couldn’t afford a house with either an interest only and a 45% debt ratio, they then opted for a negative amortization ARM or a stated income loan. My bank doesn’t even offer the neg am ARMS (brilliant move). There are basically 3 types of low documentation loans: stated income, no ratio and No doc. Stated income means we ask for income and employment info but don’t verify it. No ratio means we don’t ask for income but verify the employment. No doc means, no job, no income no assets are verified. Stated income loans are very much liar loans. I never liked them because it was so obvious and I was uncomfortable with them. A bank can do quality control and pull tax returns to verify the stated income after the loan closes. I preferred no ratios or NO docs because no one was lying, they just didn’t put their income down. Bottom line is that originally these loans were for newly self-employed people or people who just didn’t want to document their income for various reasons (tax returns were too large and complicated). But today they are used to buy homes that the borrower can’t afford in the first place. Our company tried to separate functions, so I was a “prime” loan officer and I would refer marginal buyers to our subprime loan officers. Every time someone wouldn’t qualify for a prime loan, I would just refer them to the subprime guy and ask him to do a stated, no doc, etc.

Bottom line is that first low supply low rates drove prices up, then interest only and neg am arms helped push them up and finally, when all else failed, just put someone in a stated income, no ratio or no doc to get them qualified. oh I forgot about 100% financing, of course no one buying a house these days has any money saved. Since we can now do 100% to $1M who needs savings. Basically, any one who could fog a mirror could buy a house. This created a massive pool of buyers with a limited supply of homes. Any one who took Econ 101 can tell you what happens with large demand and low supply. Let me give you some examples of crazy loans:

100% to $800k, 1 day out of bankruptcy, credit score 580

95% NO DOC to $700k and some lenders were doing 100% NO Docs: again, no job, no assets needed.

Anybody, anybody could get a loan. Here are some reasons why most major markets are in a bubble:

1) price/rents are way above historical averages

2 price/income way above historical averages

3) look at mortgage volume: interest onlys went from being almost non-existent to 40% of the market and higher in certain areas.

4) Neg am arms again almost nonexistent to a huge percentage of loans, 100% financing a huge percentage. I believe 40% of first time buyers used 100% financing last year.

5) Subprime loans made up 5% of the market in 2000 or so and about 25% now. The majority of subprime loans are 2/28s meaning the rates will adjust in 2 years, these borrowers are finished. The easiest sale in the world for an LO is to say, oh just take this 8% loan and in two years your credit will improve and I will refi you to a standard, loan. It never happens, these people never fix their credit.

6) 2 Trillion dollars of ARMS are adjusting over the next 2 years. Many of these are interest only so they will be hit by a rate increase and have to pay principal.

7) Prices are already coming down much more than the stats show, NAR stats do not include seller concessions, the large majority of sellers/builders are paying closing costs, etc.

8) The NAR stats also operate with a lag. They use year over year numbers so if there was a lot of appreciation in the beginning of the year, but prices are falling now, albeit slowly, it still looks like houses are appreciating. Prices just turned negative year over year in SanDiego, DC, Long Island, NY and many other places.

9) Inventory is going through the roof. RE moves like a glacier. First inventory will rise, then sellers will have to adjust their prices down. Especially ones who can’t afford their ARMS.

10) Psychology will change. Behavioral economics studies how psychology can affect economic decisions. People get caught up in the mass psychology and get burnt, dotcom bust, the coming housing bust. Robert Schiller is a Yale economist who studies this and studies the housing market. His data shows that housing barely exceeds inflation, his data goes back something like 200 years. Now the scary part is as home prices fall, psychology will turn negative. People will hate housing which will drive prices down further. Why would I buy now, if prices are falling, why don’t I wait?

11) people who put 0 or 5% down are already underwater. They will walk away from their homes. Foreclosures are going up across the country. Of course foreclosures were very low recently because all you had to do was throw a sign in your yard to sell your home. Now that homes aren’t selling or are selling for lower prices, foreclosures will continue to rise adding more inventory to the market. Note that foreclosures are a lagging indicator in fact, I think the last time they spiked was in 1996 or so well after the last RE bust of the early 90s.

Oh I forgot, this isn’t just a US bubble. Most major markets around the world have housing bubbles, Uk, South Africa, Ireland, Australia, Spain, etc. etc. The fed caused a lot of this by dropping the funds rate to 1%. Other central banks lowered their rates spurring bubbles of their own. Australia has already seen a downturn in their markets, nothing huge yet, but I have seen declines of 5-10%. The UK is on the knifes edge. Their personal bankruptcies are soaring. The most undervalued market is probably Japan. I’m sure most of you know but their housing market fell 50% or more from the early 90s. Their stock market fell 70% or more. Their housing market just showed some appreciation for the first time in many, many years.

If the US goes into recession, which I believe we will in early to mid 2007, we could bring the whole global economy down. Things could get very ugly. Housing made up a huge percentage of GDP over the past 5 years (after the dotcom bubble), something like 40%. When housing goes, which it is, the US economy will go. My prediction is that 30% of agents, lenders, contractors, builders, painters, etc. will be out of the business in the coming year. It’s already happening. Here’s what makes this so scary, unlike the dotcom bubble, people now have enormous mortgage and consumer debts to service, many of which are ARMS, they are in serious trouble as the economy slows. The FED created one bubble after another and this one (housing) is much more dangerous than the first (dotcom).

Ok that’s enough for now. I apologize for the spelling and grammar. I was trying to type as fast as possible. This is all my humble opinion and worth no more than 2 cents.

[lindismith]

This is all stuff we know. Unfortunately.

Tell me, when did you figure this all out? I worked in a dotcom, and from the get-go I knew it wasn’t sustainable, but I wanted to believe it because some very clever people (or at least I thought they were clever were telling me it was going to revolutionize the world, which to some extent it did, just I didn’t make any money out of it.)

Did you know from the start also?

Are you afraid you won’t have a job soon?

And what do you tell clients who want shady loans now?

[X1Y2Z3]

You are right, most people who visit this site know what’s really going on. But I can tell you, that 90% of the RE community and the general public doesn’t get it. They now know that things are getting ugly because of the surge in inventory and the recent price reductions, but before August 2005, they had no idea that we were in a bubble. Honestly, it was very frustrating because I couldn’t talk to my coworkers, friends or in some cases, family about it. They either didn’t get it or would think I was nuts. My in laws thought I was crazy. I told my sister in law, to be careful about buying a house. They bought in April of this year. I told them to negotiate and get the seller to pay closing costs. I also told them to prepare themselves mentally that prices could fall after they buy. Of course, they didn’t really believe me. I put them on a 30 year fixed rate first loan that is interest only for the first 15 years and a 30 year fixed rate 2nd loan. They put 5% down. There’s no doubt that prices in their neighborhood will fall and they will owe more than the house is worth. However, they have the protection of 30 year fixed rate loans. They will just have to ride out the downturn.

I noticed the bubble in early 2003. It was just starting to get some publicity. When the multiple offers, escalation clauses started picking up, I knew people were being irrational and a bubble was forming. Also, when I started in 1994, I will never forget sellers bringing money to the table to sell their homes/condos, that they bought in the previous peak around 1989-1990 or so. I knew that RE goes in cycles, unfortuantely, a huge amount of new realtors, lenders, buyers, didn’t understand the cyclicality of the business. Angelo Mozilo, CEO of Countrywide, is quoted as recently saying, “I’ve never seen a soft landing in 53 years in the business”. He’s just pointing out that RE goes in cycles. The problem is this cycle got so out of control that the downside could be much, much uglier than ever before.

I just left the business, not because I couldn’t survive, but because I never liked it. The money could be incredible, but it was mindless work. I also did not like being tied to one area of the country. Once you build your book of business, its hard to relocate without having to start all over. Basically, as a mortgage lender one does the same thing over, and over and over. How many loans can I do this week, this month, this year. It’s the same process everytime, although its been streamlined dramatically since 1994. Now, don’t get me wrong, this year has been very ugly for many lenders, including myself. I saw the latest numbers for my company, everyone’s numbers are off 20-40%. And, we are a very strong mortgage company, because all of our loan officers work in real estate offices and do a large amount of purchase business. Lenders who focused on Refis are finished. If lenders do not have a strong base of builders or real estate agents referring them business they are in big trouble. Basically, lenders can get their business from realtors, builders, accountants, financial planners or past clients. The best source of course is builders or realtors. However, most builders will have their in house lenders which they can steer loans to because they can pay closing costs or offer reduced points. Once a lender has been in the business for a long time, if they are smart, they will build a database of past clients who they will email, mail, etc. to bring new business in. They will also have a loyal following of real estate agents. So the longer one has beeen in the business, the more sustainable their business becomes assuming they are any good. Now, that doesn’t mean that they won’t have huge ups and downs during the cycles. I know many people who were making $300-500k just because they had been in the business a long time. I always considered a loan officer to be very close to a used car salesman. There are almost no barriers to entry, most states don’t require licensing or a test of any kind and no education is required. I also hated being on call 24 hours a day. It just wasn’t worth it to me.

I always tried to steer my clients to the safest loans possible. For example if someone wanted an ARM, I tried to push them into a 10/1, 7/1 or 5/1 at the shortest. Even the 5/1 ARMS are at risk. Our 5/1 has an initial interest rate cap of 5%! So if someone starts at 4%, they can adjust to 9% at the first adjustment. I also, never offered Neg Am arms, I lost a bunch of deals because of that.

[dksolomon]

First – thank you for the honest and open comments. I also feel we are headed for a recession, and homes here will reset back to a more realistic price point. When precieved value and real value get out of line…trouble follows.
I have owned homes in 4 states, always buying 20% down 15 or 30 yr depending on the home. I moved here in April & the RE that I worked with tried in vain to have me believe that the housing market was only going to continue to grow -his words -buy now or regret later. I could not pull the trigger, I knew something was out of line. I could not drink the coolaid, so I balked.

I am renting for now, will sit by and watch the fall or correction or whatever we all choose to call it happen.
Money in the bank – no debt. Time is on my side, yes it is.

dks

[X1Y2Z3]

DKS,

You are in a great position. Time is on your side. RE takes a long time to move, the downcycle has only just begun. Luckily you didn’t listen to your agent. Many people bought the line, “if you don’t buy now you never will be able to”. That’s total BS. Its tough being a contrarian but can be very profitable. The old adage, it’s best to buy when everyone is selling and best to sell when everyone is buying, is perfect for this real estate bubble. Now we are on the sell side of the equation as inventory continues to build. The buyers market has only just begun.

[tickets]

You said your company doesn’t do neg ams, but have you seen what your competitor’s offer? On Ben’s blog a poster claimed that the 110% cap doesn’t just apply to the negative amortization, but that (at least some) lenders can demand a reappraisal and accelerate the payments if prices fall (basically, a margin call). If that’s true then a lot of borrowers will be very surprised.

Also, how well do you think pepole understand prepayment penalties? Do they realize that they should get a break on the rate if they agree to one? Do they get talked into refinancing even if they have a big prepay penalty, or a penalty that’s about to expire?

[mydogsarelazy]

Hello Mortgage Banker,

I have a business question for you: how can my sister get a loan?

Here is the scenario.

The title to her home is solely in her name and the home is appraised at $1.1 million — yes I know that in this market the figure could be lower — and she is separated from her husband. The house is in Northern California.

She only owes $160K on a first mortgage and wants to refi and take out as much as $100k to consolidate bills fix up the place etc. Her credit score is 610 and she pays her bills by working ($2k per month) renting the guest house ($600 per month) and by receiving $3,200 per month from her husband who is now overseas, and doesn’t want to be involved in any kind of refinance.

So, will a “stated income” loan work for her? As you can see she has weak credit, a hard to document income and tons of equity.

Any help would be MUCH appreciated.

JS

[X1Y2Z3]

JS,

Yes, she can get a loan. Anyone can get a loan!

Pros:

Lots of equity
Low loan balance: $260k
Good income from husband

Cons:
The rent may not count if the property is zoned as 1 unit
She will have to prove that the income from the husband will contiune for 3 years through a separation agreement. She may have to provide cancelled checks or bank statements showing deposits of the income.

She can go stated income. With a 610 it should work fine. She is a good borrower for stated income as she really is receiving the income, but she just doesn’t want to document it. She might be able to qualify for a regular loan, see the pros and cons above. But it might not be worth the hassle.

[Anonymous]

JS,

Why is her credit so low? Late payments? High credit card balances? Too many finance company revolving accounts? I would suggest taking a closer look at her credit to see what can be done to improve her score. Even a FICO of 620 would allow her to get a slightly better loan. And with such low loan-to-value she could do either a no doc or no ratio loan. That way she wouldn’t technically be overstating the income.

[lindismith]

X1Y2Z3,
thanks for all this.

What are your ex-colleagues doing? Are they looking for work?

What there a defining moment in the last year that made you realize you should get out? If so, what was it?

[X1Y2Z3]

JS,

No problem. Most of my ex colleagues are still in the business although they are hurting.

Honestly, it wasn’t really the market that made me get out, its that I really didn’t like the business. However, its easier to get out when business is bad. I am young enough to be able to make a career move and I decided that I better do it now. I knew there was no way I wanted to be a Loan officer for ever.

[lindismith]

Thanks for all your input. Your narrative reads like a juicy novel. I’m sure lots of people on here will have lots of questions for you.

[VCJIM]

X1Y2Z3,

I feel like I’m talking to a cartesian coordinate system. Or a scrabble board. A twister mat? (did I just date myself?) Anyway, love the name.

In one of your posts, you wrote that you think the fed will lower interest rates to help housing and the economy. However, with other national banks raising rates, this will dramatically lower the desirability of US equities. It looks to me like the fed is stuck between the proverbial rock and hard place, and they’ve made it clear that inflation is the primary concern. Do you have any further thoughts?

[X1Y2Z3]

VCJIM,

I believe you are correct that the Fed is stuck between a rock and a hard place. They left rates alone today, that was because the economy is slowing and housing is falling. But, they are supposed to be fighting inflation and inflation is very much a problem now. My guess is that the Fed will be weak, and will ignore inflation, they will talk a mean game but won’t do anything about it, to keep the economy afloat. The problem is the US econnomy is based on debt and if rates get to high, it would be a disaster. Its called a liquidity trap, rates have been too low for too long and people have taken on too much debt. The same thing has happened in the UK. Their central bank raised their rate by .25% and people are crying because they can’t pay their debts. The next problem is that the Fed already cut the funds rate to 1% in 2003 or so. If they cut rates again, it will not have the same impact, because people are already so indebted, that is why you are seeing 40 year adn 50 year mortgages coming out. People can’t continue servicing their debt. I believe in Japan, at the height of their RE bubble they came out with 100 year mortgages. Well their RE market has been down more than 50% for 10 + years. And their central bank cut rates to 0% plus they went even further by printing money to buy 10 year bonds to drive down long term rates. But, everyone was so indebted that the increase in liquidity by their central bank did not stop the housing market from crashing. Also, their stock market is still down 70% from 1989. It peaked at 40k in 1989 or so and is at 16k or so now. Their psychology changed and people refused to buy even with 0% interest rates. When prices are falling, especially if they are falling fast, do you buy today, or wait a day to buy for a cheaper price. This becomes a vicious circle, the exact opposite of the foolishness we saw the past couple of years where people felt that if they didn’t but today the price would be higher tomorrow.

[VCJIM]

X1Y2Z3,

Thank you for participating, you are a real asset to the forum.

As to the feds holding the rate today, watch the dollar fall….

[powayseller]

I agree, you are a real asset. Can you share any insights on the financial situation of the typical San Diegan, if there is such a thing?

Regarding the idea that certain people can afford adjusting ARMs because they are in entry level jobs with rapid advancement in pay: isn’t that true for some people? What percentage? Or do most graduates carry debt now?

What types of loans do rich people take out? How would you know if someone cheated on their stated income application, or does it matter if you know?

What role did appraisers play in all this? I know there are good ones, like Bugs and Steve Beebo, but did you see any appraisal fraud?

Do you know of mortgage officers who upped the applicant’s income, just to make the loan work?

[Anonymous]

“do most graduates carry debt now?”

Well, I do not know about all graduates, but my wife (doctorate in 2 years) and I (MBA in 2 years) will have spent $250k on our educations. We leave school with $130k of student loans. Therefore, if not all graduates, my wife and I will carry debt.

We just sold or one bed and one bath condominium in Orange, CA in April and was able to pocket $100k.

I have a question, what should I do with the extra money? I have been reading and I am leaning towards keeping it for a down payment vs. paying off student loans? What does the Piggington crew think? All comments are welcome.

[X1Y2Z3]

Yes, I understand Neg Am option ARMS. They are terrible loans. Obviously they are a easy sell when the teaser rate is 1.5%. I had a lady and her real estate agent come into my office to do a refi. She had no idea what kind of loan she had so I told her to bring in her loan note and mortgage statement. She had a neg am option arm. Her loan had grown something like $8k on a $300k balance. She had no idea this could happen. She also had a prepayment penalty of 2%. I ran the numbers and it was a tough call whether to refi. If she planned to keep the house, then she should have sucked it up, switched to a 30 year fixed and rolled all closing costs into the loan. However, she couldn’t make the new payment. She had a renter in the home and now I’m sure she is in trouble. This was a few months ago. Yes, I have heard of caps of 110% up to 125% on these option ARMS. These ARMS helped extend the bubble by allowing marginal buyers to purchase homes. They are going to have massive default rates. I will tell you about an even worse loan. Our compnay offered 2 equity lines back to back. So you could do an 80/20 no money down with 2 equity lines. Well equity lines are tied to prime, have only a life cap and are monthly adjustable. They started a 3.5% for the 1st loan and probably 7% for the 2nd in 2003 or so. Now they have gone up by 4.25% on each loan. Anyone still in those loans is finished. They are the riskiest loans I have ever seen. They were interest only and the buyer could ask the seller to pay all closing costs. So one could buy a home with nothing down, no money in the bank, no assets, with a monthly adjustable loan with no monthly or yearly rate caps up to $500k. And this loan was from a conservative lender.

I would estimate that the majority of people with prepayment penalties have no idea that they have them. Very few people would realize they should get a rate break to accept a prepay penalty. Yes, I have seen a bunch of people consider refi-ing with a prepay penalty because they can’t afford not to. Honestly, I would say the great majority of home buyers do not understand their ARMs, the caps, whether there are prepay penalties and when their ARMS adjust. The buyer is usually more concerned with the payment than the type of loan they get. Of course, there are exceptions to this but I really believe that most of the buying public knows very little about how their mortgage works. Some understand that they have a 5/1 ARM and that the rate will adjust in 5 years. But they won’t know that the cap is 5% at the first adjustment. They also won’t know that they will have to pay principal at that time if they took an interest only. Most lenders will say, oh you will either move to another house or refi before your 5/1 ARM comes do. Everyone buys that line and then forgets they have a time bomb waiting in 5 years.

[powayseller]

X1Y273 – you are such a welcome addition to the forum. I’ve waited for 9 months for you!

The main question I have would be adddressing those on this forum who say that ARMs are not a big problem, because people will just refinance. I’ve posted this is usually impossible due to the higher interest rates that would prevent people form qualifying, and the loss of equity. Could you provide more details on the possibility of people refinancing out of these time bomb loans?

What is the usual income for someone buying the $1 mil tract homes?

How popular was equity cash-outs for people who bought their homes before 1999, esp. those who owned their homes since 20 years or more?

What is the financial situation of seniors?

Did your company keep statistics on loans given and loan performance? Where can we get data on the types of loans given in San Diego?

Does anyone keep data on CLTV? When someone gets an 80/20, isn’t that recorded as a loan with 20% equity?

What is the role of global investors, and what is the change in the risk premium they command?

How is the rising foreclosures affecting your bank’s lending guidelines? Do you have any thoughts on GSEs, CMOs or MBS?

[PerryChase]

Another question for you X1Y2Z3. Say a buyer borrows $500k to buy a house. Prices drop to $300k. Can the buyer hand the key to the bank and walk? What recourse does the lender have?

[ybc]

X1Y2Z3, thanks! Two follow-up questions:
1) Has lending standards been tightened today vs a year ago, or is it just as bad?
2) If the fed lowers interest rate once a recession hits, will that likely rescue many homeowners with ARMs that reset?

[SD Realtor]

X1Y2Z3 I thought you had a very cool post and I enjoyed reading it.

ybc I am not a mortgage broker but my speculative answer would be as follows…(x1y2z3 or anyone else feel free to correct me on alot of what I am about to write)

– Long term mtg rates are not based on the prime. As a barometer I use the 10 year treasury yield and add 1.3 to come up with an approximate standard 30 year conforming rate.

– Most (if not all) HELOCs ARE prime rate based.

– So yeah actually two things may help those people who are in big trouble. First off if the recession we all discuss does indeed happen then we may indeed see the 10 year treasury dip down again or at least stay low. If it does then that would be good for mortgage rates.

– If the fed does indeed lower the prime it will at least REDUCE some of the runaway HELOCs that people are now started to get hammered on.

HOWEVER… even if long term rates go down or stay at a decent value, if your home doesn’t appraise then you will need to come up with cash to refinance and get out of your ticking time of a mortgage.

So my humble opinion is that yes the recession could indeed help people out but it is hard to pinpoint how many will be saved. It all depends on how much depreciation occurs prior to the homeowner wising up and dealing with the problem.

[X1Y2Z3]

SD Realtor,

You are correct long term rates are not based on prime they are based on the 10 year t-bond. Most helocs are prime based. Remember that the FED doesn’t set prime, they set the Funds rate which banks use to as a marker for prime. So everytime the funds rate moves, the banks move the prime rate.

Yes, lower rates will help those in trouble, however, those without equity will still be in trouble. And a huge amount of buyers in 2004 and 2005 put 0% down. I think I read 40% of 1st time buyers put nothing down in 2005. And I can guarantee that most have no savings or back up plans.

If the FED lowers rates, meaning the Fedreal Funds rate, the 10 year may or may not decline. If the bond market thinks that the FED is letting inflation get out of control, the 10 year rate will rise. In fact, the FED is between a rock and a hard place. Inflation has been rising and the economy is slowing. So do they raise rates to curb inflation or drop rates to keep the economy and housing afloat? I think the FED is weak and will cater to the economy and housing. The problem is that this will let inflation continue. And ultimately they will have to raise rates at some point. That’s why Bill Gross of PIMCO, the largest bond manager, just wrote an article saying that this will be the last bond bull market. He means that the FED will panic and cut rates which boosts bond prices. But they won’t be able to cut them any lower. Last cycle the FED cut the funds rate to 1%. They don’t have any room to go lower. Then the FED is stuck like the Japanese FED. The Japanese FED cut rates to 0% and did what is called quantitative easing. Meaning they just printed money and bought 10 year bonds to drive those rates lower. It still didn’t help. The Japanese Real estate market has been down more than 50% for more than 10 years and stocks down more than 70%. It’s called a liquidity trap. If you lower rates too low, you can’t raise them again because people can’t repay the debt.

[powayseller]

x1y2z3, thanks for all those insightful answers. That was a lot of typing. It’s really great to have an insider’s view of the mortgage industry.

Could you elaborate on the ARM resets? Someone on this forum thought ARM resets would not affect most of the people who took them out, since there is a large group of people who will get 25-50% pay raises within their adjustment period. He cited professionals in startup positions in engineering, law, or doctors. If the doctor took an ARM while in residency, he would surely be able to pay the new mortgage when he’s a full doctor earning much more. I’m wondering for your own experience, how many of the people you saw, who took out adjustable loans, were in jobs like this, or expected promotions.

How many people thought ahead of how high their payments could go? Or was the idea that they would just refinance when it got too high? In other words, how many people are even aware yet of what will hit them?

What did your office do with the loans after purchase? I am interested in learning more about what happens after the loan is sold off, who buys them, and WHY they would take on such high risk. Is this MBS owned by all of us, without our knowledge, i.e. in our money market holdings, pension funds? How much of the City of San Diego pension money is in 2nd mortgages or MBS or CMOs? Perhaps we cannot find out.

I personally think the ARM resets are going to make this housing bubble bust worse than any in history, and they are causing the market to soften nationwide. I was in Omaha, NE this summer, and I saw “price reduced” in housing ads. A friend told me one builder went under, and her office did one 3/1 ARM for a non-English speaking woman who had 5 half-dressed kids in tow and didn’t even own a car. People all over stretched into homes with subpar credit and qualifying on those teaser rates. For this reason, the reset problem will bust housing nationwide.

Are you still in the mortgage industry?

[X1Y2Z3]

ybc,

1) Yes, lending standards have been tightened. It depends on the bank. The option ARMS are no longer allowing people to qualify based on the initial interest rate. That was absurd. Lenders were allowing people to qualify at 1.5% knowing full well that the rate would adjust upward almost immediately. My lender will not allow a borrower to qualify at the initial rate on an interest only ARM unless the interest only period is 10 years. Here’s how this works. If I have a 5/1 ARM, the interest only period is now 10 years, not 5 years, this protects the borrower from a double whammy when the rate adjusts in 5 years. In a normal 5/1 arm, after the 5th year, their rate can adjust up and they must pay principal. That’s a recipe for disaster. Also, many subprime companies have dropped products, no doc, or tightened guidelines. In fact, some have already gone out of business.

2) I do believe the FED will panic and lower rates. It will save some people, however, not all. With declining home prices, some won’t have the equity to refinance. Some may have bad credit and still can’t get a loan. Because this housing bubble was also a massive debt bubble, the FED will most likely have to cut rates. This won’t help home prices because they are already too high and once they start falling its hard to turn them around. Even if the FED cut the funds rate to 1% again, it would not have nearly the same affect as last time. There is already too much debt and most people can’t take on anymore because they are having trouble servicing their current debt.

[X1Y2Z3]

Perrychase,

The buyer can walk away from the house. However, the lender may go after them. Honestly I’m embarrased to say I’m not sure what the lender can do besides taking the house. Of course, the borrrower will have a foreclosure on their credit report which is a disaster. Also, I think I read somewhere that the borrower may have a huge tax bill from the IRS. Maybe an accountant can chime in here, I’m not sure what the IRS will do.

[X1Y2Z3]

Powayseller,

1) The ARM reset question is a good one. I have seen people get in trouble to where they can’ t refinance because either they have no equity or they don’t qualify. Imagine someone who qualified at a 45% debt ratio. If rates went up at all, they can’t qualify for a standard loan unless their income shot up which is unlikely. Now, they could still get a stated, no ratio or no doc. But the rate will be higher than a full doc loan. Plus if they don’t have the equity they are finished regardless. I think we will see this being an issue for all the people who got 100% financing in 2005 and maybe some who took out 100% loans in 2004. If they don’t have the equity they will be in trouble. Bottom line, I think that the ARM reset is a potential issue. It really depends what rates do over the next 2 years. Its possible that the FED panics and cuts rates again as housing crashes and the economy crashes. If this is the case, many people will be saved. However, some will still have the equity problem and this will prevent them from getting a loan. If rates were to stay where they are or increase even just a little, watch out, it will get very ugly fast. This whole housing bubble was based on very low rates, and interest only ARMs, if rates go up people will get wiped out. Remember that when a rate adjusts, assuming the ARM is based on the 1 year t-bill, you add a 2.75% margin to it. So people who can’t refi will suffer. I think this will be a problem, and it will all depend on what the FED does over the next year. Also, one huge thing to remember, the FEDs rate increases take from 6-12 months to have an impact we haven’t even seen the effects of the latest rate hikes yet. There is much more pain to come.

That really depends on the type of loan one is doing. I was in a high priced market, but usually my max loan might be $650k – $800k once you go over $800k people usually have private bankers or some start paying cash. You could just take the 45% debt ratio and back into the income needed. Remember that a lot of people will use stated income, no ratio or no docs if they can’t afford the home. This leads to a funny thing I heard from a realtor. He said that at an open house in this neighborhood where the average house costs $1.5M or more, the women coming through the house were neighbors. They were complaining that their ARMS were going up and that they had to turn off the AC and the lights on the 2nd floor. These are people in $1.5M homes, no one is immune, in fact people in that bracket who relied on 4% ARMS are in big trouble.

Before 1999 I rarely did a cash out. People just did not use their home as their piggybank. I read the other day that cashouts were at the highest level since 1990 or so. This is a signal that people are living on their equity and when this dries up, due to declining prices, they will be in big trouble.

I never really worked with seniors too much. Most had either a pension or social security. They were usually conservative. So they would be safe. The ones I worked with took 30 year fixed rates and put 20% or more down. Again, I didn’t work with too many. Now, I know that some had problems with the annual tax increases.

I know my company kept data on loan performance, but I was not privy to it. I would watch the foreclosure rate and remember that it is a lagging indicator. The foreclosure rate has been artificially low because of the appreciation of the last few years. I have read that the subprime foreclosure rates have really jumped which makes sense. Many of those people should not have been allowed to buy a house.

The lenders have data on CLTV. Yes, remember that the two loan notes will be recorded separately and may be from 2 different lenders. So I agree that some of the LTV data is probably very flawed because its not catching the 80/20, 80/15/5, 80/10/10. In my area we have been doing these loans since 1997 or so. I almost never did a 95% or 90% with MI unless the 2nd wouldn’t get approved. I think the 2nd trust lenders will get killed as the market turns. I read the other day that the investors on Wall Street have already repriced (raised the rates) on the 2nds because of the greater risk.

I never saw a lot of global investors in my area. I know they were out there but my contacts weren’t working with them. I think what we will see is as all the housing markets slow worldwide, which is happening, their will be less global investors for the US. Note that the UK just raised their funds rate by .25% 2 days ago and so did Australia. Both of these markets are already hurting.

My bank is a very conservative large bank, (top 3 in volume). They will be fine because they do other stuff besides mortgages, they are very diversified. Other top banks who don’t have diversified businesses will be hurt much more. I didn’t’ t notice any tightening of guidelines at my bank, however, many banks are. I know that WAMU and Countrywide tightened the Option ARMS initial qualifying rates. Also, many subprime lenders have tightened or dropped risky products altogether. In fact, some subprime lenders are already going out of business or being merged.

[irvinesinglemom]

Hi X1Y2Z3:

Wow, thanks for all the information. Definitely the kind of “meaty” information I’ve been looking for as part of my fascination with this bubble. Here’s my question for you: can you please give me advice based on my current situation? (I rarely ask for financial advice because I’m convinced I’m smarter and more competent than most people, but you seem to really have a handle on things and you write well, which is SOOOO rare!)

I am a single professional in Irvine with an MBA, a rock-solid job and a 3 year old child. My current annual income is $109,000 with a 10% annual bonus and I anticipate annual bonuses of 3-5% for the forseeable future, along with a promotion or two. I have $85,000 locked up until 02/07 in a 4.85% 12-month CD, and another $10,000 in several individual stocks. I have $10,000 in my checking account. I have no credit card debt, I own my 2002 Volvo and will keep it at least 3-5 more years. When I do buy another car it will be with cash because after I paid off my Volvo I decided that I will never take out a car loan again. My student loans are all paid off. I receive enough child support to fully pay daycare tuition, with about $200 extra each month. I put about $2000 a year into my son’s 529 college fund which is at about $6000 right now. My 401k balance is $150,000 and right now I still contribute 15% to it but I would consider reducing my contribution level to 5% if I needed to (more on that in a minute).

Here’s my dilemma: I desperately, obsessively want to buy a house! I’ve been in an apartment for 8 months, since separating from my spouse, after having been a homeowner for 8 years. (We sold our home in December ’05 and you’d think I’d have more money than I do, however my husband and I spent pretty freely the whole time we were homeowners, both on major improvements to the place -it was practically unlivable when we bought it – as well as extravagant stuff that I regret now but what’re you gonna do?!!) Anyway, after splitting the profit in half and then furnishing my new apartment, etc., it is what it is.

I want to get my son into a house before kindergarten, in September 2008. I want him to stay in the same school from K-6 and then move right into the local high school. I want him to have that stability. So I want to buy a house that will be our home for the next 15 years. So I know that I have LOTS of time (2 years, basically) before I need to make this move. However, I find myself going to open houses every weekend and salivating over the brand new developments like Portola Springs, and gagging at the 30-year old Brady Bunch houses that are just STUPID over-priced. I don’t want a Brady house!

I have pretty much convinced myself that I can’t do a thing until at least February 07 when my down payment money becomes available. I want to be financially pragmatic and not lay awake at night worrying about paying the bills. But I also want to be able to stay in the same house for a really long horizon over which my odds of promotion and salary and bonus increases are really, really good. (Unless people stop having high cholesterol and heart attacks, my job is as good as guaranteed.)

So assuming I start looking to buy a house in the middle of 2007 (and god only knows what prices will be doing at that time!!!), what is a reasonable “stretch” mortgage amount and type that someone in my situation should be looking for? Keep in mind that I’ll probably end up buying something in Woodbury or Portola Springs that comes loaded with high HOA and Mello Roos payments. Hence my earlier comment about reducing my 401k contribution level. I want a newer home in a newer neighborhood badly enough that I’m willing to compromise by extending my retirement out a few more years.

Thanks for any advice or words of wisdom you or any of the other folks on this blog can impart!

[technovelist]

I think you would be much better off paying for private school for your child and continuing to rent an apartment for at least the next three or four years. The housing crash has just started, and buying anywhere in your area in the next 12 months is likely to be a VERY expensive mistake. I think a 50% drop from the highest prices seen so far is a very conservative estimate; 80% or 90% may be more accurate, given the unwinding of the mortgage insanity as well as the other serious economic issues that are going to clobber most people without their having a clue.

There won’t be any hurry in buying after the bottom is in. No one will want to talk about real estate for a long time, which is when you want to buy it.

[irvinesinglemom]

technovelist:

Well, luckily this is Irvine and I can get my son into a California Distinguished School (I’m thinking Canyonview Elementary and Northwood HS) without having to pay for a private school. I can rent a beautiful new apartment from the Irvine Apartment Community, or lease one of the luxurious townhomes in Woodbury that I’m coveting. So it’s not a matter of living where I want to live – it’s the part of home ownership that, having been a homeowner for 8 years, I am having trouble letting go of. I must admit, I was kind of an elitist snob in that I did look down on people who, after the age of 30 or so, were not homeowners. Given how drastically things have changed, I certainly wouldn’t change my decision to sell the house. I was convinced a couple years ago the bubble was gonna burst and I was in a mild panic to “cash out” and become a renter for a while. So intellectually, I am very comfortable with renting. I just think about how my whole childhood was in rented apartments and a rented house, and how as a teenager I felt “less than” the other kids whose parents owned their homes. I don’t want my son to feel that way! I have to remind myself that he’s only 3, he doesn’t know or care, and that in several years he’ll still be very young, and if I can remained disciplined enough during that time, I can buy us a beautiful new house while he’s in elementary school and we can live “happily ever after.” It’s hard, though, to fight the urge to buy sooner, especially since my plan would be to make offers significantly lower than asking price…

[technovelist]

I think your son (and you) will do a lot better if you resist that temptation. Being able to pay the bills and provide an appropriate lifestyle for your child will be much easier if you keep saving money (in a way that won’t lose purchasing power) and wait until the bubble has fully deflated.

[lindismith]

irvinesinglemom,
There is tremendous pressure in our society to own a home. (Never mind get married and have kids. I am single, and late 30s, so talk about pressure!)

That said, the pressure’s only in our heads. You sound really smart and successful. If you succumb to it, you will ultimately be doing yourself and your children a huge disservice.

I’m not saying don’t ever buy. Just don’t buy in the next 18 months. You will regret it. You work very hard, and if you buy you will end up losing a lot of money. Based on the areas you are talking about, what would that be? $50K, $100K? That’s 6 months to a year’s worth of work for you! Can you imagine going to work everyday knowing you are working to pay off an ‘investment’ that’s losing value every single day? Talk about a waste of time and energy. You’d be better off taking a year off from work, and putting in some quality time with your kids.

I’m sure you can find a nice rental, and sit tight. Having that kind of discipline will pay off in the long run. Your timing (Feb 07) is when the tsunami should be hitting us, so wait it out. You won’t be losing anything by sitting on the sidelines for a while.

There are some threads on this forum about how a house purchase is very emotional. See if you can search for them using the key word “emotions” in the search bar (or maybe “emotional”). Once you read through them, you’ll see the intellectual/rational side to you will be back in charge.

[PerryChase]

irvinesinglemom, I would second all the advice on delaying the purchase. Don’t succumb to the pressure to buy now. You’ll be amply rewarded.

I know people who bought expensive homes just to keep up with their friends and try to get that perfect lifestyle. Well, they’ll find how empty their lives are pretty soon.

Even stretching to buy an expensive car is unwise in my view. Remember that beautiful Mercedes you saw drive down the street? Do you remember the person at the wheel? huh… i bet you don’t even remember. So why try to live life by what others might think.

There’s nothing wrong with renting.

[SD Realtor]

irvinesinglemom, try an experiment… Just sit tight for say 6 months and see what happens. Perhaps even go and pick out 10 or 15 different homes you would really like and then track them on realtor.com or a similar website. Then just sit tight and see if they sell. If they do sell see what the final sales price is… Then take a look at the results 6 months from now and see how it went. Most of us here would bet money that in 6 months you will be glad you held out.

Sometimes patience and breaking out of a certain mindset is the hardest part of the battle.

[SD Realtor]

irvinesinglemom, try an experiment… Just sit tight for say 6 months and see what happens. Perhaps even go and pick out 10 or 15 different homes you would really like and then track them on realtor.com or a similar website. Then just sit tight and see if they sell. If they do sell see what the final sales price is… Then take a look at the results 6 months from now and see how it went. Most of us here would bet money that in 6 months you will be glad you held out.

Sometimes patience and breaking out of a certain mindset is the hardest part of the battle.

[SD Realtor]

irvinesinglemom, try an experiment… Just sit tight for say 6 months and see what happens. Perhaps even go and pick out 10 or 15 different homes you would really like and then track them on realtor.com or a similar website. Then just sit tight and see if they sell. If they do sell see what the final sales price is… Then take a look at the results 6 months from now and see how it went. Most of us here would bet money that in 6 months you will be glad you held out.

Sometimes patience and breaking out of a certain mindset is the hardest part of the battle.

[SD Realtor]

irvinesinglemom, try an experiment… Just sit tight for say 6 months and see what happens. Perhaps even go and pick out 10 or 15 different homes you would really like and then track them on realtor.com or a similar website. Then just sit tight and see if they sell. If they do sell see what the final sales price is… Then take a look at the results 6 months from now and see how it went. Most of us here would bet money that in 6 months you will be glad you held out.

Sometimes patience and breaking out of a certain mindset is the hardest part of the battle.

[Anonymous]

Chris Johnston

Irvine single mom

You need to be prepared to wait. Look at your expenses on an after tax basis, once it becomes cheaper or even to buy a home then do it. You exited the market at the exact high, so great move there. The renters vs own is ego. I can tell you this, I would much rather have close to 2 million in the bank like I do, and be renting in Coto De Caza for 2900/month, than have the McMansion I had in Newport Coast and a 6000/month nut on it. (It was that cheap because I bought it in 1998) The people that bought it from me have an over 10k per month nut on it.

The time will come when a good buying spot will develop, and just be ready at that time. Unfortunately, even though your income is not low, it is far from comfortable in today’s OC market.

I have learned over the years, that you have to be patient for the good opportunities in life. They are not there everyday, and that is a fact that most impatient people seeking immediate gratification in everything they do just cannot handle. This is why most people never get ahead.

I am if I had to categorize myself I am an investment advisor, and have my clients in cash right now. Many are getting impatient and want action. Some have gone against my advice and been burned in the last few months, then called for help. I have told them to wait for the fall when good stock buying opportunities will exist. It is the same for RE. Good Opps will present themselves, but not for a few years.

Patience Grasshopper

[powayseller]

irvinesinglemom – Today’s rentals are in the nicest neighborhoods; nobody will ever know you are renting if you live in a rental house vs. a rental apartment. We sold our house, and our family, w 3 kids, is renting for at least 2 years. My kids stayed in the same schools they attended since 2000. We live in a neighborhood with homeowners, and a few renters. How do you know who rents, who owns? You only know if you ask.

One thing I noticed over several moves we had to make within the same city: the kids were practically unaffected by moves that allowed them to stay in the same school. Moving homes was exciting to them, as long as they could stay in the same school. Moves that required changing schools was a little scary.

Home prices are dropping several percentages each month. Your income does not make you wealthy enough to afford a loss of 50% on a $ 800K house. Such a loss could seriously set you back.

Patience, and remember, your childhood moves were difficult because you changed cities and schools, and back then, “rental neighborhoods” were low class and undesireable. Today, investors snapped up rentals in all the best neighborhoods. You can be an closet renter in the best subdivisions, and you can choose to rent in a neighborhood that feeds into the same schools where you eventually want to buy. Then, when you are ready to buy, your son will have the same friends he had in preschoool. That is something my kids have, that I did not, and I wanted to provide for my kids too. I have done so, and with renting, I have provided more financial security for my children.

[SD Realtor]

Sorry about the four postings… My connection was flaky…Irvinesinglemom I am a realtor and I am renting… You know when realtors are renting then that says something!

[mydogsarelazy]

Hi Mortgage Banker,

I want to know about the legal risks of co-signing.

You will remember I have a sister with lots of equity, mediocre credit, income from mulitple sources including a husband she is separated from.

So, let’s say I co-sign on a refi loan for her. What happens if:

– She pays late? (my credit gets dinged, right?)

– She defaults? Specifically I am imagining her home would be foreclosed, but could a bank come after my assests, wages or bank accounts?

I appreciate your advice and any precautions you may have for me.

JS

[Anonymous]

JS,

By co-signing on the loan you are placing your credit at risk. If she has late mortgage payments, then your credit will be affected. If she defaults, then you will have a foreclosure on your credit report. Also, the new debt would appear as a liability on your credit report. Your sister can qualify for a loan on her own. Like I said before, look at her credit report to see if there are ways to improve her score. Because she has so much equity in the home, getting a new loan will not be difficult for her.

[Anonymous]

I’ve lived in the Irvine area for over 30 years and as a mortgage/real estate professional I’ve seen the boom times and the busts. I agree with many readers that time is on your side now.

If your heart is set on Woodbury or Portolo Springs, imagine the builder incentives you might get after a few years of slack demand. Or consider the deals that desperate resales might offer over this same period.

Parking your family into one of the new resort style apartments for a few years is not a bad way to wait out the storm. Your patience could be greatly rewarded.

[ocrenter]

a doctor may be able to ride the ARM reset by jumping from residency to his/her regular job. that is likely to have very little effect because there are no doctors buying, not for the last 2 years. The only medical professionals buying properties in the last 2 years are the medical assistants and the radiology techs. (ok, slight exaggeration, but you guys get my point)

x1y2z3, thank you for your informative posts, what an addition to this board! I have a question. my landlord was on the verge of getting his NOD, now he claims he’ll be able to refi out of his troubles. problem is he purchased 4 homes in the last year, all 4 are cash flow negative, 100% financed, and now all have negative equality. I know you said anybody that can fog up a mirror can get a loan, but even a guy like my landlord can still get refi?

[ocrenter]

irvinesinglemom, we moved away from irvine/OC precisely because we didn’t want to wait. running my blog and doing my due diligence, my feeling is OC will crash, but it’ll take some time. if you want to stay in irvine, be prepared to wait for a long time, ie. 3-4 more years before being able to buy. go to my blog, check that Escondido post, that will happen everywhere, including OC. And go to the inventory numbers, see how SD has 23,000 resale homes to OC’s 17,000 with the same population size. others will disagree with me, but I really feel you are looking at 1-2 years behind SD with OC. $100,000 is not a lot of money, don’t jump in.

[Daniel]

Dear X1Y2Y3,

Thanks for all your answers, it’s been very helpful to us all. I have a question on a more technical note: what are the typical margins of the standard ARMs and 30-year fixed mortgages over their respective benchmarks?

Let me take a concrete example: say we have the perfect borrower (high FICO, high assets, full doc, etc) in the perfect loan (conforming, very low LTV, etc). Say the borrower wants a 30-year fixed. I believe the benchmark for that is the 10-year Treasury. So the mortgage rate would be the 10-year yield (about 5% now) plus a margin. What is historically that margin? 1.5-2.0%? Same question for ARMs (say 1-year ARMs). The benchmarks must be either the 6-month or 2-year Treasury, I assume. And what would the margin historically be?

Thanks very much for taking your time to answer our questions.
Daniel

PS: I forgot about the possibility of “buying down” the rate. Let’s say our borrower doesn’t go overboard with that, and just pays the typical closing costs.

[X1Y2Z3]

PowaySeller,

Here are the answers to your previous quesionts:

1) ARM resets will be an issue. I disagree with the person who said that a large group of people will get 25-50% pay raises before the ARM adjusts. Number 1, there are very few people who become doctors each year, a bit more become lawyers and engineers. Secondly most of them have enormous debt from school. Here is a quote that I pulled from an article yesterday, “A look at the economy today reveals that in real terms, hourly and weekly wages are slightly down since the beginning of the recovery in November 2001, and real median family incomes dropped each of the first three years since 2001.” Doesn’t look like a lot of people are getting large raises these days. In fact, I would argue that the people who have done well recently are real estate agents, lenders, appraisers, builders, etc. not because they are brain surgeons but because they were in the right place at the right time. As housing goes, so goes the economy.

2) Almost no one thinks about where their ARM might end up. I mentioned before that the easiest sell for a lender is to say, “oh you will either move or refinance before your ARM adjusts. This is a load of hogwash, but everyone wants to believe it. 1) If rates have gone up, how is the person going to refinance? 2) If the real estate market is falling how will the person sell their house without taking a beating? People hear what they want to believe.

3) Ok, my company sells the loans to wall street in MBS (mortgage backed securities. Many people invest in MBS, in fact, you and I could if we had an investment in a mutual fund that invests in mortgage securities. I believe that both China and Japan have been heavy buyers of MBSs which has helped to keep rates somewhat artificially low. I do believe the risk has been underestimated in these securities and someone will pay the price. Also, on a tangent, I believe that the credit scoring models are a huge potential issue because they have never been tested in a downcycle. Who is to say that people with 700 credit scores will be able to service their debt in a recession? The credit scores are looking at past data that does not include a real estate downturn.

[X1Y2Z3]

irvinesinglemom,

You are in a great financial position. I’m not going to tell you exactly how mjuch you can qualify for since that can change dramatically depending on interest rates and available loan products. However, you have good cash, nice savings and no debt. You won’t believe how few people are in that position. I originated probabaly close to 1,000 or more loans and most people have no cash, lots of debt and average credit scores. It always blew me away to see the financial profiles of people. And the interesting thing is that the highest earners, in many cases are no better off that the average earner becasue they ramp up their spending with their income.

I do think you might want to wait and see how this market shakes out before buying. If you really want to buy, you should, however, you must know going in that home values may go down for years. Also, I would stop going to open houses because its only going to get you excited about buying. I have seen too many people get caught up in the whirlwind of buying and then later regretting it. Take your time, think about your goals, and hope for bargains. I think you will find patience is a virtue and people with patience will be rewarded in the coming real estate cycle.

[X1Y2Z3]

mydogsarelazy,

You received good advice from a previous posting. Do not co-sign unless you absolutely trust the person will pay on time. Your credit is at risk. And the odds are that you will not know if the person you signed for is paying their bills on time.

[X1Y2Z3]

Daniel,

Honestly I have never paid much attention to the 30 year fixed rate margin over the 10 year t-bond. And I never paid any attention to the 1 year ARM since I originated maybe 1 or 2 out of 1,000+ loans. You have a good question, unfortunately, I don’t know the answer. The margin may change due to inflation expectations, market conditions, profitability, etc.

[X1Y2Z3]

Daniel,

A good place to look for mortgage data, historical numbers and index information is HSH.com if I remember it correctly. You should be able to pull up the 10 year data and the 30 year fixed data and do a graph in Excel to get your answer.

[ocrenter]

here’s my blog: Bubble Markets Inventory Tracking

[Author]

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