Wednesday, May 11, 2005

Mortgage Firms Compete Over Diminishing Market

Origination News has news about the mortgage firm in the previous post. "The Washtenaw Group Inc., a holding company for Washtenaw Mortgage Co., has reported a net loss of approximately $1.7 million for the first quarter, compared with a net loss of $3.1 million ($0.69 per share) a year earlier."

"Mortgage origination volume totaled $169 million in the first quarter, down 57% from $394 million in the first quarter of 2004."

"We are doing everything possible to generate mortgage volume and reduce operating expenses. We have introduced many of the newest mortgage products, such as zero-down, interest-only and Alt. A. In fact, we are expanding the criteria for Alt. A. mortgages to cast a wider net and attract additional borrowers, Charles C. Huffman, Chairman and CEO said."

The industry has played games with statistics for months, but it is well known that originations are way down since 2003.


At 11:28 AM, Anonymous Anonymous said...

Hi, Ben... sorry... dumb question... but what are Alt. A mortgages? are they the optional payment ones? thanks in advance!

At 11:42 AM, Anonymous Anonymous said...

Maybe they need to get REALLY innovative! After 9/11 GM for a while had a zero interest car loan with no payments at all for a number of months.

The mortgage industry could follow this: how about a negative amortization, interest only loan with no payments for the first 12 months?

Think I'm kidding? Just wait...

At 11:46 AM, Blogger desi dude said...

A variation of that is already in the market

multiple payments option which involves a min payment with rest of it rolled into the loan.

If min payment =0 then and the period extended to 12 months, you have your kind of loan!

At 11:48 AM, Anonymous Anonymous said...

11:28 -- not positive, but I think Alt. A is a "stated income" loan. Stated income loans are approved based on the borrower saying, "I earn this much per year, on average," even if his/her tax returns do not reflect that.

It was meant, at least in part, to address the needs of borrowers who have irregular income from year to year, such as people who live on commissions.

At 11:54 AM, Anonymous fatbear said...

The best mortgage idea I have seen so far is from the GDW message board at Yahoo:

I think gdw should offer Zero Payment mortgages. Think about it. Here are the benefits:

1. You would never have any delinquencies. Since no payments are due, no one can be late.

2. As long as real estate values keep going up by more than the arm interest rate, the loan to value will decline. As time goes along, the portfolio quality improves. Plus everybody knows that real estate will never go down.

3. Since no payments are due, every person in the country can afford the mansion of their dreams. The sky is the limit.

Now when you think about it. Is there really that much difference between a Zero Payment Mortgage and a Negative Amortization mortgage?

This is how insane the real estate finance bubble has become.

Great satire, n'est pas?

At 12:04 PM, Anonymous Anonymous said...

hi everyone... just fyi... about the existing single family home sales number... a comparison of '04 vs '05... this year, as you probably already know, condo sales are being included in the existing single family home sales (EHS) number... in march of 2004, the total number of EHS sales was 6.48 million... in march of 2005, the total sales number, which included condo sales, was 6.89 million... condo sales alone stand at 846,000... so apples to apples the EHS sales number is 6.04 million?... hmmm... lets see the march 2004 sales number was 6.48.. and the march 2005 sales was 6.04... hmmmm?

At 12:10 PM, Anonymous boulderbo said...

alt-a refers to loans made to borrowers of high credit quality that for one reason or another fall outside the boundaries of the underwriting standards of fannie or freddie, alternative loans to "a" borrowers. unfortunately in reality the standards have been reduced dramatically and they might as well be called alt-bcd. hope that's snowing today by way (springtime in the rockies).

At 1:36 PM, Anonymous wheelerdan said...

How about this idea for a mortgage:

Mortgage company pays you $100 a month for each $100K you borrow. So a $500K mortgage means you get $500 a month. No payments for one year, so you're ahead $6K.

Then interest-only for four years at a 1% teaser rate. Then I/0 ARM at prime plus 5% for five more years. Then full conventional amortized loan for the remaining 20 years.

Let's go for it...

At 2:12 PM, Anonymous dvd_tycoon said...

You people and your houses, jeesh. All I need is my DVD player. It's worth one million dollars, because that's what I paid for it. Well, actually I didn't pay that much YET -- I got a smoking deal on it, because I don't have to pay anything for 30 years! The previous owner is a complete sucker, because I'm going to sell it again before the 30 years is up anyway! In fact I'll probably re-sell it for a Billion dollars, at the rate DVD players of this brand have been appreciating around me. And in the meantime, I get to enjoy my brand new million-dollar DVD player for FREE!!

At 2:26 PM, Blogger deb said...

We have an ad on the radio for a loan with a start rate of 1% interest only for one year. That's pretty damn close to no payments for one year.

At 9:51 PM, Anonymous Anonymous said...

They can provide this service:

I buy a house and immediately sell to the mortgage company, which then sell a call option back to me. The option can have the rent for the next X years priced into it.

If the market drops, the option holder will walk with no consequence to her credit history. The mortgage company can sell the house without going through foreclosure.

If the the market does well, the option holder will exercise the option to purchase at a slightly higher price.

Curently, non-recourse mortgage is almost like this. So they are not taking on much extra risk.

At 9:52 PM, Anonymous ChrisH said...

I just got back from the San Bernardino County Fair. While walking around checking out the booths, I noticed a number of mortgage companies. They were offering 40 year loans and the other kinds of crap we've seen lately. They looked a little nervous to me, as there didn't seem to be too much interest in their wares.

I got back and caught the last half of our neighborhood watch meeting. We started to talk about my next door neighbor renting her house out and how much money she wanted.

Matter of factly, I said that if she wanted that amount to rent it out, she'll be waiting a long time. It's already sat there for 4 weeks.

Then I went in to the diatribe about how the rental market was just flooded right now and all the other facts us blogger readers know about the market.

It was quite interesting to see the reaction of the neighbors. They all got up from their chairs and started gathering around and listening intently. Some were shocked and looked terrified.

When I got to the part about rising interest rates and people on ARMS, IOs and NegAm loans were in trouble, I got a couple of gasps. They were from the newer neighbors.

Oh and then there was a guy there who has lived in the tract since it was first built. He's on a 3/1ARM. It's only a few months way from adjusting.

Should be fun.

At 5:46 AM, Anonymous Anonymous said...

First time post here, thanks to Ben for keeping this blog so current.

I work in a mortgage warehouse division of a bank. We extend lines of credit to small-to-medium sized mortgage brokers.

(If you're curious, the mortgage warehouse process goes like this: The mortgage broker originates a loan, they send an application to us to fund the closing from their line of credit with us, we wire money to the closing on behalf of the broker, we get the mortgage note from the closing, we endorse the note to be payable to a secondary market purchaser (investor) designated by the broker, the investor wires us funds to pay the note, we take the original funding amount out of the wire and deposit the difference (broker's profit on the loan) in a DDA account for the broker. We charge the broker interest on the funding amount until it's paid off by the investor.)

Anyway, just wanted to report that the observations others are making are in line with what I'm seeing (I see a *LOT* of mortgage applications, we have ~150 customers who fund multiple closings every day). ARMs and I/O's all over the place, dishwashers buying 450k houses, sub prime activity way up. The president of one of the brokers used 3.2 million of his company's line of credit to buy 12 condos in 2 buildings in NJ and Florida in his name. The 40 years are starting this week too, customers just started asking about funding them.

At 7:03 AM, Blogger deb said...

Anon 5:46,

That's great info. In your opinion, how much longer do you think the lenders can keep this thing afloat? When do lenders start caring that these loans are at high risk of never being repaid?


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