This Marketwatch article discusses how sub-prime lending to minorities has led to much higher foreclosure and interest rates for minority borrowers, relative to Caucasian borrowers in the same economic position.

The National Association of Mortgage Brokers has suggested that the FTC or HUD step in to manage a list of nationally recognized mortgage brokers. Obviously something that could have been handled via self-regulation two years ago!

Popularity: 10% [?]

Christian over at Pacific Home Funding forwarded the email below.

Although the Oregon Congress will remain in session through Friday June 29th, Senate Bill 965 has died. I don’t know the entire story behind why, but this is good news for the vast majority of mortgage brokers.

For those brokers that give the business a bad name, the State is now actively enforcing existing laws. Better enforcement and current market forces will help to cleanse the industry of a few bad apples.

I would personally like to thank all of you for your help and support in defeating SB 965. The Oregon Legislature adjourned earlier today and the bill has been defeated.

If you can muster up support with your staff one more time, please have them send “thank you” emails to their state representatives for all the hard work they did this year. Personally thank them for their “No” vote against SB 965.

Now the real work begins. We showed the state that we take our professions seriously. Now we need everyone to go to our website http://ocmo.biz/join_today.htm, print off a membership form, fill it out & send it in.

Again, Thank You for your hard work on this issue.

Sincerely,
Bill Ridge
President
OCMO

Popularity: 9% [?]

To keep Oregon from enacting Senate Bill 965b in its current form.

In this letter, the association clarifies what this law will mean for mortgage brokers. Mortgage brokers need surety bonds in order to remain in business.

The Surety and Fidelity Association makes it clear via this document that if Oregon Senate Bill 965 passes the House, and the governor signs it into law, that many small mortgage brokers may simply go out of business. For the predatory lenders, good riddance. For the remaining 3,200+ licensed mortgage brokers in the State of Oregon, this bill simply means that unless they work for a bank or large financial institution, the State of Oregon doesn’t care what happens to them. At best 42 legislatures in the House didn’t care on June 14th when they voted to send it to the Elections, Ethics and Rules carried committee.

Given that 60% of all home loans come through mortgage brokers, the House is smart to investigate this law before bringing to a vote. Possibly because the votes aren’t there?

For the very latest, here’s a helpful snippet from the OAMP:

Some of you, and others within the mortgage industry, have advocated “blasting” all members of the House Rules Committee with as many emails as possible, encouraging them NOT to allow SB 965 to be released from the committee, whether it’s in it’s current form, another amended form or it’s original form (as approved by the Senate).

Though that is our hope, our legislative advocate, John McCulley, feels that “jamming their e-mail in boxes” again at this time could possibly backfire, risking alienating some of those on the committee who are already supporting our position and hardening the opposition of those who don’t. He recommends that we send emails ONLY FROM CONSTITUENTS of the seven members of the committee. Those constituents could be our members, or—preferably—consumers who have benefited from the “non-traditional” programs that are the focus of much of the bill.

This sounds like good advice, and not a delay tactic. If somebody reading this post has statistics or case studies about “non-traditional” programs that provided consumers with tangible results, click on the contact form to the left and send those in.

Popularity: 16% [?]

This Business Week article suggests that sub-prime borrowers are treating their homes as rentals. They’re paying credit cards first, homes second.

According to Business Week, 32% of sub-prime borrowers were more than 30 days late in paying their mortgage in 2003. That number was 36% in 2006. On the other hand, the percentage that were late on credit card payments fell from 32% to 24%. A significant drop. You can view the rest of the article here.

The up-front cost of a sub-prime loan is obviously more than a rental deposit, but given the circumstances, and risk taken at the wrong time, these people might be smart to drop out of their expensive loan payments when the mortgage + taxes + PMI payment might damage their ability to obtain credit cards.

For these borrowers, the only difference between a sub-prime loan and paying rent is that you pay rent to the sub-prime lender instead of a landlord, the payment is probably 15-30% higher, and you incur some costs at close (unless you roll them in). For the remaining 64% who take out these loans and can make the payments, the risk might be worth the reward. Especially if they’re able to acquire an asset that increases in value at a monthly rate HIGHER than the difference between what they would pay in rent, and their mortgage payment. This is very possible over a 3-4 year period, and holds the potential to lift these people into the Middle Class.

What’s interesting about the sub-prime debate going on in Oregon, and other States, is how little it is understood by the people enacting the laws. For 64% of borrowers, sub-prime loans may in fact offer them a way out of the endless payday loan cycle, by giving them ownership of an asset that has the potential to grow at 3-8%/year. Ironically, if subprime borrowers were given a pass on their property taxes, often 20% of the mortgage payment, these borrowers might actually be able to afford this asset. Cap payday and CC loans to them, give them education vouchers and free classes on budgeting, economics, and finance and they’ll have a chance to make it.

Somehow I doubt SB965 will lead to a debate about ending property taxes for sub-prime borrowers. That would mean the government would actually have to take responsibility for the working poor by sacrificing their revenue too. Not just the revenue of legitimate mortgage brokers licensed through the State. That’s the easy way out.

Popularity: 12% [?]

On May 11th the bill moved from the Senate (approved) to the House. The House has issued no recent press releases or posts to indicate status there. The title of the Senate’s Press Release about this bill is:

“SENATE PASSES BILL TO PROTECT HOMEBUYERS
Home Loan Fairness Act will target predatory lending practices, head off mortgage crisis”

What’s unclear is how the State defines “predatory” within the language of the bill.

Several people who own small mortgage brokerages have posted to this blog, noting that what this bill really does is limit working families and formerly at risk renters from ever getting their own home. A secondary effect is to weigh supply and demand in the marketplace of loans so that demand favors large banks and other institutions with far more financial resources at their disposal. These institutions are able to absorb the cost of issuing fewer loans to the public. This could result in less competition between lenders, leading to higher fees and rates for traditional borrowers.

This bill is now in the House. The Legislative Session ends June 29th. If you feel that this bill needs to be ratified carefully before being passed, to determine financial impact to both borrowers (subprime and traditional) and lenders, contact your State representative here.

There have been many comments from lenders. I would like to hear from borrowers who are looking to get into low FICO, no down payment, or stated income only loans. The default rate for these loans is currently anywhere from 12-20%. This means that 80% or more of the people who previously qualified for a loan under these criteria will not have access to a home loan.

Popularity: 15% [?]

This bill moved through the Oregon Senate this month as a result of the subprime mortgage meltdown. It’s now moving through The House for ratification.

A friend of mine who owns an above-prime mortgage brokerage in Eugene sent me an article. Below is a snippet from that article:

Copies of the current bill, SB 965, and the UFL-proposed amendments are enclosed as attachments. Though the current bill (prior to the possible inclusion of those amendments) does not specifically ban programs, it has a broad definition of “non traditional mortgages”, which may even include any traditional fully amortizing agency ARM loan, if the DCBS so chooses, in addition to all low doc/no doc loans, interest only loans, option ARMs and negative amortization loans). Though the guidelines on which the bill was based used language like “should consider” when discussing underwriting approaches to those products, the bill says “shall”, which legally means “MUST”. On all of those products, originators (funding lenders and brokers) will be subject to re-underwriting scrutiny by DFCS auditors, and suffer major fines and penalties if the DFCS considers their underwriting decision to be unacceptable. Most troubling, in recent meetings with DFCS leadership, they have indicated that they would not accept automated underwriting findings and the documentation that the AU systems allow through the government/GSE systems (DU/LP and others). For example, they would require that income be verified, even if DU called for a verbal VOE only on a fixed rate traditional loan. And, the DFCS would not allow higher-than normal –guideline debt to income ratios permitted by AU findings if their auditor considered them excessive. This would preclude us from serving many borrowers .The need to educate the DFCS on our business and the harmful effect their decisions would have on our ability to help people buy and finance homes is great, but this bill may go into effect before we have that chance. Thus, many wholesalers who are not owned by or part of national banks (de-facto exempted under the Wachovia case, if not so already) and mortgage brokers may choose not to do any of these loans, or at least not do them in Oregon.

What’s important for you to remember and focus on in the communications we send to our legislators is the effect these changes will have on consumers, not just the impact that it will have on our businesses. If the bill passes as is, consumers in Oregon will be harmed by:

• Reduced ability to qualify for home mortgages on the purchase or refinance of homes.
• Reduced availability of mortgage credit. Borrowers would experience unacceptable service levels due to the inability of remaining providers to provide mortgage credit, should mortgage brokers and the majority of those wholesalers who fund loans no longer be capable of providing their services if the uncertain risk of DFCS review and penalties made continued business an unacceptable risk. According to an independent study conducted by the National Association of Mortgage Brokers (NAMB) in 2005, mortgage brokers originate two out of every three loans nationwide. Most loans are funded through wholesale lenders not exempt from this bill (though bank owned servicers who eventually purchase over 80% of those loans themselves, simply require adherence to the AU guidelines).
• Higher interest rates, due to reduced competition. Only national banks and their affiliates (all of whom will be continuing to use the automated underwriting vehicles, as they do now) will have the ability to make Non Traditional and/or Traditional home loans as they have been done nationally for nearly ten years.
• Increased likelihood of discrimination in underwriting of home loans (one of the main reasons AU systems were adopted was to provide for objective loan underwriting that is “blind” to any possible discriminatory factors). AU has been credited for the increase in nationwide homeownership … particularly among minority, inner city, and rural market borrowers.
• Loss of the benefits of the underwriting standards used in our industry. Those standards have been developed by the federal government, government sponsored enterprises, and/or our largest banking institutions utilizing more than 30 years of empirical loan performance data, and encompassing literally millions of mortgage loan transactions. Ignoring such superior information, and relying on the subjective opinions of the DFCS, reverses decades of progress in establishing sound underwriting guidelines that have unquestionably and positively expanded home ownership. It has further saved Oregon home owner/consumers literally millions of dollars in lower interest rates, lower closing costs, and availability of more financing options from which to choose.
• Declining home values, which almost certainly would be reduced as credit availability is restricted. Many potential home buyers, particularly those using first time homebuyer programs, would find such financing severely limited, or only available through national banks. Trickle down effects of such an occurrence would include reduced property tax revenues for other important social programs, like school funding and public services.
• Failure of this bill to focus on protection of Oregon consumers from “Predatory High Cost Home Loans,” and most specifically, Predatory High Cost Home Loans that include loan features listed as Non Traditional. Approximately 4 weeks ago, this bill was amended to now encompass both Prime or traditional as well as High Cost home loans. This bill will NOT focus on curbing abuses in the Sub-Prime markets, but WILL substantially restrict the normal and positive functioning of the Prime mortgage markets.

The intent of those supporting this bill in its current form was undoubtedly good: to protect the consumer. Unfortunately, it does more to harm than help homebuyers of the state.

Being naturally distrustful of government’s need to over-regulate, I recommend that you look at the government’s bottom-line incentive for regulating a sub-prime industry that the economy and market has already reshaped. Like…

How many people have been affected by the crisis? Who is benefiting and who will lose? Will people with money management skills, people who need a second chance, now lose the ability to get into homes?

What did the “buyers” do themselves to cause this? To assume riskier loans than they themselves knew they could repay? How does this educate people to learn more about money management, financial diligence, etc.

I can see the value in relieving some of the pressure for sub-prime buyers by giving them a get-out-of-bankruptcy-free card, the problem is that that card has already been played by so many, so often, that there’s probably little the government can do there.

A bill made in haste, without considering the relative economic impact, is not a wise bill. It’s a knee-jerk reaction to previously unwise business practices. Business practices that the market is no longer going to tolerate.

Popularity: 19% [?]

Check it out. Or Click on the Mortgage Calculator tab above.

It takes into account the average tax rate for a $250K home based on a 1997-1998 starting price w/3% cap and average PMI per $100K for the Eugene area. Get all that?

Buyers: estimate your real home mortgage payment here, including local taxes and PMI - Have a look-see!

Popularity: 7% [?]

Jennifer makes some great points. She also scores some with Eugenians!

Point #1 - Supply vs. Demand. Supply remains constrained because college towns tend to have strict zoning requirements. Demands is increasing because college enrollments continue to increase.

To quote Jennifer:

“A place to retire? These days, college towns are getting a lot of play as retirement places. Not for everyone, but for mentally and physically active retirees.”

Then…there’s the 100friends take from 1999:

“…home prices in Eugene, Salem and Medford were below the average price for the nation as a whole. (Oregon Housing Cost Study)”

Is that as true in 2006 as it was in 1999? More stats to come!

Popularity: 7% [?]