Don Currie, head of HighTechLending in Newport Beach said he recently opened five retail branches in Florida, Colorado, Oregon and California to boost business. He originally formed the company at the tail end of the housing boom to make loans via mortgage brokers and sell them to Impac Mortgage Holdings in Irvine where he used to work. But retail is where the market is headed these days, he said.
He said a recent drop in interest rates has more consumers interested in refinancing or purchasing but that is not translating to more deals being closed.
“You look at anyone’s production board and it’s all dismal,” he said.
I interviewed Currie for an article that should run this Sunday on increasing the conforming loan limit from $417,000 to help ease the credit crunch. He is a strong advocate of the proposal, which passed the House on Tuesday but may be modified in negotiations with the Senate.
“The increased loan limits in conjunction with lower interest rates being made by the government will have a profound impact on the O.C. market place and the industry as a whole,” Currie said. “We need higher limits and reduced rates immediately or more lenders will close in short order and more later this year.”
I dont have a lot of sympathy for Mortgage Brokers or Mortgage companies.
I am concerned that if we raise limits coupled with low interest rates, we will create further problems. Home prices need to come down and the government should let them run its course, rather then get involved and make things even worse.
Closed/funded loans completed in the process is one thing, but If “production board” means loans “in process” where applications have been taken and the loans still have a chance to be funded/closed, then that is something different. In other words, if brokers are not amping their activity in amount of applications take when rates go down and it is all over the news, then that is a broker/lo issue. On the other hand, I do think that underwriting for any new loan should be tougher so the applicants get a loan that benefits them AND they can verifiably afford. Relaxed guidlines may not have been as big an issue as much as relaxed underwriting efforts, by both “approved lenders” (or brokers whoe legally lended out money and then sold loans to other companies) and also relaxed efforts by banks/lenders themselves. Why else would so many record NOD’s and foreclosures be occurring right now. IF a loan officer/broker/lender was up front and honest with a borrower, telling them that “you need to be making more money” by the time the loan payments start to change or you might face forclosure… maybe this whole mess (issues of lenders going belly up) would not be so serious. I may have only worked with about 40 brokers and lenders in the past 3 years, but unfortunately a good 80 or more percent of them were either unscrupulous, dishonest, misleading, or just omitted pertinent information for their customers, (I am discussing things I witnessed first hand). If this is any indication how most of the industry worked, then that is a very sad state. Also a sad representation of American business. Well then again more corp. corruption and ponzi schemes are surfacing too. oh well.
i bought a house in early 2007.
my wife was just so sick of apartment living.
now our house value has dropped.
my question is if i need to refinance, what kind of problem i will encounter?
i paid 550k for the house. zillow estimate it at 494k today. i still owe the bank 413k.
thanks.
As a longtime mortgage broker, the problem I see, that isn’t getting the attention it should, is that guidelines have tightened so much that people with decent credit, positive equity and who make their payments on time, will not be able to refinance to lower rates, because of tightening. New underwriting guidelines will shut a lot of people out of refinaning to lower payments, at a time when they and the market as a whole, need more liquidity. Not idiot, fog-up-the-mirror non-guidelines, but restrictions where someone with a HELOC can’t refi the 1st, or someone who owns a rental property doesn’t have 6 months reserves in non-retirement funds, those types of guidelines are going to “get” people who weren’t expecting it. Lower rates can help bailout the banks, but not those who really need lower payments.
Jon,
Thank you for your insight.
In retrospect I regret not asking Currie for greater explanation of what he meant by “production boards” and why interest isn’t translating into loans being closed. I’ll give him a call back and post any updated info in the comments.
All good and valid comments above. I spoke with two loan officers (A products) this week that work at seperate mortgage brokerage companies, one in Newport Beach, the other in Irvine. Both are high-high producers ($50,000,000 + per year each in closings). Both said that their phones are ringing, but they have no place to put the refinances. They sighted two main reasons (no surprise here): loss of equity and tighter (even harmful) underwriting guidelines. These are borrowers with good credit. Both loan officers said they’re doing between 2 and 3 loans (again A products) per month. These are L.O.’s that are use to doing 25 to 30 loans per month (something they’ve averaged over the last 15 years in the business). Lower rates are one thing, but what would also help is the conforming limit raised.
Why raise the conforming limits just to support 3 states. FHA, Fannie and Freddie are in the red and bleeding harder everyday. So throw a bunch of overpriced homes on the back of taxpayers! Hogwash.
Those entities were built for first time buyers not millionaires! Why should a first time buyer get anything over 400K! This reeks in govt. bailout. That’s what they’re doing and ther’re doing it very behind the scenes like. The GSE’s cant get thier books right now, what makes you think they will be better with 700K depreciating assets.
Every homeowner who bought to high, Too bad. You gambled and lost. I’m in the chair next to you and you can ask for some money to help you out but would you have helped me! I doubt it, so I will have to pass. We need prices to come down not loan limits moved higher. I don’t have any sympathy for these flippers, spectulators and borrowers. Cry me a river. Foreclose on them all. Let the market drop 40% and we can celebrate the brand new spring of housing not gambling.
The law of unintended consequences will apply. Do you really think the politicians understand the RMBS market?
Allowing the GSEs to purchase and securitize jumbos isn’t going to solve the fundamental problem with the housing market - namely, that existing loans are undercollaterized.
By allowing the GSEs to take on jumbos, and put them into their RMBS pools, they are changing the risk profile of the GSE pools - interest rate risk increases as the principal balance increases.
This will likely cause RMBS investors to pay less for the GSE bonds, as they must compensate for the increased risk - translation: an increase in the GSE mortgage rates.
In effect, those formerly known as conforming will see their cost of credit increase, to help subsidize some modicum of decrease in the rates to those formerly known as jumbo. And, I don’t believe it will have a 1-to-1 corellation, primarily because the increase in the variance of principal balances will also decrease the fungibility in any given pool - which will require increased risk premia, too.
This effect already occurred in the Ginnie Mae world when FHA Secure was announced. They solved it there by creating separate pools for the FHA Secure loans.
It is likely the GSEs will end up doing something similar, so as to not impact their charter, at which point increasing the conforming loan limit becomes an exercise in futility. Only real difference will be the issuer of the MBS, changed basically by government fiat. Traders and investors will still be looking at the underlying loans, and underlying collateral, same as they do now - which means the net effect is likely to be close to nil when it comes to jumbos.
So, realtors and mortgage folks can cheer all they want, but my guess is that this has a negligible effect on the housing market’s slide, and the real effect will be that the government just regulated the private mortgage market out of existence.
Whether or not that’s a good thing depends on your personal politics, I guess.
Jeffs Moped is right on target.
Sit back and enjoy the ride.
One good unintended consequence of raising the conforming limit is that this extends govt oversight and regulation over another part of the mortgage business. It won’t materially change this housing bust, but it could help to establish better underwriting guidlines going into the future for more of the mortgage market.
There are better ways to establish sound regulation, but that’s not going to happen under GWB. The best we can hope for until January 2009 is a lucky mistake. Based on the outcomes of all the other mistakes since 2000, I think GWB is about due for a lucky one.
It’s not how I want the country governed, but its the best we’ve got.
Joe
Jeff
Great post and you nailed it dead on.
The issue is not one of providing higher limits on conforming loans its affordability and the loose underwriting standards of the past years. If the govt wants to help out at all….they will make sure that Fannie and Freddie clean up their accounts and operate like a normal public security. Otherwise at the end of the day they will become insolvent and then the whole question about “are GSE really backed by the US govt” will come to fruition which will hurt every tax payer.
joe: You paid too much. Save yourself a lot of trouble & money and send the keys into your lender.
Am I the only one that is concerned about raising the loan limits for conventional loans? Oh I forgot, most of the people pushing for these so called reforms and what not only care about the market today. I am under 25 and very concerned as not only are these drastic rate cuts robbing future growth (which I believe to be my generation’s future economic growth), raising the loan limits would also promote inflation. Lets face it, most of these are temporary fixes. Matthew, because you are in the position that you are in, please raise concerns about the possible future implications of all these actions. We now live in a world full of self-gratification, and this is one of those quintessential examples. Fix it today, but forget about tomorrow.
JOE
don’t blame your wife man
if you have an adjustable rate mortgage then –don’t even try–just walk you will save more money in the long run
Joe -
You have a small window, given that you have some equity.
Folks who make their living funding mortgages will tell you that your window here is to refinance. I would caution against buying what they are selling at this time.
I would argue your window is to actually sell before you go underwater - assuming that is a concern to you.
Being underwater isn’t really a big deal, unless you have to sell or refinance in the short term. Given what the federal government is planning on doing (basically printing and dropping C notes out of C-130s over every major city), I’d expect inflation to reverse the underwater issue within the next 5-10 years.
I’m married, too, and my wife won’t even hear of us selling our house. And, since we can afford it, we’ll just “suffer” being upside down in our nice house for the next decade or so. That fate may work for you as well, if your wife is like mine and if you reasonably expect your job/income to hold up.
If you decide to sell, a word to the wise - set your original list price at your strike price. Don’t try and save your down payment. Your risk is to be overly optimistic on the sales price, and chasing the market down.
And, yes, I expect housing to continue to slide. Not because I’m a “bear” (I’m not, really - I just read and react), but because of what I do for a living. I represent lenders on matters relating to defaulted mortgages. I can’t tell you what I’m seeing, but I can tell you this will get worse before it gets better given what I’m seeing on a daily basis in my line of work.
Good luck to you and your family.
thanks jeff.
I heard that the conforming limit increase was only supposed to be effective for just for a year.
CS: With over 70 million people being slated to retire in the near future - and these are voting people with money to donate - you can expect the Fed to cater. They’re just making your inheritances fatter.
That is one way of guaranteeing the future generations’ distribution of wealth. It’s a dog eat dog world. From the Fed all the way down to the school principle - “protect your own” always goes without saying.
cs-
You have good reason to be concerned about inflation at your ripe age of 25. Inflation is the 800lb gorrila on both wall street & capital hill. I not only think that inflation will go higher, but that it’s higher today than reported. The exclusion of food, energy, and house purchase inflation create the illusion that inflation is lower than expected thereby robbing you of your future purchasing power.
Housing prices need to come down a bit further. Until then, loan production & new construction will continue to be dismall. People are generally more broke than they lead on.