Here and Now: Mortgage Mayhem

What is not being discussed about the mortgage industry is the amount of fraud that has gone on since Allen Greenspan "securitized" the real estate industry and created a "futures" market out of something that should have nothing to do with providing a roof over one's head. The rise of such companies as "I buy ugly homes", etc. was an indicator of the inevitable problem that comes when a culture keeps electing the wrong people.

When crooked real estate agents buy up properties using "straw buyers" and "kick back" a years payment to un-qualified buyers, lenders, appraisers and agents all have been rushing to get on the gravy train. Problem is, it inflates the value of real estate for the next generation and is what Charles Dickens described as "cannibalizing our own children".

America's economy has been running on empty, and flipping real estate was the latest way of propping it up. We should reject the notion that bailing out homeowners who got caught up in the latest "tulip frenzy" will help anyone. The price of homes ought to collapse for the sake of the next generation.

In Arizona, we have always had a particular problem because the Department of Real Estate here has always turned a blind eye to any meaningful regulation of the industry.

Here's a possible solution: how about a constitutional amendment that requires a new congress if the cost of food, shelter, clothing, medicine, and transportation rises faster than the wages that provide these essential services? That way the "free" market can determine who leads us.

A year ago my daughter was pre-approved for a home loan. When she went to Wells Fargo to proceed with a loan she was told that she wasn't qualified after all. That loan director then tried to pursuade her to get her loan through a mortgage broker. We checked with a friend who said the loan that mortgage broker was offering was dangerous and advised against it. I thank God for our friend for her wise advice.

Your guests may not be aware that the arms made in 02-04 had caps on the adjustments that generally capped the initial adjustment to 2 points if the index and margin added together allowed it to go that high. so borrowers with 4.5% rates are adjusting to 6.5%. They also have had significant increase over the value they had in 2002-3-4.

it is estimated that there will be $50 to 100 Billion in foreclosures across the US. Put it in perspective - the total amount of mortgages in US is $9.6 Trillion

Can your guests comment on how this mortgage crisis might effect home sales and development particularly on the urban fringe of Phoenix and Tucson (i.e. Pinal County, Buckeye, Laveen and others). Thank you!

I am a residential Appraiser in Maricopa County and would like to hear your guests discuss another aspect of this "perfect storm". Builders/Developers who have not yet closed out of their sub-divisions (particularly in the west Valley) advertise prices that are in a free fall. They are being constantly cut to compete with REO and short sale properties (which are numerous) and that leaves the homebuyers from the past three or four years in these sub-divisions in the midst of an ever-declining equity position. These Builders, along with some investors, saw 50 and 60% appreciation through the 2003-2005 period so they can certainly afford to cut profits by 30% or more. But it pretty much decimates the equity of the traditional homebuyer - or more specifically, those who are watching their ARMs come due.
Also, from the point of view of mortgage rates and prices it may indeed be a Buyer's market, but surely declining values (the inevitable result of over-supply, high foreclosure etc.) must put some kind of damper on the enthusiasm of prospective buyers. It would certainly make me think twice.

If the client qualified for a 3 or 5 year arm in 02 0r 03 at about 4.875% and have been paying their mortgage, why would they have bad credit and not be able to qualify!!! The recast does not happen at 3 or 5 years,The payment changes. they have the margin and index add together and the cap keeps it from going above 2% more than the rate they had. in 05 on the caps became 5% so in 2010 if the margin and index add together would have to be at about 11%. I dont see the index (usually a libor adding to 2.75%)

what is going to happen to all of the homes that go back to lenders once the foreclosures go through? Will the mortgage companies dump them out for huge losses and kill the values in all of those neighborhoods?

Why does BofA price go up when buying unknown paper from Country Wide?

Regards

Noel

actual loan in 2002 - 5/1 4.875% adjustment will be in 2007 with margin of 2.75 +4.2 for a new payment based on 6.95%, cap is 6.875%. Given the rates on FNMA loan now as a 30 yr fixed, they can get 6.375%. The property was at $315,000 value and is now at least $400,000 so for a rate and term refinance they will be at 63% loan to value - a very attractive loan for any lender. They have been paying the mortgage so their credit has improved and the money they saved by having a lower rate mortgage allowed them to accumulate savings in a seperate compounding side account so they have funds for the new payment. What is wrong with getting an ARM?

Question: Our apartment complex has just announced that it's going condo. (Yes, they're a bit behind the curve here!) Does Professor Sanders have any advice regarding whether it's now a good idea to buy a condo in Fountain Hills--or anywhere else in the northeast valley at this point in time? From reading the news, it appears that values might be dropping considerably over the next year or so. Thanks!

if you look at loans that are foreclosing, you probably will find a mortgage broker that made 5 points on the deal, put a 3 year prepayment penalty on the loan, didnt explain it to the borrower and as soon as they got their check the borrower never heard from them again!

My subprime clients were educated on why they were subprime and how to correct it. We check in annually to make sure they are on track to get out of the subprime loan asap.

What do the guests foresee in the residential rental market? We recently listed our home for rent, secured a one year lease and bought a new home. We are anticipating that rental market will be strong due to the sub-prime market situation.

I want to thank those of you who posted comments. It was tought to get them in with our phone lines full. I also want to thank Ruby for her insight into mortgages. I found them very enlightening as I listened to the show.

get back to me by 10a or before