I just read:

Congressional Democrats have reached a compromise on allowing two government-sponsored mortgage companies to increase their debt holdings in an effort to help financially struggling homeowners.

House and Senate lawmakers said Thursday they will support legislation that permits Fannie Mae and Freddie Mac to increase holdings of mortgages and mortgage-backed securities by $74 billion each, or 10 percent above current limits of $735 billion - for six months.

Of the total $147 billion increase, 85 percent, or $125 billion, would be targeted at helping borrowers with weak, or subprime, credit refinance loans due to reset at sharply higher rates.

The move should create some badly needed financial flexibility in a housing market that has been buffeted by soaring foreclosure and default rates. If Fannie and Freddie are permitted to increase their purchases of mortgages from banks, those banks will have more credit to make available to financially strapped homeowners.

There was a great article about the discussion of if the federal government should help homeowners that are in trouble with their mortgage payments and assist them to get them out of trouble. 

Here is a background to understanding as little about the debate.  Most of the time, when you obtain a loan, that loan and the terms and payments that go with that loan after you sign the documents and close aresold on the secondary market.  You may get the loan through a local mortgage company(XYZ) that has certain parameters to you qualifying (ex. over 680 FICO scores, 10% DP, a certain % debt to income ratio).  When you sign the loan docs the lender gives the Seller the money needed to close.  Once the lender completes the transaction they look to sell the loan off in the secondary market.  In other words, they want their money back to fund more loans and the risk of repayment to be taken off their books.  The lending company already made the money they needed in the upfront fees.  There are companies that buy those loans and are betting on a specific return on investment from the mortgage payments you make, otherwise they wouldn’t buy the loan. These companies get their money from investors that buy stock in the company or invest in the company in some fashion to get a return on their investment. 

Since you, the borrower, fit into those parameters to be able to obtain the loan (risk assessment) then these secondary market companies are willing to buy that loan and the 30 years of payments you are going to make to them over the years. The interest you pay is their profit.

One glaring problem to me was the process for which to obtain a loan.  If the lender did not have the borrowers best interest in mind, this created a real problem from the top down and put the credit market in the position it is in now.  For the past few years, a lot of unethical lenders (mainly mainland lenders) persuaded borrowers to go with loans that weren’t in the borrowers best interest and a lot of the time the loan info was false so the borrower could qualify.  It was the 100%, interest only, stated income financing Adjustable Rate Mortgage, with the “wink wink” loan info filled out so they could qualify loan.  (for example) 

The problem was two fold. 1. That the lending company that made the loan was getting paid from up front fees (origination fees, points, rebates, etc), would then sell the loan in the secondary market so it is no longer on the books, and the more they cranked out, the more money they made.  In a market where valuations of homes keep going up it isn’t a problem, but when you have 20% price appreciation in one year, it is easy to see that this isn’t a sustainable appreciation level.

2. The Secondary market was buying these loans.  They found a “100% financing, stated income, Adjustable Rate Mortgage loan to be an acceptable amount of risk to purchase. 

When the real estate market softened (leveled out or declined) and borrowers began either having problems making their mortgage payments or their mortgage rates “adjusted” and drove their mortgage payment up to a point where they couldn’t afford the payment and didn’t have enough value in their property to be able to refinance into a better loan program, the problems began.  This is where the secondary market began to put the brakes on the riskier loans.  As the secondary market began to not be able to get their return on investment and lost lots of money due to borrower defaults, which in turn hurt these companies investors, it began to dry up the available money used to buy the loans on the secondary market that lenders were making.  The loan companies in turn either would go out of business because they didn’t have enough money to make the loans and keep them “in house” or they couldn’t make the loans because there were no buyers in the secondary market.

If the secondary market had not given lenders the ability to sell the higher risk loans (like we see now), then we would see less problems for borrowers.  The other option was if their was a more fiduciary responsibility on the lenders behalf to the borrower to begin with.  Once the loan was done the lender gets paid and if the loan is sold on the secondary market, their is little to no responsibility left to the lender.

We have probably seen what was necessary, when we saw a lot of riskier loan options disappear and are no longer available, thus we have borrowers that can and should qualify as opposed to borrowers who really shouldn’t be getting into home ownership. 

I don’t agree with the legislation that is being proposed in the article.  That would be called a Bailout.  We have seen most of the necessary correction with the option of less mortgage programs.  The other option could be to establish more fiduciary responsibility or consequences for lenders towards their borrowers.  This mess will have to take it’s course.

Anyway…your best bet is to find a lender that is going to look out for your best interest.  If you don’t know of any, contact me at scott@kahalaassociates.com and I can put you in touch with some great ones.

Check out this other article about the new proposed Mortgage Industry Coalition.

I really get irritated when they write this garbage.  Here is something you should know first before reading the article.  This is from a previous article they did about foreclosures:

However, the company said the year-over-year change may have been inflated because of expanded data coverage for the state compared with a year ago. 

Read more at Hawaii Foreclosures and What They Really Mean

RealtyTrac data also is somewhat imprecise….Because of the methodology, the data may include more than one foreclosure filing on the same property……But the data also miss nonjudicial foreclosure notices that aren’t recorded publicly, and situations in which homeowners in mortgage default are working with lenders in hopes of avoiding foreclosure action. 

Now that we have the disclosure of inaccuracies up front, we can get to the good stuff. On one hand we have:

The number of Hawai’i foreclosure filings in September roughly doubled from a year earlier, rising 114 percent to 135 filings, marking the third time in four months that figures have risen 100 percent or more.

And on the other hand we have:

However, Hawai’i’s foreclosure rate of one filing per 3,638 households was the 10th-lowest in the nation….The national rate was one filing per 557 households.

I will have ”The Foreclosure Process And Is It Really Worth It” info for you soon.

There was a good article in the Honolulu Advertiser that touches on the waste disposal issue on the North Shore.  This is a good article to read to be informed if you are looking to buy property on Oahu. 

City officials today will launch a yearlong planning process that could result in fewer cesspools in the area from Turtle Bay to Mokule’ia with its 18,000 residents and 2 million visitors a year. Cesspools leach waste into the ground, and, with many North Shore homes built near the ocean, there is a potential the waste could leak into the sea.

There are a lot of properties that are still on Cesspools.  You even see a few CPR’s of two homes that are connected to one cesspool.  The county is looking to convert those properties to two seperate septic systems.

 I recently had a client looking to purchase part of a CPR (Condominium Property Regime) (they can be homes that are treated in the same manor as a condo) and expand on the home.  The very issue of cesspools came up and if they wanted to expand the county was going to require them to convert to a septic system.  Way more work and money than they had planned.  Good thing I let them know about it up front, because they were able to make the smart choice of going in a different direction. 

Keep in mind this is a national article.  Hawaii’s unemployment is at 2.6% (the second lowest in the country), Hawaii homeowners are typically more conservative with their mortgage choices when buying homes (10 lowest number of foreclosures in the country) and we have had an increase in the median price of homes and condos this year.

The U.S. subprime crisis is likely to get worse, dragging down U.S. economic growth, the chief economist of Standard & Poor’s said Tuesday.

S&P forecasts the U.S. economy to grow 2 percent in 2007 and also in 2008, while the global economy is expected to grow 3.6 percent and 3.5 percent in the same period. “We are looking at another year of sluggish growth and that’s consistent with an uptick in the unemployment rate to 5 percent,” Wyss said. Wyss also said he expects the U.S. Federal Reserve to cut its funds rate by another quarter-percentage point by the end of 2007.

Just off the presses is Keri Shepherd’s Mortgage Market Newsletter.  Check out the latest news and information on what mortgage interest rates are doing and why.  There is some really good info on what happened due to the adjustment in last months Job Report.  I highly recommend you sign up to receive her newsletter, if you already haven’t.  You can learn a lot!  You can sign up in the upper right hand corner of her newsletter.

Add to the info with Stocks Rally on Fed Minutes, and mortgage rates aren’t doing so hot. 

The Federal Reserve released the widely anticipated minutes of its Sept. 18 policy meeting — you remember, the one that featured the supersized 50 basis point rate cut — and the document said little about the economic situation and the health of financial markets that investors didn’t already know.

Wall Street loved it anyway.

By the way, go here to read the full Fed Minutes.

I normally don’t write about issues in this industry, but this incident I felt I had to write about.  Let me explain:

I recently found a property for a client that was undervalued and was the perfect fit for my client.  The home was listed for $839,000.  The value was at $860,000 and they were willing to give them market value.  We submitted an offer with 36% down payment, a 35 day closing and my clients have over 800 FICO scores.  If you aren’t familiar with what that means, it essentially means the loan won’t be an issue.  800 FICO’s are almost unheard of, and with a 36% down payment there wouldn’t be an issue with the lending, so long as the title report was OK.  We were competing with another offer, but I felt our position was strong enough.

I received a call from the Listing Agent, as she explained that the Sellers chose another offer and they would like for us to be in a back-up position.  I was shocked that someone beat our offer.  I asked, “You mean someone beat our price?”

She said, “No.”

“OK? So why aren’t we in escrow right now?”

She said, “The other offer wasn’t for as much money, but they had a little bit bigger down payment, and were willing to close in 3 weeks. The main reason being they were willing to close in 3 weeks.”

I about lost it.  I said, “We can close in 3 weeks!  My clients have perfect credit and with 36% down payment, the loan won’t be an issue so the additional down payment is not a factor and even if the appraisal didn’t come out at value, it wouldn’t have mattered. Why didn’t you call me and ask if we would have been willing to close in 3 weeks?”

She fumbled around for a little bit and then went onto say she was surprised that her clients chose the other offer, which tells me she didn’t guide her clients in the process and help them make the right decision.  I asked her to call her clients and let them know we would close sooner, but they had already accepted the other offer.

Here is the thing that bothers me.  Not only did her client hire and pay her to help guide them through the process, but they paid her to LOSE them money in this situation, and in return it cost my clients the property.  I am sure the Realtor will not convey that to her client.

So when you go to hire a Realtor to help assist you with your real estate needs, make sure you choose the right agent, cause lord knows we aren’t all the same.

 The government is due to release monthly job numbers, an indicator that gives a glimpse of where the economy is headed. The last jobs report was a bit of a shock: employment actually fell for the first time in four years, which sent the stock market plunging and Home Loan Rates Improved.

Last month’s Jobs Report arrived as quite a surprise…economists were expecting around 110,000 new jobs being added for the month, but were shocked to see a net LOSS of 4000 jobs! Remember that a weak economic read of this sort hurts the Stock market, but causes the Bond market to improve…and as Bond pricing improves, so do conforming home loan rates. And last month’s surprising miss meant that home loan rates improved by .125% on the day of the Report alone.

So…here we are this month and what happens?  The Labor Department makes a huge correction to last months job numbers.  The correction went from a loss of 4,000 jobs, to an actual gain of 89,000 jobs.  In return, we see A New Record Close For The S & P 500  

Bond prices and home loan rates worsen on strong or positive economic news, so the surprising upward revisions in job growth caused Bonds and home loan rates to worsen by about .125% on Friday alone.

Read also, Jobs: A September Shocker,
Job Numbers Rise, In August Too
September Report Brings Good News In Job Growth

As I said before, mortgage rates are effected by inflation.  If inflation increases then mortgage interest rates will increase.  The general idea is that if the US dollar goes down in value compared to other currencies then the cost of foreign goods will increase, and as you know already, we buy a lot of foreign goods.  If those goods cost us more, then that is seen as inflation, thus an indication that mortgage rates will increase.  So, is there really a need for concern? Read, Is A Weak Dollar Really So Terrible?

Allan Greenspan addressed the recent credit crisis in London and here was his view:

Greenspan acknowledged that a number of people should not have been taking out those mortgages, but that the current crisis was due “not the subprime problem itself, but to the securitization of subprime.”  He also argued the repackaging and sale to investors of risky home loans — not the loans themselves — was to blame for the current global credit crisis.  “Subprime mortgages were and are risky, but they are worth it,”