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View Diary: Seismic mortgage market event today (80 comments)

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  •  please provide some links (5+ / 0-)

    for now I'll take your word for it, but some news reports on this would be helpful.  I've been reading business news alot this morning and haven't seen anything about it.  

    If what you say is true, it's a bombshell and bonddad will be chiming in with the ugly details.

    "You may be on the right track, but if you sit still, you'll get run over" Will Rogers

    by gaspare on Thu Mar 06, 2008 at 10:19:55 AM PST

    •  What I say is true (5+ / 0-)
      Recommended by:
      Rolfyboy6, theran, 3goldens, gloriana, forgore

      Consider me a primary source.

      "Some folks look for answers...others look for fights."

      by The Termite on Thu Mar 06, 2008 at 10:20:22 AM PST

      [ Parent ]

      •  Links. You need them. (1+ / 0-)
        Recommended by:
        ablington

        If you are a primary source, then you probably work for Freddie or Fannie. In that case, review regulation F D to see if you are violating corporate policy. If you don't work for them, then we need some links.

        I was under the impression that the GSEs weren't even allowed into the Hybrid ARM market, due to OFHEO regs. Everything I have read says they can only consolidate fixed-rate mortgages under the jumbo threshold.

        Are you saying that rates are going up because they have been told to stay out of a market they weren't allowed in in the first place? That seems like blaming me for rising gas prices since I don't have a commodities license.

        On another note: Who cares if they can't buy hybrid ARMS and other high risk financial vehicles. Their charter isn't to allow risky investments, it is to consolidate low-risk mortgages so that people always have access to a low-risk route to home ownership.

        You need to expand a little, and explain how this relates to banks, OFHEO and congress.

        Comments Signature: This will get attached to your comments.

        by Gravedugger on Thu Mar 06, 2008 at 10:30:50 AM PST

        [ Parent ]

        •  I do not work for Fannie or Freddie (7+ / 0-)

          And your second paragraph is incorrect.

          Please consider this a "breaking" diary, not a comprehensive story.  This will "break" elsewhere soon, trust me.

          "Some folks look for answers...others look for fights."

          by The Termite on Thu Mar 06, 2008 at 10:33:56 AM PST

          [ Parent ]

        •  Fannie and Freddie buy ARMs (9+ / 0-)

          OFHEO only has a mandate to regulate the GSEs for financial safety and soundness.  HUD has limited oversight to guarantee that the GSEs' activities serve their affordable housing mission.  But neither regulator has direct authority over underwriting standards (except to the extent that the underwriting standards implicate fair housing concerns).  Both the Fannie and Freddie charters have sections basically saying that they can invest in mortgages to the same extent as a prudent private investor and it is within their discretion to determine what that standard is.  So Fannie and Freddie have broad latitude to establish criteria regarding the loans they will buy and the lenders they will buy from.  

          That being said, OFHEO is trying to expand their oversight in various ways.  For example, yesterday Fannie and Freddie entered into an agreement with the New York attorney general to revamp their appraisal guidelines in some fairly dramatic ways.  OFHEO was a party to the agreement and collaborated with the NY AG to draft the new guidelines, even though they don't technically have that sort of oversight authority.

        •  hybrid ARMS are not high risk (4+ / 0-)
          Recommended by:
          Ray Radlein, theran, The Termite, gloriana

          risk has largely to do with credit, not the instrument.     granted, when you combine credit issues with certain types of loans, that makes things worse.  But the "traditional" 3/1,5/1,7/1 loan is not much more risky than a 15 or 30 yr fixed.

          If I had even an interest-only loan, that would be a less risky for an investor to buy than a 30-year fixed by someone who made half of what I do (assuming similar loan amounts).

          "Use Jesus as a body shield while you rob the country blind" - Jud Caswell, The Men behind the Bushes

          by eparrot on Thu Mar 06, 2008 at 10:57:20 AM PST

          [ Parent ]

          •  In fairness... (3+ / 0-)
            Recommended by:
            Ray Radlein, theran, gloriana

            ...they've all just become a lot riskier, because now instead of requalifying for another hybrid or other type of ARM, ARM borrowers either have to refinance into a fixed rate loan or take their chances adjusting to a floating rate.

            "Some folks look for answers...others look for fights."

            by The Termite on Thu Mar 06, 2008 at 11:03:36 AM PST

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            •  Refi into fixed while underwater (3+ / 0-)

              means coming up with a lot of cash, right?

              Ortiz/Ramírez '08

              by theran on Thu Mar 06, 2008 at 11:05:39 AM PST

              [ Parent ]

              •  Right (2+ / 0-)
                Recommended by:
                Ray Radlein, theran

                The lendable equity question is a huge wrinkle because of declining values.

                "Some folks look for answers...others look for fights."

                by The Termite on Thu Mar 06, 2008 at 11:07:15 AM PST

                [ Parent ]

                •  Isn't it just a wall more than a wrinkle? (2+ / 0-)
                  Recommended by:
                  Ray Radlein, The Termite

                  So I understand: at this moment, you as an originator can't go into the credit markets to fun anything much different than 20% equity, fixed rate.  And these markets are skeptical about the real value of what's there, so to refi one of these, there's going to have to be some substantial cash collateral.

                  How are the banks going to cope with mass walk-aways that result?  It seems like many simply won't have the liquidity, and some fraction of those who do will stick it in a 401k and still walk away.

                  Ortiz/Ramírez '08

                  by theran on Thu Mar 06, 2008 at 11:11:42 AM PST

                  [ Parent ]

                  •  You can still do.. (3+ / 0-)
                    Recommended by:
                    Ray Radlein, theran, KenBee

                    ...an 80-10-10, (10% HELOC, 10% downpayment) but it's no longer advantageous to paying MI (mortgage insurance).  And to qualify, you need sterling credit.

                    I don't know how investors will cope.  At this point it's too early to tell what this means for default rates.

                    "Some folks look for answers...others look for fights."

                    by The Termite on Thu Mar 06, 2008 at 11:13:18 AM PST

                    [ Parent ]

                    •  Just so I understand (1+ / 0-)
                      Recommended by:
                      Ray Radlein

                      Here is the confusing things.  The borrower owes N, but the house is worth n < N now.  To refinance, this person needs .2*N-.1*n dollars and very good credit (or just .2*N), right?  

                      Whereas if n > N, then the refinance becomes possible without a big injection of extra cash, but the payments will get bigger in some way.

                      The first scenario seems very bad all around.

                      Ortiz/Ramírez '08

                      by theran on Thu Mar 06, 2008 at 11:20:30 AM PST

                      [ Parent ]

            •  sure, but I believe I was responding to (0+ / 0-)

              something that suggested that these organizations had no business being in high-risk ARMS in the first place.  It's sort of a chicken and egg, because before they abandoned them, they were not inherently that high risk.

              "Use Jesus as a body shield while you rob the country blind" - Jud Caswell, The Men behind the Bushes

              by eparrot on Thu Mar 06, 2008 at 06:53:21 PM PST

              [ Parent ]

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