Richard's Real Estate Thoughts

The Baylor boys swim team is Class 9 national dual meet champion for the 2007-08, as reported in the Chattanooga Times Free Press. The girls swim team finished third nationally.  This is sometimes called a national championship in the event. The results are according to the Interscholastic Swimming Coaches Association for class 9 - independent schools with enrollment of 900 and below for grades 9-12.

Here is the article from Baylor School website. 

Baylor has received national recognition for excellence in athletics.  Sports Illustrated named Baylor the top athletic program in Tennessee. In 2005 Sports Illustrated also named Baylor one of the top 25 athletic programs in the nation.

Photo from Chattanoogan.com article

This follows the recent 4 straight state softball champions from the same district. Chattanooga provides some very competive athletic programs.

Congratulations to the Baylor boys and girls swim teams.

 

 

Richard Smith
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

When does credit repair cross the ethical line and become falsification of a credit report?

More and more applicants seem not to qualify because of credit issues. They come fully aware of their credit situation and even know their credit score. In the past many would have qualified for a subprime loan. Many would have qualified for FHA financing, but FHA has tightened credit standards and many lenders have further tightened their own standards for manual approval.

These borrowers oftentimes can be helped with credit guidance. Correcting inaccurate references. Paying down some credit lines. Disputing errors. Adding non traditional references. This level of credit repair can be done by the consumer, and is certainly possible with competent help from an experienced loan originator.

I have helped many borrowers become qualified by guiding them in how to correct inaccuracies or to manage individual trade lines. Credit repair like this is done legitimately, simply by making the report reflect the borrowers' actual history more accurately.

At times, some clients may need some professional assistance in managing a large number of disputes. Legitimate and affordable credit repair can help with the sometime laborious job of filing and following up on numerous disputes with multiple credit agencies. At times a third party can expedite the process in ways that the client cannot.

The next level of credit repair is attorney assisted credit repair. This seems to be a growing industry, spurred by the tightening of credit requirements not just on mortgages, but on many consumer needs - credit cards, student loans, car loans, insurance. I think it is a legitimate service for many consumers who need legal assistance to remove some malicious, lingering references. Also to help with negotiation of settlements. It always helps to have representation to ensure protection of consumer rights.

And most definitely high credit scores are becoming very important for more and more of life's basic transactions.

Many attorney assisted credit restoration companies, however, promise, and I suppose deliver, permanent removal of all derogatory references, even accurate items. In addition, these companies offer new trade lines with significant high credit limits, as part of the package. These tradelines are not indicative of a lender's evaluation of the clients credit worthiness. They are just offered as part of the restoration package.

The basic approach of attorney assisted credit repair is not the correction of inaccuracies and errors, but the pressured removal of all derogatory references by the threat of legal action. The credit bureaus and creditors are threatened with massive documentation requests and potential summons before out of town courts. The stated goal of the attorney assisted credit companies is to protect the consumers' rights according to the finely defined letter of the law of the Far Credit Reporting Act.

What lenders can end up with though is a decisioning credit report that is not in any way reflective of the applicants' actual credit history.

These credit repair companies even offer removal of public records to include bankruptcies, foreclosures, and liens.

Is this type of credit repair ethical? What will it do to the industry if lenders cannot trust that the credit bureau is an accurate representation of a borrowers' true credit history?

What is our obligation as loan originators to our lenders to ensure that the underwriting decision is based on accurate credit information?

How can a lender trust a credit score and an automated approval that are based a credit report that does not reflect a bankruptcy or a foreclosure that is disclosed on the Borrower Declarations? Or are our clients to fail to disclose a bankruptcy or a foreclosure because the references have been removed from the credit report?

This latter is the implied, but unspoken, answer I received when I raised the issue with one attorney assisted company that had solicited my referrals.

Is this type of credit repair ethical? Is it consumer protection or loan fraud?

Can we as an industry accept this type of credit repair? It bothers me, but I would like to hear what others think.

 

Richard Smith
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

Mortgage defaults and rising foreclosures are among many troubling headlines in our economy, but can subprime lending problems really be the cause behind all these trends.

Amidst the clamor over mortgage and world financial markets, IndyMac failing, Fannie and Freddie woes, GMC layoffs, and the debate on the housing bill, the Federal Reserve Board approved the final rule for home mortgage regulations.

The final rule establishes a category of high priced loans and offers consumer protection for loans in that category.

•1.       Must base lending decision on borrower income and assets

•2.       Income and assets used to qualify must be documented

•3.       Prepayment penalty ban if rate can change within 4 years, maximum PPP term for all loans is 2 years

•4.       Require taxes and insurance escrow

Additional provisions target early disclosure of fees, coercion of appraisers, loan servicing issues, and misleading advertising practices.

High priced loan will be loans with an APR 1.5% for first mortgage loans, and 3.5% for second mortgage loans, above the Federal Reserve Board "average prime offer rate."

Yield spread premiums are left in place, as consumer testing of proposed disclosures proved confusing. Yield spread premiums remain a high profile target of consumer groups and regulatory agencies. Expect more efforts to be made to distinguish between "legitimate payments to brokers and fees intended to land a borrower in a higher-cost mortgage."

The Federal Reserve and HUD will continue to review premium payments, as well as state auditors in Tennessee.

These issues are receiving impetus because of the current mortgage market crisis. Subprime lending practices are receiving the brunt of the blame for the mortgage defaults, but is that proving to be an accurate assessment?

The market itself has already accomplished most of these reforms.

The larger issues in the economy surely could not have been caused by subprime mortgage foreclosures. FHA , Fannie Mae, and Freddie Mac are all suffering losses. Recent events with IndyMac have raised concerns there are more bank failures possible. Credit card and student loan defaults are on the rise. The list could go on. Bad subprime loans did not cause all this, I do not think.

The subprime mortgage problems may have been the first sign, and not the cause, of more fundamental economic problems. Recent prominent layoffs and increasing oil prices are not good news.  A headline today  mentions that TN state revenues are in decline. TN has no income tax and relies heavily on sales tax for revenue.

Everyone keeps talking about abusive practices and bad loans, but these do not explain defaults in FHA and conventional mortgages.

Richard Smith
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

The Volkswagen plant decision has just been announced. Chattanooga is the choice. That news is good for Chattanooga and the surrounding area but also the entire state of Tennessee, and the nearby counties of Georgia.

Projections are that the plant will bring 2,000 direct jobs. Anticipation of this announcement has been in everyone's mind for weeks.

Enterprise South is a world class industrial park, in a world class city, and a big part of the reason Chattanooga was chosen for the new plant. Obtaining this land site, with the vision of creating a Class A development is just

 

 

 

 

 

 

the type of vision that is raising Chattanooga to national prominence.

Chattanooga 2nd in Outside Magazine

Chattanooga Choice for Active Retirees

Chattanooga 3rd best city to live in

Chattanooga working to get fiber optics to home and businesses

 

Congratulations to all who worked so hard to lay the ground for us to be on this stage and to all those who worked diligently to show Volkswagen how special this town is.

Chattanooga Times Free Press article

http://www.newschannel9.com/news/decision_970122___article.html/morning_volkswagen.html

The official newsconference announcement is scheduled for 11:30 am today.

 

Richard Smith
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

The Chattanooga Times Free Press reported today that Volkswagen is close to announcing the location for its new UW automobile assembly plant. Chattanooga has been in contention for the plant because of the suitability of the 3000 acre industrial park, Enterprise South.

Enterprise South was developed in 3 stages on the site of the former Army Ammunitions Plant. It provides good access to I75, and is near to the intersection on the Interstates connecting Atlanta, Nashville, and Knoxville.

Chattanooga was also close to becoming the location for a Toyota plant last year. Even if Chattanooga loses the VW plant, Enterprise South industrial park provides the opportunity for Chattanooga to offer a world class industrial site. It is part of the managed progress that is moving Chattanooga into national prominence.

The site is 3000 acres suitable for Class A industrial development. Railroad access is already available. The site is close to the Chattanooga airport. Site can be medium (10 acres), small (5 acres). The park is certified to be suitable for development of a Mega Site. It is the first such site in Tennessee to receive that certification.

Here is a layout of the site.

Enterprise South combines with the plans for fiber optics network for business and homes to give Chattanooga a great chance to be a major growth center in the Southeast. We look forward to the VW plant coming to Chattanooga, but the opportunity in Chattanooga does not depend on that decision.

Chattanooga is poised for the future, and Enterprise South is a big part of that.

 

Richard Smith
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

Three separate events had significant impact on mortgage markets last week.  The Home Protection bill is being debated. IndyMac Bank announced it was closing it wholesale operations. Then on Friday the bank was taken over by federal regulators. Finally Fannie Mae and Freddie Mae stock values dropped by nearly 50% amid concerns over the two companies ability to maintain their capitalization requirements necessary to meet their obligations.

It was quite a week.

Sunday the Treasury Department announced that the Federal Reserve and the Treasury department would step in with measures that would ease short term capital requirements.

•1.       The Federal Reserve opened discount lending to Fannie and Freddie.

•2.       The Treasury department would request an increase in the existing $2.5 billion line of credit.

•3.       The Treasury  Department would request the ability to purchase stock in the two companies.

•4.       An increased federal oversight into the management of the two companies is also proposed.

Today, markets seemed to respond fairly well to these proposed actions. A good sign is that the morning auction of $3 billion in Freddie Mac securities went well.

Two concerns exist. One is investor confidence to lend Fannie Mae and Freddie Mac necessary short term funds and to purchase mortgage back securities. It is the guarantee of the mortgage securities that makes these investments attractive. Investors must trust the guarantee. If not, they either will not purchase them or will require higher interest rates. This would push mortgage rates higher.

The other concern is more long term and significant - Whether Fannie Mae and Freddie Mac actually have and will continue to have sufficient capital reserves to stay in business. Investor confidence can be restored. If the actual capital reserves are insufficient, it will take real money to restore them, and perhaps real changes to the structure of both companies.

Capital reserves come from existing assets, monthly income, loans, and equity investment. The latter is hurt by the drop in stock value.

Reserves are drained by losses. To date $11 billion combined losses are reported. It is unknown the extent of future losses, but estimates range from $24 billion to $300 billion.

To reduce losses lending guidelines are being tightened and risk based pricing has been instituted. What other changes are being considered?

The cause of the losses has not been discussed in news coverage. The typical interview with experts moves from Fannie and Freddie losses to a discussion of subprime lending woes. Fannie and Freddie did not guarantee subprime loans.

I have heard bad loans mentioned a few times, but were the loans bad,  speaking of conventional loans? Were the guidelines too lax? Was underwriting too lax? This would likely mean a significant shift in underwriting guidelines, more than has already taken place. This may have begun with the Federal Reserve's new guidelines prohibiting loans that do not prove of income.

Federal Reserve Chaiman Remarks about Mortgage Practices.

This by the way could likely have a significant impact in the ability of good credit, self employed borrowers. I have not seen the details of the new rules or the time frame for implementation. The actual remarks and the reports indicate that the focus of the new guidelines is strictly "high priced loans."

Here is the text of the comments. 

Here is Reuters' article on the speech about "deceptive mortgage practices." The headline itself indicates that the prevailing belief that the fault of the mortgage crisis is that evil lenders deceived unwitting consumers. I am not sure that is correct. I am sure it is not objective reporting. All of the practices being addressed are not deceptive and are not designed to trap unwitting home owners. the article uses phrases such as "lure", "aggressive practices", (misleading) "promises".

I am not sure what impact this change will have. For the most part, the market itself has stopped the subprime lending that is targetted in the remarks.

Is the problem more of an economic issue? If so then the fix might require a different solution, and the fault of the foreclosure trends might not be so fully on bad lending practices.

I understand the significance of these defaults of conventional loans. I just do not understand their cause.

Richard Smith
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

Today NPR and other news services reported that Treasury Secretary Henry Paulson has announced a plan to support Fannie Mae and Freddie Mac. These proposals were made this Sunday in advance of the financial markets and specifically before Freddie opens a Monday morning auction of $3 billion in securities.

Friday ended with significant concerns over the stability of Freddie Mac and Fannie Mae. Stock prices have dropped by 75% for both companies since January, and almost 50% this past week. At issue are investor fears that these companies lack the capital reserves to fund their guarantee of mortgage securities, because of large losses and the prospect of even greater losses in the next several years.

The total expected loss estimates for the coming years vary from $24 billion to as high as $300 billion.

Both companies, and the OTC, Treasury and Federal Reserve, along with other officials insist that capital reserves are sufficient and exceed requirements. But the validity of that assurance depends on the actual future losses.

Once the companies fall below capital requirements, federal takeover is likely to happen. The fallout from that is unknown.

To meet capital reserve requirements Fannie and Freddie must manage losses and increase revenue. If additional capital is needed, then the money must be borrowed from wary investors or the federal government, or they must issue new stock. This latter option is impacted by the very large drop in stock value, even just this past week.

The announcement today includes the potential of expanded federal loans, at 2.25%, and the possibility of a federal equity investment in the mortgage companies. These helps will come also with increased federal input into operations.

The buzz word is that the government want to support Fannie and Freddie in their current form.

The impact for the consumer is that all this will be funded by tax payers.  There will also likely be an impact on mortgage lending, in the form of even tighter approval guidelines and somewhat higher interest rates, especially on more risky borrowers.

The question still remains for me as to what types of loans are showing these large defaults. The previous news was about risky subprime loans and low documentation loans. Fannie Mae and Freddie Mac have the option for the highest quality conventional mortgage loans.

What is causing these top quality, low risk conventional loans to have such a problem with defaults? Dropping property values in some parts of the country would not seem to explain these losses. Are the conventional loan losses regional, are they high LTV purchases, are they high debt ratio loans, are they investor properties, are they cashout refinances?

Expect there to be continued tightening of lending guidelines as the lenders work to shut off underperforming loan programs, as well as additional pricing adjustments based on risk.

Is the problem regional? Figures just released in Chattanooga show foreclosures up 41% from last year, with 293 new foreclosure filings in June. I do not know what type of loans are being foreclosed. The good news in the local Chattanooga area market is that home values are holding. And nationally, mortgage applications are increasing.

The point has been made that the foreclosure problem was a direct result of risky loans, but Fannie and Freddie are NOT suffering losses as a result of guaranteeing subprime or low documentation loans. They make loans to the lowest risk customer. Why the losses?

The actions today and the previous actions by Fannie and Freddie to reduce future losses by adjusting pricing and guidelines will provide some relief to investors. How much we will see as the week unfolds. 

Richard Smith
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

The Dixie Youth Baseball tournament is being held this week in Chattanooga. The Times Free Press front page story today covered the start of the tournament. This is the 50th Anniversary of the Dixie Youth Baseball League.

It is hard to find anything much better than youth sports. My son and daughter played baseball and softball in the Hixson Youth Athletic Association. My wife and I enjoyed every game and every trip.

Lookout Mountain hosts the 11 and 12 year old tournament. Signal Mountain hosts the 9 and 10 year old tournament. Red Bank hosts the 5 to 8 year old tournaments.

Three local teams are among those competing among the 60 teams coming to play.

The opening ceremony is tonight at the UTC McKenzie Arena in downtown Chattanooga. Tournament games start Monday.

Youth sports are well served in the Chattanooga area. There are strong local youth associations in every area in Chattanooga. In 2000 Red Bank won the 11 and 12 year olds title.

Softball also receives strong support locally, both at the community youth association level and at the city level with several recreation parks.

This past Spring Ooltewah made history for our city by becoming the 4th straight team from the same city to win the state title in softball. Soddy Daisy won twice and Red Bank, my daughter's team, won once. Soddy Daisy was in every state tournament, and actually played for the title 4 straight years, winning twice.

The Dixie League games start tomorrow, and it will be an exciting time. I hope to get to some of the games. If so I will post some pictures.

Here is a link to the slide show in the Times Free Press article.

Richard Smith
Home financing in Tennessee, Georgia, and Alabama.
Experience matters when it is your home loan.

The Chattanooga Zoo's website calls itself "Chattanooga's hidden jewel." The zoo is on over 6 acres right down town in Warner Park.

The zoo has just completed renovations and reopened last month. This story linked here is from WRCBTV, Channel 3, the local NBC affiliate. 

Here is a good video interview from Channel 3 .

The Zoo is small but a very nice visit, especially for families and small children. We first visited the zoo over 15 years ago, before we even moved to Chattanooga.

The recent renovations have much improved the facility. The renovations are part of a larger plan to expand the zoo to over 10 acres.

The Zoo has animals from all over the world. The most recent exhibit is the Himalayan Passage, featuring Red Pandas and leopards. Another great addition is the Endangered Species carousel.

Children really enjoy the petting zoo.

On June 21 Hank the Zoo's favorite chimpanzee had his 40th birthday. The zoo celebrated it and it grand reopening on the same day.

The Times Free Press article is accompanied by a very good video of the Grand Opening.

The zoo is a very affordable family good time.

Richard

Home Financing for you
Tennessee, Georgia, and Alabama

Richard Smith, Mortgage Broker, Vice President Retail Division, American Acceptance Mortgage, Inc.
Cell: 423-280-0345, Toll Free: 888-474-9910, email: richard@RichardSmithHomeLoans.com

www.RichardSmithHomeLoans.com		www.RichardsRealEstateThoughts.com

Troubles with FannieMae and FreddieMac and the rapid decline and ultimate federal take over of IndyMac Bank have headlined a very busy news week. There is a lot going on in the world and in the financial markets as I am concentrating on finding that next loan and trying to get it closed.

The IndyMac failure and take over seem to me to be less significant to the mortgage markets. IndyMac is the largest savings and loan failure ever, and the second largest financial institution to close.  In the 11 days after  Senator Charles Schumer, D-NY made public a letter he wrote to federal regulators in which he expressed concerns about the lender's "financial deterioration", depositors withdrew  $1.3 billion.

This run on the bank was emotional, and caused the failure. As Jim Crawford said in a comment to his post last night announcing the IndyMac news, "Thank you Senator Schumer."

The significance is with depositors and the strain on the financial markets for the impact of FDIC insurance. Depositors with the maximum $100,000 in accounts are protected. NPR ran a story that several accounts of about 10,000 large depositors totaling $1 billion are potentially uninsured. Those large depositors stand to lose some money. Inman News reports similar information.

Of course, it is not good news for the mortgage markets either, but IndyMac had already stepped down from its high ranking as a volume leader. Construction permanent and Alt A lending divisions had closed months ago. The bank was trying to remold itself as a strong FHA lender, but this emotional run on the bank caused by poorly timed statements from high officials ended its opportunity and forced the shut down.

The liquidity problem is for the savings and loan depositors and for the FDIC insurance fund.

There is finger pointing at the lending practices of IndyMac as a leader in Alt A and niche lending programs. Mortgage losses put the lender in trouble, but it was the depositor run that shut it down. Or so it seems to me.

For the mortgage markets and the economy in general, the problems with Fannie Mae and FreddieMac are much more severe. NPR has a good account of the institutions and their troubles.

These companies are the largest purchasers of mortgage securities. They ensure mortgage market liquidity and guarantee mortgage loans sold to investors. They now guarantee about $5 trillion dollars of mortgages.

And they report losses totaling a combined $11 billion.

At issue here is the foundation of the real estate industry, and its impact on the US and even the world economy is almost too great to estimate. These entities do not even need to fail for mortgage lending to be significantly impacted. If investors lose trust in Fannie and Freddie's abilities to back their guarantees, funding for mortgages would be severely restricted.

Generally, we are not speaking of the riskier mortgages that are always brought up with references to IndyMac's failure and troubles in the mortgage industry in general.

Fannie Mae and FreddieMac set the guidelines for conventional loans. These are the loans that are provided to the best credit borrowers.  Income and assets are documented according to strict underwriting guidelines.

Yet these institutions are suffering losses. I actually think that says something about the state of the economy, more than it does the mortage crisis. Fannie Mae and FreddieMac purchase and guarantee the best quality mortgages. That means that an increasing number of the borrowers with the best risk profiles are being foreclosed. How is that happening? We are all told to understand that risky loans have caused the mortgage crisis. Why are the loans that were not risky in default, in such great numbers as to put Freddie Mac and Fannie Mae at risk?

Richard

Home Financing for you
Tennessee, Georgia, and Alabama

Richard Smith, Mortgage Broker, Vice President Retail Division, American Acceptance Mortgage, Inc.
Cell: 423-280-0345, Toll Free: 888-474-9910, email: richard@RichardSmithHomeLoans.com

www.RichardSmithHomeLoans.com		www.RichardsRealEstateThoughts.com