Confessions of a Subprime Lender

After reading about Richard Bitner’s recent book entitled “Confessions of a Subprime Lender” I faced the possibility that this section of our generation will be known for our economic blunders.  Then the thought occurred to me that we could either be known for our amaziing ability to screw up, or we could be known as the generation who made things right.

It’s easy to understand the draw to the subprime boom back in the early 2000’s after reading bits of Mr. Bitner’s publication.  After realizing the awful truth about the lending industry – that its boundaries were too looose – Bitner bailed out based on ethics more than anything.  I hope that is the truth.

As I continued to look into the Bitner facts it was revealed that his company Kellner Mortgage is listed on the Implode-O-Meter – a website dedicated to tracking the foreclosure bust from the lending side.  It was nice to see that Implode-O-Meter is also tracking Non-Imploded Lenders as well.

All of this (along with the fact that I just saw Lehman Brothers SBF pop up on the Implode-O-Meter) brings me to a thought that logically concludes that we are NOT in the worst of this market yet.  Not only are we not in the worst of the market, but I’d be willing to stick my neck out on the chopping block to say that we are still years (not weeks or months) away from the worst.  When I think about the fact that commercial loans are still unaccounted for on the whole, it stirs up a sick feeling inside.  I live in a newer development where the builder went bankrupt, and the project was cut short by about 1/2 of the planned building.  And they were one of the big builders!

For those out there involved in REO, I think there’s still a very long row to hoe.  For those not yet in REO, it appears that more assistance is needed.

Commercial Loans: Behind the Next Hit

The article below was taken from the Wall Street Journal and touches on a subject that I’ve spent a lot of time considering. I’m sorry that the story cuts off – on the WSJ website you can register and read the rest of the article if you choose to.

By Jennifer S. Forsyth

Word Count: 454

So far most of the losses in the housing crisis have been from homeowners defaulting on their mortgages. But there is another wave of pain about to hit.

Developers increasingly are falling behind on loan payments, especially those who borrowed to finance acquisitions of land and construction of houses and condominiums. This has caused some confusion because regulators and banks typically lump these in with commercial real-estate loans.

Here, then, is a primer.

Question: What is a commercial real-estate loan?

Answer: When the Federal Deposit Insurance Corp. refers to commercial-real-estate loan…

Where is the Peak of Foreclosures and the Trough of our Economy?

I still snicker a little bit when I think back to the July 1, 2008 news that boasted the fact that we didn’t “officially hit bear market”.  The National Bureau of Economic Research has a pretty good description of what a recession consists of (read about it here for yourself).  It brings into consideration GDP (for those of you who slept during Economics 101, you can see the definition of GDP here), labor statistics and is defined as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.  A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.”

I think we can say it all together:  “We’re in a recession.”  There, didn’t that feel good?  Now let’s get out of it.  Look around for a second.  You have IndyMac going downward (is it a surprise that they were spun off from Countrywide?), Fannie and Freddie in a very unstable condition, and CNN’s headline for real estate news today reads: “Six months, 343,000 lost homes:  Through the first half of 2008, the foreclosure rate shows little sign of letting up.”

I’m not big on apocalyptic scare tactics, but…

…something tells me we’re not coming out of this anytime soon.

Even the Hollywood Celebs Have Mortgage Problems

It’s pretty easy to think of how good you might have it if you were a Hollywood start: The glamor, the fame, the fortunes. The possibilities seem endless when you ask yourself the question, “What would I do if I were world famous and a millionaire?” Activities such as these come to mind initially; heli-skiing in Switzerland, cruising the Caribbean in a 50-footer, and flying to Paris for the weekend. In my private jet.

The thought of Evander Holyfield missing payments or Ed McMahon becoming concerned about his long days-on-market leads me to two thoughts: We’re all human. Foreclosure could happen to anyone, anywhere, anytime.

In an article on CNN you can actually look at the public record-based information summarized by the entertainment media of celebrities who have or are having problems getting out from under real estate – good and bad. See “Celebrity Foreclosures”.

OK, so I have one more question that comes to mind with all of this: What would it be like to do the BPO for Michael Jackson’s Neverland Ranch?

News Brief: Foreclosure Across the Nation

Every morning I wake up, walk the dogs, make my coffee, and move towards the highlight of my pre-lunch day: reading the Wall Street Journal. Yesterday, I picked up the paper expecting to see the usual (albeit the WSJ always keeps me on my toes so I am not sure why I was “expecting to see the usual”) only to find that reporters across the nation had been doing overtime on researching the foreclosure industry. Which points out the fact that I too am so swamped with the foreclosure industry that I’m just now writing this article about yesterday’s WSJ. hmmm.

Anyways, what I found was a barrage of information about our twisted duality relationship with foreclosure. It then occurred to me that in most of my conversations with fellow REO industry professionals the conversation begins in a straight-line direction only to eventually derail in an attempt to converse about the umpteen different aspects, lawsuits, discoveries, etc. of foreclosure. The only logical step for me to take as an educator is to share this knowledge compiled by the WSJ and dozens of REO professionals across the nation with my fellow bloggers.

1. “Consumer Confidence Plummets” – The front page of the WSJ covers the statistics recently unveiling the fact that consumers are not confident enough to part with their hard-earned money. This could have two major impacts: It could send the economy into a recession (or more deeply into one if you are of the belief that we are already in recession), and it’ll keep interest rates steady.
2. “A foreclosure-rescue bill cleared a key Senate test, putting it on track for full Senate passage as early as today” – This bill would allow the government to back $300 billion in new, cheaper mortgages for debt-ridden homeowners facing foreclosure.
3. The 2 Bear Stearns employees, Ralph Cioffi and Matthew Tannin, who were arrested earlier this month are charged with conspiracy, securities fraud, and wiring fraud hiding mounting losses in funds. The debate now becomes, how much intentional conspiracy occurred versus working within the confines of the high-risk stakes within the hedge fund market. The argument becomes something along the lines of “these guys didn’t cook the books intentionally like Enron, but one manager did sell his stocks just before the hedge fund plummeted.”
4. “Small Banks Face a Looming Hit From Builder’s Interest-Reserve Loans” – A lending practice, which is more exposed to smaller banks, allows the lender to postpone payment of interest to real estate investments such as condo complexes until the investment becomes profitable or “cash flows”. The lender can then indicate on their books that the loans are performing, when in fact these real estate projects are failing.
5. GMAC, the lending branch of General Motors, whose business backbone has always been in the motor industry, followed by home loans, then credit cards, is feeling a huge crunch as their large vehicles are failing to sell and home loans are defaulting. In the true form of a trifecta, GMAC is finding it near impossible to sell off their credit card division.

So as you can see, we aren’t out of the woods yet. I’m not an economist with a PhD, but I can say with confidence that we are most likely in the middle of the woods. It’s the end of the 2nd quarter this week and I’d be willing to bet that before July 1st, 2008 we’ll be hearing more truths about the state of major corporations around the nation/globe. As we all know REO starts at Wall Street and works its way down.

New Paradigm: Asset Management Company Launches

Denver, CO –  “Paradigm Default Services, LLC. announced last week that it has initiated REO, third-party servicing designed to serve the needs of clients and investors who are awash in a sea of sub-prime foreclosures nationwide. Paradigm is both an operational platform for handling lender acquired properties and an acquisitions vehicle for synergistic business units closely connected and supportive of its default servicing business. A company spokesman explains that Paradigm is creating a special default servicing unit which will provide “cradle-to-grave” hands-on servicing taking loans from initial default to re-performance or liquidation.”

This was a clip of Paradigm’s press release early last week.  Fortunately for us, we were able to forge a relationship with Paradigm prior to their going public.  Tom DiMercurio, the owner of Paradigm Default  Services, is a long-time acquaintance of Dan Waterman, CEO & Instructor of NFSTI.  Both Mr. DiMercurio and Mr. Waterman have seen a need for change in REO after their “in the trenches” attitude towards research.  By increasing the quality of work on both the servicer side and the broker side of the business, it is possible to curtail this seemingly endless road of foreclosure.

To understand more about what Paradigm Default Services has to offer, please visit their site at: http://www.paradigmdefaultservices.com.  

 

Arrests of Brokers, Agents and Officials Across USA

(From CNN – 6.19.08 )   Hundreds of people across the country have been arrested by law enforcement officials targeting crooked mortgage brokers, real estate agents, and other industry officials, the head of the FBI and a top Justice Department official said Thursday.

FBI Director Robert Mueller and Deputy Attorney General Mark Filip announced the arrests the same day two former Bear Stearns hedge fund managers, Ralph Cioffi and Matthew Tannin, surrendered to the FBI. The men are expected to face federal charges that they intentionally misled investors in two funds that collapsed last summer under the weight of wrong-way bets on mortgage-backed securities.

More than 400 people have been charged in the mortgage fraud probe, of whom nearly 300 have been arrested, including 60 in a coordinated sweep Wednesday, the Justice Department said.

The losses in the mortgage fraud cases cost consumers more than $1 billion, Mueller said.

“We will, as appropriate, seek prison terms,” Filip said. “It is a very, very serious matter.”

“Operation Malicious Mortgage,” the investigation by the FBI and Justice Department, began March 1, government officials said. It resulted in 144 fraud cases in which 406 defendants were charged.

The FBI is investigating about 1,400 more cases of potential fraud, Mueller said, calling it “a substantial number of investigations, unfortunately.”

The agency has 42 mortgage fraud task forces in operation, employing 180 agents, Mueller said.

Many agencies were credited as contributing to the investigation, including the Internal Revenue Service, the Secret Service, the Department of Housing and Urban Development, immigration and customs agencies, postal inspectors and the Federal Deposit Insurance Corporation.

Most of the arrests came Wednesday, federal law enforcement officials said, in Miami, Houston, San Antonio, Baltimore, Chicago, and other cities.

Officials indicated the suspects were involved mostly in small-scale schemes.

MBA Announces Record High Foreclosures & Pre-Foreclosures

As we continue to watch the statistics rise in foreclosure, patiently waiting and wondering when the the crest of this tsunami will rise to it’s highest potential, we are only able to determine one thing – the crest is not upon us.

Recently the MBA (Mortgage Bankers Association) announced that the overall delinquency rate, number of loans entering foreclosure and the number of foreclosures in inventory are at new highs after Quarter 1 2008.

The numbers go as follows:

• 8.82% of homes loans are >30 days past due.
• 6.35% of loans were past due on a seasonally adjusted basis, up 151 basis point from 1 year ago.
• Homes in foreclosure are up 2.47% (increase in 119 basis points from 1 year ago).
• Prime ARM loans account for 15% of the outstanding loans (an indicator that the prime loans are catching up with subprime).

Currently Florida and California are leading the country in foreclosure.  The vice president of research & economics for the MBA is calling these two housing marketing “extraordinary”.

Zaio – Valuation Database

Scottsdale, AZ—Zaio Corp., with its U.S. subsidiary, Zaio Inc., has surpassed 20 million photos of individual parcels of real estate in its growing national database.

     Zaio is coordinating the photography, inspection and appraisal of properties throughout the nation. Zaio’s patent-pending technology is designed to be used by appraisers and help lenders obtain real time appraisals from a secure database much the same way they obtain credit reports.

“We are well on the way of meeting our goal of having virtually every property in the largest metropolitan areas in the United States in our secure database by 2111,” said Tom Beverly, vice president of photography.

     “To our knowledge no other company has ever taken the initiative to collect and verify property data on such a national scale. These photos are an important part of our process which will help restore confidence and help the country work through this mortgage crisis.”

An article taken from Managing REO

Fannie and Freddie S&P Report

Freddie Mac(FRE) and Fannie Mae(FNM) were recently the target of a Standard & Poor analysis report which painted a somewhat grim picture. The report, headed by analyst Victoria Wagner, indicates that FNM and FRE are both facing a possible hit from the mortgage meltdown. The report was recently released as FNM and FRE hid behind the government stating that the report was “just a scenario analysis, not a prediction…Freddie Mac remains a well capitalized company.

If FNM and FRE were to require a government bailout, the numbers would be astronomical. According to S&P, the worst case scenario – $1.1 trillion dollars of taxpayer’s money. That’s in comparison to the 1980’s savings and loan crisis that cost taxpayers somewhere in the ballpark of $250 billion in today’s dollars.

To make matters worse, the federal government is looking at putting their AAA credit rating at risk. This would undoubtedly increase the cost of borrowing as well. It becomes clear that these 2 institutions must remain stable in order for the mortgage industry to function properly.

As home values continue to plummet in the majority of the US, interest rates continue to climb, and the job market suffers one can only hope that a plan is put in place soon to bail out not only FNM and FRE but the rest of the country as well.