The Mortgage Guy Blog

Every time I sit down to write a post, more significant news on the economy is breaking. Events are unfolding rather rapidly and it’s been difficult to focus on any one event, as they are all related. So in this post, I will post links to stories that have significant meaning to the mortgage industry and the economy. One thing is for sure, if the public isn’t being lied to, it is definitely being deceived.

I am going to start with the apparent insolvency of the United States banking system. Since November of 2007, assets used to meet the required reserve levels by banks has plummeted 150%. Yes you read that correctly, they lost 50% more than what they originally had.

Check out the chart and article at Financial Sense University. Here is a snippet.

Clearly the situation has deteriorated at a rapid pace and is much more serious than the credit scare last August. US banks have no reserves; they are for all intents and purposes, broke. In fact they are beyond broke and as I suggested last year banks are now sub-prime. 150% of the reserves at depository institutions are borrowed. That can only mean one thing, the banks have “lost” 1.5 times their original non borrowed reserves. Not only have they lost what they had, they went on and lost half as much again. If you or I did that, we would be bankrupted and probably arrested for attempting to defraud the lender.

The last sentence of the above quote gives you a sense of the “special” treatment the banks are receiving from regulators.

Moving on…

Bank of America is in secret talks with Congress for the purpose of obtaining a three quarter trillion dollar bailout, courtesy of the U.S. taxpayer. Here is the original article from the New York Times but I believe you will find Mish’s dissection the article much more informative. Here is a link to Mish’s Global Economic Trend Analysis and another snippet.

From the NYT…

If the government pays too much for the mortgages or the market declines even more than it has already, Washington — read, taxpayers — could be stuck with hundreds of billions of dollars in defaulted loans.

Mish’s Comment: Taxpayers could be stuck or would be stuck? I think the latter. No one entity or agency can value these things, certainly not Moody’s Fitch, and the S&P. For recent evidence, please see Evidence of “Walking Away” In WaMu Mortgage Pool.

The only proper way of establishing the worth of these securities is by the free market, not guesstimates by bureaucrats who cannot find their asses with both hands at one time, nor by banks willing to sell the government a bill of goods at taxpayer expense.

Mish’s piece is a very good read, stop over there if you get a chance.

CommodityOnline has an interesting article about the Fed, why you shouldn’t expect interest rates to trend lower and why the banking system is beyond repair. Here is a small excerpt from ‘US Fed is playing a risky, secretive game’

The solution requires more price inflation, asset inflation, wage inflation, and spillover, all of which contribute to rising long-term interest rates. Already, we see the rub in higher mortgage fixed rates, higher jumbo mortgage rates, higher corporate bond yield spreads, higher junk bond yield spreads, higher fixed rate swaps.

To support my statement that the public is at the very least, being deceived, let’s take a look at Standard and Poors’ (S&P) recent ratings actions with regard bond insurer MBIA. Bloomberg sums it up nicely. Emphasis is mine.

Treasuries fell for a second day as Standard & Poor’s said it’s unlikely to reduce the credit rating of bond insurer MBIA Inc. soon, reducing demand for the relative safety of U.S. government debt.

The bond insurers are insuring the credit worthiness of portfolios exposed to defaulting mortgages. If they get downgraded, as they should, it puts even more pressure on bank reserves, further weakening bank financials. It appears S&P mindlessly rubber stamped MBIA’s AAA rating.

Mish, once again, makes a strong case for S&P’s lack of objectivity. He contrasts S&P’s actions on Pfizer and MBIA. Below are some numbers on both companies. Guess which company is MBIA that retained a AAA rating.

Compare Financials

• Profit margin -61.76% vs. +17.07%
• Return on Equity -35.54% vs. +12.13%
• Revenue $3.12 Billion vs. $48.61 Billion
• Earnings Per Share -$15.22 vs. +$1.20
• Total Cash $5.73 Billion vs. $20.30 Billion
• Total Debt $17.44 Billion vs. $8.69 Billion

The “bad” numbers belong to MBIA, which maintained it’s AAA rating. The “good” numbers belong to Pfizer. S&P saw fit to downgrade Pfizer by one notch. To prove how absurd the S&P rating is, given a choice, which company would you rather lend money to? It’s not rocket science. They make it rocket science to hide their ineptitude, incompetence and lack of objectivity.

First we have the mainstream omission of the state of U.S. banking. Now you see outright deception with regard to the ratings agencies. These are the same agencies that rubber stamped subprime mortgage backed securities AAA. Which of course allowed for the pandemic spread of the toxic paper.

The investment bankers, with their accomplices the ratings agencies, are perhaps directly responsible for the economic woe felt around the globe. To think that we are supposed to believe in and trust these ratings companies is ridiculous. Only one question comes to my mind, why aren’t people going to jail?

Banking woes aren’t unique to the United States. Jim’s post on The Great Depression of 2006, shed some light into the banking crisis overseas. In his piece titled, The New Deutsch Mark, he points out two overseas banking flash points.

It looks like the German banking system is starting to unravel. Here is a link from Der Spiegel to the article. A hat tip to Patrick.net

The German government has had to bail out state-owned banks with taxpayers’ money after their managements recklessly gambled away billions on sub-prime investments. But if a state-owned bank were to go under, the consequences could be disastrous for the whole economy.

In England, Northern Rock just got nationalized by the government.

Nationalization of banks… Hmmm.

I’ll end this list/post of “should read” articles with strongest and perhaps the most disturbing post from The Common Sense Forecaster. CSF digs into Dr. Nouriel Roubini’s article, The 12 Step Program to a Financial Crisis. Emphasis is mine.

Why did the Fed ease the Fed Funds rate by a whopping 125bps in eight days this past January? It is true that most macro indicators are heading south and suggesting a deep and severe recession that has already started. But the flow of bad macro news in mid-January did not justify, by itself, such a radical inter-meeting emergency Fed action followed by another cut at the formal FOMC meeting.

To understand the Fed actions one has to realize that there is now a rising probability of a “catastrophic” financial and economic outcome, i.e. a vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe. The Fed is seriously worried about this vicious circle and about the risks of a systemic financial meltdown.

That is the reason the Fed had thrown all caution to the wind – after a year in which it was behind the curve and underplaying the economic and financial risks – and has taken a very aggressive approach to risk management; this is a much more aggressive approach than the Greenspan one in spite of the initial views that the Bernanke Fed would be more cautious than Greenspan in reacting to economic and financial vulnerabilities.

To understand the risks that the financial system is facing today I present the “nightmare” or “catastrophic” scenario that the Fed and financial officials around the world are now worried about. Such a scenario – however extreme – has a rising and significant probability of occurring. Thus, it does not describe a very low probability event but rather an outcome that is quite possible.

Roubini’s article is a must read if one would like to assess a “worst case” scenario. With each passing day, Roubini’s scenario becomes more probable. It’s a long but very informative article. The one mistake I made was reading this article at 11:30 in the evening. I ended up falling asleep around 3 o’clock in the morning. Here is a link to Roubini’s “About Us” page of his highly regarded website.

There is a lot of “kool aid” being served up in the media. Try not to get a belly full of it and keep your eyes on what is really happening. Then get your financial affairs in order, while you still have the time.

Tags: Current Events, Finance & Economy by The Mortgage Guy
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Here is a video of the current state of mortgage originators around the nation.

Enjoy…

Tags: Leisure by The Mortgage Guy
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Since the Federal Reserve cut the Fed Funds rate by .50% on January 30, mortgage rates are up at least .75% on the thirty year fixed rate mortgage. For example, our 30 year fixed rate, no closing cost loan offering bottomed out at 5.75% APR just before Bernanke and the Fed lowered the fed funds rate by .50%.

Today our no closing cost rate stands at 6.50% APR. That is a three quarter percent increase despite the fed funds rate being cut by one half of one percent. Rates have responded similarly in other fixed rate maturities as well.

Public perception is that if the Fed lowers rates, mortgage rates will follow. Sometimes that is true, other times it is not. Quite often, those of us in the mortgage origination business,
cringe when the Fed lowers their short term rate. More often than not, we need to re-educate borrowers on the workings of the debt markets and interest rates in general. These re-education efforts are necessary due to the bombardment of misinformation the public receives through advertising and/or simply ignorance.

The actual rate that gets the most publicity, when the Fed addresses monetary policy, is the Federal Funds rate. Here is how the Federal Reserve describes the Federal Funds rate on their New York Fed website. Emphasis is mine.

By trading government securities, the New York Fed affects the federal funds rate, which is the interest rate at which depository institutions lend balances to each other overnight. The Federal Open Market Committee establishes the target rate for trading in the federal funds market.

The most important thing to take away from this definition, is that it is a very short term interest rate. You cannot get more short term than overnight. This is the rate that is most commonly used by the Federal Reserve to manipulate monetary policy. The Federal Reserve does not control mortgage interest rates. They really don’t directly control the fed funds rate either, rather they set a target rate.

Mortgage rates move independently of short term rates and it is short term rates that the Fed has the most control over. Just because the Federal Reserve moves rates one way or the other, doesn’t necessarily mean mortgage rates are moving in the same direction. The rate activity, over the past three weeks, proves this point.

In this environment, if you are presented with a good and sensible rate for your situation, don’t jeopardize it by waiting for Federal Reserve actions. You can easily lose this bet two ways. You may guess wrong on the direction in which the Fed is moving short term rates and it may be erroneous to assume that long term mortgage rates will respond by moving in the same direction.

One thing is for certain. Mortgage rates and the very short term fed funds rate, never move the same amount in either direction. To clarify, if the fed cuts or raises by say 1/2%, mortgage rates do not move by the same 1/2%. If they do, it’s rare and purely coincidental. In the world of financial instruments, they are two very different animals. The erroneous assumption of lock step interest rate movement is one I have heard many, many times.

Tags: Current Events, Finance & Economy, Mortgages, Real Estate by The Mortgage Guy
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For months the Mortgage Guy has been fighting the flawed perception that those most culpable for the mortgage meltdown are the buyers, realtors and mortgage originators. Conventional wisdom would have you believe they are most and directly responsible for the real estate meltdown and the mortgage crisis.

My contention is that the home buyers, real estate agents and mortgage originators are being wrongly blamed for the mortgage meltdown. Sure they played a part, but I believe their respective responsibilities for the debacle is minimal and leaning toward innocence in nature and intent.

All political and regulatory emphasis to date, has been put on either adding to already burdensome lending regulations or bailing out the “greedy” home buyer. That is until the Securities and Exchange Commission set their sights on the mortgage securitization process. This is where the biggest, most serious and harmful crimes were committed.

A look at this recent Yahoo News article will give you an idea as to what the SEC is concerned with.

The Securities and Exchange Commission is investigating how banks, credit rating firms and lenders valued and disclosed complex mortgage-backed securities that ultimately led to the subprime crisis, a top agency enforcer said on Saturday.

The article points out that while the SEC didn’t name the companies involved, Merrill Lynch and Morgan Stanley have disclosed regulatory investigations pertaining to their role in the credit crisis. In all, there are over thirty firms being looked at. It goes on to say…

Banks, due diligence firms and credit rating agencies are being examined for their role in the securitization process, or how mortgages were sold, repackaged and bundled into special financial products.

The SEC is looking at the valuations and accounting treatments of mortgage-backed securities. It is looking at whether the securities were valued correctly in the first place, what was the level of risk and if that was adequately disclosed to shareholders.

In my opinion, the investment banks, with help from others, committed the fraud of labeling credit standard deficient loans as AAA investment grade paper. By doing so, they were able to feed a huge hunger for safe but uncharacteristically high yielding investments. Feeding this appetite for high yet safe yield, allowed for the spread of this toxic paper all over the world.

The investment banks could not pull off the crime of the century without having ample assistance. This is where the ratings agencies and due diligence firms/departments come into play.

It is up to due diligence entities to properly assess the risk and suitability of investments. Apparently, based on the total destruction of our credit markets, these due diligence “experts” couldn’t see that by mixing a pot of AAA mortgages with a pot of DDD mortgages one cannot expect an investment pool deserving a AAA rating as the end result. This is so even if you take into consideration that they bought “insurance” on the portfolio.

The final gate keeper responsible for safeguarding the investment public from misdeeds such as these, are the credit rating agencies. These so called “independent” firms really have the final say as to the grade of any debt security. Yet they also couldn’t see that an investment portfolio with a major exposure to credit standard deficient mortgages should not be rated AAA in safety.

A reasonable person would wonder why the ratings agencies would implicate themselves in what turns out to be the total destruction of our debt markets. The answer is the same for all involved. Money.

At S&P, for instance, no longer will they hand out triple-A’s to issuers who pay them boatloads of fees. They now will employ an ombudsman to listen to complaints about the agencies handing out triple-A’s to issuers who pay them boatloads of fees.

What if General Motors built cars that didn’t run, or your local dairy produced sour milk? What if your bank said it didn’t deposit your paycheck because it lost it, or the electric company just quit supplying your neighborhood?

Then, in response to it all, those companies said: good news, we’re hiring an ombudsman. The ratings agencies in the same fashion have failed on their intrinsic purpose: to judge the likelihood that a debt will default. As of Tuesday they’re about 0 for a few billion.

The quote is from an excellent MarketWatch article that gives insight into the role the ratings agencies played in the destruction of our credit markets. I owe a huge hat tip to The Common Sense Forecaster for bringing my attention to it.

It’s important to realize that events leading to the mortgage meltdown occurred on a “top down” basis. Buyers cannot buy from realtors unless mortgage originators have the loan programs to fit the buyer’s profile. The mortgage originators cannot offer loan programs unless lenders are providing them. The lenders will not provide loan programs unless the securitizers can turn the mortgages into marketable securities and the ratings agencies have the final say as to the grade (the likelihood of default) of those securities.

Proof for this observation is the current state of the mortgage industry. Despite the current demand, no longer are 100% financing for credit damaged borrowers and stated income and asset programs available. This is because lenders cannot securitize these types of loans. They cannot securitize these loans because it has become painfully apparent to investors that these once called AAA investments are nothing of the sort.

Also evidenced by the current state of the mortgage industry, is that without the securitization of mortgages, no one lends and thus, no one buys real estate or borrows money against their house. This makes it clear that it is the securitization engine that drives the entire mortgage process and in turn the real estate markets.

The demand still exists for 100% financing, no income, no asset loans and subprime/alt A loans in general. Being that these programs are no longer available, makes clear that the mortgage business is not driven from the bottom up. The demand is still there, yet it goes unanswered because the securitizers cannot sell the mortgage backed securities. The business is indeed driven by top down forces.

Realizing that the mortgage industry runs on securitization, it’s plain to see who the real criminals are in the mortgage crisis. It is clearly the securitizers, due diligence firms and ratings agencies. They are the major force behind the mortgage industry and it’s destruction.

Without the securitizers lying about the credit quality of the subprime mortgages being securitized, and the winks and the nods from the due diligence firms and ratings agencies, the securitizers could have never sold anywhere near the amount of toxic debt that has been polluting investment portfolios and economies around the world.

The fraud committed by these criminals created the immense capital that led buyers and originators to use the unsuitable mortgage products that have led us into this world wide crisis. They enabled the lenders, originators, realtors and buyers in committing their misdeeds which have led to the total seizing of our credit markets. This in turn has thrust our economy into recession and potentially much worse.

Now it should be clear to all, the buyer, realtor and originators were simply responding to demand that was met by capital that was fraudulently raised. All the buyers wanted was a piece of the “American Dream”. Realtors sought to help them get it and the originators were empowered to provide the financing by the capital raised through fraudulent means.

These subprime/alt A, toxic loan programs simply appeared on our rate sheets. The guidelines specifically allowed for damaged credit, no down payments, no proof of income, assets and in some cases no proof of having a job. There was no fraud involved because the product guidelines allowed for these aspects specifically.

Originators who realized these types of loans were time bombs waiting to explode, could not refuse to sell them. If they did, the consumer would just go to another originator offering these programs. Believe me, there were many originators who saw the writing on the wall two to three years ago. Yet we were powerless to do anything about it. It wasn’t our money being lent, thus we had no say and market forces worked against dissent.

It’s time to end the mis-perception that it was the greed of buyers, realtors and originators that led us into the subprime/credit crisis. Yes to a degree this element played a part in the dilemma but this is not the real cause of the meltdown. It was the titanic greed of the securitizers and their “assistants” that fraudulently created the capital and market forces that have led us to the historic break down of our credit markets and economy.

The first step in restoring confidence in the debt markets shouldn’t be bailouts for the investment banks and insurers. Nor should it be bailing out homeowners through rendering legal contracts as useless. The healing will begin when the real criminals are outed and the perp walks proceed down Wall Street.

Then the world will know our markets are governed by the rule of law, one set of laws for all and no one above the law, as opposed to political cronyism. The perception of political and regulatory cronyism will undoubtedly taint our securities markets forever. This will further weaken the United States’ ability to be a world class economic player.

Tags: Current Events, Finance & Economy, Mortgages, Real Estate by The Mortgage Guy
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Anyone with even the slightest knowledge of things economic, realizes that the stimulus plan won’t work and is nothing more than politicians paying for their re-election votes. As with most things political, the politicians are buying their votes with taxpayer dollars.

It’s refreshing to see that at least one political leader has the courage, integrity and honesty to describe the stimulus for what it is. In a word, it’s pandering. Watch Senator DeMint as he calls a spade a spade.

Hat tip to Hot Air.com.

Senator DeMint on Stimulus Plan

http://www.youtube.com/watch?v=uSTjc-wbcLU

In previous posts, the Mortgage Guy has explained why the stimulus plan misses the mark. The mark is the malfunctioning credit markets. Due to them, lenders won’t lend.

Without lenders lending, there is no way to avoid or find our way out of recession. The government can drop $100 bills to it’s heart’s content and the Fed can drop short term interest rates to zero and it won’t help with the economic problems we face today.

Our political leaders are making a huge mistake not focusing on the real problem. Keep in mind that it was mistakes on this scale, that allowed our political leaders to lead the United States straight into the Great Depression.

Of course this matters little to our political leaders of today. In their view, nothing is as important as their re-elections. Consequently, we are at square one in dealing with this recession and we have lost valuable time as well.

Tags: Current Events, Finance & Economy by The Mortgage Guy
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For a while now the Mortgage Guy has been posting that our product shelf is about 20% of what it used to be. Further we’ve stated that underwriting requirements (credit standards) have been tightening on all types of mortgages and that this trend was spreading to credit cards and consumer debt. The Fed released a survey yesterday that documents these very disturbing trends.

Banks are raising their credit standards for mortgages, consumer loans and commercial real estate loans at a pace never seen in the 17-year history of the Fed’s quarterly survey of senior bank loan officers, the Fed said.

Plain-vanilla business loans were also much harder to obtain, the Fed said. Banks expect more delinquencies and charge offs for most types of loans to consumers and businesses, the survey said. Banks said they were tightening their lending standards in response to weaker economy, reduced tolerance of risk, and decreased liquidity in secondary markets.

Consequently, we’ve been urging our clients, both current and prospective, not to delay any financing activity that they have been contemplating. Such as refinancing to make budgets more manageable for the rough times ahead.

One of the biggest reasons for the current procrastination on borrower’s parts, is the prospect for even lower interest rates in the future. We feel this could be a trap. By waiting for lower rates, home values continue to decline and credit standards continue to tightened dramatically.

Any potential gain from lower interest rates can be more than offset by falling home values and tighter credit policies. Waiting for lower rates not only can make refinancing more expensive, it may make it impossible.

This is also from the Fed survey…

For consumers, banks are tightening up on all types of mortgages, not just subprime loans. And banks are less willing to approve consumer installment loans.

More than 80% of banks - the largest percentage ever — said they had tightened lending standards for commercial real estate loans in response to a weaker economy. Nearly 60% of the banks reported falling demand for commercial real estate loans, and 87% expect the quality of such loans already made to worsen.

Clearly the United States is entering a very severe and equally dangerous credit crunch. It started in subprime mortgages and spread to all types of mortgages and now it’s spreading to installment loans and credit cards. Credit card issuers have tightened their standards just like the mortgage lenders as evidenced by this article in the Wall Street Journal.

Big card issuers such as Citigroup Inc. are requiring higher credit scores before issuing new cards, particularly in states that have been hit hard by the housing downturn, including California, Arizona and Florida. Some lenders, including Bank of America Corp., are offering lower initial credit lines. Other lenders, such as Capital One Financial Corp., are limiting credit-line increases or reducing credit lines for existing customers if they see signs that they are suddenly applying for more credit or are having trouble paying down their balances. And many card issuers are raising late fees and other charges to help offset what they see as higher risk.

Also from the article, this synopsis of various credit card lender initiatives.

Naturally, for an economy that is already reaching recessionary levels, these developments prove to be quite serious. John Mauldin at Minyanville states the following about recessions and depressions.

I have long contended that a recession is a normal part of the business cycle, but it takes a major policy mistake by a government or central bank to create a depression.

The Mortgage Guy has maintained that this recession is due to systemic causes rather than cyclical causes. In our view this recession is being brought on by debt markets that are not functioning properly or at all.

We have criticized the Fed, the Treasury Department and politicians for focusing on monetary policy and stimulus packages as opposed to focusing on the dysfunctional credit markets. Lenders, at this point in time, cannot effectively securitize the loans they are originating thus they are cutting back and refusing to lend.

Monetary policy won’t work in this environment because with failing debt markets and banks refusing to lend, there is no way to get the cheap money that a loose monetary policy provides, to the people who need it most.

Could this be the “major policy mistake” that morphs this recession into a depression? We think it could be and history is our guide. Consider this snippet from Wiki on the Great Depression.

In the face of bad loans and worsening future prospects, banks became more conservative in lending money. They built up their capital reserves, which intensified the deflationary pressures. The vicious cycle developed, and the downward spiral accelerated. This kind of self-aggravating process may have turned a 1930 recession into a 1933 depression.

These parallels are much too close for comfort. What is even more disturbing, is that as I write this today, there is still a lack of attention to our malfunctioning credit markets. All of the initiatives put forth so far by Congress, the Fed and Treasury Department all focus elsewhere and we think this is a major mistake. Perhaps the mistake that transforms the current recession into a future depression.

We have a lot of rough sledding ahead. Will you be prepared or will you become a victim? Now is the time to take a hard look at your financial situation and to make adjustments accordingly. Your financial alternatives are shrinking everyday.

Just because you might be the proverbial AAA rated borrower, doesn’t mean you won’t be affected by this credit squeeze. I’ll close this post with how the Fed Survey illustrates this tightening of credit standards affects all borrowers.

More than half of the banks tightened their standards for prime mortgages, by far the highest percentage in the 17-year history of the survey. Seventy percent expected the quality of prime mortgages to worsen.

More than 80% of the banks tightened their standards for nontraditional loans, including jumbo loans and other loans that do not conform to standards set by Fannie Mae and Freddie Mac. A similar percentage expected more delinquencies.

For subprime mortgages, about 70% of banks that offer such loans had tightened their lending standards, but more than 90% of the banks responding to the survey said they do not offer any subprime loans.

About 60% of banks tightened their standards for home equity lines of credit.

Tags: Current Events, Finance & Economy, Mortgages by The Mortgage Guy
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Home Equity Lines of Credit, the cash spigot that taps one’s home equity, are scarce, more expensive, harder to qualify for and harder to keep. It’s just a continuing sign of the current extinction of useful mortgage products.

In our office, the number lenders offering home equity lines of credit has been cut in half. The number of lenders offering second mortgages has been cut by around 90%. When you can find lenders offering the products, they are usually more expensive (higher rates) and much harder to qualify for.

For example, Chase is lowering the maximum loan to value on HELOCs from 90% to 70% in some California markets. It’s only a matter of time that policies like this spread to other severely impacted markets.

Through this week, Chase customers in California can tap as much as 90% of the equity in their homes. Starting Monday, however, that limit goes down to 85% in most of the state. In six counties, including three in Southern California — Los Angeles, Orange and Imperial — Chase won’t let homeowners borrow more than 70% of the value of their homes. The bank wouldn’t say how the six counties were chosen.

Indymac Bank exited the HELOC market completely. Hat tip to Calculated Risk.

Not only are HELOCs harder to get, they are also harder to keep. Lender Implode posted this letter from Countrywide on their site.

What’s Happening

A portion of HELOC customers have already or will soon be notified by CFC Loan Administration that their HELOC draws have been suspended indefinitely. These HELOCs were identified as candidates for suspensions for various reasons including:

Significant decrease in supporting property value – If the customer’s current untapped equity (home value minus all mortgage liens) drops by 50% or more from their HELOC opening date, his/her line will be suspended.

HELOC payment delinquency – If the customer’s payment is made two or more days after the grace period ends, his/her line will be suspended.

Product Terms/Conditions Violation – In cases where the customer violated terms or conditions of the HELOC Agreement, his/her line will be suspended.

Examples include, but are not limited to: HELOC on property originated as owner occupied, but now believed to be non-owner occupied or unpaid taxes or insurance on the subject property.

Be aware that there may be other actions that could trigger draw suspensions.

Countrywide is joined by Bank of America and USAA Federal Savings Bank, among others, in tightening HELOC requirements.

Many of these HELOCs were taken out to act as an emergency cash reserve. Well it’s emergency time now and these products are either being taken back or not offered.

Needless to say, there is a human impact caused by the HELOC tightening. For example we had a client who had a small Indymac HELOC. The purpose of the HELOC was an emergency fund. They had a death in the family and finances became strained. Just when the proceeds of the HELOC were needed, Indymac suspended all withdrawal privileges. Consequently, this client went into a financial free fall without the liquidity provided by the line of credit.

This is a prime example of why we are telling clients and prospective clients that they must move quickly when it comes to anything to do with home financing. The rules are changing everyday and not in favor of the borrower/homeowner.

Tags: Current Events, Finance & Economy, Mortgages by The Mortgage Guy
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