October 18, 2007

Goodbye Mortgage Brokers. Goodbye Toxic Loans. Goodbye Fake House Prices.

From CalculatedRisk:

Quote of the day from the Mortgage Bankers Association's (MBA) new Chairman Kieran Quinn:

"We're going back to lending the way it was in the 1950s and 60s. Mortgages will be made mostly by bankers and their employees, and compensation will be based on who's making good loans and who's not."


Charles said...

It would seem this would bring about a speedier return to the mean than many anticipate.

I think a modest 10% down requirement and 80% plus loans requiring full documentation should be enough to shave 40% from '05 peak prices here in LA County.

Being a mobile PC tech (in the East San Gabriel Valley) I talk to a lot of people in a lot of income brackets who say they could not afford their own homes at todays prices. And these are business owners an aerospace workers!

Fundamentals here we come...

And don't think Greenspan's prediction of double digit interest rates won't come to pass soon. In his own words the world's dollar reserves are slowly winding down and as much as we make fun of Helicopter Ben the FED has only so much control and they are not going to destroy our economy through Hyperinflation. That doesn't help their Wall Street masters in the least!

Ben's just gonna continue feeding us BS while trying to control the downturn as much as possible. Then once people except the reality of our nations finances, here comes early 80's style liquidity mop up. FEDs fund rate at 10% by 2010.

Anonymous said...

Yeah, right. I'll believe it whaen I see it!!

tangelo mozilo said...

Charles, my 64-year-old father-in-law remarked last week that he wouldn't be able to afford his own house today (the one he bought 25 years ago).

I told him that he would be able to "afford" it in the sense that the 2.5 or 3x annual income rules no longer apply. When I told my fathr-in-law that it was common practice for lenders to give out mortgages at 6x annual income or more, he didn't believe me.

He's an accountant - a pretty savvy guy financially, but because he hasn't made a residential real estate transaction in 25+ years, he's way out of touch with what's going on out there.

I suspect it's that way with a lot of people who are used to the old lending standards. If you haven't applied for a mortgage since the early '90s, you may well be shocked at how different the process is today.

On the other hand, for anyone under the age of 35, the new "we'll make it work" mortgage model is probably the only one they know.

I'll be glad when it goes back to the old way. I just want what my parents had (minus the juvenile delinquent child).

Anonymous said...

For this to happen they're still going to have to do something with the securitized mortgage sewage bonds. Why would a loan officer care about a loan sold to someone else if that officer were no longer responsible for it? Systemic changes are long overdue.

Edgar said...

I'll believe it when I see it. They'll never go back to requiring more than a token down payment, ever. 80/20 + mortgage insurance are here to stay.

Anonymous said...


ya, right!

Anonymous said...

I don't believe this.

Go to the broker outpost and read the posts. Its business as usual and none of them seem worried at all.


Charles said...

To tangelo mozilo

I don't think we're on the same page...

These folks couldn't afford there own houses even on 40 year loans! No matter the product they could not BUY their own house.

As for anyone doubting that the old standards are coming back should check out the Housing Bubble Casualty BLOG by SoCal Mortgage guy.

This is just getting started and I'll bet anybody that buy the end of '08 you won't be able to get a mortgae with zero down even with an 800 FICO.

We've gone over the inflation issue a 1000 times here at HP...

Lower interest rates gives us the current run on the dollar and everyhing gets more expensive so RE goes down (especially in REAL dollar terms) as people have less income to devote to that expense.

Raise interest rates (which is coming by '09) and the dollar is propped up but borrowing costs are higher. All the while our fake economy is exposed by a recession that does what? Yep, depresses asset prices.

There is no scenario that housing will not lose significant REAL dollar value in the near term. Neither monetizing debt or moping up liquidity (which there ain't much left of anyway) will change this fact.

Anonymous said...

The reason why they don't seem worried is because they're all still in denial. I'm an independent mortgage professional, one of the honest few. It's been hard for me to accept our demise. I've spent the last few years saving clients from those toxic loans. I love what I do. Now I have to crossover my skills and start a new career in another field. Thank goodness I have a degree. The others in my field will not be so lucky.

Mortgage brokers will become extinct, sooner rather than later. The wholesale sector is slowly being extinguished. It will come down to five big banks lending at retail prices.

Why I do find most shameful right now is that Wachovia is still pushing their PayOption ARMs (Neg.Am) loans to mortgage brokers. Their guidelines are still a little loose. More so than the other wholesale lenders (eg; FICO score minimum lower than others) Therefore, a broker shopping around for a loan not able to qualify with the other lenders... only option available is Wachovia. So the distructive cycle continues. Until that product is discontinued for GOOD!

LauraVella said...

If lending standards are going back to 1950/1960 standards, which means at least a 10-20 percent downpayment, with rock solid credit, 7 years consistant work history in the same field, and money left in the bank account for an extended period of time before the house purchase.

Also, I'm hoping banks go back to qualfying loans for only single household wage earners. Otherwise, there's no money left over for necessities or savings.

Great, bring on the new loan standards!

LauraVella said...

My inlaws bought their 5 yr old, 3/2 bath home in the bay area - in a nice area with a view of the bay (which they still live in today) in 1965 for $20,000 with a $10,000 down payment.

My mother in law stayed at home and raised the 3 kids. My father in law made extra money selling hot dogs at Candlestick, as a side job. Today, they arent rich, but comfortable. They never refi'ed their home,and only used money they saved to remodel their bathroom last year.

This was the norm back then. Actually, all the parents of the kids my husband grew up with are still married, and living in the same home they bought in the 1960's.

Tangelo Mozilo said...

Charles said . . .

"These folks couldn't afford their own houses even on 40 year loans! No matter the product they could not BUY their own house."


That's pretty bad. I think here in Maryland, people can still "afford" their own homes in the sense that they could take out a stupid mortgage, eat ramen, and make the payments every month.

Anonymous said...

Goodbye Mortgage Brokers. Goodbye Toxic Loans. Goodbye Fake House Prices.

Vaia con dios...and take the sleazy car salesidiots with you.

Anonymous said...

If Quinn's predicition becomes true, it would be one of the better news. I won't buy before traditional financing has been restored, because I don't want to compete with funny money.

Peter T

Anonymous said...

I'm a manager at a credit union, and I occasionally read and post anon here, because Keith is 2yrs ahead of the MSM.

I wake up and go to work every day without stressing out over the housing collapse, because I work for a finacial institution that followed these "outdated" principals all along and is still thriving. (Maybe not the 1950s type standards, but more along the lines of 2 out of 3 of full doc income, 700 Fico, 10%Down). I'm carefull to maintain professionalism at all times, but I've gotta admit that sometimes its hard to contain my smugness when someone comes in fess up that they're being foreclosed on two houses and they want to keep their car and credit card with us in good standing... or when a former realtor comes in to ask if we're hiring tellers.

I think every F'd B should right now turn in their keys to their stucco box, rent, find any scant remnant of values or ethics they still have, join a credit union, attend the free financial counseling seminars they provide, resist the urge to scream out in anger and denial when they're told not to spend more than 70% of annual income on a car or 3X annual income on a house, and then go out and live it.

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