* Follow me on Twitter: http://www.twitter.com/mclaughlinchris
* Join my fan page: http://www.mclaughlinchris.com
***********************
Mortgage insurers deny 20 – 25% of claims
Mortgage insurance rescission rates jumped to 20-25% in recent quarters, relative to historical 7% averages. Moody’s said mortgage insurers rescinded about $6 billion of claims since January 2008 and could rescind another $2 to $4 billion of claims during the next few years. Moody’s also found monolines established more than $4bn of credits for put-backs to mortgage originators as of Q309, largely relating to ‘04-’07 vintage second-lien residential mortgage-backed securitizations (RMBS). Depending on how successful these strategies are, Moody’s notes monolines and mortgage insurers could encounter “meaningfully lower” losses than expected claims from “unprecedented” defaulted mortgages. But the implications for insurance policyholders vary. “For mortgage originators and other impacted mortgage insurance beneficiaries, put-backs and rescissions could represent significant contingent exposures to mortgage-related losses, with potential negative implications for their creditors,” Moody’s said. “However, most originators routinely set aside provisions for such exposures, although the amounts are not publicly disclosed. Additionally, we expect that protracted negotiations over the amounts could mitigate the potential impact, as we would expect many to opt for settlements rather than litigation.”
Short sales helping
According to securitization research by Barclays Capital, short sales may be partially responsible for the falling of first-lien severities in most non-agency sectors. Severities fell over the past five months alongside an uptick in house prices and implementation of government modification programs. House price appreciation alone cannot account for the whole 4-5% drop in magnitude seen across multiple sectors, and mark-to-market loan-to-value shifts and the rising share of short sales in recent liquidations can mostly explain the severity declines. But the trend is unlikely to keep up, as BarCap researchers project loss severities will increase in the first half of 2010 due to worse house price appreciation, rising short sale severity and larger advancing costs on liquidations. Severities should level off by the second half of the year. “One way to explain the unexplained component of the recent severity decline is to attribute it to a compression in the distressed discount that is being demanded by new homebuyers,” BarCap said. “Anecdotally, there have been reports of large-scale investor buying of distressed properties over the past few months. Investors are less likely to have psychological inhibitions about buying foreclosed homes and could bid up prices.”
Copenhagen Conference
The Copenhagen Climate Conference starts this week. A few days ago the climate summit looked like a boring rehash of general principles surrounding an alleged “consensus” with adjectives like “disaster” and “catastrophe stapled to it. Now it’s shaping up to be something different. The email revelations from the University of East Anglia, suggesting that data has been lost, manipulated, hidden from other scientists, or in some cases simply made up, has certainly spiced things up a bit. The timing couldn’t have been better, with President Obama preparing to give billions of dollars of our money to a mitigation fund for the developing world. Given that now it looks like the major oil companies were in bed not with the skeptics but with the scientists at the IPCC, perhaps a bit more transparency on the whole thing — including the vested interests — would be useful. If nothing else President Barack Obama’s anticipated presence will help maintain international focus on the debate for two weeks. Why isn’t the general public being better informed about the decisions that are being taken in their name? Why are the alleged scientists behind this thing looking for truth instead of trying to create it out of a hat?
Will mortgage rates rise?
After the positive jobs announcement last week, questions about mortgage rates began to roll in. Would they begin to rise? Diana Olick did a bit of research and published an answer from Miller Tabak’s Peter Boockvar: “The real question is how will the bond market react to Fed rate hikes? Would they be encouraged by the Fed’s inflation fighting and keep longer term rates low, or will they focus more on the improving economy and inflation expectations and send longer term rates higher notwithstanding Fed action? An impact is being felt though now, as today, the 30 yr FNMA coupon is rising a large 13 bps to 4.295%, the highest in a month, and mortgage rates have been running about 100 bps above that. The MBS yield is up 36 bps just this week.”
Tarp fund savings here one minute, gone the next — on “job creation”
The Obama administration plans to cut the projected long-term cost of the Troubled Asset Relief Program by more than $200 billion, in a move that could smooth the way for the introduction of a new jobs program. The White House and leaders in Congress are debating whether to use any of the remaining TARP funds for other domestic efforts, such as a jobs bill. Congress authorized $700 billion for the program during the height of the financial crisis, but the Treasury now estimates that over the next 10 years TARP will cost $141 billion at most, down from the $341 billion the White House projected in August. The White House has been under pressure to tame the $1.4 trillion budget deficit, which has ballooned as the U.S. borrows vast sums of money. But with unemployment at 10%, the administration is also under pressure to find ways to create new jobs. Lowering deficit projections could help alleviate concerns that a new jobs bill would further inflate the deficit. President Barack Obama is expected to raise the idea of using repaid TARP funds for a jobs bill in a speech he plans to give on Tuesday. On Friday, White House press secretary Robert Gibbs acknowledged that repaid bailout money is “certainly being looked at” for a jobs bill. Republicans are opposed to recycling TARP funds for a jobs bill, calling instead for the money to go toward reducing the deficit. House Minority Leader John A. Boehner (R., Ohio), on Bloomberg television Friday, called it “the worst idea” he had ever heard.
EPA endangerment finding
While officials gather in Copenhagen this week for an international climate summit, business leaders are focusing on Washington, where the Obama administration is expected to formally declare carbon dioxide a dangerous pollutant. Even if Congress doesn’t pass pending climate-change legislation, the Environmental Protection Agency (EPA) has issued an “endangerment” finding that will regulate emissions and could affect the U.S. economy more directly, and more quickly, than any global deal in Europe, where no binding agreement is expected anyway. EPA action won’t do much to combat climate change, and “is certain to come at a huge cost to the economy,” said the National Association of Manufacturers, a trade group that stands as a proxy for U.S. industry. Dan Riedinger, spokesman for the Edison Electric Institute, a power-industry trade group, said the EPA would be less likely than Congress to come up with an “economywide approach” to regulating emissions. The power industry prefers such an approach because it would spread the burden of emission cuts to other industries as well. Electricity generation, transportation and industry represent the three largest sources of U.S. greenhouse-gas emissions. Congressional Republicans have called on the EPA to withdraw it, saying recently disclosed emails written by scientists at the Climatic Research Unit of the U.K.’s University of East Anglia and their peers call into question the scientific rationale for regulation. An EPA spokeswoman declined to comment Sunday on when the agency might finalize its proposed endangerment finding.
Now on to our real estate investing educational arena …
Buyers Beware – Bogus Credit Scores & More
Just when you thought it was safe to go back to a bank comes more bad news from the financial front…bogus credit scores are jostling consumers and short sale buyers alike. Learn how to avoid unpleasant surprises and higher interest rates by obtaining accurate scores well in advance.
The High Cost of Free Credit Scores
Credit scoring companies are not all created equal so it should come as no surprise there are some variations to be found when obtaining a credit score. Unfortunately, the majority of people assume these are minor variations rather than overt or even bogus credit scores. For example, many Internet sites boasting free credit scores do not actually use FICO (Fair Isaac Company) scoring models whatsoever but rather their own proprietary estimated scores. Others use more lenient credit card scoring measures rather than the more stringent requirements used when obtaining a mortgage. Even worse, users are likely to be put on a spam or solicitation list in exchange for the “free” credit score. Bottom line – resist the urge to obtain a free credit score and go with a reputable broker or banker instead.
Changing Terms
The Big Three credit reporting agencies include Equifax, Experian and TransUnion. Credit scores typically range from 350 to 850 with the majority in the 620 to 780 range. A few years ago it was possible to obtain highly competitive rates with a credit score as low as 620 while today, thanks in large part to tighter standards, a score of 720 to 740 is required.
How to Estimate Your Own Credit Score
Many people mistakenly believe credit scores from all three major companies are averaged together in order to determine your individual score but in reality that is rarely true. Instead, lenders typically go by the middle score of the three. If only two agencies are used, lenders will usually use the lowest score to determine your interest rate. Make a practice of knowing your FICO scores from all three reporting companies then ask lenders which they will use in advance. Unless all of your scores are 720 or above, it’s a good idea to use lenders that work with agencies reflecting your best scores in order to obtain the most competitive rates.
How to Contact Credit Bureaus
As 2009 comes to a close it’s a good idea to verify the accuracy of your credit scores with the big three. Make sure all information is reliable and take time to correct mistakes or update information as needed.
- Equifax.com: 800.685.1111
- Experian.com: 866.200.6020
- TransUnion.com: 800.888.4213
Credit After a Short Sale versus Foreclosure
One of the most commonly asked questions about a short sale is how it will impact credit and the ability to purchase a home in the future. Whether you are a buyer, seller or investor, it’s imperative to educate yourself on this all important aspect of credit to become fully informed before making a final decision or in order to assist sellers in determining the right course of action for their financial future. Here to help sort through the confusion is a quick primer on credit after a short sale or foreclosure. Remember, every situation is distinctive so these estimates represent the average experience of most individuals…your own circumstances may vary.
Average Time to Rebuild Credit to Purchase a Home
- After a foreclosure: Five to seven years.
- After a foreclosure with extenuating circumstances such as disability, death of a spouse etc: Three to seven years.
- After a Dead in lieu of foreclosure: Four to seven years.
- After a Short Sale: Zero to two years.
Other Alternatives
Of course, the above averages represent typical buying patterns for those using regular lenders to obtain a conventional loan or government backed loans; private investors are still viable options that enable many people t purchase another home immediately after any type of financial fiasco including foreclosure. However, rates tend to be less favorable and requirements more stringent than ever. Just a few years ago it was quite easy to obtain a sub-prime mortgage for a relatively low premium above the preferred status but today, much of that has changed. While it is still possible to obtain the equivalent of a sub-prime loan, be prepared to come up with a much larger down payment and higher overall rates.
Short Sales Win Hands Down
Sellers wishing to minimize damage to their financial future clearly come out ahead when using a short sale but it’s still possible to further decrease the downside by avoiding a 60-day late payment, working closely with the lender to achieve a quick price agreement and setting aside as much funds as possible for a new loan. In fact, homeowners that maintain a solid payment history and work-out an agreeable short sale deal early may find it desirable to downsize to a new home by setting aside additional funds equal to 20% down. Without PMI and a reduced debt-to-income ratio, sellers are finding it possible to take advantage of lowered property values to immediately purchase another home for a fraction of the cost (and debt burden) owed on their prior home. It’s a win-win for all involved but only if you understand the benefits and work aggressively to seal the deal.
See you at the top!
Chris McLaughlin
**************
Copyright Loss Mitigation Institute LLC 2009.
All Rights Reserved.
http://www.shortsalesriches.com
http://www.shortsalescoach.com
http://www.sixfigurebpo.com
http://www.reomillionaireclub.com
http://www.youtube.com/shortsalesriches
*************************************************
Finally, a blog for Real Estate professionals
that want up-to-the-minute news, & how it impacts
us and our market…
http://www.shortsalesriches.com/blog
*************************************************
About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
400 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
* Follow me on Twitter: http://twitter.com/mclaughlinchris
* Add me on Facebook: http://www.facebook.com/mclaughlinchris
* Join my Fan Page: http://www.mclaughlinchris.com
–
{ 0 comments… add one now }
Leave a Comment