Borrowers are surprised by new residential Guideline changes

For the past three months, I have had trouble placing my borrowers in either the same or a better position then they were currently in. I have see lender raise there guidelines on borrowers that qualified for homes 3 years ago with no changes to their credit currently are unable to refinance due to FICO score requirements rising and LTV (Loan to Value) requirements steadily decreasing.

I feel that this trend will stay the same for the next 2-3 years or until profits have come back for residential lenders. The moral of this story for now is, if you are thinking of refinancing or purchasing a home. You need to do it now, because the future looks bleak.

Subprime Lenders On The Way Out

The following are a few examples of problems in the mortgage industry:

2007-02-13: Will NFI Weather the Storm? (readers alert on NFI's robustness)

2007-02-13: ResMAE Files Chapter 11 (Added to the list, with the caveat that Credit Suisse is keeping their operations going)

2007-02-12: Merrill Loaded for Bear in Mortgage Market That Humiliated HSBC (Another MLIOM mention!)

2007-02-12: Bloomberg: Implode-O-Meter vs. "Buy The Dip" Analyst

2007-02-12: Pending Foreclosures Climb Dramatically in January ("We're not through yet with the after-effects of all the people who used creative financing to buy homes beyond their means"—but somehow the "worst is over"?)

2007-02-12: Study: 70 Percent of Early Payment Defaults Linked to Fraud (Shameful.)

2007-02-12: Fremont Nixes 2nd Lien Origination; Cuts Back AA (A "semi-plosion" with much the same effect on the market)

2007-02-10: Subprime Hits a Wall (Merrill Doing B&C Margin Calls) (Bad in general but also exacerbates the New Century situation)

2007-02-10: Wall Street growing leery of high-risk mortgages (Ya think?)

2007-02-09: FirstFed Financial Corp. Breaks Down To A 3 Month Low (This one's a real gem: "80% of its loans have little or no documentation... negative amortization constituted $223.9 million, or 68.4%, of the bank's income" --BusinessWeek)

2007-02-09: Shares of NovaStar Slide to 2002 Levels (Can someone prove to me that NFI's write-downs won't exceed their $500mln in "tangible" assets (and less, liquid)?)

2007-02-09: New Century Continues Plunge (11 new shareholder lawsuits, at my last count.)

2007-02-09: Subprime Time Bomb (From the perspective of the banking industry...)

2007-02-09: BrokerUniverse - "What We're Hearing" ("In some quarters it's being called a liquidity crisis, the likes that haven't been seen in the subprime sector since 1998...")

2007-02-09: Questioning Sell-Side Research On The Subprime Lenders (What was Wall Street thinking? We get a hat-tip in this piece.)

2007-02-09: Lifting the Lid: Securitization-ripe for results massaging? (I hate to sound like a broken record, but, COUGHenronCOUGH...)

2007-02-09: Judge certifies class in suit against NovaStar (Oops... wouldn't want NFI to feel left out!)

2007-02-09: More New Century Lawsuits (Yikes. I've compiled (the first) five here.)

2007-02-09: Schatz Nobel Izard, P.C. Announces Class Action Lawsuit Against New Century Financial Corp. (Accusations of "false and misleading statements" and yadda yadda -- the usual Enron stuff, basically. )



(older news)

List of the Defunct Lenders:

This is our list of lending operations that have shut down (see also ailing lenders). This includes all types (prime, subprime, or a mix of both; retail or wholesale; subsidiaries and entire companies) as well as modalities (exiting the business, shutting down under distress, voluntary or l 2007-02-13: ResMAE Mortgage Corporation - Wholesale Subprime lender ( story story )

The company has filed chapter 11, and is being kept on life support by Credit Suisse. The company claims it will continue to operate.

Stay tuned for more updates.

2007-02-08: Lender's Direct Capital Corporation (wholesale division) - Non-conforming lender; retail operation remains solely as broker ( story )

The notice at the web site is the link above. For posterity, here is the explanation:

Lenders Direct Capital Corporation Announces Layoffs, Closure of Wholesale Lending Operations

Lake Forest, California based nonprime mortgage company Lenders Direct Capital announces the closure of wholesale lending operations.

CEO Michael McQuiggan cited the lack of investor demand for their loan products and the current state of the US nonprime lending industry as factors in reaching the decision to cease wholesale originations effective immediately.

So trouble converged on Lender's Direct from both ends.

Supposedly they funded in excess of $100mln/mo. Here is a chunk of their mission statement, from the old "about" page (accessible through Google's cache):

Lenders Direct Capital Corporation is a national mortgage lender headquartered in state-of-the-art facilities in Lake Forest, CA specializing in niche mortgage products such as Nonprime, Alternative (Alt) A and 2nd Mortgage loans.

Found by Bakersfield Bubble.

2007-01-31: Concorde Acceptance - Dallas-based lender (no MSM story yet)

This lender appears to have gone out of business, presumably due to deteriorating demand for primary and secondary loans. We have two independent reports from brokers with word of closure notification.

The ever-vigilant Bakersfield Bubble forwarded this one.

2007-01-31: DeepGreen Financial - Home-equity lender ( story )

Housing wire reports (link above) that DeepGreen was founed in 2000 and originated over $5bln in home equity to over 65,000 customers in 47 states.

The company was based in Cleveland but served customers all over the country. It was bought out in 2004 by a private equity firm, Lightyear Capital (those of you who think private equity is somehow smarter than average should take note).

Bakersfield Bubble delivered this lead and reports that the web site of Deep Green has dropped off the face of the internet, but the following statement was available through Google's cache:

Life is full of expenses... A home equity line of credit or home equity loan from DeepGreen Financial is a great way to pay for education, home improvement and life's other big expenses like a new car or wedding.
Ah, yes. It's like free money. As long as everyone believes it exists.

2007-01-25: Millenium Bankshares (Mortgage Subsidiaries) - Community bank with lending operations ( story story )

The going got tough, so Millenium got gone from mortgage lending. Here's their press release. They are a community bank based in Northern Virginia . Here's a bit more about them from their Bizjournal profile:

Millennium Bankshares Corporation ("Millennium") is a financial holding company headquartered in Reston , Virginia . We were incorporated in 1998 and began operations in April 1999. We provide commercial and consumer banking services through Millennium Ba

2007-01-25: Summit Mortgage - Lending Subsidiary of Summit Financial group ( story )

Top 25 Subprime Lender list

(as of Q2 2006; from the Mortgage Banker's Assoc.) -

1. Wells Fargo

2. HSBC Household Finance [rumored to be up for sale]

3. New Century [restating '06 earnings downwards; major shareholder lawsuits]

4. Countrywide [reportedly in talks with Bank of America (may not be credible)]

5. Fremont

6. Option One [H&R Block; up for sale]

7. Ameriquest [owned by ACC; shut most offices, settled with 30 states over predatory lending]

8. WMC [subsidiary of GE Money]

9. Washington Mutual [closed 80 branches in late 2006]

10. CitiFinancial

11. First Franklin [acquired by Merrill Lynch from National City for $1.3bln]

12. GMAC [Major layoffs in ResCap]

13. Accredited Home

14. BNC [Lehman bros. subsidiary]

15. ChaseHome Finance

16. Novastar

17. OwnIt, 2006-12-07 [partially-owned by Merrill and BofA]

18. Aegis [recently closed two subprime operations centers]

19. MLN, 2006-12-29 [reportedly bought out by Lehman]

20. EMC

21. ResMAE,2007-02-13 [in bankruptcy; being funded by Credit Suisse]

22. FirstNLC

23. Decision One [owned by HSBC; rumored to be up for sale]

24. Encore [being acquired by Bear-Stearns]

25. Fieldstone [closing 7 of 16 ops centers, debt renegotiated through 2007-01-31]

California Homeowners Can't Refinance Due To No Equity!

For the past 3 months their has been an increase in equity deterioration for California homeowners. One of the problems that I have seen causing this situation is investors that purchased the properties at a lower price are dumping these properties for less than the market price. When someone wants to take a loan out in the immediate area the banks want to see what the homes have been selling for.
The banks get this information from appraisers who get some of their information from the MLS (Multiple Listing Service). When the appraiser looks on the MLS and sees that a comparable home has been soon within the immediate area for less, he notes it in his/her appraisal. The bank will only lend based on the findings of the appraisers report.
Investors dumping homes has really affected homeowners that would like to either sale or refinance their properties. Due to the instability in the market the banks have become very strict with the acceptance of value from reputable appraisers. This is called a Desk Review. This is when the bank reviews the appraisals and counter offers the value of the property. The Bank wants to protect their position, so the value that they come up with is far below what your average appraiser would come up with. Until, the real estate market becomes more stable a lot of home owners will be impacted by these practices.

If you would like to see where the value of your home is give Gary Martin a call at (909)717-2013

Stiffer Lending Requirements From Residential Lenders

In the last six months with housing prices dropping and the foreclosure rate rising there has been a shake up in private lending. A lot of these same residential mortgage lenders were offspring of the refinance boom two to three years ago. Now mortgage professional hands are tied when they try to refinance their past client due to loan program either going away or increased documentation requirements.

The following is an example of guideline changes:

Loan Scenario 2005--------------------------Loan Scenario 2007

$300,000 Loan Amount------------------------$300,000 Loan Amount
80/20 Combo Loan Program--------------------80/20 Combo Loan Program
100% CLTV (Combined Loan to Value)----------100% CLTV(Combined Loan to Value)
SISA (Stated Income/ Stated Assets)---------SIVA (State Income Verified Assets)
580 FICO (Credit Score)---------------------640 FICO (Credit Score)

As you can see with the above example lenders have raised the credit score requirement up to 60 points with verified assets. The verified asset requirement for
lenders can range from 2-9 months of P&I (Principal & Interest) payments.

Don't get me wrong there are still incredible alternative documentation loan programs
still in existence, but if you are thinking about refinancing your home. You need to do something while you still may have options.


If you would like to go over your particular loan scenario contact Gary Martin at (909)717-2013

So your looking for that $1,000,000 home, but got turned down by your bank

Many people have been stuck in your same situation. Usually, the problem lies with income documentation or past credit issues. In today's economy it is very hard to be a conventional client. Many of my personal clients have multiple streams of income. In order for you to go into an institution they usually want 30% for a down payment and a steady well documented income. There are currently lender's that will focus more on the entire loan scenario to see if it fits there lending objectives. These lender's think outside of the box for example, they will lend 90% LTV (Loan to Value) with a 660 FICO score up to a loan amount of $2,000,000.


If you are currently in need of a residential loan from $800,000 to $10,000,000.
Give Gary Martin a call at (909)717-2013 or you can apply using our online mortgage application at http://www.needabetterloan.com

Should I try bank financing or use hard money for my flip property?

This is a question that I have been asked hundreds of times. What I would like to do is go over the similarities and the differences. If you would like to use conventional (Bank) financing you will need full documentation (Tax Returns, W2's, Pay stubs, assets). When the bank is considering you for an investment property they want to make sure that you can afford the debt yourself if anything unforeseen goes wrong. The interest rates will be lower, but you will have a prepayment penalty tied to the loan. Usually prepayment penalties are six months interest, pretty much 6 months payments. The points/fees will be lower on a bank loan rather than a hard money loan, but the bank is looking at for your business for the long term.

If you are looking for a loan solution that will provide the capital for the acquisition of the property plus money to rehab the property. You should look at hard money. Today's hard money lenders are more sophisticated and are looking for investors that they can build relationships with for multiple transactions. Your hard money lender will charge you points ranging from 4-10 points. This depends on the way your fix/flip project is put together. If you don't have to put any money into the project but you benefit from the proceeds of the sale. I think their compensation is more than fair.

If you would like to go over a fix/flip rehab project contact Gary Martin at (909)717-2013

Help! I don't want to refinance my 1st mortgage.

Many of my past clients are in a position where they refinanced their homes 2-3 years ago with the lowest interest rates seen in the past 40 years. Today, we are seeing a different marketplace with higher interest rates. Now home owner's do not feel comfortable refinancing with a higher interest rate even with a longer term to lower these payments. I totally do not blame this decision. What I would recommend is keeping that lower interest rate on the 1st mortgage and taking out a fixed rate second mortgage for additional cash out. A fixed rate second mortgage usually has a higher interest rate from 7.50-12.25% and they can be amortized up to 30 years. Banks also require a minimum loan amount of $50,000. I really don't see the value in an HELOC ( Home Equity Line of Credit), because these loans usually don't carry high fees but they are interest only and most people only pay them off by refinancing them into another loan. The HELOC if you pay the minimum payment no principal will be applied to that loan, so you pretty much will have a lien on your home until you pass away.

If you would like a second mortgage consultation contact Gary Martin at (909)717-2013 or you can complete a confidential loan application at http://www.needabetterloan.com