As if things weren’t strange enough, the subscription service that brought you Monday Morning Coffee for the last few years ceased operations in June. Since then I have been musing as to what to do for the many subscribers that have enjoyed those weekly snippets of wisdom. A dear long time friend and client jarred me back to responsibility last week asking, “what happened to Monday Morning Coffee? Did you drop us from your list?” No. I’ve just been thinking about what to say, if anything, as a replacement.
In keeping with the turmoil surrounding us in today’s real estate market, and just about everything else in our lives:
But Noooooo…..
Last week HUD announced to it’s thousands of mortgage brokers across the country that a full 3% fee would apply to all loans, all borrowers. Well, that’s about the end of that. Thanks, Uncle Sam. Instead of the carrot we were anticipating, we get beaten with the stick. Bear in mind that the same thousands of mortgage brokers paid up to $7,000 each to become FHA certified lenders, all in anticipation of FHA loans providing the needed path out of a deep hole. Now it would appear that they flushed that $7k down the toilet. No one is going to want these loans. They are now absurdly expensive.
The More I Learn, The Less I Know.
Although I’ve been at this real estate game for over 25 years, including the down markets surrounding Desert Storm, the Dot Com Bust, and 9/11, this has to be one of the weirdest periods I’ve seen yet. Suffice it to say that I learned a lot from those down markets in terms of strategy, tenacity, and faith. What I did not learn is how badly our financial systems have been in need of repair. With each of the aforementioned downturns, band-aids were applied. Small fixes that were just enough to restore confidence in what were dilapidated systems. Have you ever used “stop leak” in a failed radiator? It might get you to the repair shop, but no further. When the band-aides have been applied to our financial systems, we thought all was well, and drove right on by the repair shop.
Folks, we’re facing a bit of a perfect storm. People want to buy houses, and people want to sell houses. The only impediment to transacting business is obtaining decent loan terms.
The one entity over which the Federal Government asserts complete control is Housing and Urban Development [“HUD”], which in turn is the administrator for Federally insure home loans [“FHA”]. Since raising the FHA loan limits to a level almost relevant to to day’s prices, in the past 6 weeks HUD has vascillated wildly as to how to charge borrowers. For weeks it was stated that the insurance premium cost would be based on risk assessment of individual borrowers. Makes sense. The driver that has 3 DUI’s pays more for auto insurance than the driver that’s never had a ticket. The borrower that has never paid their bills on time should pay more for their loan than someone that has never been late.
Next on the hotsheet of not-so-good news: FNMA and FHLC, because of their own problems, just announced that they are now going to charge lenders 0.5% for loans that they buy. It has been 0.25% since, well, forever. Of course this cost will be passed on to borrowers in the form of 1.25% origination fees instead of 1%. Or the APR will simply be higher in order to preserve the 1 point fee and still pass on the added cost. That should be a big help……..to no one. Fewer loans, less volume, slower recovery.
Why is it that lenders, when the easy money stops rolling in, assert draconian fees and costs on those that are still doing business? IndyMac Bank, the California based lender that failed last month, is a case in point. Inexplicably, IndyMac announced early this year that it is their policy, on all of the second mortgages they had made, that they would NOT allow subordination of their loans for the sake of homeowners attempting to refinance their FIRST mortgages. For those with toxic first mortgages, this left them no way out. They either had to sell, or walk away. In either case, when told by their lender that their refi was dead because IndyMac had effectively blocked the process, how long do you think it took for these borrowers to decide whether or not they would continue to send payments to IndyMac? As soon as I heard this I said, “dead bank walking”. Sure enough, it’s dead.
I keep visualizing these really bads decisions being made by a very few sweaty little men in windowless rooms. All they look at is printouts ananlyzing cash flow, and then they hit the panic button. They have no faith, and they have no vision. They’re hanging on so tight the blood doesn’t get to their brains. Who put them in charge? When busines is slow at a Seven-Eleven do they turn off the lights and beer cooler to save money. No. They cut prices to entice MORE buyers, get the volume up to compensate for lower margins, and keep prices low until things improve. If they turn off the lights and the beer cooler, they may as well lock the doors. Why don’t lenders, especially that which is run by the Feds, get it?
I suggest that we all start writing to our Federal representatives. Does yours have a clue as to what is at stake?
Not to get too political:
6 years ago, before the congrssional vote was taken on whether to attack Iraq, I wrote to Patti Murray and Maria Cantwell. While it was admittedly self serving at the time, I asserted that war [unabated ego], combined with tax cuts [shameless vote buying], could bring ruin to our financial markets. When the government starts borrowing money, it depletes the pool of cash available for everything else, and drives up interest rates. Well, here we are. Money is tight, and getting tighter. Banks are failing. People are losing their homes. All for lack of liquidity because the goverment is spending more than it takes in. And people are worried that a Democrat will raise taxes, spend more? If traditional politics are to be believed, then Bill Clinton was the best Republican President we’ve ever had.
The current goverment cash burn rate is unsustainable. It won’t matter who is in charge when the bill comes due. Tax cuts were a great idea to stimulate growth, as long as the thin ice held out. How about those recent tax rebates? Not even a blip on the radar. We can’t buy our way out of this mess. We are going to have to work harder/smarter, spend less, and pay taxes commensurate with the expenses incurred. Honestly, would the Iraq war have lasted 6 years if taxes had been increased each year to pay for it?
The More I learn, The Less I know. So teach me something.
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