So, again with the question - who are the buyers going to be in this new kingdom of "no"?
If those who think the crisis is at or near bottom can 'splain how homes (or anything else, given cc tightening) are going to be bought at an economy-boosting pace, I might try to believe them.
How sad that the only thing that seems to boost wall streets spirits' is the thought of collecting their fed/treasury welfare check.
The question, Alo, is whether the non-agency nonprime credit industry can be expected to be any kind of substantial player again in less than five years from now.
It has always been hard to get a GSE loan with a prior FC; that's what the subprime industry was there for. As I see it, Fannie is reacting more to the disappearance of subprime financing than to any actual hordes of loan apps it is seeing from people who walked away and want to buy again. Even if there are a lot of such people out there trying to buy already, they wouldn't have qualified under the old rules.
I read this as: "in case we happen to still be the only game in town in the next five years, don't think we're going to cave in on this."
A lot of mortgage industry participants have always convinced themselves that "the GSEs will do what has to be done." They will do a lot of what "has to" be done, but they've never rolled over and died in periods when they were truly "the only game in town."
This is just more evidence of that. Anyone worried about the buyer pool in terms of how to get these former owners back into the game needs to be thinking about how and under what conditions the non-GSE subprime industry can revive. Cause the GSEs aren't going to be floating the "bridge loans" here.
I have heard a lot of comments suggesting that the industry will, in fact, cave in and "welcome these borrowers back" because they'll need to. I am not so sure about that.
This is actually good policy. If you don't qualify then you rent. This is why I think house values will keep going down regardless of what the FED does. Supply and qualified demand sort of thing?
Will the applicant simply sign an affidavit stating that they were not subject to a disqualifying foreclosure?
Is there a central data base that reports all state foreclosures that Fannie Mae can check?
Foreclosures are reported both by servicers in the mortgage tradeline, and by credit repositories who pick up public record items. So there isn't really a problem determining that a foreclosure occured in the last seven years for a borrower; the credit report tells you that.
It is absolutely not a matter of signing a statement. You have to cough up documents. For instance, if you were laid off or ill and that led to the FC, you hand over copies of notices from your employer, paystubs or tax returns from that time period, medical bills, etc. A borrower who may have gotten caught in the "exploding ARM thing" could bring documents from the old loan, plus copies of correspondence with the old servicer, showing that there was reason to believe it was bad loan terms, not "disregard for debt," that caused the prior FC.
If you can't come up with any written third-party records showing "extenuation," then you don't get in under the extenuation rule; you wait the full five (or seven) years.
This is why I suggest that people who just blow off their servicers won't have much luck. It is often the correspondence between you and your servicer that is the basis for the future claim of extenuation.
In all of these cases, you always have to document what your income was back in the time period leading up to the FC.
Wow Tanta, this sounds like "Back to the Future"! I'm not sure what all the fuss about the buyers wanting to get back in the system is about anyhow. In the old days (like after the last RE bust) people that had an FC rented for a couple of years, got CCs with higher rates for a couple of years, and then went to the well-known subprime mortgage people when they wanted to buy and swallowed a higher interest rate for a couple of years. Then they refi'ed it back down once they were established. I personally know people that did this and were back to having regular loans and a house a couple of years after the event. The higher interest is the price you pay until you prove otherwise. Very sensible no? So why people now think they should not be penalized is beyond me. And, btw, this business is very lucrative if run right. I'd do it tomorrow even now. There is a whole segment that can afford it but just got caught for many reasons. Find them and you can do very well writing these loans.
Fannie also has added a 50 basis point loan level price adjustment for anyone with a credit score below 720 and an LTV of more than 60 percent. That could add an eighth to a quarter point in rate. A colleague summed it up this way: 720 is the new 680.
Look, it is probably a bit "premature" as a Fannie Mae policy. There might or might be a lot of "walkaways" today--we've debated that. But how many are already trying to get back into homeownership after a foreclosure?
So I don't think this came out because Fannie thinks it is about to be deluged with this kind of loan (new purchase money for someone who walked away from the last home quite recently). Or even that it is likely to start getting deluged next year.
It is saying, don't counsel your borrowers to walk away with the idea that a Fannie Mae loan will be available any time soon to re-purchase. It is recognizing the fact that if there aren't subprime lenders in the next five-seven year period willing to put these people back into purchase-money loans, they won't have any purchase money loans, because the GSEs won't do it.
Another way to look at this: if you run into a broker or "consultant" who tells you not to worry, you can walk away today and be a homeowner again in two years--you might just have grounds for a malpractice suit. We have here a published guideline that says different.
I was the one on the other blog who asked what youdid for a living. You mentioned amongst other things that you taught computer science. I have a son who is going to major in computer science at Penn State Honors college next year. Is tht a wise decision. Will he be able to find meaningful employment in 5 years with all the H1-B visas and outsourcing. Your thought on the profession would be much appreciated.
Holden read what I said. I said there is a segment of this market this is very lucrative indeed. Always has been and always will be. There are many people that have something happen, or bite off more than they can chew, have learned a lesson and are looking to get back into the game. THESE are the people you write to.
If I had an app from someone who was career-stable, had a BK or FC, had real money down, had a couple of years of good payments on other things, and wanted to buy a reasonably priced property that REAL documentation proved he/she could afford, I'd write the loan in a heartbeat with some risk spread (a couple of points). I'd write these all day. Furthermore, I'd try to get them out of my loans in a couple of years after good payment history. Do you find something wrong with this segment? Or are you just, like most newspapers, tossing "subprime" around as a catch-all for bad loans?
Your thought on the profession would be much appreciated.
anon, we can't find enough good qualified people as it is, and the ranks aren't being filled even yet. The H1B thing is a matter of necessity because, frankly, there just isn't enough home talent to fill the demand. Something most people outside of the biz probably don't get.
If your son is talented, and this is what he has passion for, he'll do very well. He should, however, try to do intern work or get some real hands-on before he graduates to make him more desirable.
I might also add that, in the years when wages have been stagnant, this field has not. We pay a bit higher now than we did before the bust. Any engineering discipline can't really lose. He may have to be in a high-tech area after he graduates (Boston, Silicon Valley, Austin, etc) but if he's good he'll always find work. It's a hard major, but if it's your thing it will more than pay the bills. Don't worry about foreign tech workers. It's a hassle to hire them and you only do it when you can't find people.
There is a whole segment that can afford it but just got caught for many reasons. Find them and you can do very well writing these loans.
ipodius | 04.02.08 - 9:17 am | #
Not so much on the loan side of it but the same is true for rentals. Over half of my parents current tennants have a foreclosure or are going thru one now. I tell em straight up I get one extra months rent up front. So far not a single tennant has been even a day late with the rent...
I agree with your assessment of the EA "scenario." They are doing exactly that, pushing more of the "marginal" deals into EA deals and getting a higher premium for them. Keep up the good work!
Chris, you are on the money. You just have to screen for what I described. As I said, I personally know people that got caught in the last trap and are now doing just fine. I could have been there too. The first property I bought was underwater for a long time.
And shnaps, explain to me what is wrong with the segment I've described, even if you term them "subprime". What's wrong with writing sub-prime loans on a model such as I described?
The waiting period is an attempt by the FHA to stem the walkaway issue that will result from the millions of upside down homeowners out there. Assumming that this stops the walkaways (do I hear fat chance), what will the mood of the country be with millions of homeowners trapped in their homes?
what will the mood of the country be with millions of homeowners trapped in their homes?
How was the mood of the country in the 90s after that bust when many of us were also underwater? Seems we've fogotten about those events in more ways than one.
Most of us stay put for long enough to not worry about it. I'm on the side that, if people can afford the payment, they don't worry about the price because they need somewhere to live. And owning a home is emotional for most. I was underwater for a few years on my first house. No matter how far this market falls, I'll be very far ahead now.
ipodius, I don't think that either shnaps or I "disapprove" of subprime lending as such. I know I don't.
I have never objected to responsible subprime lending. You are simply talking about taking the "cream of the crap." That's surely the only way it can be done sustainably. What we just went through was a period of "a loan for everyone, no matter how unfit for it."
To today's subject, though, I think anyone who does not investigate the circumstances of a prior FC or prior BK is asking for doom. The whole point of the brouhaha over "walkaways" is precisely that they disregard debt when they want to. They characteristically "misconstrue" debt contracts to be options. I've posted a few billion words on that subject.
You can't win in subprime without separating the real "second chance" candidates from the "serial debt abusers." There are some people you just don't want to give loans to. Your job as a creditor is to find them.
And, of course, to bear in mind that interest rates can only go so high. A problem we just had in the recent subprime boom was that creditors forgot that while a certain "risk premium" may "make sense," given the facts of the deal, it may not be payable. There's only so much blood you can squeeze out of a turnip.
Some of the recent subprime loans were "underpriced" because they could not, actually, be priced: they hit that "ceiling" at which the terms of the loan themselves pretty much guarantee failure, regardless of the borrower's willingness to repay.
(I used to call those "COLA ARMs," which was a pun on the old COFI ARM. If your mortgage payment always climbs in step with your cost of living--or income--it never gives you any kind of a break, exactly.)
Egregiously (OT), I closed out my small-cap portfolio today. No change in my bullish stance, just opportunistic profit-taking off of yesterday's huge up-move. There'll be plenty more chances to repeat the process as the year goes on.
what will the mood of the country be with millions of homeowners trapped in their homes?
"Hooray, no traffic!"
Except for the delivery vans--watch out for those. If these folks can't even get down to the Food Lion for a dozen eggs, it'll be death-defying trying to avoid those lunatics in the Groceries To Go trucks.
ipodius - renting really isn't an equivalent basis of comparison for being a homeowner with a mortgage. One doesn't even have to 'screen' renters all too carefully, they just need to assess their own tolerance for doing collection work, evictions, and related headaches.
From the tenants perspective: the rent payment is fairly stable, as opposed to, let's say a 2/28 ARM payment. Also, they don't need to possess the self-discipline to save for taxes and insurance, or setting aside money for home repairs, because the landlord is responsible for all that.
If you don't like the term 'subprime' - fine - I'll call them B/C, or 'oompaloompas', or whatever you like. The point is 'you' - ipodious - will have to convince investors to buy this stuff, since you personally cannot fund more than a single loan, let alone 'write them all day'. And investors have decided that all oompaloompas are bad in this cycle - even though you and I both know that some of the oompaloompas one can actually lend to at a profit. The good news is that those in the investment community tend to have astonishingly short memories, so you can look for them to be buying these again for 'a couple points of risk spread' in just a few years, prolly.
Assumming that this stops the walkaways (do I hear fat chance), what will the mood of the country be with millions of homeowners trapped in their homes?
Larster | 04.02.08 - 9:49 am | #
Who cares. Its a place for them to live - time for them to learn that.
And this isn't a callous barb from the 'moral hazard brigade' either - just the facts. A lot of 'investments' are net money makers in either the short term or the long term (see NASDAQ circa 1999 to now).
Point is we all know that with stocks - have to relearn it with RE. Meanwhile they have a place to live.
BTW - I have sneaking suspicion a lot of the walk away chatter are people talking their book - either folks looking to buy cheaper, have shorts in the financials or trying to bolster courage to walk away themselves. I just wish they'd come clean on which camp they are.
We currently require four years to elapse after a foreclosure before we will consider the borrower to have a re-established credit history. With this Announcement, we are increasing that time period to five years.
So all of those foreclosed FB's come back on the market in 2012 to 2015...
You also have to convince investors that oompaloompas are bridge loans. You said yourself you want to "write" these deals to push them off the shelf in two years or so.
The field is littered with the corpses of lenders who found out that they don't always do that.
It isn't just that the borrower has to have the ability/willingness to "cure" in two years. It's that there has to be a "take out" lender in two years writing loans at the required interest rate.
We just went through that. A lot of people seemed to have forgotten that they weren't getting a two-year rate lock on their next refi. Many people are actually "eligible" for a refi today, but they "need" 4.00% rates. Which are no longer there.
It's a whole lot harder to do "bridge loans" that a lot of people seem to think.
It seemed like the EAs were a last resort for subprime business in 2007. You could get an EA approval for a high ltv low fico borrower. What's changed in 2008 is that people are worried about getting stuck with these loans or buying them back. If what I heard from our MI reps is true the performance on EAs is truly catastrophic. Several prime lenders stop offering EAs.
Tanta You also have to convince investors that oompaloompas are bridge loans. You said yourself you want to "write" these deals to push them off the shelf in two years or so.
Well, three to five is more realistic, but I have worked with a bunch of rural banks that do do that. A huge bulk of their business is just this.
However the key is making sure that the borrower is not-overextended, separating your oompa-loompas from your whodathunks at origination, making sure that your borrower can save considering the proposed payment plus has a few months reserves, and being able to originate on risk with relatively low interest rates. You charge more than they'd get at FNMA, but not that much more.
Then in 2-5 years you will be rolling them out as prime. They'll have decent equity, they'll have a good payment record, their payments should drop, etc.
But it is all about careful underwriting at origination and very good servicing. One of the reason subprime loans have to get a premium is that it really does cost more to service them (on average).
What non-industry people don't understand about subprime mortgages is that if your underwriting criteria are loose enough that you have to charge quite high interest rates, you are creating risk at origination instead of avoiding it.
There will always be subprime lenders. I think the types of subprime lenders that Tanta is discussing, who think they can cover high risk by high pricing, are doomed to have difficulties for years to come. The trick to controlling subprime risks is controlling DTIs so the subprime borrower can improve their position.
Performance on mortgages is actually related more to saving and spending habits than income, as long as there is any reasonable relationship between the two.
Apologies for OT
I have a son who is going to major in computer science at Penn State Honors college next year. Is tht a wise decision. Will he be able to find meaningful employment in 5 years with all the H1-B visas and outsourcing. Your thought on the profession would be much appreciated.
Had to reply because I was in the Penn State Honors college--great program, you can't do better in a state university--and work in IT. There is definitely IT work out there now. I would worry more about outsourcing than H1-Bs, but there are areas more or less immune from outsourcing (proprietary data work, government contracts, etc. that I and others have happened into). If the dollar continues weak, outsourcing may become less attractive also. Good luck to your son!
What's changed in 2008 is that people are worried about getting stuck with these loans or buying them back.
See, that part I confess I never did "get."
For you civilians: the whole point of running iffy loans through DU (it's the same thing for Freddie, just different terminology) is this thing called "limited waiver of representations and warranties."
What it means, in plain English, is that if you have a loan you know doesn't meet the "standard" guidelines, and you try to shove it through with a "manual underwriting" as an "exception," you can indeed get stuck later having to take it back, because of the standard reps and warranties you make on all loans.
If you run it through DU and let DU "make the exception," namely, let DU put it in the EA bucket and accept it on those terms, then Fannie can't turn around and force it back to you because it violates standard reps and warranties. So the "limited relief" means that the whole thing went down from the get-go as limited risk to the lender, because DU was in the driver's seat.
So if these folks are having to buy back EA, then they were doing one of two things: either ignoring the conditions of the DU response (it does tell you what special things you may have to do in this case, precisely because the loan isn't "standard"), or else they were over-producing EA (going out and soliciting more than any prime lender's likely proportional share of "near-prime" deals just to stuff them into Fannie Mae pools). The GSEs have a long reputation for getting pissy about having their "exceptions" become "rules," or being adversely-selected.
I'm quite sure the EA outstandings are performing like hell. But on the other hand I always had to get out a big grain of salt when hearing lenders bitch about the buybacks. (And the cancelled MI policies, too.)
Well, three to five is more realistic, but I have worked with a bunch of rural banks that do do that. A huge bulk of their business is just this.
Yes, but the really good ones "start" this process even before we get to mortgage credit.
I rant periodically about the absence of responsible "starter credit" to young people or underserved communities (rural, urban). A lot of people got subprime loans because they had no "tradeline" credit to give them a decent FICO. There just were no solid, conservative institutions giving them small-beer, controlled, reasonably-priced credit (modest used car loans, secured cards, small personal loans) that could "build" a credit history. Good on those community banks who did that--they were in fact avoiding subprime lending by creating prime customers! That's way better than letting them fail first, and then giving them a "second chance" loan!
Looks like they are now pricing for risk by putting more into the EA buckets. Helps make the prime portfolio more "prime". The effect will be to continue to do loans for all but the real slugs....which you used to be able to get through.
What I would like to see is an update matrix and rates for MI. Anyone have access to that??
The lender should consider the presence of a foreclosure as an added risk element that represents a significantly higher level of default risk. The greater the number of such incidences and the more recently they occurred, the higher the credit risk.
That line kind of caught my eye, "the number of such incidences." Are there really a lot of serial defaulters?
As to the five year penalty faze, I have a feeling at some point in the future that will be going bye-bye.
If things keep deteriorating and in two years prices have plummeted, sales are still in the 5m range and you have 1-2 million people who defaulted, with a few hundred thousand willing and able to try again, I'm certain they'll be given the loan. Let's face it, the fix is in and the whole mortgage pie has been made a public liability, we are going to spend our way out of this, or at least try to...
Otherwise, expect sales and prices to fall even further...
I'm going to steal "cream of the crap" for everyday use around my real office environment I hope you don't mind.
I think MOM got my point about these, and your further comments go right along. I'm talking about rehabilitation potential on some, and credit building on others. And the three to five year timeframe is probably more realistic. And who wouldn't want high-quality refi's that had good numbers? I'd be willing to bet that an arrangement could be made with a couple of banks just for this purpose. We'll market you to our current customers as a re-fi in a period of time.
I suppose the term "bridge" can be used, but franly, most mortgages can be thought of that way because very few complete to term without a refi somewhere along the way and as you've written about in the modeling. The question is when, and these are probably going to do that within a few years. If you were good at the underwriting and process, it would be a good business. But this would be the polar opposite of what just happened, as this would be all about quality and not quantity.
If you think these "tightened" requirements for past foreclosures will survive the R.E. recovery a few years from now, I have a condo building in Florida to sell you.
They'll change the rules again in 3-4 years when prices start to uptick again and foreclosures start dropping. And all of those speculators and walk-aways will be able to get back into the game.
What a novel idea - pricing in risk and not just handing out grossly overpriced houses to everyone who walks by!
How many weeks will it be until Bubbles Ben, Hanky Panky Paulson, or somebody complains about this, saying, "unaffordable homes are a vital part of the Amerikan Dream, and everyone has a right to a loan!" or some such nonsense?
That line kind of caught my eye, "the number of such incidences." Are there really a lot of serial defaulters?
As to the five year penalty faze, I have a feeling at some point in the future that will be going bye-bye.
It's mostly "multiple defaulters" instead of serial ones. In the space of a few years you lost the home, the second home, and the two investment properties. Kind of thing. But it is not unknown to see two FCs in ten years. (After 10 years the public record items are purged from the credit report.) Not common, but let's face it: a lot of the failing subprime loans right now were made to people with a prior FC on their records. Ipodius is talking about being willing to make them new loans two years out. If they fail in two years, that's two FCs in four years.
There's no question but that the GSEs will be likely to bend over backwards on the three years for "extenuating circumstances." But I continue to believe that they are capable of learning a lesson here about "walk aways." It'll take a lot longer than a couple of years for folks to forget being burned like that.
We really are talking about the people who think debts are "options," not people in financial distress. Those people will have nothing to say in two or three years to a new lender except "hey! it was a non-recourse loan! Whaja think I was gonna do?"
Ah, and what risk premium will these horrible borrowers pay? 50 basis points?
Pffffft. Wake me when it's 500 basis points.
Did you take a look at the pricing matrix in the Announcement? The "base" addon for EA-III is 400 bps. Throw in IO and cash-out and Damn! Now you gotta wake up.
The belief that a secondary market investor has the same attention span as the media. In fact, the GSEs will still be dealing with their REO inventory and old nasty legally-complicated FCs and stuff two or three years from today. Even if the borrower "walked away" this morning at 10:00 a.m. It's a long process. Usually people don't "forget" it until the clean-up has been over for at least a few hours.
The GSEs have NEVER made loans to people with a "disregard for debt obligations." These rules about prior FC and extenuating circumstances have been around as long as I can remember. The only change here is upping the two years to three and the four years to five. The reason the GSEs did indeed get off without some of the worst of the pain lately is that they never made a lot of loans to borrowers with a prior FC, even back in 2004-2006 when their market share was dying because the go-go lenders were taking all the business. They will indeed take loans from people who FC'd because of financial disaster or predatory lending. You can bet on that. They are not going to take a loan for Sgt. Skaggs. I simply think believing that is letting cynicism get ahead of your sense of how much "pricing power" a GSE has when it is indeed the only game in town.
If you think these "tightened" requirements for past foreclosures will survive the R.E. recovery a few years from now, I have a condo building in Florida to sell you.
They'll change the rules again in 3-4 years when prices start to uptick again and foreclosures start dropping. And all of those speculators and walk-aways will be able to get back into the game.
Xactly. Ditto for Fannie's 7-year requirement. All it takes is a stroke of the pen by Con-gress, and poof, you're all "qualified" borrowers now!
Xactly. Ditto for Fannie's 7-year requirement. All it takes is a stroke of the pen by Con-gress, and poof, you're all "qualified" borrowers now!
Suuuuure it will.
Talk about how short memories are. Doesn't anyone else remember the whining and bitching from certain parties over the last several years about the GSEs taking too much risk and having "unfair competitive advantages"?
If we get to the point in a few years that RE looks like a reasonable investment again, there will be non-GSE subprime and "Alt" lenders out there ready to take your order. Their lobbyists will KILL any Congress critter who "allows" the GSEs to "steal" that lucrative business.
And if RE is still a dicey bet, where will the demand be?
I suppose the term "bridge" can be used, but franly, most mortgages can be thought of that way because very few complete to term without a refi somewhere along the way and as you've written about in the modeling.
Right, but my point is that this question of loan life isn't a matter of underwriting or how you "build" the product, in most respects.
It's not a like a tire, that you can "build" to last 35K miles or 50K miles or whatever, and price accordingly.
Loan life shortens or lengthens depending on whether borrowers have "opportunity to refi" (lenders out there writing new loans) and "incentive to refi" (lower market rates).
People are getting creamed right now because they took ARMs. ARMs. At a very low point in the rate cycle. Rates went up. Somehow they thought that if rates went up, they could "just refi." Meaning that rates went up everywhere except for new fixed-rate loans, which they could refinance into. Hello? The yield curve is not "normally" inverted.
Mortgages have "duration" as well as legal maturity. Duration--sensitivity to rate movements--changes as the rate environment changes. We are seeing that today: loans that were "predicted" to prepay within two years are now three years and climbing, because there is either no opportunity or no incentive or neither.
If you are PROMISING a borrower that he or she can refinance in two years, you'd damned well better be giving them a two-year forward rate lock (with a free float-down option). Try hedging that.
If you're an institutional lender, how will you even know you want that capital tied up in mortgages in two years to be the "take out"? Well, you don't. You hope there will be an outside "take-out" lender if you need one.
Hope, of course, isn't a plan.
It is not impossible to deal with the "bridge loan" problem, but as I said it's incredibly difficult. It really is better to make loans that you know can live out their lives to maturity if they have to. And you take whatever interest rate risk that forces you to take.
anon, your son should sit down and ask himself if he really enjoys CS, and be honest with himself about how good at it he is. If he's an A (superstar) or B (workhorse) level coder, he shouldn't have to worry about jobs, because there never seem to be enough good types to go around. If he's a C (incompetent) type, he'll have problems, because Cs tend to be negative performers - everyone else spends more time cleaning up their bugs than they do writing them.
Regarding IT, note that 60% of college graduates with a degree in Computer Science or IT NEVER GET A JOB IN THE FIELD. I know I searched high and low for close to a year for a job in the field upon graduation from college, and never got one. Disgusted, I gave up and taught math at the high school level for a while, at which point I went to work for the supplier of our school's IT systems and progressed from there over the years to where I am now (as a senior architect supervising two implementation teams overseas with recruiters calling me on the phone at least twice a week trying to hire me away). But the point is, it is extremely hard for someone without experience to get a job in IT or engineering right now unless you're a) graduating from a top-twenty university near the top of your class, or b) Indian and coming in on a Tata H1B consultancy to work for Oracle or Cisco. It's a great field once you get the requisite two years of experience doing serious development work, but getting that first job right out of college is a killer unless you were lucky enough to be able to attend one of the elite universities.
There's no shortage of IT talent in this country. The only shortage is of employers willing to give fresh-out-of-college IT talent a chance. That 60% of college grads who never get a job in the CS field (a statistic which has held constant for most of the past twenty years) are still out there, working at a call center somewhere or driving a taxi or whatever, but it's easier to hire an H1B through Tata than to screen the talent from less-well-known state colleges to find the gems amongst the drech. The major companies (Microsoft, IBM, etc.) don't even send their recruiters to anyplace other than the top twenty colleges... then whine they can't find enough programmers at those top twenty colleges. Well, there's a lot more colleges besides the top twenty... and many of them are putting out fine product. Not that it helps when their grads can't find a job because they graduated from the University of Louisiana at Monroe rather than from MIT...
FYI - the TRUE IT superstar is not dependent on a degree for advancement. It's the people who are always learning, always reading, always studying, always finding the next new hot thing before anyone else..
If you're not one of those people who can work 10-12 hours a day in front of a computer doing technical stuff (programming, db admin, unix sys admin, penetration testing, etc) and then spend another 3-4 hours in your off-time doing the same thing, you're never going to compete with the people who do..
FWIW, I work in IT and my degree is in English.I got my IT job by knowing the business rather than CS. The tech stuff is easier to pick up, but I'm a data architect, not primarily a coder (although coding is the most fun).
Well, we're buying right now (the escrow closing tomorrow). We bought a 800K property with 15% downpayment, got two mortgages - a conforming loan (417K) and the equity loan, both for 5.875%. Had no problem getting the loan with our credit.
So, again with the question - who are the buyers going to be in this new kingdom of "no"?
If those who think the crisis is at or near bottom can 'splain how homes (or anything else, given cc tightening) are going to be bought at an economy-boosting pace, I might try to believe them.
How sad that the only thing that seems to boost wall streets spirits' is the thought of collecting their fed/treasury welfare check.
who are the buyers going to be in this new kingdom of "no"?
The kind that have good credit and some money for a downpayment.
Weird, I know...
Weird and far between ...
How will Fannie be able to enforce this new foreclosure rule?
Will the applicant simply sign an affidavit stating that they were not subject to a disqualifying foreclosure?
Is there a central data base that reports all state foreclosures that Fannie Mae can check?
The question, Alo, is whether the non-agency nonprime credit industry can be expected to be any kind of substantial player again in less than five years from now.
It has always been hard to get a GSE loan with a prior FC; that's what the subprime industry was there for. As I see it, Fannie is reacting more to the disappearance of subprime financing than to any actual hordes of loan apps it is seeing from people who walked away and want to buy again. Even if there are a lot of such people out there trying to buy already, they wouldn't have qualified under the old rules.
I read this as: "in case we happen to still be the only game in town in the next five years, don't think we're going to cave in on this."
A lot of mortgage industry participants have always convinced themselves that "the GSEs will do what has to be done." They will do a lot of what "has to" be done, but they've never rolled over and died in periods when they were truly "the only game in town."
This is just more evidence of that. Anyone worried about the buyer pool in terms of how to get these former owners back into the game needs to be thinking about how and under what conditions the non-GSE subprime industry can revive. Cause the GSEs aren't going to be floating the "bridge loans" here.
I have heard a lot of comments suggesting that the industry will, in fact, cave in and "welcome these borrowers back" because they'll need to. I am not so sure about that.
This is actually good policy. If you don't qualify then you rent. This is why I think house values will keep going down regardless of what the FED does. Supply and qualified demand sort of thing?
Will the applicant simply sign an affidavit stating that they were not subject to a disqualifying foreclosure?
Is there a central data base that reports all state foreclosures that Fannie Mae can check?
Foreclosures are reported both by servicers in the mortgage tradeline, and by credit repositories who pick up public record items. So there isn't really a problem determining that a foreclosure occured in the last seven years for a borrower; the credit report tells you that.
It is absolutely not a matter of signing a statement. You have to cough up documents. For instance, if you were laid off or ill and that led to the FC, you hand over copies of notices from your employer, paystubs or tax returns from that time period, medical bills, etc. A borrower who may have gotten caught in the "exploding ARM thing" could bring documents from the old loan, plus copies of correspondence with the old servicer, showing that there was reason to believe it was bad loan terms, not "disregard for debt," that caused the prior FC.
If you can't come up with any written third-party records showing "extenuation," then you don't get in under the extenuation rule; you wait the full five (or seven) years.
This is why I suggest that people who just blow off their servicers won't have much luck. It is often the correspondence between you and your servicer that is the basis for the future claim of extenuation.
In all of these cases, you always have to document what your income was back in the time period leading up to the FC.
"Don't expect us to clean up all these messes for you, guys."
Yet is the key word here.
Wow Tanta, this sounds like "Back to the Future"! I'm not sure what all the fuss about the buyers wanting to get back in the system is about anyhow. In the old days (like after the last RE bust) people that had an FC rented for a couple of years, got CCs with higher rates for a couple of years, and then went to the well-known subprime mortgage people when they wanted to buy and swallowed a higher interest rate for a couple of years. Then they refi'ed it back down once they were established. I personally know people that did this and were back to having regular loans and a house a couple of years after the event. The higher interest is the price you pay until you prove otherwise. Very sensible no? So why people now think they should not be penalized is beyond me. And, btw, this business is very lucrative if run right. I'd do it tomorrow even now. There is a whole segment that can afford it but just got caught for many reasons. Find them and you can do very well writing these loans.
Fannie also has added a 50 basis point loan level price adjustment for anyone with a credit score below 720 and an LTV of more than 60 percent. That could add an eighth to a quarter point in rate. A colleague summed it up this way: 720 is the new 680.
Yet is the key word here.
I actually don't think that's the key word.
Look, it is probably a bit "premature" as a Fannie Mae policy. There might or might be a lot of "walkaways" today--we've debated that. But how many are already trying to get back into homeownership after a foreclosure?
So I don't think this came out because Fannie thinks it is about to be deluged with this kind of loan (new purchase money for someone who walked away from the last home quite recently). Or even that it is likely to start getting deluged next year.
It is saying, don't counsel your borrowers to walk away with the idea that a Fannie Mae loan will be available any time soon to re-purchase. It is recognizing the fact that if there aren't subprime lenders in the next five-seven year period willing to put these people back into purchase-money loans, they won't have any purchase money loans, because the GSEs won't do it.
Another way to look at this: if you run into a broker or "consultant" who tells you not to worry, you can walk away today and be a homeowner again in two years--you might just have grounds for a malpractice suit. We have here a published guideline that says different.
Ipodius, are you saying that subprime mortgages now are "very lucrative if run right"?
ipodius
I was the one on the other blog who asked what youdid for a living. You mentioned amongst other things that you taught computer science. I have a son who is going to major in computer science at Penn State Honors college next year. Is tht a wise decision. Will he be able to find meaningful employment in 5 years with all the H1-B visas and outsourcing. Your thought on the profession would be much appreciated.
Holden read what I said. I said there is a segment of this market this is very lucrative indeed. Always has been and always will be. There are many people that have something happen, or bite off more than they can chew, have learned a lesson and are looking to get back into the game. THESE are the people you write to.
If I had an app from someone who was career-stable, had a BK or FC, had real money down, had a couple of years of good payments on other things, and wanted to buy a reasonably priced property that REAL documentation proved he/she could afford, I'd write the loan in a heartbeat with some risk spread (a couple of points). I'd write these all day. Furthermore, I'd try to get them out of my loans in a couple of years after good payment history. Do you find something wrong with this segment? Or are you just, like most newspapers, tossing "subprime" around as a catch-all for bad loans?
Your thought on the profession would be much appreciated.
anon, we can't find enough good qualified people as it is, and the ranks aren't being filled even yet. The H1B thing is a matter of necessity because, frankly, there just isn't enough home talent to fill the demand. Something most people outside of the biz probably don't get.
If your son is talented, and this is what he has passion for, he'll do very well. He should, however, try to do intern work or get some real hands-on before he graduates to make him more desirable.
I might also add that, in the years when wages have been stagnant, this field has not. We pay a bit higher now than we did before the bust. Any engineering discipline can't really lose. He may have to be in a high-tech area after he graduates (Boston, Silicon Valley, Austin, etc) but if he's good he'll always find work. It's a hard major, but if it's your thing it will more than pay the bills. Don't worry about foreign tech workers. It's a hassle to hire them and you only do it when you can't find people.
ipodius - what you just described is indeed 'subprime' if the BK or FCL was recent.
Somehow I knew you weren't in mortgage banking.
There is a whole segment that can afford it but just got caught for many reasons. Find them and you can do very well writing these loans.
ipodius | 04.02.08 - 9:17 am | #
Not so much on the loan side of it but the same is true for rentals. Over half of my parents current tennants have a foreclosure or are going thru one now. I tell em straight up I get one extra months rent up front. So far not a single tennant has been even a day late with the rent...
Chris
Tanta,
I agree with your assessment of the EA "scenario." They are doing exactly that, pushing more of the "marginal" deals into EA deals and getting a higher premium for them. Keep up the good work!
Tom
Chris, you are on the money. You just have to screen for what I described. As I said, I personally know people that got caught in the last trap and are now doing just fine. I could have been there too. The first property I bought was underwater for a long time.
And shnaps, explain to me what is wrong with the segment I've described, even if you term them "subprime". What's wrong with writing sub-prime loans on a model such as I described?
ipodius
thank you
The waiting period is an attempt by the FHA to stem the walkaway issue that will result from the millions of upside down homeowners out there. Assumming that this stops the walkaways (do I hear fat chance), what will the mood of the country be with millions of homeowners trapped in their homes?
what will the mood of the country be with millions of homeowners trapped in their homes?
How was the mood of the country in the 90s after that bust when many of us were also underwater? Seems we've fogotten about those events in more ways than one.
Most of us stay put for long enough to not worry about it. I'm on the side that, if people can afford the payment, they don't worry about the price because they need somewhere to live. And owning a home is emotional for most. I was underwater for a few years on my first house. No matter how far this market falls, I'll be very far ahead now.
ipodius, I don't think that either shnaps or I "disapprove" of subprime lending as such. I know I don't.
I have never objected to responsible subprime lending. You are simply talking about taking the "cream of the crap." That's surely the only way it can be done sustainably. What we just went through was a period of "a loan for everyone, no matter how unfit for it."
To today's subject, though, I think anyone who does not investigate the circumstances of a prior FC or prior BK is asking for doom. The whole point of the brouhaha over "walkaways" is precisely that they disregard debt when they want to. They characteristically "misconstrue" debt contracts to be options. I've posted a few billion words on that subject.
You can't win in subprime without separating the real "second chance" candidates from the "serial debt abusers." There are some people you just don't want to give loans to. Your job as a creditor is to find them.
And, of course, to bear in mind that interest rates can only go so high. A problem we just had in the recent subprime boom was that creditors forgot that while a certain "risk premium" may "make sense," given the facts of the deal, it may not be payable. There's only so much blood you can squeeze out of a turnip.
Some of the recent subprime loans were "underpriced" because they could not, actually, be priced: they hit that "ceiling" at which the terms of the loan themselves pretty much guarantee failure, regardless of the borrower's willingness to repay.
(I used to call those "COLA ARMs," which was a pun on the old COFI ARM. If your mortgage payment always climbs in step with your cost of living--or income--it never gives you any kind of a break, exactly.)
what will the mood of the country be with millions of homeowners trapped in their homes?
"Hooray, no traffic!"
Egregiously (OT), I closed out my small-cap portfolio today. No change in my bullish stance, just opportunistic profit-taking off of yesterday's huge up-move. There'll be plenty more chances to repeat the process as the year goes on.
Sebastia
what will the mood of the country be with millions of homeowners trapped in their homes?
"Hooray, no traffic!"
Except for the delivery vans--watch out for those. If these folks can't even get down to the Food Lion for a dozen eggs, it'll be death-defying trying to avoid those lunatics in the Groceries To Go trucks.
ipodius - renting really isn't an equivalent basis of comparison for being a homeowner with a mortgage. One doesn't even have to 'screen' renters all too carefully, they just need to assess their own tolerance for doing collection work, evictions, and related headaches.
From the tenants perspective: the rent payment is fairly stable, as opposed to, let's say a 2/28 ARM payment. Also, they don't need to possess the self-discipline to save for taxes and insurance, or setting aside money for home repairs, because the landlord is responsible for all that.
If you don't like the term 'subprime' - fine - I'll call them B/C, or 'oompaloompas', or whatever you like. The point is 'you' - ipodious - will have to convince investors to buy this stuff, since you personally cannot fund more than a single loan, let alone 'write them all day'. And investors have decided that all oompaloompas are bad in this cycle - even though you and I both know that some of the oompaloompas one can actually lend to at a profit. The good news is that those in the investment community tend to have astonishingly short memories, so you can look for them to be buying these again for 'a couple points of risk spread' in just a few years, prolly.
"Hooray, no traffic!"
He's returned to true form. Awesome.
Assumming that this stops the walkaways (do I hear fat chance), what will the mood of the country be with millions of homeowners trapped in their homes?
Larster | 04.02.08 - 9:49 am | #
Who cares. Its a place for them to live - time for them to learn that.
And this isn't a callous barb from the 'moral hazard brigade' either - just the facts. A lot of 'investments' are net money makers in either the short term or the long term (see NASDAQ circa 1999 to now).
Point is we all know that with stocks - have to relearn it with RE. Meanwhile they have a place to live.
BTW - I have sneaking suspicion a lot of the walk away chatter are people talking their book - either folks looking to buy cheaper, have shorts in the financials or trying to bolster courage to walk away themselves. I just wish they'd come clean on which camp they are.
We currently require four years to elapse after a foreclosure before we will consider the borrower to have a re-established credit history. With this Announcement, we are increasing that time period to five years.
So all of those foreclosed FB's come back on the market in 2012 to 2015...
Ok. I can accept that length of buying window.
Got Popcorn?
Neil
A lot of 'investments' are net money makers in either the short term or the long term (see NASDAQ circa 1999 to now).
Errata: Should read "A lot of 'investments' are NOT net money makers in either the short term or the long term (see NASDAQ circa 1999 to now)."
You also have to convince investors that oompaloompas are bridge loans. You said yourself you want to "write" these deals to push them off the shelf in two years or so.
The field is littered with the corpses of lenders who found out that they don't always do that.
It isn't just that the borrower has to have the ability/willingness to "cure" in two years. It's that there has to be a "take out" lender in two years writing loans at the required interest rate.
We just went through that. A lot of people seemed to have forgotten that they weren't getting a two-year rate lock on their next refi. Many people are actually "eligible" for a refi today, but they "need" 4.00% rates. Which are no longer there.
It's a whole lot harder to do "bridge loans" that a lot of people seem to think.
It seemed like the EAs were a last resort for subprime business in 2007. You could get an EA approval for a high ltv low fico borrower. What's changed in 2008 is that people are worried about getting stuck with these loans or buying them back. If what I heard from our MI reps is true the performance on EAs is truly catastrophic. Several prime lenders stop offering EAs.
Bernanke on tv now. WHat a bunch of crap. We are getting hosed. He sure looks sickly, though. Maybe he is finding it hard to live with himself.
Tanta You also have to convince investors that oompaloompas are bridge loans. You said yourself you want to "write" these deals to push them off the shelf in two years or so.
Well, three to five is more realistic, but I have worked with a bunch of rural banks that do do that. A huge bulk of their business is just this.
However the key is making sure that the borrower is not-overextended, separating your oompa-loompas from your whodathunks at origination, making sure that your borrower can save considering the proposed payment plus has a few months reserves, and being able to originate on risk with relatively low interest rates. You charge more than they'd get at FNMA, but not that much more.
Then in 2-5 years you will be rolling them out as prime. They'll have decent equity, they'll have a good payment record, their payments should drop, etc.
But it is all about careful underwriting at origination and very good servicing. One of the reason subprime loans have to get a premium is that it really does cost more to service them (on average).
What non-industry people don't understand about subprime mortgages is that if your underwriting criteria are loose enough that you have to charge quite high interest rates, you are creating risk at origination instead of avoiding it.
There will always be subprime lenders. I think the types of subprime lenders that Tanta is discussing, who think they can cover high risk by high pricing, are doomed to have difficulties for years to come. The trick to controlling subprime risks is controlling DTIs so the subprime borrower can improve their position.
Performance on mortgages is actually related more to saving and spending habits than income, as long as there is any reasonable relationship between the two.
Racer X - well, there was EA I and EA II.
Apologies for OT
I have a son who is going to major in computer science at Penn State Honors college next year. Is tht a wise decision. Will he be able to find meaningful employment in 5 years with all the H1-B visas and outsourcing. Your thought on the profession would be much appreciated.
Had to reply because I was in the Penn State Honors college--great program, you can't do better in a state university--and work in IT. There is definitely IT work out there now. I would worry more about outsourcing than H1-Bs, but there are areas more or less immune from outsourcing (proprietary data work, government contracts, etc. that I and others have happened into). If the dollar continues weak, outsourcing may become less attractive also. Good luck to your son!
What's changed in 2008 is that people are worried about getting stuck with these loans or buying them back.
See, that part I confess I never did "get."
For you civilians: the whole point of running iffy loans through DU (it's the same thing for Freddie, just different terminology) is this thing called "limited waiver of representations and warranties."
What it means, in plain English, is that if you have a loan you know doesn't meet the "standard" guidelines, and you try to shove it through with a "manual underwriting" as an "exception," you can indeed get stuck later having to take it back, because of the standard reps and warranties you make on all loans.
If you run it through DU and let DU "make the exception," namely, let DU put it in the EA bucket and accept it on those terms, then Fannie can't turn around and force it back to you because it violates standard reps and warranties. So the "limited relief" means that the whole thing went down from the get-go as limited risk to the lender, because DU was in the driver's seat.
So if these folks are having to buy back EA, then they were doing one of two things: either ignoring the conditions of the DU response (it does tell you what special things you may have to do in this case, precisely because the loan isn't "standard"), or else they were over-producing EA (going out and soliciting more than any prime lender's likely proportional share of "near-prime" deals just to stuff them into Fannie Mae pools). The GSEs have a long reputation for getting pissy about having their "exceptions" become "rules," or being adversely-selected.
I'm quite sure the EA outstandings are performing like hell. But on the other hand I always had to get out a big grain of salt when hearing lenders bitch about the buybacks. (And the cancelled MI policies, too.)
Well, three to five is more realistic, but I have worked with a bunch of rural banks that do do that. A huge bulk of their business is just this.
Yes, but the really good ones "start" this process even before we get to mortgage credit.
I rant periodically about the absence of responsible "starter credit" to young people or underserved communities (rural, urban). A lot of people got subprime loans because they had no "tradeline" credit to give them a decent FICO. There just were no solid, conservative institutions giving them small-beer, controlled, reasonably-priced credit (modest used car loans, secured cards, small personal loans) that could "build" a credit history. Good on those community banks who did that--they were in fact avoiding subprime lending by creating prime customers! That's way better than letting them fail first, and then giving them a "second chance" loan!
thank you joy
Looks like they are now pricing for risk by putting more into the EA buckets. Helps make the prime portfolio more "prime". The effect will be to continue to do loans for all but the real slugs....which you used to be able to get through.
What I would like to see is an update matrix and rates for MI. Anyone have access to that??
The lender should consider the presence of a foreclosure as an added risk element that represents a significantly higher level of default risk. The greater the number of such incidences and the more recently they occurred, the higher the credit risk.
That line kind of caught my eye, "the number of such incidences." Are there really a lot of serial defaulters?
As to the five year penalty faze, I have a feeling at some point in the future that will be going bye-bye.
If things keep deteriorating and in two years prices have plummeted, sales are still in the 5m range and you have 1-2 million people who defaulted, with a few hundred thousand willing and able to try again, I'm certain they'll be given the loan. Let's face it, the fix is in and the whole mortgage pie has been made a public liability, we are going to spend our way out of this, or at least try to...
Otherwise, expect sales and prices to fall even further...
I'm going to steal "cream of the crap" for everyday use around my real office environment
I hope you don't mind.
I think MOM got my point about these, and your further comments go right along. I'm talking about rehabilitation potential on some, and credit building on others. And the three to five year timeframe is probably more realistic. And who wouldn't want high-quality refi's that had good numbers? I'd be willing to bet that an arrangement could be made with a couple of banks just for this purpose. We'll market you to our current customers as a re-fi in a period of time.
I suppose the term "bridge" can be used, but franly, most mortgages can be thought of that way because very few complete to term without a refi somewhere along the way and as you've written about in the modeling. The question is when, and these are probably going to do that within a few years. If you were good at the underwriting and process, it would be a good business. But this would be the polar opposite of what just happened, as this would be all about quality and not quantity.
If you think these "tightened" requirements for past foreclosures will survive the R.E. recovery a few years from now, I have a condo building in Florida to sell you.
They'll change the rules again in 3-4 years when prices start to uptick again and foreclosures start dropping. And all of those speculators and walk-aways will be able to get back into the game.
What a novel idea - pricing in risk and not just handing out grossly overpriced houses to everyone who walks by!
How many weeks will it be until Bubbles Ben, Hanky Panky Paulson, or somebody complains about this, saying, "unaffordable homes are a vital part of the Amerikan Dream, and everyone has a right to a loan!" or some such nonsense?
Ah, and what risk premium will these horrible borrowers pay? 50 basis points?
Pffffft. Wake me when it's 500 basis points.
That line kind of caught my eye, "the number of such incidences." Are there really a lot of serial defaulters?
As to the five year penalty faze, I have a feeling at some point in the future that will be going bye-bye.
It's mostly "multiple defaulters" instead of serial ones. In the space of a few years you lost the home, the second home, and the two investment properties. Kind of thing. But it is not unknown to see two FCs in ten years. (After 10 years the public record items are purged from the credit report.) Not common, but let's face it: a lot of the failing subprime loans right now were made to people with a prior FC on their records. Ipodius is talking about being willing to make them new loans two years out. If they fail in two years, that's two FCs in four years.
There's no question but that the GSEs will be likely to bend over backwards on the three years for "extenuating circumstances." But I continue to believe that they are capable of learning a lesson here about "walk aways." It'll take a lot longer than a couple of years for folks to forget being burned like that.
We really are talking about the people who think debts are "options," not people in financial distress. Those people will have nothing to say in two or three years to a new lender except "hey! it was a non-recourse loan! Whaja think I was gonna do?"
Ah, and what risk premium will these horrible borrowers pay? 50 basis points?
Pffffft. Wake me when it's 500 basis points.
Did you take a look at the pricing matrix in the Announcement? The "base" addon for EA-III is 400 bps. Throw in IO and cash-out and Damn! Now you gotta wake up.
Cough, did I write 500bp? I meant 5000bp.
Figures, the one time I don't read your complete blog I get burned.
I don't really understand all those complicated documents anyway.
I think there are two things going on here:
If you think these "tightened" requirements for past foreclosures will survive the R.E. recovery a few years from now, I have a condo building in Florida to sell you.
They'll change the rules again in 3-4 years when prices start to uptick again and foreclosures start dropping. And all of those speculators and walk-aways will be able to get back into the game.
Xactly. Ditto for Fannie's 7-year requirement. All it takes is a stroke of the pen by Con-gress, and poof, you're all "qualified" borrowers now!
Xactly. Ditto for Fannie's 7-year requirement. All it takes is a stroke of the pen by Con-gress, and poof, you're all "qualified" borrowers now!
Suuuuure it will.
Talk about how short memories are. Doesn't anyone else remember the whining and bitching from certain parties over the last several years about the GSEs taking too much risk and having "unfair competitive advantages"?
If we get to the point in a few years that RE looks like a reasonable investment again, there will be non-GSE subprime and "Alt" lenders out there ready to take your order. Their lobbyists will KILL any Congress critter who "allows" the GSEs to "steal" that lucrative business.
And if RE is still a dicey bet, where will the demand be?
"the GSEs will do what has to be done." I think that their vision of "has to" is different than Wall Streets.
I suppose the term "bridge" can be used, but franly, most mortgages can be thought of that way because very few complete to term without a refi somewhere along the way and as you've written about in the modeling.
Right, but my point is that this question of loan life isn't a matter of underwriting or how you "build" the product, in most respects.
It's not a like a tire, that you can "build" to last 35K miles or 50K miles or whatever, and price accordingly.
Loan life shortens or lengthens depending on whether borrowers have "opportunity to refi" (lenders out there writing new loans) and "incentive to refi" (lower market rates).
People are getting creamed right now because they took ARMs. ARMs. At a very low point in the rate cycle. Rates went up. Somehow they thought that if rates went up, they could "just refi." Meaning that rates went up everywhere except for new fixed-rate loans, which they could refinance into. Hello? The yield curve is not "normally" inverted.
Mortgages have "duration" as well as legal maturity. Duration--sensitivity to rate movements--changes as the rate environment changes. We are seeing that today: loans that were "predicted" to prepay within two years are now three years and climbing, because there is either no opportunity or no incentive or neither.
If you are PROMISING a borrower that he or she can refinance in two years, you'd damned well better be giving them a two-year forward rate lock (with a free float-down option). Try hedging that.
If you're an institutional lender, how will you even know you want that capital tied up in mortgages in two years to be the "take out"? Well, you don't. You hope there will be an outside "take-out" lender if you need one.
Hope, of course, isn't a plan.
It is not impossible to deal with the "bridge loan" problem, but as I said it's incredibly difficult. It really is better to make loans that you know can live out their lives to maturity if they have to. And you take whatever interest rate risk that forces you to take.
More apologies for OT CS talk -
anon, your son should sit down and ask himself if he really enjoys CS, and be honest with himself about how good at it he is. If he's an A (superstar) or B (workhorse) level coder, he shouldn't have to worry about jobs, because there never seem to be enough good types to go around. If he's a C (incompetent) type, he'll have problems, because Cs tend to be negative performers - everyone else spends more time cleaning up their bugs than they do writing them.
And the winner is ...FHA!
Regarding IT, note that 60% of college graduates with a degree in Computer Science or IT NEVER GET A JOB IN THE FIELD. I know I searched high and low for close to a year for a job in the field upon graduation from college, and never got one. Disgusted, I gave up and taught math at the high school level for a while, at which point I went to work for the supplier of our school's IT systems and progressed from there over the years to where I am now (as a senior architect supervising two implementation teams overseas with recruiters calling me on the phone at least twice a week trying to hire me away). But the point is, it is extremely hard for someone without experience to get a job in IT or engineering right now unless you're a) graduating from a top-twenty university near the top of your class, or b) Indian and coming in on a Tata H1B consultancy to work for Oracle or Cisco. It's a great field once you get the requisite two years of experience doing serious development work, but getting that first job right out of college is a killer unless you were lucky enough to be able to attend one of the elite universities.
There's no shortage of IT talent in this country. The only shortage is of employers willing to give fresh-out-of-college IT talent a chance. That 60% of college grads who never get a job in the CS field (a statistic which has held constant for most of the past twenty years) are still out there, working at a call center somewhere or driving a taxi or whatever, but it's easier to hire an H1B through Tata than to screen the talent from less-well-known state colleges to find the gems amongst the drech. The major companies (Microsoft, IBM, etc.) don't even send their recruiters to anyplace other than the top twenty colleges... then whine they can't find enough programmers at those top twenty colleges. Well, there's a lot more colleges besides the top twenty... and many of them are putting out fine product. Not that it helps when their grads can't find a job because they graduated from the University of Louisiana at Monroe rather than from MIT...
FYI - the TRUE IT superstar is not dependent on a degree for advancement. It's the people who are always learning, always reading, always studying, always finding the next new hot thing before anyone else..
If you're not one of those people who can work 10-12 hours a day in front of a computer doing technical stuff (programming, db admin, unix sys admin, penetration testing, etc) and then spend another 3-4 hours in your off-time doing the same thing, you're never going to compete with the people who do..
(and people wonder why techs get burned out)
FWIW, I work in IT and my degree is in English.I got my IT job by knowing the business rather than CS. The tech stuff is easier to pick up, but I'm a data architect, not primarily a coder (although coding is the most fun).
Well, we're buying right now (the escrow closing tomorrow). We bought a 800K property with 15% downpayment, got two mortgages - a conforming loan (417K) and the equity loan, both for 5.875%. Had no problem getting the loan with our credit.
yah, me too:
http://thumbsnap.com/v/wvq25Mhm.jpg