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I like Broker's Universe.multiple felonies on every thread.not really,but close.as far as this scenario,I find it totally believable.Anyone who has spent time on BU or appraisers forum has encountered so many clueless and amoral agents and appraisers that someone who has average intelligence and some ethical sense shines as brightly as the sun.
Maybe the brother is a leech and it's payback time!
Elvis Presley - Blue Christmas
YouTube
- Broadcast Yourself.
Maybe the brother is a leech and it's payback time!
How could the brother who has been making your mortgage payment for two years, plus paying your RE taxes and insurance, be a "leech"?
Bill Moyers Journal.
Bill Moyers Journal . Watch & Listen | PBS
International Herald Tribune
New York - the capital of capital no more?
The capital of capital no more? - The New York Times
IRS eyes income from mortgage securities: report - MarketWatch
IRS probing mortgage securities: report
The Internal Revenue Service is taking a close look at participants in an arcane financial arrangement to see if they are gaining illegal tax benefits by under-reporting income on mortgage-backed securities, the New York Times reported Saturday.
Interesting bank report and Q&A -
Bank of the Ozarks Q3 2007 Earnings Call Transcript from Seeking Alpha
Bank of the Ozarks Q3 2007 Earnings Call Transcript -- Seeking Alpha
Oh, REBear, that's some fine reporting from the NYT, isn't it?
The IRS will not say which sponsors are being investigated, but the NYT says, without source or confirmation, that it includes Fannie and Freddie.
Apparently, because Fannie and Freddie issue REMICs, and whoever is under investigation is a REMIC issuer, then Fannie and Freddie must be under investigation. They teach that kind of logic in reporter school?
Plus, I like the insinuation that the REMIC structure is some newfangled way to securitize loans. I would bet you that the law authorizing REMICs is older than most reporters.
Tanta,
Any idea as how issuers were able to under-report income?
Thanks.
Which part of that indicates they want him to "sign a note requiring him to pay them the balance of the "appreciation" over some period of years, with interest."
Is it the "10% carry back"? I'm not familiar with that term
Thanks
I liked to post on BU asking if the brokers would personally buy the loans their were issuing. Let's say I got a lot of crickets. These people knew what they were doing.
Any idea as how issuers were able to under-report income?
Disclaimer: Given the level of reporting in this article, it could be about anything.
It seems to insinuate that the problem is the valuation of the sponsor's residuals. Remember that the resid gets interest left over after the funded tranches have been paid the interest they're due. It is very hard to value resids, because among other things, what you receive will depend on prepayment assumptions.
I guess the idea is that the sponsor deliberately undervalued the residual interest to lower its tax payments. But I'm just trying to pretend like the newspaper makes sense, so feel free to make up your own story.
Trying to step back from the trees and picture the forrest.
For a number of years people have pondered the question of what is a post-industrial society. We may have the answer - a Finance Capitalist society where "wealth" is generated by trading securities back and forth at increasing prices and with huge fees even as the underlying collateral base is shrinking. In effect a giant Ponzi scheme in which the federal government is a major player rather than regulator as most assume.
We may look back on this Summer as the day the music stopped and the number of chairs turned out to be many less than expected.
We shall see and it will be interesting.
PS: This blog is the best for providing education and information about the slow moving train wreck that is occuring. Keep up the good work Tanta and CR!!
Which part of that indicates they want him to "sign a note requiring him to pay them the balance of the "appreciation" over some period of years, with interest."
Yes, a "seller carry back" is a term for a situation in which the seller accepts a note from the buyer for part of the purchase price. In other words, this would be a 90/10 deal, but the 10% second loan would be made by the property seller, not by an institutional lender.
You could, I suppose, assume that since this is an in-family transaction, it could be a no-interest note. But that still means that the sellers expect the brother to pay them "principal" of $46,000 over the term of the note.
If you find that hard to believe, of course, that's because it's almost guaranteed to be a sham: there is no carried back note. It's just a way to make the lender think the LTV on the mortgage is 90% instead of 100%. My point, however, is that I can't believe anyone believes this would be "worse" if they were lying.
FFDIC -
I waded through most of that conference call transcript. Thanks for the link.
It seemed pretty routine to me, however I am not an expert at reading between the lines at all. My main takeaway was that their mortgage lending income dropped off quite a bit (25% yoy) in the third quarter, no big surprise there. Also interesting to read that they are seeing pricing pressure from their competitors in CDs. Apparently the Fed interest rate cut hasn't translated into lower CD rates, which tells me that banks are having to keep interest rates higher to attract depositors.
One thing that made me laugh was the comment by the CEO blaming "market psychology" for the dropoff in home lending. He seems to think that the only reason activity is down is that buyers are spooked and looking to hold out for lower prices. Funny how when prices were soaring and realtors were dancing to the bank, nobody was worrying about "market fundamentals."
Perhaps by "leech", the person meant "sucker."
I doubt the brother's an innocent victim--I'll hazard a guess that this was a 2 year teaser rate deal, and the brother had no credit history. He was able to cover the teaser payments but not the reset. He was also not able to accumulate any cash for downpayment (from a follow up comment by the original poster):
the borrower has been employed as a automotive technician for 9 years, and is a first time buyer.
his mid fico is 744
the new 1st mortgage will pay off the existing liens, and also cover all the closing costs ( non recurring and prepaid items)
so the borrower will not have to come up with a down payment or money for closing costs
this will be a 90/10 so 100% CLTV
What's extra insane to me is the idea that an automotive technician can afford this place. A back of the envelope calculation shows you'd need a monthly income of over $8,000 to qualify for this.
FYI Payscale.com puts the median income for automobile technicians with 9 years of experience in San Mateo at around $5000 per month.
Board of Governors of the Federal Reserve System - Speech by Vice Chairman Donald L. Kohn at the Conference on John Taylor's Contributions to Monetary Theory and Policy, Federal Reserve Bank of Dallas, Dallas, TX. 10/12/2007
FRB: Kohn, John Taylor Rules--October 12, 2007
Off topic:
Wheat stockpiles down 59%..So now that the Ne-Con Agenda has us heading to a Recessionary cycle , they want to starve us to death also.
Wheat Stockpiles May Hit Lowest Level in 59 Years - Undesignated - Resource Investor
My guess is that the brother never lived there but the sellers have been. They've run up against a reset, and as a last resort have asked their loser "leech" "sucker", whatever, brother to take the hit to his credit for them (probably for a fee), since he never was gonna be able to buy a home for himself anyway.
I have a brother-in-law that would do it for a small fee. I think everyone has a brother or uncle that they could use, right?
Tanta,
Question:
Given that there are many 90/10 loans out there, and given that housing prices are dropping fast and hard in some places, is it possible that some lenders who hold a first would offer to pay off the second and refi the first so they don't have to forclose (or some version of this)?
It seems that the holders of the seconds are not even bothering to forclose. If the lenders can somehow convince the borrower to ingnore the second and keep paying the first loan, then many may do this (even paying off the first if the house would only bring say 60% of the first after forclosure. It may even be worth it on 80/20's)
Is this doable, being done, or simply showing my ignorance?
"(even paying off the first if the house "
meant to say paying off the second.
I doubt the brother's an innocent victim
That, to me, isn't the point.
The point is that either:
Let me put it this way: if you were a mortgage broker, and this brother came to you with this scenario, seeking this 90% loan, what would you do? Would you try to find him a loan, or try to convince him that he is being screwed by his relatives, who are trying to sell him an overpriced condo?
What really fascinates me about this is that, frankly, people can "see" situations in which borrowers lie, cheat, and steal. But we seem to have a hard time "seeing" situations in which sellers lie, cheat, and steal.
Why are we spending any time speculating about what is "really" going on here? The interesting thing is what is being claimed to be going on here. A mortgage broker thinks that this scenario would be acceptable if it were true. But would any of you people actually make this loan (assuming that the borrower qualifies on income, etc.) if this set of facts checked out?
Look, if the condo market were still hot, and there were bidding wars over this unit at $460,000 by people who could get institutional financing, but the sellers decided to give the poor kid brother a shot at it by agreeing to take back a second, maybe that would be one thing. That would mean the sellers would get their $46,000 one way or the other.
But in the current environment wouldn't you be afraid that the brother is the only person who would be willing to offer $460,000? Any sane appraiser I know would reduce the value for the amount of the carry-back, because it's quite obvious that in an in-family transaction, without evidence of competing bids, it does not reflect a market price.
You have here a mortgage broker who doesn't seem to get that. I am not surprised that there are borrowers who don't get that when their brokers are this stupid.
What if this is exactly what they say it is?
Suppose the couple used their credit to take out a loan as a favor to the brother two years ago, and he has been making the payments in their name.
Suppose they now want to transfer legal ownership to him by selling him the house. Suppose it really has been appraised at $460k and they do not want to sell it to him $60k below market.
How should the family structure the transaction? Charge him the full $460k, I guess? But how exactly would that be better for the brother (or the lenders) than what they are proposing?
If the lender loans $414k against $460k collateral, how is that not "really" a 90% LTV?
I am missing what is so scandalous here.
is it possible that some lenders who hold a first would offer to pay off the second and refi the first so they don't have to forclose
That's just a high-LTV refi, Joe. You're simply asking if someone who holds a 90% first would do a cash-out refi at 100% LTV, with the borrower using the proceeds to pay off the second lien.
I can't imagine why anyone would want to do that.
Nemo, that's a fascinating theory. They did the "favor" of taking out the $400K loan "for" the brother in 2005, but now they only want the borrower to be able to own the property if he pays them $460,000 for it? Some "favor."
Jeebus, even the "rent to own" stores don't screw you like that.
Assuming they actually had it appraised at $460k, I ask again, what should they do? Charge him $60k below the appraised value?
Without knowing the terms of the in-family loan, it is impossible to know whether they are "screwing" him. But there is certainly a logic to keeping interest payments within your family instead of handing them to a bank...
This is only a raw deal if $460k is not the true market value. But do we have any reason not to believe it? Or to think that couple doesn't believe it?
(And if they did sell it to him for significantly less than the appraised value, wouldn't the IRS consider that a taxable gift?)
"Loan amount would be $414,000"
Maybe the brother couldn't qualify for a jumbo loan so the remaining balance needs to be back credited ot the sister.
Assuming they actually had it appraised at $460k
But they haven't. No lender accepts an appraisal for a purchase transaction that was not made for the current transaction. Sure, maybe they got some dumbass refi appraisal some time ago, but no lender would use that.
You would order a new appraisal, and give the sales contract to the appraiser. In order for the appraisal to come in at $460,000, the appraiser would have to come up with evidence that comparable units are now selling for that much. And there would have to be evidence that an institutional lender would make the 10% second (even if the borrower chooses to get it from the family). Why? Because it's not a "market price" if only relatives can get the necessary financing; it's a sales inducement and it gets subtracted from the value. What lender wants to risk owing REO that can only be purchased by someone who can get in-family financing?
Look, if the guy qualified, a lender might consider using $414 as the sales price, and then requiring a 10% down payment from the borrower based on that ($41,400). That would make it a 90% LTV loan. Then the borrower can sign any dumbass note to his sister he wants to, as long as the sister doesn't try to file a lien in front of the lender. Hell, you can pay a property seller any damned thing you want. But you can only finance a percentage of a true market price.
You really think the sellers are volunteering to rack up short-term capital gains taxes just to "save" the borrower gift taxes based on some probably inflated appraisal?
Look, climb into the wayback machine with me: it's 2005, and you really really want to buy a condo unit, but you don't have the FICO for it. You're afraid you'll "miss your chance" to get into RE. (It's not a matter of downpayment; remember that this condo was purchased with a 100% loan.) So I, your loving sister, offer to help you out with this deal: I'll buy the condo now with a 100% loan. You will make the mortgage payments for two years. At the end of that time, when your FICO is good enough, I'll sell you the condo for current market!
What a deal! You won't miss out on the RE train, because I'll assure that you get just as much price risk as someone who waits to buy, plus the onerous payments on a 100% loan!
Are you telling me that you would have considered that I was doing you a favor?
Tanta, this horse has been beaten to death. Zip up the hazmat and find us another
Here's one from Broker Outpost
If you can put me in contact with an Investor/private lender that can lend me a personal loan up to 20,000 I will pay you 10% as a gift.
I make very good money around 200K yearly, but because of my spouse having some health problems I am stuck looking for help to pay for meds and doctors. Im open to the terms and can do short or long term. Monthly payments are also open on amount.
Tanta,
Thanks for the answer on my question above.
The reason I ask is because there are litterally dozens of houses for sale at $700,000 (short sales and forclosures) that sold for 1 million plus two years ago in my area. And they aren't selling. That's a 30% loss at best.
If I was a lender who held the first on a 90/10 loan for a $1 million purchase that I thougth I would get less than $700 grand for in the current market, I might think that if I could somehow convince, or be convinced, that the owner would or could continue to pay the first if I forgave or paid off the second, then I might do that. Heck, even if I figured the owner could flounder for a year or two, it might buy me enough time for the market to come back (assuming I was an optomist) and put the LTV into positive territory.
Anyway, just thinking out loud.
Well, in the "wayback machine" example, aren't YOU the one taking on the price risk since your name is on the mortgage documents? All legal obligations are yours, not mine, so I do not see any risk to myself.
Plus I get to live in the apartment in the meantime.
In effect, you are renting the apartment to me at cost for two years, then offering to sell it to me at market. Perhaps that is not a huge favor, but it is still a favor...
It's like you said before: They want a 90/10 loan where the 10 is being kept within the family. I still do not see why that is so hard to believe.
My strategy discussed two posts above sorta sounds like what some are suggesting this SIV bail out is all about....buying time so you don't have to liquidate in this market.
It's like embezzling 200 grand from your work and going to vegas. If after a week you're down 100 grand and your work finds out it's missing, well you got problems. But if you can keep them from finding out, maybe making small deposits here here and there to convince them the money isn't missing, well you may just hold him off long enough to win the jackpot and make it right.
You may not pay ever pay it back either way, but at least you have hope, and besides it's not your money either way. Work will still fire you wether you lose half of it or all of it. No reason to come clean midway through.
Texas AG proposes measures to protect homeowners in talks with Countrywide, Litton & EMC Mortgage..
Texas AG proposes measures to protect homeowners - Houston Business Journal:
Not to worry. Union Bank says risk of recession in California is limited. And, the chief economist at BofA went one step further saying he doesn't see the US going into recession over the mortgage crisis.
Union Bank says risk of recession in California 'limited' - San Francisco Business Times:
"Not to worry. Union Bank says risk of recession in California is limited"
This is true...it's limited only to residents of california who work or save or spend.
$414k? Hmmmm.. sounds like the brother can just get a MyCommunity product (3% down) from FannieMae 1st time HB program.
Depending on what the real appraised value is, could get max loan of $417k. Pays off old loan of $400k, gives the sellers a little bit of walking money, and they can write a 2nd for whatever their little hearts desire for "reward" and downpayment figures.
Seems pretty basic to me.... perhaps broker in question isn't too resourceful and sellers should probably adjust their expectations (but what else is new there?). Most bay area sellers need a serious 'tude adjustment. Finally, the mkt is starting to give it to 'em.
They just want to get 100% financing on the $400k. The $14k covers all the RE and closing costs to cover their refi.
==================================
re: FFDIC
Board of Governors of the Federal Reserve System - Speech by Vice Chairman Donald L. Kohn at the Conference on John Taylor's Contributions to Monetary Theory and Policy, Federal Reserve Bank of Dallas, Dallas, TX. 10/12/2007
Thanks much for posting that. The Fed had always led me to believe that the Fed pays a lot of attention to the Taylor rule ( with all the caveats that my background is rule-based decision making bring into play and I accept the margin of error that those caveats create) - Yet, that's why their 50 basis point cut in Sep. astonished ( and angered ) me so much. It was completely out of line with the Taylor rule. It was WAYY OFF ! These buggers speak with forked tongue I reckoned and so I agreed with other people's conclusion that the Fed is Wall Street's b*tch.
The timing of this speech is fortuitous - it reads to me like a post decision attempt to say, hey, we never really believed in the Taylor rule in the first place. I've read too many ex post facto justifications ( the New Economic Policy (NEP to the believers) - theory by Lenin about their U turn on commie stuff in 1921 is a classic ) to buy into this crap.
It doesn't wash. They are STILL Wall Street's b*tch as far as I am concerned and naturally I manage my financial affairs accordingly.
-K
picking on posts from broker universe?
insert joke about shooting fish in a barrell here
Hey- How come the ads for this thread are Hot Girls and Hot Cars and Ripe TV: Gorgeous women? I thought they were tailored to the key words posted.
I think they're based on where you've been (you naughty boy
).
Bombay to Shut Down U.S. Operations
Expired
30=-year old company that sells semi-upscale furniture.
3 weeks from bankruptcy filing to gone in the U.S. Receivers have NO INTEREST in trying to sell furniture in the U.S. market.
400 stores empty.
3,000 people out of work.
Foreshadow of weaker PCEs.
Brokeruniverse.com. LOL
A friend of mine sent me over to that place a year or so ago and I signed up and started reading.
As a very proud 10 year veteran of the mortgage industry I was amazed at the idiots who called themselves mortgage pros. It wasn't long before I was banned for railing on people over there in regards to their ethics, experience and general attitude.
Poofters...
Bombay Co. to Shut Down U.S. Operations
This has been coming a long time. I don't think it bodes badly for anyone other than their employees.
Their markups are atrociously high, considering the store locations and service are nothing special.
Mortgage Grapevine is is a mess.
The bigger issue is that I am sure the owners of the property bought it as owner occupied and commited fraud if they never lived in it.
They were straw buyers for thier brother.
If the brother has actually piad the mortgage directly and has a paper trail then he should be able to qualify for a loan on his own.
I have borrowers come to me with crazy situations like this all the time and they are so casual about things like this. It's not only bad brokers promoting wrong doing but borrowers also..what a mess!
I suspect this loan as advertised is doomed to fail, because it appears that the appraisal is juiced and any lender is going to see right through it. There are to many questions that need expalination here.
If I really wanted to help my relative, I'd do it as a wraparound (especially as it was an investment property in the first place).
The giveaway that the brother has been paying a teaser rate is the obvious one: $400K sale, $399K still owed after two years.
If it was a 7.00% fixed 30-year loan, the principal should be down to about $391,500 after two years.
Modeling on 7%, mortgage payments to date have been about $2,370 a month. To break even for the rest of the loan, payments would have to go to $2,710--an extra $4,000 a year of mostly after-tax income (cash-flow basis).
And that's assuming everything stated is accurate--notably not a good assumption, for all the reasons stated above.
They did the brother no favour on a rent-adjusted basis, and themselves even less of one when the transaction unravels. Again, optimistically.