for consumers

Straight from the FDIC:

On July 11, 2008, IndyMac Bank, F.S.B., Pasadena, CA was closed by the Office of Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC) was named Conservator.  All non-brokered insured deposit accounts and substantially all of the assets of IndyMac Bank, F.S.B. have been transferred to IndyMac Federal Bank, F.S.B. (IndyMac Federal Bank), Pasadena, CA (”assuming institution”) a newly chartered full-service FDIC-insured institution.  No advance notice is given to the public when a financial institution is closed. 

And that allows me to share one of the few interesting tidbits of trivia you never knew about Indymac.

This from the CA Department of Real Estate Records

http://twitpic.com/3mn1

Love to hear your comments…
http://seesmic.com/v/p1vD23X6LJ

You might think that reverse mortgage lenders and banks, with their gobs of protective equity, would be immune to the Wall Street mortgage lending crisis. After all, how bad could the default rate on a home loan with no payments and at 40% to 50% LTV be? Tell that to the Wall Street bears.

Since investors (so far) cannot own a separate reverse mortgage security, they are exposed to the overall health – or lack thereof – of the bank. Did you see Indy Mac Bank’s stock price this morning? Analysts are targeting a zero dollar value for it. IMB’s Financial Freedom arm is, or was, the largest non-FHA jumbo reverse mortgage lender in the country. FHA products, of course, are doing just fine because Fannie Mae buys them.

With investors valuing IMB’s stock so low and their cash flow suffering, there is no liquidity to fund their proprietary reverse mortgage, the Cash Account Advantage. As a result, IMB pulled their Cash Account program for brokers last month, though it reportedly is still available through their retail reverse mortgage channel, Financial Freedom.  Their recent exit from mortgage lending appears to apply only to their “forward mortgage” business. Bank of America, who acquired Reverse Mortgage of America last year, stopped offering their jumbo reverse mortgage product earlier this year. Other recent jumbo reverse mortgage casualties include Ever Bank, JB Nutter and Countrywide.

With all of these deaths in the non-FHA reverse mortgage battle, jumbo reverse mortgages are becoming scarce. The largest reverse mortgage lender, Wells Fargo, does not have their own jumbo program, but formerly brokered out the Cash Account product. Now, the few remaining non-FHA reverse mortgage lenders are scrutinizing deals like you would not believe – or perhaps you would. Look out for cutting values, LTV reductions and any other excuse not to fund. Only the squeaky-clean, lowest LTV deals are receiving funding.

At least we still have FHA’s reverse mortgage, the Home Equity Conversion Mortgage (HECM). It has relatively low lending limits and requires expensive FHA insurance, but liquidity does not yet seem to be a problem.

Luke Helm
Reverse Mortgage Pro

I’ve had a feeling for some time that there was some correlation between counties issuing building permits indiscriminately and the subsequent crash in area real estate values. Here in Reno they are still approving new developments as fast as they are asked for, and yet we all know Nevada was one of the hardest-hit states by the real estate crash / lending crisis. I started a research project, putting together data concerning the number of building permits issued in the best and worst areas for home appreciation / depreciation, the population, growth trends, and subsequent damage to real estate values. It’s a huge project and data isn’t uniform or easy to come by.

However, the Puget Sound Business Journal has already put some of this on the map on a smaller scale, and it’s conclusions justified my suspicions. The study / article compared the effect of the real estate / mortgage havoc on King County (Seattle) and San Diego County homeowners. In Seattle’s case, state limits on growth forced the county to limit SFR building permits to about 1,300 a year, even during times of appreciating home values. San Diego County developers, on the other hand, were far less restrained by growth plans. Local officials, likely swayed by the extra tax revenue generated by developed property, had no problem with unfettered development. Hence the oversupply, which led to the drop in values, which led to the inability of borrowers to sell or refinance, which led to lenders foreclosing on homeowners, which fueled a further drop in value, ad nauseum. seattle, on the other hand, has weathered the downturn much more successfully, not being overburdened by a huge oversupply of homes.

It’s a little short-sighted of county supervisors or city officials to allow over development. While it makes it easier for new people to move in and afford homes it’s terribly hard on those who already live in the area. And the toll on the local economy and society has proved to be staggering. Officials see additional revenue and drool — until the drop in property values and assessments, and subsequently sales and other taxes takes its toll.

It’s unlikely that the next group of leaders will have learned from the current crop, and there will be undoubtedly be a move once again to kill the golden goose by getting greedy for property tax revenue. Citizens who care about their property values and their neighbors should keep an eye on their local officials and know that a sensible growth plan is being followed.

Cliff Pape asked me to do a post on how “inflationary expectations” for those who may not be familiar with its effects on mortgage rates both near and long term. His main concern is how it pertains to borrowers buying a mortgage today and for those hoping to refinance in two or three years, something every mortgage professional should be able to convey to their clients.

First off, let’s make sure everyone is clear that mortgage rates are determined by the trading of mortgage backed securities, mortgage bonds if you will. Mortgage bonds generally react like regular bonds in that they are considered a “safe haven” in bad times, so negative news on the economy is good for bonds, and thus mortgage rates.

For those who do not understand fully how bond pricing and yield work, I will hit on that quickly as I want everyone to understand the basic process for determining where rates are headed. Rates are basically like the yield on bonds. Bond yields move inversely to their pricing, so when bond prices move higher, bond yield drops, and thus mortgage rates drop. Of course the opposite is true and that is the simplistic version of how to determine what is going on with rates.

Now, to address Cliff’s request, since bad economic news drives bond prices higher, good economic news must drive them lower. Of particular concern is inflation and the “inflationary pressures”, which drive bonds prices lower (higher rates). You can see many signs of inflation when you visit the grocery store and fill up your car, both of which have increased your expenses lately. Some other inflationary pressures are not seen, such as “wage-based inflation”.

In our current environment, with money being so cheap thanks to the Fed, not to mention their “adding liquidity” and devaluing the dollar, inflation grows as commodity (oil, food, etc.) prices climb and the dollar loses purchasing power. Mortgage bonds traders, which had been focused more on the mortgage crisis and recession fears, have now moved over to inflationary concerns, and bond pricing has suffered, sending rates higher.

Compounding the problem is the expectations of what is to come, both near term and long term. As we see more and more data showing a better than expected economy and we see growing inflationary data, those expectations do not favor bonds, and we can expect higher rates in the future.

While the Fed has also apparently changed its stance from providing liquidity to that of doing what it is supposed to, fight inflation, we can expect them to hold the Fed Funds Rate steady, even increase it (hopefully). Keep in mind that what the Fed does today generally takes upwards of six months before full realization of their move occurs due to the need to “trickle down”. Since the Fed has cut rates, even in their most recent meeting, those inflationary pressures are likely to remain for up to six months unless the Fed can “shock” the system.

While no one has a crystal ball to see two or three years down the road with any real certainty, if we compare these times with those of similar economic times in the past, we can possibly gauge what could happen if future events follow suit. One of the most recent times would be that of the late 70s, early 80s, though it is not a fully accurate comparison.

Do you remember what happened to rates back then? Do you remember rates in the high teens?

I doubt we will get as high as we did back then, but I would bet we will not see rates as low as they are in the coming years. Does that mean you should rush out and get a fixed rate mortgage? Absolutely not. Does it mean you shouldn’t get an adjustable rate mortgage (ARM) right now? Not Necessarily. It does mean you should take a moment and revisit your mortgage plan and see if refinancing now will likely be the best option. If you have an ARM, you should definitely be looking at your options and future plans.