Minnesota Mortgage Blog - MN Mortgage and Real Estate News

Licensed Minnesota mortgage lender ranks reduced dramatically

Saint Paul, Minnesota. Dec 2007: The number of licensed Mortgage lenders in Minnesota has dropped dramatically recently as a double wave of trouble has washed many lenders away. According to figures from the Minnesota Department of Commerce, the number of licensed mortgage originators has dropped to 1,202 as of the latest two-year license renewal date of Oct 30th, 2007. This is down from the previous license renewal count of about 4,000 in 2005. These numbers include all in-state and out-of-state licensed lenders.

While this number looks impression, it is actually a bit misleading. Many smaller companies, in an attempt to circumvent previous lending laws required their Loan officers to hold an individual license. Sweeping new legislation, which went into effect recently no longer allowed this loop hole. Individuals can no longer hold a license. They must incorporate as a company. A brokerage may previously have had 30 Loan Officers, who each held an individual license. They now will only be able to operate as a company, reducing the number from 30 to just 1. Other new rules require higher fees to acquire or renew a license, and companies now must maintain a minimum net worth of $250,000 or have a $50,000 surety bond.

Many other small companies were one or two man operations run out of the individuals homes. These smaller companies have simply vanished, or the Loan Officers have gone to work for larger companies. Many of the smaller companies also merge together or merged with banks in order to meet the new guidelines.

New educational and background requirements will sweep even more out of the business by March 2008, when the educational requirements go into effect. The requirements include out-state lenders who continue to be the biggest source of trouble for Minnesota homeowners.

So are there truly less Loan Officers and Mortgage Companies doing business in Minnesota? Yes. The severe housing slump and current credit crunch has sweep huge numbers of Loan Officers and companies out to sea. The initial wave of companies and people out of the business has been mainly people who lived off of refinance transactions, had little or no training, provided sub-prime loans, or those who worked at the high-pressure telemarketing or Internet type lenders.

For the most part, those still successfully providing loans tend to have been in the business prior to 2001, focused primarily on purchase transactions, and are dedicated to repeat and referral business. This of course was the intent of all the legislative action at the Capital in Saint Paul, to get ride of the bad and retain the good.

U.S. Home Foreclosures UP 68% last month... Or NOT?

Saint paul, Minnesota. December 2007: Home owners increasingly failed to keep up with their mortgage payments in November, as the number of foreclosure filings APPEARED to increase a whopping 68% compared with November 2006 according to Realty-Trac, Inc.

October 2007 filings had fallen 10% from Oct 2006 numbers, and August to September 2007 was down 8% from the same period in 2006.

If you look at November 2007 numbers, this works out to allegedly be 1 in 617 households in foreclosure.

You may notice I keep saying appear and allegedly? This is because as usual, one must look a bit deeper into quick disastrous doom and gloom sound bites from the media.

The filings report numbers include all default notices, auction sale notices, and bank repossessions.

But, a huge portion of these defaults are from people who took out mortgages in 2004, 2005, and 2006. These also correlate to a huge up-tick in 80/20 type loans. While I haven't been able to find exact numbers, I can tell you from my day to day loan originations that the vast majority of those people got two loans in order to purchase their home.

There is also statistical data of people overwhelmed by the HELOC (Home Equity Line Of Credit) they took out to pay credit cards, cars, vacations, and more. Many of these people previously were in good loan-to-value positions, but took out the equity loan up to 100% of the homes value. The big surge in equity loans was also in 2003 - 2006.

If you are defaulting on your first mortgage, your most likely defaulting on your second mortgage (or third for that matter). The numbers provided by Realty-Trac fail to compensate for that fact, and only make a small mention that some people may receive more than once notice if they have multiple mortgages. 

So is it really 1 in 617 homes, or something significantly less?

Mortgage Insurance is Once Again Tax Deductible for Borrowers!   

Saint Paul, Minnesota. December 2007:

Turbulence in the mortgage marketplace has been big news in 2007. But here's something bigger...and better! MI Tax Deductibility is back and this time for three more years.

This week, our United States Congress has approved or renewed several tax relief measures to keep the dream of homeownership alive for both new homebuyers and existing homeowners. The extension of MI tax deductibility is top among them. The legislation itself is no different than what was passed last year. MI premiums are still fully deductible for taxpayers earning up to $100,000, and partially deductible for those with incomes between $100,000 and $109,000. The only difference is that the deduction now applies to policies written through the 2010 calendar year.

Extending MI tax deductibility is a crucial move for many reasons:

• Risky low down payment loans are no longer a viable option and are being replaced by more secure loans with mortgage insurance.
• Mortgage insurance is not only safe and predictable, but it's also cancelable and packed with features borrowers want today
• Consumers today have an increased understanding of how mortgage insurance can benefit them, and the extension of MI Tax Deductibility will help continue that trend.

Consumers, Lenders, and Realtors - Visit http://www.smartermi.com to learn more.

Adjustable (ARM) Loan Resets Cause Foreclosures - Fact or Fiction?

Saint Paul, Minnesota - Dec. 2007: A lot has been said from pundits everywhere, and support is growing on multiple fronts for home-owner-assistance programs with broader impact than the Bush Administrations 5-year interest rate freeze program.

The general belief is that homeowners are doing fine with their loans UNTIL their adjustable loans reset to higher rates.

According to recent nationwide data from Countrywide Financial Corp., one of the nations largest mortgage lenders, the No. 1 reason customers are defaulting on their home loans is because their income was cut. This accounted for just under 60% of Countrywide loans in default for the first 10 months of 2007. Once traditional causes of foreclosure are factored in (divorce, major illness), cash flow problems added up to a whopping 80% of all "causes" of defaulted mortgages nationwide.

Adjustable payment loans resetting to a higher payment alone accounted for just 2%, according to Countrywide data. Rather than being the cause, they appear to be the final straw that breaks the camels back.

My personal experience with customers calling for help, while I have no hard numbers, would seem to back that data up. Since FHA came riding up on a white horse to announce a new initiative alleged to save 240,000 homes owners called FHASecure, I have fielded many calls from people looking for help. The bulk of these people do not qualify for many reasons, but the No. 1 item I see that jumps out? They were in trouble far before any adjustable rate adjustments ever occured.

This fact also appears to be backed up by data from Fannie Mae. Florida and California are markets dominated by adjustable rate mortgages, while where I am at in Minnesota, and the upper Midwest in general, the vast majority of homeowners are more conservative and have fixed rates. Fannie Mae data shows the Midwest in general is suffering the largest loan losses. Of the top seven states, five are in the Midwest (In order: Ohio, Michigan, Minnesota, Indiana, California, Florida, and Illinois).

There are a lot of borrowers who are hurting out there, and as someone who talks to them daily, many of these stories really tear at the heart. Unfortunately, once you did deep into their full story, most of the time I hang up the phone wondering what ever happened to personal responsibility, how credit cards work, and living within your means?

FED RATE CUTS DO NOT EQUAL LOWER FIXED RATES 

Saint Paul, Minnesota. Dec 2007: So the Federal Reserve cut rates again. Many mortgage applicants are calling their Loan Officer and expecting a lower interest rate, especially those currently in process with a loan. Others who have been waiting to refinance are puzzled as to why FIXED mortgage rates have not really moved lower. In fact, FIXED mortgage rates are now almost exactly where they were before the Fed began cutting rates. This is difficult to explain to many consumers who have watched a 1% reduction by the Fed with no benefit in mortgage rates.

Is a Fed rate cut really good news for mortgage rates? The facts may be surprising. The Fed can only control the Discount Rate and the Fed Funds Rate. This is very different from mortgage rates. A mortgage rate can be in effect for 30-years, a rate that is set by the Fed can change from one day to another.

Another common mistake is in thinking that 30-year Treasury bonds or 10-year Treasury notes are directly pegged to mortgage rates.

Those are government securities that are backed by the full faith and credit of the U.S. government and have no direct effect on mortgage rates.

So what are mortgage rates based on? As it turns out the answer is mortgage-backed bonds known as Mortgage Backed Securities (MBS). Bonds issued by Fannie Mae and Freddie Mac (MBS) and the trading performance of those bonds will determine the direction of mortgage rates. Finding the catalyst that causes mortgage bonds to move will give you the keys to finding out what makes mortgage rates rise or fall.

We know that inflation will always be a negative for any long-term bond because it eats away at the future returns. Since the bond will pay a set amount over a long period of time, that amount will be less valuable if inflation is high. Over the past several years, one catalyst that seems to be working in the opposite direction of MBS prices is the Nasdaq and broader stock market.

As bond prices rise, interest rates fall. As bond prices fall, interest rates rise. The consistency of this behavior is astounding.

As the Nasdaq moves higher, bond prices move lower causing interest rates to rise. As the Nasdaq declines, mortgage bonds benefit, causing mortgage rates to fall. Additionally, and unlike common opinion, Fed rate cuts have had virtually no direct effect on mortgage rates. Moreover, it appears that since Fed rate cuts act to stimulate the Nasdaq, they have a negative effect on mortgage rates.

The bottom line is that it appears mortgage rates will get better if the Nasdaq sells off and will get worse if the Nasdaq rallies. So it is not necessarily what the Fed does that affects mortgage rates, it's how the Nasdaq and broader stock market interprets the Fed's action that will ultimately influence the direction of mortgage rates. This is because money managers and mutual fund companies typically keep funds in either stocks or bonds with very little in cash. If stocks are in favor, money is pulled from bonds, causing bond prices to drop and interest rates to rise. When stocks are being sold off, the money is then parked into bonds, which improves bond prices and causes interest rates to decline.

A closer look at the 3 rate cuts by the Fed this year shows that mortgage bond prices deteriorated after each Fed rate cut. This means that mortgage rates rose after the Fed had cut rates while many consumers were expecting their mortgage rates to decline. Worse yet are the consumers who missed the opportunity to obtain a lower rate because they mistakenly waited for the anticipated Fed action to cut short-term rates, thinking that longer-term mortgage rates would decline as a result.

Predicting the future is tough, so nothing is written in stone. Keep an eye on the Nasdaq, and keep in mind that the best rates may be behind us. But, mortgage rates are still low and could have some quick dips so make the most of them while they last.

The bottom line? Make sure you are working with an experienced, professional loan officer. The largest financial transaction of your life is far too important to place into the hands of someone who just quotes rates, but is not capable of advising you properly and troubleshooting the issues that may arise along the way. More than likely, this is one of the largest and most important financial transactions you will ever make. You might do this only four or five times in your entire life but we do this every single day. It's your home and your future. It's our profession and our passion. We're ready to work for your best interest.