SDblog

Please see this article posted today in Inman news:

Fed proposes new restrictions on subprime, alt-A loans

Sen. Dodd says legislation still needed to rein in abusive practices

Tuesday, December 18, 2007

By Matt Carter
Inman News

http://www.inman.com/inmanstories.aspx?ID=65562

Another knee-jerk reaction fixing things that are not problems, assuming we are too dumb to make our own decisions, the Fed is proposing more legislation to "fix" a problem that they in part caused by their excessive rate increases over the last 2 years.  Much of this article you may not "get" just because of the lingo used, and the fact you are not in the mortgage industry.  But know this - if this passes YOU will have FEWER CHOICES. 

Perhaps you have a long-term plan and exit strategy, or know yo are going to inherit money in a couple of years, but you have hard-to-prove income, a substandard credit score (which it looks like most people will have once we start to emerge from these foreclosures and short sales).  TOO BAD!  The Fed says you are too stupid to take advantage of a sub-prime or Alt-A loan with a prepayment penalty, or without points to the lender or broker (resulting in a lender-paid yield spread premium).

This is already on top of the knee jerk reactions a few years ago, resulting in cities across the country, and counties and states passing a disseying array of "predatory lending" laws, such as the one the city of Oakland California passed, that caused many lenders to more or less redline those cities, the laws were so over-reaching. 

I agree more disclosure is essential to make sure the consumer knows what they are getting into.  But to just say, "no, you don't get to make this choice", that is just wrong, over-reaching, unnecessary, and short sighted.  It will actually make the liquidity problem worse and cause more harm to the real estate industry and the value of YOUR home.

What do you think?

None too soon, 2007 is finally drawing to an end!  It will not be missed by most of us in the real estate and mortgage industry.  We can only pray that 2008 will be a much better year!

National City Mortgage has ceased wholesale lending, as have hundreds of other lenders, most of whom are gone entirely.  Join us in 2008 as we keep you updated on all the events, and share them with you in layman's terms. 

Thanks for being with us in 2007  - see you next year!

Had an interesting question today, one that many many people will be asking unfortunately.  Here is the scenario:

Borrower had a first and 2nd mortgage.  The first foreclosed and got the property.  Then the borrower started hearing from the holder of the 2nd telling them they still owe the money and need to make payments.  Borrower says, "the bank took the property, aren't you gone?"

The answer is, in some cases, "NO" they are not gone.  The holder of the second has a right to protect their "security" (i.e. the house) when the holder of the first forecloses by bringing the first current and foreclosing themselves.  This is what typically happens when there is some equity left in the property.  In this case, the borrower offered the property for sale on a "short sale" and got a buyer.  It took literally six months for the holder of the first to say yes to the short payoff, but by that time, the buyer had had enough of waiting and was no longer interested in buying the place.  So the first finished their foreclosure the following week. 

The second has not exercised any remedy at all to obtain payment, and they are still a debt that is owed, be it unsecured.  Now to make matters worse, the borrower may be faced with not only having a foreclosure on their credit, but now may also be forced to file bankruptcy to stop actions by the unsecured holder of the second mortgage. 

What a credit nightmare.

We welcome your comments - Jan