From the Wall Street Journal:
Mortgage Brokers: Friends or Foes?
Amid Mounting Defaults, State and U.S. Lawmakers Weigh
Measures to Make Profession More Accountable to Borrowers
By JAMES R. HAGERTY
The political debate over how to deal with a surge in defaults on home loans is raising a question that consumers ought to consider: Is my mortgage broker really working for me?
Borrowers often see mortgage brokers as their allies, searching far and wide for just the right home loan at an attractively low price. But many brokers are making it clear they don’t see things that way. They are fighting efforts by federal and state politicians to impose a fiduciary duty on them to put their customers’ interests first, as lawyers, real-estate agents and financial planners generally are required to do with their clients.
“The mortgage broker does not represent the borrower,” says Chris Holbert, president of the Colorado Mortgage Lenders Association. “We sell access to money.” The industry group recently opposed language in Colorado legislation that would have required mortgage brokers to act “primarily for the benefit of the borrower.” That provision was later deleted.
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Camilo Ramos, a house painter and remodeler in Minneapolis, wishes he had asked a few more questions of his broker before refinancing a home loan last year. Mr. Ramos says he wasn’t warned how much his monthly payment on the $300,000 adjustable-rate mortgage could jump after an initial low-payment period. The brokerage firm, Source Lending Corp., Brooklyn Park, Minn., received total compensation of $13,517 from the transaction, says Jeff Skrenes, a member of the Minnesota branch of the Association of Community Organizations for Reform Now, a nonprofit advocacy group, which is trying to help Mr. Ramos refinance into a more suitable loan.
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For now, most states lack any legal provision spelling out whether brokers have a fiduciary duty. Many brokers sell a relatively small range of products without being obliged to make sure the consumer gets the best terms known to the broker on a suitable loan.They receive fees — often totaling between about 1% and 3% of the loan, but occasionally even more — for finding customers and guiding them through the loan process. These fees come either from borrowers or through payments from lenders known as yield-spread premiums, or YSP, or through a combination of the two.
Often the broker’s incentives run counter to the borrower’s interests. Lenders pay YSP to the broker when the borrower is paying a higher interest rate than the best he or she could qualify for, which makes the loan more profitable for the lender. The higher the rate, the higher the payment to the broker. (Some lenders put a ceiling on YSP.) Lenders may also pay brokers a bonus for loans with prepayment penalties, which make it expensive for borrowers to refinance within the first few years.
YSP amounts to “a payment for giving the homeowner a worse deal,” says Prentiss Cox, an associate professor of law at the University of Minnesota who previously investigated lenders as an official in the state attorney general’s office.
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For consumers, even shopping around can be difficult. With different combinations of fees and terms, it’s hard to compare one loan to another. And the exact level of fees may not be apparent until the borrower is at the closing table, when it may be too late to seek a better deal elsewhere.Borrowers eyes “are glazed over with all the paperwork,” says Jeff Lazerson, president of Mortgage Grader Inc., a mortgage broker in Laguna Niguel, Calif., that sets a fixed fee in advance for clients. Their confusion, he says, gives unscrupulous brokers “a license to lie.”
Sacramento 95832 Housing Bust: Anyone want a house at 50% off? Anyone? Anyone?
watch: http://housingpanic.blogspot.com/2007/05/sacramento-housing-bust-anyone-want.html
New Today! Housing Bubble Hits Home
http://www.paperdinero.com/BNN.aspx?id=198
Segment chronicles some of the aspects of the housing mania and subsequent decline that we now know all too well. Features a series of anecdotal stories of personal gloom and doom while tracking a series of “homeowners” from 2005 to today.
Originally aired on: 4/27/2007 on NOW
Running Time: 11 minutes 18 seconds
FLASH: New home prices crash at least 11% nationwide while sales fall 10% VERSUS LAST YEAR
http://housingpanic.blogspot.com/2007/05/flash-new-home-prices-crash-at-least-11.html
UPDATED – chart from housingdoom (that the MSM won’t show you)
For the “there is no housing bubble” and “home prices never go down” crowd, today’s numbers should drive a stake through their hearts.
And to think we’re still just getting started. It’s a long, long, long, long, long way back down.
However, watch the MSM and NAR spin today’s numbers (VS. LAST MONTH) as good news, and that we’re “bottoming out”. How many times can we “bottom out” until they realize the bottom is not even in sight? And when will they finally think for a change and do year over year comparisons, the only real thing that matters?
Also, keep in mind these numbers from your government are untrustworthy, have a massive margin of error, and don’t even include the use of builder incentives, which we know are massive. So take ’em with a grain of salt – even though it’s obvious sales are overstated and prices are down much more than reported.
WASHINGTON, May 24 (Reuters) – Sales of new U.S. homes rose 16.2 percent in April, the sharpest climb in 14 years, while prices fell a record 11 percent, according to a government report on Thursday that showed home builders taking extraordinary steps to move houses.
New single-family home sales rose to an annual rate of 981,000 units from a revised rate of 844,000 in March, the Commerce Department said.
Analysts polled by Reuters were expecting April sales to rise slightly to an 860,000 unit pace from a previously reported rate of 858,000 units in March.
In April, the median sales price of a new home fell $28,500 to $229,100 from $257,600 in March. That’s the lowest price for a new home since September 2006 when the median sales price was $226,700.
The previous record decline was a 9.4 percent fall-off in September 1981. Compared with a year ago, April’s sales price was off 10.9 percent — the fourth-largest decline ever. The record 14.6 percent decline was set in July 1970 and the next three largest falls occurred in that same year.
Big drop in home prices predicted
http://money.cnn.com/2007/05/23/real_estate/prediction_big_home_price_drop/index.htm?postversion=2007052413
Some economists see steeper drop in store for home prices.
By Les Christie, CNNMoney.com staff writer
May 24 2007: 1:37 PM EDT
NEW YORK (CNNMoney.com) — Most industry watchers agree that home prices will continue to slide before they recover, but now some economists say they’ve got a long way to fall before bouncing back.
David Wyss, chief economist at Standard & Poors, has forecast a price drop of about 8 percent for the 24-month period through the fourth quarter of 2008.
His prediction came during a general economic outlook session at the Mortgage Bankers Association’s (MBA) National Secondary Market Conference & Expo in New York this week.
Housing prices will suffer from a “significant increase in defaults and foreclosures,” he said, with affordability still a major issue. Wyss worried how hard the slump will hit already highly inflated housing markets.
He said its impact on areas like South Florida, where much of the buying is speculative investment in second homes, could be big. “You don’t need a second home,” Wyss said.
Overall, he said he expects the U.S. economy to slow this year to a growth rate of about 2.25 percent, down from 3.3 percent last year.
Celia Chen, Moody’s Economy.com’s director of housing economics followed Wyss’ lead. “We also have an 8 percent decline in median house prices [for the 24-month period ending March 31, 2008], which is consistent with what David Wyss had.”
“That is quite a bold forecast,” Lawrence Yun, economist at the National Association of Realtors, speaking from his Washington, D.C. office, said of Wyss’s prediction. NAR is predicting a much less severe total decline of 1.4 percent through the slump – prices have already declined three straight quarters – and that a recovery will start to take place in early 2008.
“The run up,” Yun said, “was an investor-demand driven boom, and it was followed by an investor-driven collapse.”
more…