Insights Into the Subprime Meltdown

Richard Bitner has published a new book entitle, “Confessions of a Subprime Lender”.  In it he chronicles his experiences in the suprime culture.  A short review of the book cites 5 reasons for the Subprime crash:

1. Greed. Mortgage brokers made more money if they sold products with higher fees and subprime loans created revenues 3 to 5 times greater than conventional loans.
2. Rampant fraud. Bitner submits that 70% of loans presented to his company were deceptive, and there was little or no accountability in the verifications of facts.
3. No Standards.  There were no national standards of licensing for mortgage brokers or loan originators.  Everyone wanted to cash in on the mortgage boom, and as a result there were a lot of people in the mortgage business who were unqualified or unscrupulous.
4. Securitization of Mortgages.  Brokers originated a loan, a lender funded it, and then it was sold to another financial institution where it became part of an investment portfolio.  The problem was these loans were often high risk loans which were rated as investment quality.
5. Ultra Relaxed Underwriting Standards.  The Subprime market became very competitive and lenders were under pressure to keep revenues up, leading to less restrictive underwriting.  Thus, riskier products emerged, requiring no proof of income, lower credit scores and no payment history.  One product even allowed borrowers with a 590 credit rating, and a 90 day late payment history to qualify for 100% financing.

Here in the Tucson real estate market, we witnessed the collapse of First Magnus and Pinnacle Mortgage, and controversy continues to follow First Magnus with the investigation into RESPA (Real Estate Settlement Procedures Act) violations.  Couple that with the Housing and Economic Recovery Act of 2008, and we can honestly say that these are indeed interesting times for our Real Estate industry.

Denise

VA Raises Loan Cap

According to news from the National Association of Realtors, VA is raising it’s current ceiling from $417,000 to as much as $729,000 on no downpayment home loans.  This is effective immediately and is part of the Housing and Economic Recovery Act of 2008 recently signed by President Bush. 

The law also improves the VA’s Specially Adaptive Housing Program and increases the grant amount from $50,000 to $60,000. This money can be used toward construction of a new home or to modify an existing home to meet adaptive needs of veterens or active duty servicemembers with certain disabilities.

VA loans are available for vets to purchase or construct single family homes and purchase condominiums or cooperative housing units.  There are approximately 2.3 million VA loans, 90% of which were made with little or no downpayment.

This amount of increase for vets to purchase homes could help boost sales in the Luxury Home market, as well as allow upper income veterens the opportunity to maximize their borrowing power.  Here in the Tucson real estate market, buyers still have the upperhand, and currently there are over 600 homes listed in the $500,000 to $749,999 range.

Denise

Support Protect Our Homes

The Arizona Association of Realtors (AAR) is in support of C-18-2008, a ballot initiative which, if passed, would prevent our state government from imposing a real estate transfer tax.  A real estate transfer tax is a state or local government imposed tax that is collected when you trasfer ownership of your home, land or commercial real estate.  Once the tax is initiated, the rate can be increased by the state, county or city at any time.  This is bad news for homeowners for the following reasons:

• Double Taxation.  Governments already collect taxes on your property.  This new tax would unfairly impose a second tax to impact your home or property.
• Loss of Equity. Since the tax is assessed against the total value, including the amount owed on mortgages, the overall equity earned by the seller is decreased.
• Damage to the Real Estate Market.  Our market is already burdened with people struggling to sell their homes.  This new tax would make it more difficult to initiate sales due to higher overall costs.  It would also make the market less attractive for commercial real estate to recruit business to the area.
• Punishment of Homeowners.  People who move from one home to another shouldn’t be punished while others choose not to move.  This is considered discriminatory and harms access to the “American Dream: of owning a home.
• Negative Impact on Lower-Income Arizonans.  A transfer tax would impose a higher tax burden on lower income households that typically spend a larger percentage of their income on a home.

It was reported in the AZ Daily Star, that the group, Protect Our Homes, is going to court over a contention that Maricopa County Recorder Helen Purcell improperly disqualified 1,000 signatures on the more that 14,000 signatures randomly sent to here.  This action presents the risk that the ballot initiative will not make the November ballot.

To find out more about this important issue click here.

Denise