Well the hits just keep on coming!
One business item before we get started is that there is a common misconception out there that Rural loans are out of money. I am still funding rural 100% loans! Many areas around us still qualify! This is always a great home loan for first time buyers as there is no monthly mortgage insurance.
Now back to the news. Fannie Mae announced today that they are implementing a new waiting period of 7 years after a foreclosure before the borrower can obtain a loan. They have also put in place waiting periods for 1) deed in lieu of foreclosure, 2) preforeclosure sales and, 3) short sales. The waiting period on these situations is 2 years for an 80% loan, 4 years for a 90% loan and 7 years for all other lending.
That folks, is not loosening up money! Now we have a Financial overhaul bill which is rapidly marching its way to the Presidents desk. Do these guys ever take their time and research before they pass a bill? Well the following is a continuation of my last market update and outlines some pretty frightening facts about banks that could really be effected(put out of business) by the new Financial overhaul bill.
Last we talked I had told you about the foreclosures and how bank and mortgage pools are piling up the bodies in modification programs, hoping the market turns before they have to foreclose and put the home on their books. Banks are not seeing the help from the government that they were hoping would come.
Just to refresh……In April over 12% of all U.S. mortgages were delinquent, but only 3% of mortgages nationwide were in foreclosure. And now for the rest of the story…….
The Federal Home Loan Bank of San Francisco - the largest of 12 regional Federal Home Loan Banks, which are owned by community and other area banks and that make loans to their member banks from the pooled capital of their stockholding members - is in big trouble.
In a stunning revelation, which resulted from the San Francisco Home Loan Bank suing to force Wall Street dealers to repurchase $20 billion of mortgage-backed securities they claimed were sold to them based on "materially untrue and misleading statements," the Home Loan Bank had to identify the securities on its balance sheet.
Interestingly, while the San Francisco Home Loan Bank was suing because of huge losses claimed on the purchased securities, it was actually carrying those same securities on its books as if most of them would pay off in full. The San Francisco bank predicted credit losses on the $20 billion portfolio of $688 million, or about 5 cents on the dollar.
But according to Espen Robak, president of Pluris Valuation Advisors LLC - which analyzed the Bank's books on behalf of American Banker (magazine) and determined that the losses would more likely be in the $5 billion range - "the bank here has a highly aspirational view of what things are worth."
If the losses are real and realized, they would wipe out the bank's retained earnings, breaking the $100 par value of the bank's stock held by its members and preventing it from paying dividends to members. Additionally, it would make impossible the return of nearly $5 billion in capital stock that's likely being counted on by needy members.
What's happening at the San Francisco Home Loan Bank is obviously not an isolated case. The greater question is this: How many other banks are "mis-marking" the assets on their balance sheets, meaning they will face a continued erosion of those assets if a continued deterioration in the U.S. housing market causes housing prices to tumble further.
There is only one solution to this and that is creating jobs. I still believe that people want to own homes. And If they have the opportunity to do so, they will buy a home. The US economy will continue to reel until our government takes serious action.
But the good news is we are still lending, and I have lot loans, manufactured housing, great jumbos, HELOCS, FHA’s, VA’s, etc. And I have done them all, so should you need a loan for a customer, please give me a call and it will be much appreciated.
Thanks and have a great weekend.