ThisTakesTooLongToType

Well, is the worst almost over? Probably not. But, this is still an interesting time for the mortgage industry. Just as hundreds of home loan brokers and probably hundreds of thousands of home owners are circling the drain, opportunity will knocks again. Over the last decade we have seen home values basically triple in Southern California. Home owners had to qualify to get loans but some of the bank guidelines were less stringent than the hiring guidelines of Ronald’s burger joint. About a year ago the banks started panicking…actually, make that a little over a year ago, (as if it matters).   CONTINUE READING THIS AMAZING INSIGHT TO THE MORTGAGE INDUSTRY The balloon banks were blowing up for the last 10 years with every breath they take was starting to show signs of stress, (well, much more that they had seen before anyway). Home values started to cool about six months before that panic set in. Defaults were on the rise and home owners in bad loans were about to get [CENSORED] in the [CENSORED] without lube; as their homes loan to value was too high and their credit position did not allow them to refinance with a traditional 30 year fixed. To compound the obvious problem, banks were not loaning out as creatively as they had in the past. That leaves a huge gaping hole in the American financial infrastructure. There’s a large population of home defaulters on the horizon. See, when the industry went into a panic, it was because it was simply the beginning of “credit crunch.” Imagine if you will one guy coming to the bank with a defaulted loan because he has too much house and not enough credit or money. Now imagine a huge crowd behind that guy running for the door. Get it? Oh, my. So, now imagine a crowd the size of Oregon rushing the front door; that’s what’s happening to the mortgage industry right now. There are PLENTY of willing borrowers but not many willing banks. Would you loan a guy $600,000 on a $680,000 home? Probably not. Now imagine that the guy has a few mortgage lates and is probably late on his car payments and they just repossessed his boat last week. He got behind because he was in an interest only, or even a minimum payment loan which allowed him to pay LESS than even enough to cover the interest. Wow! Now all that money he’s not paying gets put on the back end of the loan, (no problem if the home value always goes up but that would be a bad assumption…apparently). Ok, back to our guy here…so he can’t make his payment now because the loan “adjusted” and he is forced to choose between food and shelter…or at least boat and shelter. Boat as shelter is an alternative when you can swing it, I guess. Anyway, when the loan “adjusts”, (there’s that word again), it means that the bank has essentially put in a limit to what he can put on the back end of the loan; after that he is forced to pay the full indexed rate on the entire balance. Since he got a great intro rate of 4% interest only for 5 years with a minimum payment based on 2%, (even though his interest is 4%), his interest rate after 5 years goes up to 12%. No big deal because he’s going to refinance before then anyway, right? Yeah, except he’s been putting the difference of the payment actually due on the back end of the loan for the last 4 years. The bank told him, “NO!!! TOO MUCH!!! YOU HAVE TO PAY NOW!!!” and now he’s taking it up the wiz wag. Anyway, so our anti-hero is stuck because his home is worth less than it was even a year ago. He can’t make his payments because they have more than doubled and he can’t refinance because nobody is going to loan him $600,000 on a $680,000 home in a declining market; especially not somebody that has increasingly bad credit and no boat. Ok, so what’s with Mortgage Industry 2.0? Simple. With hundreds and thousands of empty homes, the banks will be forced to liquidate at unbelievably low prices. This is what happens when the stressed balloon finally pops. (You thought I forgot about the balloon, didn’t you?) Big time opportunity to buy and flip…but not for a while. Wait for the market to bottom out in the next year and half and then you can make your millions. After that you will start to see the loan brokers come back and life will be good again in the home finance industry; thus Mortgage Industry 2.0.

Hopefully this makes sense; I phoned it in towards the end because I’m listening to the Kings vs. Blues game and sort of lost interest. Take care, David.