Where we are now

J

Janet_IHB

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<p>Very interesting article from Matt Padilla today:</p>

<p><a href="http://mortgage.freedomblogging.com/2007/08/18/qa-with-wells-fargo-exec-on-how-the-lender-and-consumers-are-navigating-the-mortgage-meltdown/#more-367">http://mortgage.freedomblogging.com/2007/08/18/qa-with-wells-fargo-exec-on-how-the-lender-and-consumers-are-navigating-the-mortgage-meltdown/#more-367</a></p>

<p>The thing to take away: there is middle-ground between wild-west lending and 1950's lending.</p>

<p>Too bad he had to go there with the "good time to buy" refrain!</p>

<p>I believe there are some bargains out there, but I also know that we are far from being out-of-the-woods.</p>

<p>It's also interesting that they are predicting the secondary market will settle down (and are backing it up with dollars).</p>

<p>Time will tell.</p>
 
75 extra basis points for their best jumbo rate. Ouch. And an even higher rate if you go through non-retail channels. Ouch. Hopefully these rates will adjust downward once the markets settle a bit.
 
<p>Even if rates settle back down, the LTV requirements are going to kill off most of the buyers. If LTV's don't do it, DTI's will.</p>

<p>Besides, I think it's too early to think that we're going stay in a middle-ground inre lending standards. The 2/28 fat lady has yet to sing -- They were still writing the damn things until just a few months ago. Not only do we have that reset chart to work through, we've kept writing the crap loans since its publication.</p>

<p>I think it will shock and amaze us how many fairly strong hands will lose their homes between now and the end of the decade. I reckon that even the best of the Alt-A borrowers will have default rates which "break the models" and exceed historic norms. </p>

<p>I just don't see how any recovery can gain traction with tsunami of distressed sales hitting the shore.</p>

<p><img alt="" src="http://www.smugmug.com/photos/136440158-M.jpg" /></p>

<p> </p>
 
<p>I agree oc_fliptrack.</p>

<p>I wasn't addressing a recovery in real estate, just taking a look at what's really available in lending.</p>

<p>People will make their own conclusions about real estate.</p>

<p>I just think it's important to work with facts (in all their good, bad and ugly glory), and not just run with wild speculation.</p>

<p> </p>

<p>(Remember, I took a huge loss last week, because I see much more trouble brewing, and simply cannot take any more chances.)</p>

<p> </p>
 
In a recent report by Mortgage Asset Research Institute, of the 100 loans surveyed for which borrowers merely stated their incomes on loan documents, IRS documents obtained indicated that 60% (!) of these borrowers overstated their incomes by more than half.
 
<p>Awgee,</p>

<p>Do you have a link? I found the site, but couldn't find that exact data.</p>

<p>It's not that I don't believe it - it's just that this company is owned by Choicepoint, and has a vested interest in the matter.</p>

<p>I would want to know if this is a random sample, or if it was from a subset of loans that were already suspicous.</p>
 
Speaking of scary stats, I saw one getting tossed around on CR that 70% of all subprime 2/28 borrowers default within 90 days after their reset. There was some question as to the credability of that stat, though.
 
<p>The kinds of services that MARI offers are what I was referring to in one of my postings about underwriter's tools.</p>

<p>This is valuable stuff - a variation on data mining.</p>

<p>We sure are getting close to cradle-to-grave surveillance!</p>

<p>Shudder. </p>

<p> </p>
 
No, sorry Janet. I just copy and pasted out of a letter from John Mauldin. It sounds a bit low to me though. Being somewhat cynical, I would assume that anyone who applied for a stated income loan for which a statement of income was neccessary, (this excludes most no ratio), would be lying about their income. Or why wouldn't they just verify their income? <p>


I just read up on Choicepoint. Does the ownership of the company that collected the info by Choicepoint make the info suspicious? What is Choicepoint's vested interest?
 
<p>Awgee,</p>

<p>I don't want to imply that I think that all stated income amounts are true. </p>

<p>I know for a fact that many are not.</p>

<p>The genesis of the product was geared toward self-emloyed individuals, who write-off some of their income. Like it or not, this is how business is done in the good ol' U.S. of A.. Tax reform is something we can talk about further, but we're dealing with the realites of the system as it is today. That would explain why tax returns show less income than what many of these people likely make. We also have a shadow-economy where many people deal in cash - again, not saying it's right, just that it is.</p>

<p>When I said that Choicepoint/MARI has a vested-interest, I meant that they market, to the lending industry, tools which help them to detect and avoid fraud. I would find it unlikely for them to use data in their <strong>marketing</strong> materials that supports that most loans do not involve fraud. I would, however, find it completely plausibe that they would use data in their <strong>marketing</strong> materials that supports the existence of fraud. As I said, I cannot judge, because I would need to know what they are actually saying, i.e., were they saying they took a completely random sample of stated income loans made nationally? From what I know of MARI, they are essentially a clearinghouse for information on fraud.</p>

<p>I am also questioning the severity of the quoted over-statement of income - 60% are stating over 150% of their income - just seems very extreme for a random sampling. I'm not saying it's not possible - just that I need more to go on.</p>

<p>One final thing, many loans that are at lower ltv points, do not receive a pricing "add-on" for stated income. Therefore, many of those borrowers elect to go stated strictly out of convenience. The analysis of tax returns is very onerous and time-consuming for underwriters, and if it doesn't cost more for the borrower, many elect to take this shortcut. And another thing: underwriters look for a two-year track record of income. If a doctor (or anyone else) makes $150,000 this year, but only made $100,000 last year, they would be judged, for DTI purposes, as if they were currently making $125,000.</p>

<p>I'm not trying to be argumentative, I just think it helps everyone - bull, bear and the indifferent - to have accurate facts.</p>

<p>It's these facts that many are making judgements, and plans for the future, on. </p>
 
<nobr>One of MARI’s customers recently reviewed a sample of 100 <strong style="COLOR: black; BACKGROUND-COLOR: #ffff66">stated</strong> <strong style="COLOR: black; BACKGROUND-COLOR: #a0ffff">income</strong> loans </nobr>

<nobr>upon which they had IRS Forms 4506. When the <strong style="COLOR: black; BACKGROUND-COLOR: #ffff66">stated</strong> incomes were compared to the </nobr>

<nobr>IRS <strong style="COLOR: black; BACKGROUND-COLOR: #99ff99">figures</strong>, the resulting differences were dramatic. Ninety percent of the <strong style="COLOR: black; BACKGROUND-COLOR: #ffff66">stated</strong> </nobr>

<nobr>incomes were exaggerated by 5% or more. More disturbingly, almost 60% of the <strong style="COLOR: black; BACKGROUND-COLOR: #ffff66">stated</strong> </nobr>

<nobr>amounts were exaggerated by more than 50%. These results suggest that the <strong style="COLOR: black; BACKGROUND-COLOR: #ffff66">stated</strong> </nobr>

<nobr><strong style="COLOR: black; BACKGROUND-COLOR: #a0ffff">income</strong> loan deserves the nickname used by many in the industry, the “liar’s loan.” </nobr>

<nobr>One of MARI’s customers recently reviewed a sample of 100 <strong style="COLOR: black; BACKGROUND-COLOR: #ffff66">stated</strong> <strong style="COLOR: black; BACKGROUND-COLOR: #a0ffff">income</strong> loans </nobr>

<nobr>upon which they had IRS Forms 4506. When the <strong style="COLOR: black; BACKGROUND-COLOR: #ffff66">stated</strong> incomes were compared to the </nobr>

<nobr>IRS <strong style="COLOR: black; BACKGROUND-COLOR: #99ff99">figures</strong>, the resulting differences were dramatic. Ninety percent of the <strong style="COLOR: black; BACKGROUND-COLOR: #ffff66">stated</strong> </nobr>

<nobr>incomes were exaggerated by 5% or more. More disturbingly, almost 60% of the <strong style="COLOR: black; BACKGROUND-COLOR: #ffff66">stated</strong> </nobr>

<nobr>amounts were exaggerated by more than 50%. These results suggest that the <strong style="COLOR: black; BACKGROUND-COLOR: #ffff66">stated</strong> </nobr>

<nobr><strong style="COLOR: black; BACKGROUND-COLOR: #a0ffff">income</strong> loan deserves the nickname used by many in the industry, the “liar’s loan.” </nobr>

<p> Awgee,</p>

<p> </p>

<p><strong>(Yikes! Sorry. Having trouble with editing my clipboard input - seems it cannot be adjusted?)</strong></p>

<p>I found the reference - it's from a MARI research report.</p>

<p>Even though this is disturbing, it does not say it is from a random, nationwide sampling.</p>

<p>It appears to be a small sampling from one lender. It doesn't say who they are, where they lend, whether they are in the prime or subprime market space, etc.. It doesn't even say the loans were picked randomly from their own originations - they could be from their delinquent loans pool for all we know.</p>

<p>I can tell you that the underwriting standards of Argent are different than those of Countrywide. So it's important, to me at least, to know what kind of operation we're dealing with here.</p>

<p>We also have to ask ourselves: is the IRS data closer to the truth, or is the amount stated closer? Just as there are incentives to overstate income to get loans, there are incentives to understate income to pay less taxes.</p>

<p>Regardless, it's scary stuff - so I won't dismiss it outright. </p>

<p>But it's not as bulletproof as I would want to see to be a true believer.</p>

<p> </p>
 
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