Sonoran City News

Alliance Bancorp Ceases Operations

Another lender has closed its doors amid the recent mortgage collapse. Alliance Bancorp is an ALT-A lender based in Brisbane, California.

According to their website, operations ceased as of Friday, July 13.

Manufactured Home Lending Standards Tighten

If you are involved in purchasing a manufactured home, are selling a manufactured home, or are an agent involved in a manufactured home transaction, take note. This was sent to me from a loan officer.

"To: All Brokers/Lenders Date: June 29, 2007 RE: Manufactured Homes No Longer Accepted In response to current market conditions, effective with loans locked on or after July 6, 2007, Mortgage Network, Inc. dba MNET Mortgage Corp will no longer accept transactions secured by manufactured homes. All manufactured housing loans must be locked by July 5, 2007 If there are any questions regarding this announcement, please feel free to contact the Portland Office at 877-651-9675 or your Account Executive."

I'm unaware if other lenders are following suit, but it would not surprise me.

Fraud a Felony...finally

Arizona House Bill 2040 passed the Senate 26-0 on Monday. Sponsored by Sen. Jay Tibshraeny, R-Chandler, HB2040, if passed by Gov. Napolitano,  will make Arizona one of the first states to make mortgage fraud a crime.

Mortgage fraud in Arizona and across the nation has had a significant impact on the real estate and mortgage markets. One of the reasons for passing this bill is to stem the recent trend of illegal cash back at close of escrow transactions. Mortgage fraud had negatively impacted Phoenix neighborhoods by falsely inflating home values and causing an increase in foreclosures with the cash back schemes.

Option ARM's: Hook, Line, and Sinker...

Option ARM’s (adjustable rate mortgage) have become very popular in the

Phoenix

metropolitan area over the last 2 years. Although they have their advantages, many individuals are getting sold on their low starting interest rates and mortgage payments. What most people don’t understand is that the option arm is suited for the savvy investor, not the everyday homeowner.

There are many types of Option ARM’s, the most common one has four payment options:

-30 year fixed rate with principal and interest payments

-15 year fixed rate with principal and interest payments

-30 year fixed rate with interest only payments

-Minimum payment based on initial start rate with principal and interest payments

The issue to the everyday consumer is that the minimum payment is what lenders are using to hook their clients. The minimum interest rate will typically start as low as 1.00%. Mortgage payments are calculated using the principal and interest but in some cases the low rate lowers their mortgage payments up to 50%.  If someone told you you’re $2000.00 monthly mortgage payment could now be $1000.00 a month, would that raise an eyebrow? Of course it would, however, many lenders are not doing their ethical duty to explain that while you, the consumer, are paying the minimum payment, the rest of your mortgage interest is being calculated based on the higher 30 year fixed rate and negative amortization is occurring on a monthly basis.  In addition, many individuals are getting hit with a two or three year prepayment penalty on their loan when their low, minimum, initial payment is usually only good for the first year and will adjust up the following year.

Many individuals who bought into this program over 2005 and 2006 have seen their loan balances negatively amortize and increase from what they initially owed.   In addition, they have also seen their house values decline as reported by the National Association of Realtors.   They are now upside down on their house, not to mention that the low minimum fixed period is now up, their rates and payments have now raised back up the 50% or more, and they cannot get out of the loan because it would be too costly due to their prepayment penalty.

The pay option arm is only suited for the short term investor.  It should only be a viable mortgage option if you are going to fix and flip a property, rent it out and need to cash flow, or live in it as your primary residence for the short term.  Using this program to make home buying more affordable, as many individuals have done, is a risky proposition. It is very easy to become upside down in your home or “paint yourself into a corner” where you can’t afford the adjusted payments after the first year and you don’t have enough equity in the home to refinance or sell. This is why the pay option ARM is one of the many ARM products that is seriously contributing to the

Arizona

foreclosure market.

Consumers beware, educate yourself, and tread softly before biting on this tempting loan program.

ARM-ageddon - Head's up if you have an adjustable rate mortgage

Almost 3 million homeowners have sub-prime adjustable rate mortgages.  According to the Mortgage Bankers Association, last year 7% of buyers used a sub-prime adjustable-rate mortgage (ARM).  On average,the National Association of Realtors says, last year first-time buyers made only a 2% down payment  According to First American Loan Performance, ARMs made to people with sub-prime credit in 2005 and 2006 are defaulting at two to three times the rate of loans from 2003 and 2004.

Nearly two dozen sub-prime lenders have shuttered their doors in the wake of defaults on these loans. As a result many lenders are tightening their standards or canceling some loan programs altogether. For a homeowner with a sub-prime ARM, this can spell disaster.

How Casey Serin hurts all of us

Casey Serin is young, hopeless, clueless, irresponsible, ill-intentioned...he committed fraud. He blogged about his foreclosure auction and his excitement at witnessing it. He extols the virtue of drinking fresh juice to cure his foreclosure woes. Why am I wasting both your time and mine with this? His actions (or actual inactions) impact each and every homeowner or future home buyer in this country. How can I make such a bold statement? Stay with me and I'll explain.

Casey Serin obtained a $330,000 mortgage on the aforementioned property. It was offered at auction for $216,000 opening bid. No one purchased this property. Countrywide was the lender (at least on the first). Total loss: well at this point that is still a bit up in the air but lets use the purchase price less the opening bid =$114,000. A 34% loss. Casey received $50,000 cash back at close. Casey also signed a $50,000 unsecured promissory note on this property in order to push through a short-sale which never materialized. He is unsure is he needs to repay this.

Let's see if we can makes some sense of this. Casey secures a mortgage for $330,000 and pockets $50,000. He defaults on the mortgages. The property is foreclosed. Estimated value at foreclosure: $216,000. Countrywide now owns a $216,000 house which they paid $330,000 for in Sacramento which needs repairs (based on photos posted by young Casey). Casey is $50,000 richer. OK, he is not $50,000 richer at this very moment because he is a train-wreck and made a huge mess out of this but if he had any common sense he would actually be $50,000 richer.

Countrywide is experiencing an almost 20% delinquency rate on sub-prime loans. A record number of other sub-prime lenders are shuttering their businesses because they are being choked by delinquencies. Are the lenders to blame for this situation? In part, yes. But so are the appraisers, real estate agents, loan officers, and even the purchasers. Many are culpable.

The result will be tighter lending practices to prevent this type of future fraud and abuse. Today the result is the impact in property values, the unknowing homeowners who now find themselves owing far more then their home is worth because people like Casey Serin falsely inflated the value of a neighborhood only to turn around and crush the value a few short months later.

Mortgage Fraud and Prison

My favorite living example of what not to do in real estate, Casey Serin, will have two of his properties go to foreclosure auction today. Oddly he seems fairly excited about it at his iamfacingforeclosure.com blog. He is hoping to video tape it. He also believes he will not and does not deserve to serve time for his crimes because he has blogged about it and that should be punishment enough. Silly silly boy.

Federal judges sentenced 46-year-old John Wagner to three years and a month in prison. They sentenced 38-year-old Frankie Lamont Howard to two years in prison. Their crimes? Mortgage fraud. Wagner and Howard were involved a scheme that obtained more than $4 million in fraudulent mortgage loans on houses in Indianapolis.

Howard purchased properties for market value in low-income neighborhoods in Indianapolis. He then recruited buyers who purchased the properties at a greatly inflated value. Howard helped the buyers obtain financing through a mortgage broker whom he knew would cooperate. Howard assisted in creating the false documentation and applications to obtain financing. Howard arranged for inflated appraisals to substantiate the inflated purchase price. After closing, Howard paid cash to the buyer as a 'kickback'.

Basically he lied, his buddies lied, now they are going to jail. Of course a lot of people were damaged in the process. Casey, are you listening?

Not Everyone Commits Real Estate Fraud

For months now I've made it a point to visit Casey Serin's iamfacingforeclosure.com blog. It would be nice if I could claim I only read it for education purposes but the truth is, reading Casey's blog is like watching a reality TV show where people eat live bugs. It is repulsive and disturbing but hard to look away.

Until the past two weeks or so Casey was somewhat interesting then something changed and the blog turned more into a troll with each passing day and my interest in his web of lies waned. There are occasions when he states something so bizarre (he is a vegan who eats In-and-Out burgers) that it is hard to resist posting. Until now, most of what he has done and said has troubled me because of the crimes he has committed or just bothered me because he is such a train wreck.

His latest post though has upset me on a professional and somewhat personal level and I feel compelled to address it. I won't post on his blog because he chooses not to listen but it is important to correct his repugnant inaccuracy.

Casey has justified his 'cash-back-at-close, stated income, owner-occupied mortgages' by saying it is what all investors do. NO. It is not what all investor's do. My clients don't do it. I don't do business with those who do it. What Casey Serin did was illegal. He broke the law. He knew what he was doing was illegal because all mortgage applications have an area where you sign stating the information given is true. He lied. He committed fraud. He has admitted this.

To make such an egregious statement and try to justify his actions by comparing it to copying a CD is not only appalling, it is revolting. Until today I've resisted vilifying Casey for what he has done. I didn't support him but I had a very small amount of empathy for him and the ignorance of his youth. No more. It is because of people like Casey that lenders are closing their doors and people have extra disdain for real estate agents.

Not all investor's are bad. In fact most are great. Casey Serin is a poster child for so many things that are wrong in real estate and lending. 

Mortgage Officers in Arizona Face Licensing

If Arizona House Bill 2320 passes it will require the licensing of most of Arizona's mortgage loan officers. Currently only Mortgage Broker's in Arizona are required to be licensed. Loan officers and originators work under the Mortgage Broker and currently have no licensing requirements.

Licensing for mortgage officers is required in 30 states. Arizona has become a haven for bad and unethical mortgage officers because of the lack of standards and licensing requirements. Should the bill pass, mortgage officers will be required to attend class, take a test and be licensed with the state.

Real Estate agents and Appraisers already have licensing requirements. Many consumers have no idea their mortgage officer, the person to whom they divulge their social security number and other private information to, is the individual who is unregulated and unlicensed in the transaction.

The Department of Financial Institutions oversees the licensing of mortgage brokers and will oversee mortgage officers should the bill pass. It is unknown how many mortgage officers there are in the State of Arizona but it can be assumed that the number has increased in the same proportions as real estate agents has in the past five years during the real estate boom.

While licensing won't solve all mortgage fraud, getting some control over the industry is a set in the right direction.

Is Your ARM Twisted?

In light of today's subprime lending news I thought I would bring up a difficult subject:

Adjustable Rate Mortgages (ARM's)

Nearly 25% of mortgages carry an adjustable rate. Many homeowners know very little about the terms and conditions of their mortgage. Do they have a pre-payment penalty? Do they know when the rate resets? Unfortunately many have absolutely no idea.

The lending industry is starting to enact tighter lending standards (closing the barn door after the horse). As these standards are enforced, those hoping to refinance their ARM before it resets might find themselves in a difficult position. Some lenders are avoiding the subprime market altogether.

If you have an ARM, I have a few suggestions:

• Contact the lender TODAY.
• Understand that home values are declining and you may owe more then it is worth.
• If you have a pre-payment penalty, ask your lender if they will waive it if you refinance through them
• Leave some equity in your house. With values declining, you might need it if you have to sell in an emergency.
• Know that interest rates are slowly creeping up and the longer you wait, the more you will pay.

OK, now go find your loan paperwork. Read through it and make the call.