Bill Zielinski

Has the Government's Effort Failed?

Karl,
Awesome article.
It is "only at the precipice that we change".

Someone Forgot to Tell Fannie, Freddie About Lowering Debt Ratios

I was primarily speaking of the front end debt ratio. The point is, if mortgages are being modified to 31% and HUD is saying that this is a proper and safe debt ratio, why are new loans being approved at much higher front end debt ratios? I commonly see approvals with a back end ratio in the mid 40's or low 50's which, as I noted, probably puts way too much stress on a homeowner's financial situation.

For those borrowers with little other debt, many are approved with a front end ratio far in excess of the HUD recommended front end ratio of 31%. The government's policies are inconsistent.
Also, each bank can apply different rules as well; here's a summary of one major bank that announced they were "tightening" debt ratios (in this case, the back end).

"Important Update Regarding Revised Maximum Debt-to-Income (DTI) Ratios on all AUS
Approved Government Loans
Effective for new locks on or after Monday, March 2, 2009, the maximum debt-to-income (DTI)
ratio for all AUS approved government loans will be fifty percent (50.00%) regardless of the
AUS approval or recommendation. This new requirement applies to FHA and VA loans
approved through DU/DO and/or LP.

Bottom line - a lot of borrowers are still being approved and taking on payments that probably can't be handled in the long term


On Jul 13 01:46 PM mortgagedaddy wrote:

> I have to correct you, sir. It is NOT common to see mortgages approved
> with a ratio (like the one you speak of) at or above 50%. I am a
> mortgage broker and the ratio in your blog of 31% is the font end
> ratio or top ratio. It refers to the individual's % of gross monthly
> income going toward the monthly payment. It would be a shocker to
> me for someone with a front ratio of 50% to get approved for a conventional
> or FHA loan. Now, the back end or bottom ratio, which is the percentage
> of gross monthly income going toward all monthly credit report debt
> including the new mortgage, does get approved sometimes even if it's
> over 50%. You have to be clear. To say 31% is good, but loans are
> getting approved with % over 50, is wrong.

More Option ARM Falsehoods: Interest Rates Are Not the Issue

Karl,
Great article. From the perspective of a first hand observer of the option arm financing fiasco, I can tell you that your assertions are exactly right. Virtually all of the option arm borrowers took this product based on the artificially low payment, virtually all of the borrowers paid only the minimum payment and virtually all of the borrowers have already or will default.

Today's Yellow Shoot: The MBA Mortgage Report

Awesome article; you put together a lot of data points to show what the real situation is.

Congress Finally Restores Sanity to Mortgage Loans

Good question. The states that impose a net tangible benefit have a detailed questionnaire and calculations that must be completed to verify compliance with the law. I imagine that the Federal version would be similar.

In MA, for example, here is the wording on closing costs:

"Borrower(s) will be able to recoup the costs of refinancing Borrower(s) prior loan within two years, taking into account the costs and fees, and the interest rate on the new loan is reduced without increasing the amortization period of the new loan compared to the original amortization term of the loan being refinanced."

There are also safe harbor provisions that if met, constitute compliance: Here's the wording (again for the State of MA)"

"Borrower(s) will be able to recoup the costs of refinancing Borrower(s) prior loan within two years, taking into account the costs and fees, and the interest rate on the new loan is reduced without increasing the amortization period of the new loan compared to the original amortization term of the loan being refinanced."

This type of sound lending regulation should be standard industry wide to prevent lending abuses that unfortunately do occur in the industry.

Bond Expert: Thursday Wrap

Nice article. The flight to safety seems over and with very low yields and everyone long, not much reason here to own treasuries. It will be really interesting to see the Fed's response here, as the Treasury tries to sell an endless supply of new paper.
A trade in the TBT looks like a good bet here.

Bond Expert: Thursday Wrap

Nice article. The flight to safety seems over and with very low yields and everyone long, not much reason here to own treasuries. It will be really interesting to see the Fed's response here, as the Treasury tries to sell an endless supply of new paper.
A trade in the TBT looks like a good bet here.

U.S. Markets: Keep on Rockin' in the Free World

Jim,
Thanks for another real good analysis.
It's obvious that the powers to be don't seem to comprehend the serious situation that we are in. The only "solution" they have is to borrow and spend more, as has been the case for decades now.
Only when it becomes blatantly obvious to everyone that we are at the edge of the abyss, will the impetus for the right kind of change happen. By that time, of course, it may be too late.

Deflation Death Spiral in Europe? Not Quite

Tim,
Nice piece with well crafted thoughts. Always instructive to read an intelligently articulated counterpoint to an accepted point of view.

Does Gold Beat the DJIA? It Depends

Awesome piece of research. It's very interesting to see that gold has outperformed the Dow since 1960. So much for the buy and hold theory for stocks.

E*Trade: A Bet Worth Making

Nice analysis.
Probably worth picking up a few shares under the "lottery ticket" theory.

U.K. Begins Quantitative Easing

It's tough to put lipstick on this pig.

The economists at the Bank of England will come up with elaborate theories and explanations as to why their money printing operation equates to sound economic policy.

Strip away the theories and the horrifying reality is that printing money was the Bank of England's last option other than default. The Bank of England's treasury is empty; if they could have sold debt to raise money they would have. Since they are broke and investors won't buy their debt, they are printing money in a desperate attempt to forestall default.

If the world economy recovers, maybe this tactic works with only moderate damage to the English currency and economy. If economic conditions continue to spiral downward, they default anyway.
2009 will be an interesting year for sure.

Don't Blame Mark-to-Market for This Crisis

If you value assets based on market values, at least you have a value that makes sense economically today; it's valued at what a buyer would pay. The problem is that asset values can change significantly,(based on supply and demand, etc) without implying that the held to maturity value is impaired. This is why insurance companies holding high rated long term assets do not do mark to market adjustments. Flowing to the income statement mark to market adjustments every quarter would significantly distort the real operational results without being based on an underlying economic reality. The MTM question gets very complex based on the type of asset, it's credit rating and years to maturity.
In the case of banks that are holding huge amounts of assets on their books at cost, when the market value is pennies on the dollar and recovery is doubtful, creates major doubts about the real strength of the bank's capital levels. MTM reflects the economic substance of a permanently impaired asset and allows for an accurate balance sheet and income statement.
To keep virtually worthless assets on the books and not mark them to market is just a shell game. The bank pretends to hold assets worth something and investors are supposed to pretend that the bank is sound?
How does this solve anything?
The writer makes good points and is well justified in roasting Forbes ridiculous article.

A Stairway to Retail Heaven (Part 2)

James,
Another superb article. The fact that your logic eludes so many,however, tells me that the battleis over. The over leveraged negative net worth individuals crying for help due to their poor andirresponsible decisions will wind up being subsidized by your paycheck and retirement savings.

The FDIC Is Broke...Or Will Be Soon

The FDIC, like most other government "guarantees" was never designed to withstand a real stress test. The FDIC guarantee can protect savings only with a small number of bank failures. With the scale of losses we are looking at now, the FDIC guarantee is a joke since they are backing trillions of assets with what, $19 billion? Would anyone in his right mind, invest his money in an insurance company that had $19 billion in capital and was insuring potential losses of trillions of dollars?
The author makes an intelligent and very valid point.