Cheryl Recommends: “House of Cards” by William D. Cohan

“House of Cards”

I admit it. I am addicted to detailed information on last year’s  mortgage meltdown. The juicier – the more detailed, the more I love it. Having chosen mortgage as my profession for ten years both on the Retail side of lending as a Loan Officer, as well as having spent three years on the Wholesale side of lending, it is in my blood. To be very honest, it was while on the Wholesale side of lending that I really learned how the money flows and how it all works. Those three years were a remarkable time for me.

I entered the Wholesale World on March 3, 2003 (03/03/03) – my first day on the job at Countrywide Wholesale Division in Midvale, Utah. I began as a Government Account Executive – one of 5 or 6 in the entire country. This was an experimental position of sorts. I loved it! It was while at Countrywide that I began teaching. In order to set myself apart, I created a series of six courses that I offered to the loan officers who brokered their FHA and VA loans to our office.

Since that time, I have continued to be a student of the mortgage industry. I went on to get my PLM – Principal Lening Manager (Utah’s equivalent of a mortgage broker) license in early March 2007. Shortly after that, I took a position as a Broker/Manager of a brand new mortgage lender. My timing could not have been worse. Very shortly thereafter, the wheels began to come off in the lending world and continued a full-scale driving off the cliff through 2008.

As I continued studying the causes and effects of this catastrophic meltdown and the effects it has had on our entire economy, I have grown more and more passionate about understanding and then educating others so we can try to prevent such failures in the future.

A book I discovered in my studies last year is called “House of Cards,” by William D. Cohan. It is absolutely fantastic.

You can find it at www.amzon.com.  Here are a few reviews from Amazon:

Review

“Engrossing….[Cohan] gives us in these pages a chilling, almost minute-by-minute account of the 10, vertigo-inducing days that one year ago revealed Bear Stearns to be a flimsy house of cards in a perfect storm….He does a deft job of explicating the underlying reasons that put Bear Stearns in peril in the first place….turns complex Wall Street maneuverings into high drama that is gripping and almost immediately comprehensible to the lay reader….riveting, edge-of-the-seat reading”
–Michiko Kakutani, The New York Times

“Cohan vividly documents the mix of arrogance, greed, recklessness, and pettiness that took down the 86 year old brokerage house and then the entire economy. It’s a page-turner in the tradition of the 1990 Barbarians at the Gate by Bryan Burrough and John Heylar, offering both a seemingly comprehensive understanding of the business and wide access to insiders….hard to put down, especially thanks to its dishy, often profane, quotes from insiders” —BusinessWeek

“Masterfully reported….[Cohan] has turned into one of our most able financial journalists….he deploys not only his hands-on experience of this exotic corner of the financial industry but also a remarkable gift for plain-spoken explanation…the other great strength of this important book is the breadth and skill of the author’s interviews…Cohan does a brilliant job of sketching in the eccentric, vulgar, greedy, profane and coarse individuals who ignored all these warnings to their own profit and the ruin of so many others. It’s impossible to do justice to his reportorial detail in a brief review…” — Los Angeles Times

“A riveting blow-by-blow account of the days leading up to the government-backed shotgun wedding (to JPM).” — The Economist

“A masterly reconstruction of Bear Stearns implosion–a tumultuous episode in Wall Street history that still reverberates throughout our economy today….meticulous reporting…..first drafts of history don’t get much better than this” —Bloomberg

Check it out and let me know what you think!

Follow Up to “Inside the Meltdown” – Glossary of Financial Terms

PBS is amazing! They have prepared handouts and materials for teachers to supplement the 60 minute Frontline Program “Inside the Meltdown.” One of these handouts is a Glossary of Terms. I felt this was so helpful, I thought I would share it with you.

Inside the Meltdown

individual borrowing lesson: glossary of financial terms

( Source: www.businessdictionary.com and www.investorwords.com)

Central Bank: The generic name given to a country’s primary monetary authority, such as the Federal Reserve System in the U.S. Usually has responsibility for issuing currency, administering monetary policy, holding member banks’ deposits, and facilitating the nation’s banking industry.

Collateralized Debt Obligation (CDO): An investment-grade security backed by a pool of various other securities. CDOs can be made up of any type of debt, in the form of bonds or loans. CDOs are divided into slices. Each slice is made up of debt which has a unique amount of risk associated with it. CDOs are often sold to investors who want exposure to the income generated by the debt but who do not want to purchase the debt itself.

Credit Default Swap: A specific kind of agreement which allows the transfer of credit risk from one party to the other. One party in the swap is a lender and faces credit risk if loans are not paid back. Another party provides insurance to insure this risk in exchange for regular periodic payments (essentially an insurance premium). If the third party defaults, the party providing insurance will have to purchase the defaulted asset from the insured party. In turn, the insurer pays the insured the remaining interest on the debt, as well as the principal

Derivative: A financial instrument whose characteristics and value depend upon the characteristics and value of an underlier. (For example, a bank takes a supply of mortgages it owns and creates a bond to sell to investors that makes money based on the interest paid by the mortgage borrowers.)

FDIC: The Federal Deposit Insurance Corp. preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $250,000.

Federal Reserve Bank (also known as the Fed): One of 12 regional banks established to maintain reserves, issue bank notes and lend money to member banks. The Federal Reserve Banks are also responsible for supervising member banks in their areas and are involved in the setting of national monetary policy.

Leverage: The degree to which an investor or business is utilizing borrowed money. Companies that are highly leveraged may be at risk of bankruptcy if they are unable to make payments on their debt; they may also be unable to find new lenders in the future. Leverage, however, is not always bad; it can increase the shareholders’ return on their investment, and often there are tax advantages associated with borrowing.

Member Bank: A bank that is part of the Federal Reserve System, or a bank that is part of a central clearing or central banking system. Such banks have to follow the rules and regulations put forward by the central bank or the clearing system.

Mortgage: A loan to finance the purchase of real estate, usually with specified payment periods and interest rates. The borrower (mortgagor) gives the lender (mortgagee) a lien on the property as collateral for the loan.

Shadow Banking System: System of nonfinancial institutions that borrow money in the short term and take that money to invest in long-term assets. Shadow banking systems are able to avoid standard banking regulations through the use of credit derivatives and are considered to be a major contributor to the subprime mortgage crisis around 2007-2008.

Subprime Borrower: Subprime refers to a borrower that is not “prime”; in other words, a borrower who might be less likely to repay a loan. Subprime borrowers may be classified as subprime because of bad credit or lack of history, low income or poor debt-to-income ratios, large loans relative to the securing property (high LTV ratio) and/or maxed-out credit cards.

Treasury Department: Its mission is to “serve the American people and strengthen national security by managing the U.S. Government’s finances effectively, promoting economic growth and stability, and ensuring the safety, soundness, and security of the U.S. and international financial systems.”

For more information on this FANTASTIC program that I HIGHKY recommend, please visit www.pbs.org.

Cheryl Recommends: PBS Frontline – “Inside the Meltdown”

As part of two of the CE Courses I teach for Utah REALTORS, I use a fantastic video done by PBS in February 2009. The PBS Program aired on Frontline and is called “Inside the Meltdown.”

From the first time I saw this program aired, I was RIVITED! I took 6 pages of notes. Thank heaven for DVR! I rewound and watched portions over and over again.

This 60 minute program takes us on an insiders journey of the events surrounding the March 2008 collapse of Bear Stearns and the domino effect on many other companies on Wall Street.

About the Film

Inside the Meltdown investigates the causes of the worst economic crisis in 70 years and how the government responded. The film chronicles the inside stories of the Bear Stearns deal, Lehman Brothers’ collapse, the propping up of insurance giant AIG and the $700 billion bailout. It also examines what Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke didn’t see and couldn’t stop.

Thanks to PBS, you can watch the entire video right now from the comfort of your own home. Here is the link:

http://www.pbs.org/wgbh/pages/frontline/meltdown/view/

Here is a link to a really neat March – October 2008 Timeline that PBS put together:

http://www.pbs.org/wgbh/pages/frontline/meltdown/cron/

Check it out and let me know what you think! For more information on this fantastic program, check out www.pbs.org.

The Extended Home Buyer Tax Credit – The Basics

Check out this awesome information from the National Association of REALTORS. They ROCK!

As part of its plan to stimulate the U.S. housing market and address the economic challenges facing our nation, Congress has passed new legislation that:

• Extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers until April 30, 2010.
• Expands the credit to grant up to $6,500 credit to current home owners purchasing a new or existing home between November 7, 2009 and April 30, 2010.

Here is more information about how the Extended Home Buyer Tax Credit can help prospective home buyers become part of the American dream.

Who Qualifies for the Extended Credit?

• First-time home buyers who purchase homes between November 7, 2009 and April 30, 2010.
• Current home owners purchasing a home between November 7, 2009 and April 30, 2010, who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight.

To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

If you or your client purchased a home between January 1, 2009 and November 6, 2009, please see: 2009 First-Time Home Buyer Tax Credit.

Which Properties Are Eligible?

The Extended Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.

How Much Is Available?

The maximum allowable credit for first-time home buyers is $8,000.

The maximum allowable credit for current homeowners is $6,500.

How is a Buyer’s Credit Amount Determined?

Each home buyer’s tax credit is determined by tow additional factors:

1. The price of the home.
2. The buyer’s income.

Price

Under the Extended Home Buyer Tax Credit, credit may only be awarded on homes purchased for $800,000 or less.

Buyer Income

Under the Extended Home Buyer Tax Credit, which is effective on November 7, 2009,  single buyers with incomes up to $125,000 and married couples with incomes up to $225,000—may receive the maximum tax credit.

These income limits have changed from the 2009 First-Time Home Buyer Tax Credit limits. If you or your client purchased a home between January 1, 2009 and November 6, 2009, please see 2009 First-Time Home Buyer Tax Credit.

If the Buyer(s)’ Income Exceeds These Limits, Can He/She Still Get a Credit?

Yes, some buyers may still be eligible for the credit.

The credit decreases for buyers who earn between $125,000 and $145,000 for single buyers and between $225,000 and $245,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income—over $145,000 for singles and over $245,000 for couples are not eligible for the credit.

Can a Buyer Still Qualify If He/She Closes After April 30, 2010?

Under the Extended Home Buyer Tax Credit, as long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close.

Will the Tax Credit Need to Be Repaid?

No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount credit will be recouped on the sale.

 For more information, check it all out at www.realtor.org/home_buyers_and_sellers/2009_first_time_home_buyer_tax_credit

Frequently Asked Questions – Homebuyer Tax Credit Changes

HURRAY for NAR and for the extension of the Homebuyer Tax Credit! Check out this informative Q & A from NAR.

 

NAR Frequently Asked Questions

Homebuyer Tax Credit Changes

National Association of REALTORS

Here are some of the most frequently asked questions on the changes to the Homebuyer Tax Credit

Question: Existing homeowner credit: Must the new house cost more than the old house?

Answer: No. Thus, for example, individuals who move from a high cost area to a lower cost area who

meet all eligibility requirements will qualify for the $6500 credit.

Question: I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a

new home. I have lived in my current home for more than 5 consecutive years and

am within the new income limits. I will go to settlement on November 20. If

President Obama has signed the bill by the time I go to settlement, will I qualify for

the new $6500 tax credit?

Answer: Yes. The existing homeowner credit goes into effect for purchases after the date of enactment (when the bill is signed). There is no reference to the date of contract for the new credit. The provision looks solely to the date of purchase, which is generally the date of settlement.

Question: I am a firsttime homebuyer but was not within the prior income limits at the time I

entered into my contract to purchase on October 30, 2009. I will be covered,

however, by the new income limits. If the new rules have been signed into law by the

time I go to settlement, will I be eligible for a credit?

Answer: Yes. The new income limitations go into effect as soon as the President has signed the bill.

The income limit and other eligibility rules will look to your status as of the date of purchase,

which is the settlement date. So if the new rules have been signed when you go to settlement,

you should be eligible for the credit (or a portion of the credit if you’re within the phaseout

range).

Question: I am an eligible existing homeowner. I have a fair amount of equity in my home. I

have found a home with a nonnegotiable price of $825,000. Will I be able to use any of the $6500 tax

credit?

Answer: No. The $800,000 cap on the cost of the purchased home is firm at $800,000. Any amount

above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an

absolute ceiling.

Question: I owned my home for 10 years, but sold it two years ago year and have been renting

since. If I purchase a home, will I be eligible for the $6500 tax credit if I meet all the other eligibility

tests?

Answer: Yes. Because you lived in the home for more than 5 consecutive years of the previous 8,

you will qualify for the $6500 credit. For example, Say John and his wife bought a home in 2000

and lived there until 2008 when he got a divorce. Whether John has been renting or bought in

the interim, he WOULD INDEED be eligible for the credit because he owned a home and

occupied it as his principal residence for 5 consecutive years out of the last 8 years. The

keyword here is “consecutive.” As long as he lived in that house for 5 years straight what he

did since 3 years doesn’t impact eligibility.

Question: I am an eligible firsttime homebuyer. I entered into a contract to purchase on

November 1, 2009. Do I have to go to closing before December 1? How does the

extension date affect me?

Answer: You do not have to close before December 1. Once the legislation has been signed, it will be

as if the Nov 30 date had never existed. Therefore, so long as the contract settles before April 30

(or July 1, worst case), the purchaser will be eligible for the credit.

For more information, check out the National Association of REALTORS web site at www.realtor.org.

 

Hurray! Home Run 2 is HERE! (Until November 30)

Hurray! I am so happy to hear that Governor Herbert announced last week that Home Run 2 is here! It is slightly different from the first round of state funds available to assist homebuyers purchasing a new primary residence.

The Home Run program that provided grants to buyers of newly constructed, never-occupied homes has been reinstated, Gov. Gary Herbert announced on Friday. The reinstated program will provide $4,000 grants to approximately 1,950 buyers. The grants will be awarded on a first-come, first-served basis to buyers who apply for the funds through their Utah Housing Corporation-approved lender by Nov. 30.

Unlike the original program that was only available for homes that were ready for occupancy upon closing, Home Run 2 allows buyers to receive grants for homes that will be constructed, are currently under construction or are move-in-ready but have never been occupied.

Buyers can apply for the funds through a Utah Housing Corporation-approved lender. Once the application is complete, Utah Housing will issue a grant commitment. For purchases of move-in ready homes, the commitment will expire after 10 days. For homes under construction, the commitment will be in effect until June 30, 2010, giving the builder plenty of time to complete the home.

Although the program is not limited to first-time home buyers, there are income restrictions. For singles, incomes cannot exceed $75,000, and married couples cannot have incomes greater than $150,000. For more information about the program and to find a UHC-approved lender, visit www.UtahHousingCorp.org and look for the Home Run 2 link.

Revised TILA Disclosure Requirements Take Effect Today!!!

Revised TILA Disclosure Requirements Take Effect on July 30, 2009

Lenders will be subject to new disclosure requirements for mortgage loans under the Federal Reserve Board Truth in Lending Regulation (Reg Z). The new requirements apply to loan applications filed on or after July 30, 2009 (about two months earlier than originally planned). The new rules are complex and compliance will be a challenge for lenders. REALTORS® will want to learn the basics so they can advise clients of potential delays and the new procedures. Here are key highlights of the changes:

• The new requirements apply to all mortgages secured by a borrower’s home, including primary and second homes and refinancings. Investor loans continue to be exempt.

• Lenders must give good faith estimates of mortgage loan costs within 3 business days after the consumer applies for a loan (early disclosure). The lender may not collect any fees before the disclosure is provided, except for a reasonable fee for obtaining a credit report.

• The closing may not take place until expiration of a 7 day waiting period after the consumer receives the early disclosure.

• Consumers may shorten or waive the 3‐day and/or 7‐day waiting periods for a “bona fide personal financial emergency,” but only after receiving an accurate TILA disclosure. In the final rule’s preamble, the Fed stated that it “believes waivers should not be used routinely to expedite consummation for reasons of convenience.” The Fed decided not to insulate lenders from liability even where a consumer modifies or waives the waiting periods.

• If the annual percentage rate (APR) changes by more than 0.125 percent, the lender must provide a corrected disclosure to the borrower and wait an additional 3 business days before closing the loan. The APR includes not only the interest rate on the loan but certain other costs related to settlement, so it will be important for any fees that affect the APR to be as accurate as possible, as early as possible, to minimize the need for a corrected TILA disclosure. Federal Reserve Board Final Rule and Staff Commentary (Federal Register, May 19, 2009)

http://edocket.access.gpo.gov/2009/pdf/E9‐11567.pdf

Mortgage Bankers Association Summary of New Requirements

http://www.realtor.org/wps/wcm/connect/8374ee004edc06ba93c3f7c62360d7a0/gover nment_affairs_mba_disclosure_rule.pdf?MOD=AJPERES&CACHEID=

Utah Off the Top Ten List for Mortgage Fraud

Here is a brief but very HAPPY article I wanted to share with you!

Utah off Top 10 list of states with mortgage fraud
March 17, 2009

SALT LAKE CITY — The number of mortgage fraud cases has reached an all time high in the U.S.

A report by the Mortgage Asset Research Institute shows a 26 percent increase in the number of cases between 2007 and 2008.

However, there is some good news for Utah; the state no longer makes the top 10on the list.

Utah ranks 11th for mortgage fraud, down from a number five ranking last year.

Gov. Huntsman credits the state’s Mortgage Fraud Task Force for the drop. He said, “This is welcome news for all Utah citizens because when we can conduct business without deceptive or illegal behavior, our whole state benefits.”

This year’s report ranks Rhode Island number one for mortgage fraud followed by Florida, Illinois, Georgia, Maryland, New York, Michigan, California, Missouri and Colorado.

FHA Secure Fact Sheet – Refinance Options

FHASecure Fact Sheet – Refinance Options YOU WORKED HARD FOR HOMEOWNERSHIP The Federal Housing Administration has helped millions of Americans secure their dream of homeownership since 1934. Now we want to keep those dreams alive. We provide mortgage insurance on loans made by FHA approved lenders throughout the United States and its territories. FHA insures mortgages on single family, multifamily, manufactured homes and healthcare facilities. It is the largest government backed mortgage insurer. WHAT IS FHASecure FHASecure is a refinancing option that gives credit-worthy homeowners, who were making timely mortgage payments before their loans reset but are now in default, a second chance with a FHA insured loan product. WHO IS ELIGIBLE To qualify for FHASecure, and include the delinquent loan payments, homeowners wishing to refinance must meet the following requirements: Have a non-FHA insured ARM that has reset; Sufficient income to make the mortgage payment; and A history of on-time mortgage payments before the loan reset. Homeowners who are current on their conventional mortgages must have sufficient income to make the mortgage payment. By refinancing into a FHA insured mortgage, you can expect to pay lower monthly mortgage payments. FHASecure can improve the quality of life for many communities by helping to reduce the number of mortgage defaults and bringing greater stability to local housing markets. HOW TO APPLY Search online for your nearest FHA approved lender, or for more information phone 1-800-CALL-FHA (1-800-225-5342). Additional Information Search faq.fha.gov. Our online knowledge base helps you find answers 24/7, or read our FAQs for Homeowners and Lenders.

U.S. Department of Housing and Urban Development 451 7th Street S.W., Washington, DC 20410 Telephone: (202) 708-1112 TTY: (202) 708-1455 Find the address of a HUD office near you    Privacy Statement Content updated November 02, 2007

Can Buyers Use the First-Time Home Buyer Tax Credit as a Down Payment?

I received this from a great lender friend of mine at Axiom Financial. Because it clarifies so well a question many of you have, I decided to post it here for you.

As you are aware, HUD Secretary Shaun Donovan announced on 5/12/09 a program that allows borrowers to use the first-time homebuyer tax credit for a down payment or closing costs on a FHA-insured mortgage.  We later found out this was a little premature, as the details of how this could work effectively and still comply to current guidelines was under questions.

The details of the program were officially announced today in Mortgagee Letter 2009-15.  A government entity and instrumentalities of government may provide a second mortgage which is acceptable financing for a FHA transaction.  Currently, 10 state housing finance agencies offer a product buyers can use that will effectively monetize the tax credit for down payment purposes.  These states are Colorado, Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, and Tennessee.  The state of Utah has been encouraged to work with their respective housing finance agency to implement similar programs. This is what my assumption has been all along, that it would require action from our state to offer these types of loans.

The original guidance permitted lenders and HUD-approved nonprofits and lenders to offer bridge loans via second lien financing or short term loans.  Guidance released today changes this and only allows lenders to offer the monetized tax credit for down payments in excess of the required 3.5 percent down, closing costs and interest rate buy downs.  

Please communicate that all Mortgage industry leaders have indicated that this type of product may not be immediately available to consumers.  Lenders will need some time to develop documentation for what will effectively be personal loans to the home buyer.   Axiom will work in tandem with PHH to see if we want to participate in these bridge loans, and if so please recognize this would only be allowed after the initial 3.5% down was contributed by the borrower.  We really need an agency like Utah Housing, to develop a program for these second mortgages in order to take advantage of this initiative. If the state of Utah comes through, this will give us a 100% down payment program on FHA once again.  Note this is just for FHA loans, not conventional.

I will keep you posted as more information is available.