Pete Waller: Need to consider the big picture

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Much has been written about the turmoil in the subprime mortgage market, and consumers may understandably be worried about what it means to them. Will prospective homebuyers be able to get a loan? Can those with adjustable rate mortgages refinance before the interest rates reset? Is my bank affected by the market correction? Will the subprime market send the economy into a recession?

Consider the big picture. In the entire housing market, 35 percent of homeowners own their homes free and clear. Of those with mortgages, 94 percent are paying on time. That's good news.

In the subprime market - which constitutes about 14 percent of the total housing market - 85 percent are paying their loans on time now. As many adjustable rate mortgages reset in the next several months, delinquencies may increase, causing this number to slip.

That's not so great news, but it does reveal something important. The majority of subprime loans are performing. That suggests most subprime borrowers have good loans that they are capable of repaying. It also shows that a subprime loan is not inherently "bad" or "predatory" - it's just less than Grade A.

But what about all those subprime foreclosures we've been reading about? How do those fit in? For the most part, these are the result of risky loans made and supported by unregulated participants in the mortgage market - such as mortgage brokers and investors who purchased the loans on the secondary market.

Highly regulated commercial banks and savings institutions have simply refused to make the sorts of risky loans that are at the heart of the issue. These rock-solid financial institutions adhere to the fundamentals of safety and soundness, sound underwriting standards, due diligence and capital standards.

Although their loan portfolios are mostly unaffected by the current subprime mortgage mess, federally insured banks and savings institutions are able and willing to be part of the subprime solution. They are well-capitalized and have a diverse source of funds, including deposits and Federal Home Loan Bank advances. They are in a solid position to keep mortgage dollars flowing to credit-worthy borrowers and communities, and in doing so, prevent today's market turmoil from becoming a housing crisis.

So, whether you are a first-time homebuyer or a borrower who hopes to refinance an expensive loan, you will be served well if you start your loan search at a local bank.

Routt County banks are interested in long-term customer relationships, so we won't try to sell you a loan you cannot afford. We'll make a loan that's right for you and the bank, and by doing so, we'll be doing what's right for the community and economy at large.

Waller is president and CEO of First National Bank of the Rockies.

Comments

steamboatsconscience 6 years, 10 months ago

Mr Waller Today's headlines http://biz.yahoo.com/ap/071120/earns_freddie_mac.html?.v=10

Freddie Mac Sets Aside $1.2 Billion in Third Quarter for Bad Home Loans; Posts $2 Billion Loss

WASHINGTON (AP) -- Freddie Mac set aside $1.2 billion in the third quarter to account for bad home loans and posted a $2 billion loss Tuesday, prompting the nation's second largest guarantor of home mortgages to seek additional sources of capital.

Losses widened from $715 million last year during the same period, sending shares tumbling nearly 13 percent, or $4.70 to $32.80 in pre-market trading.

Freddie Mac said it made the provision for credit losses in the July-September period because of defaults on home loans, which "reflects the significant deterioration of mortgage credit."

The $2 billion loss for McLean, Va.-based Freddie Mac worked out to $3.29 a share, compared with $1.17 a share, in the third quarter of 2006.

Losses far exceeded Wall Street analysts expectations of a 22 cent per share loss, according to a poll by Thomson Financial.

There goes one of your rock solid, well capitalized sources of funding. Fannie isn't far behind. Stay tuned.

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steamboatsconscience 6 years, 10 months ago

This is a pretty Pollyannish view of what is actually happening in the mortgage industry. Anyone who follows the stock market knows what is really happening, and if anyone thinks that Steamboat is immune to these problems and eventual declines in property value is living in a fantasy world. Want to see how many mortgage lenders have gone out of business since last year? go here http://ml-implode.com/ to find out. You may want to see if your mortgage company is on the list, or is about to be, you may be surprised. How about a highly regulated commercial bank like Countrywide Financial whose CEO sold hundreds of millions of dollars of his stock as it went from $45 to $12? Then he lied about the state of the company's finances and eventually declared that they had actually lost billions on their subprime lending. They are the target of lawsuits detailing predatory lending and aggressively selling loans to people they knew could not pay them back. The entire house of cards they built on greed has fallen down and taken a lot of innocent people with it. If Mr Waller thinks that regional banks are immune, look at the list. A number of regionals have shut down their mortgage lending units. Regionals are usually owned by the conglomerates and as such are subject to their directives. Citigroup, Merrill, Bear Stearns et al are all owners of mortgage backed securities, and all of them have reported billions of dollars in losses. Regionals need to be able to sell their mortgages to the big boys so they can continue to lend. If no one is buying, they cant get the loans off their books and cant lend to new customers. Taken a look at the interest rate on Jumbo mortgages or how many companies do not offer them any more? Our market here depends on Jumbos (over $417,000) because anyone wanting to buy those $600,000+ homes need them. Your local bank is not going to offer you a 95-100% loan anymore, its back to the old days of 20% down, 760+ FICO and the income documentation to prove you can pay that mortgage. On an average $500,000 home it means $100,000 down , $2600 a month before Tax and Insurance and income of $80-90,000 (at 35% of income). I think the pool of potential buyers has just shrunk. I certainly hope that the value of our real estate here does not decline, my future certainly is tied to it, but Mr Waller's simplistic "Don't worry we'll be here for you" comes at a price. I've never met a banker who does anything for free. You can take that to the bank.

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bubba 6 years, 10 months ago

OK I'll bite.

Not being able to get a 95-100% loan without proof of being able to pay it is not a bad thing. It might slow our market, because locals speculating on continued real estate price increases won't be able to keep buying 'investment' properties, but that is not a bad thing, because if they can't do it, they won't go bankrupt when the market slows down, like so many others have. Are you thinking that it would be good for the market for someone who makes 50,000 to be able to get a 100% loan on a 600,000 house right now? I do not believe that more conservative lending practices will hurt the market worse than generating loans that will never be repaid.

Jumbo loan rates are what 6.5%? Not great, but until 2001 or so, that wouldn't sound so bad. And the out of town wealth that is buying property in Steamboat these days aren't really dependent on the same financing structures that local workers are.

I'm not saying the property values here can't or won't slow down or decline, I'm just saying the demise of the 95% no-doc loan is not a bad thing for anyone except for risk seeking speculators, who aren't really adding anything to our economy.

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justathought 6 years, 10 months ago

bubba, [the demise of the 95% no-doc loan is not a bad thing], are you actually insinuating people should live within their means? Expecting people to be qualified for a loan, isn't that un-American? What I love is giving credit cards to low income people at 25% interest, raise it to 30% and add high charges if they are late; then the lenders get the government to protect them (bankruptcy laws) because so many people are defaulting on their card. Talk about taking care of big business and creating ways to kick a man when he's down.

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steamboatsconscience 6 years, 10 months ago

bubba today's headlines http://biz.yahoo.com/ap/071119/wall_street.html NEW YORK (AP) -- Stocks fell Monday as Wall Street absorbed a gloomy outlook for the banking sector and anticipated bleak news from the National Association of Homebuilders.

Setting the tone was Goldman Sachs' downgrade of large banks, and its estimate that Citigroup Inc. would have to write down $15 billion due to its exposure to risky debt over the next two quart The worry on Wall Street is that the housing market is getting so weak that it will crimp consumer spending, which until now has helped keep the economy afloat. Ahead of the holiday shopping season, any signs that Americans are pulling back could prevent a December rally.

I do believe that that out of town wealth is depending on stock market returns to pay for those houses. Whats the first thing to go when people get into a financial bind? Usually the second home. Whether we want to believe it or not, we are on the edge of a recession which will affect our tourist driven economy. Lets see how the ski area numbers come in, that will be the tell. When all the commercial space comes up on the market here do you think it will all be absorbed immediately? Or will we see Main Street full of dark empty spaces? Any guesses? The demise of the 95% no doc is good, I was not advocating otherwise, but it does preclude anyone with average income from entering this market. As for that Jumbo at 6.5% call Mr Waller and ask him what you need to do to get that rate (income, FICO, etc ) and how many points it will cost. Just a side note, I see that the 3.3 acre lot behind the Sinclair on Hilltop Connector is for sale ( listed by one of our City Councilmen) In 2000 it could have been bought for around $350,000. It sold last year for $1,000,000. It is now for sale for $3,600,000. Irrational exuberance?, Greed? Reality? Stupidity? You tell me.

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steamboatsconscience 6 years, 10 months ago

Short CFC, XHB,XLF.RTH Consumer sentiment 76.1 at a 2 year low. Hello recession

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steamboatsconscience 6 years, 9 months ago

Heres More http://www.usatoday.com/money/economy/2007-11-25-credit-crunch_N.htm and Chairman Federal Housing Finance Board Dear Chairman Rosenfeld:

I write to express my serious concern over the lending practices of the Federal Home Loan Bank of Atlanta, specifically in regard to the significant volume of advances made to Countrywide Bank. I am concerned that the loans being pledged by Countrywide to secure these advances may pose a risk to the safety and soundness of the FHLB system as a whole. I urge you to conduct a careful review of FHLB Atlanta's collateral evaluation policies, as well as Countrywide's pledged collateral, in an effort to determine the risk that Countrywide's collateral poses to the FHLB system. During the current market crisis, it is important that the FHLB system perform its critical mission safely without imposing additional risks on an already strained market. Continued

According to the most recent SEC filings, FHLB Atlanta had made $51.1 billion in advances to Countrywide Bank, representing 37 percent of the Bank's total outstanding advances as of September 30, 2007 and far exceeding advances made to the next largest borrower. Countrywide had pledged $62.4 billion of mortgages as collateral for the FHLB advances, representing 78 percent of its total mortgage loans held for investment at the bank.

I find these numbers alarming as reports continue to emerge about how Countrywide's reckless and predatory lending practices were a leading contributor to today's foreclosure crisis. Moreover, it is my understanding that Countrywide's loans held for investment at the bank have been far from immune from the credit deterioration that has resulted from unsound lending.

Countrywide reportedly held $27 billion of "pay option ARMs" as of September 30, 2007, accounting for over one-third of the loans held for investment by the bank. Countrywide's option ARMs were (and may still be) often underwritten with less than full documentation � according to UBS Warburg data prepared for the Wall Street Journal, 91 percent of Countrywide's option ARMs underwritten in 2006 were "low doc." It has been reported that delinquencies on Countrywide's pay option ARMS are skyrocketing, jumping nearly 75 percent in the last quarter.

Given this rapid deterioration in the credit quality of Countrywide's option ARMs, I urge you to conduct a review of the loans that are being held as collateral for FHLB advances in an effort to determine if FHLB Atlanta has adequate collateral to secure these advances. I would also like an explanation of how any second lien mortgages during a time of property price declines could be viewed as adequate collateral for large FHLB advances.

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steamboatsconscience 6 years, 9 months ago

Furthermore, I believe that you should consider preventing any further or continuing overnight advances based on collateral that does not meet the joint financial regulators' guidance on nontraditional and subprime mortgage products (e.g., Interagency Guidance on Nontraditional Mortgage Product Risks and joint Statement on Subprime Mortgage Lending). This quarter, Countrywide reported that 89 percent of their 2006 originations of pay option ARMs did not conform to the joint regulators' guidance, which increases the likelihood that Countrywide is pledging loans deemed predatory by the regulators as collateral for FHLB advances. Importantly, Fannie Mae and Freddie Mac's safety and soundness regulator has specifically prohibited any new direct or indirect investment in loans that do not meet this guidance. As the mortgage crisis threatens to get worse from here, it is critical that the FHFB do the same Sincerely,

Charles E. Schumer

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