Wednesday, April 30, 2008

Why is your jumbo mortgage more expensive now?

If you wonder why jumbo mortgage rates for all borrowers have increased in recent months at major banks it's because we are in a real deal Holyfield CREDIT CRUNCH. No fooling around, every major financial institution around the world has had to go cap in hand to shareholders or international wealth funds for money. All the money that went into bad loans needs to be replenished and the cost of capital is going up for everyone. Classic supply and demand. As a mortgage banker we saw this meltdown coming years ago and created relationships with insurance companies, pension funds and small banks in order to provide jumbo mortgage financing outside the Wall St blood bath. After you call your bank give us a call you will be impressed if you have solid credit, income and have equity in your property.
from Marketwatch
Citi originally said Tuesday that it would raise $3 billion in a stock offering, but increased that amount by $1.5 billion after demand for the new shares exceeded its original offer. The banking giant said the offering priced at $25.27 per share, with the transaction totaling more than 178 million shares.
Citi shares fell 3.5% in pre-market trading Wednesday.
Citi said that the offering of new common stock, combined with the $6 billion it raised earlier this year selling preferred shares, would have left the company with a Tier 1 capital ratio of 8.6% at the end of March.
"We were pleased to increase the offering size to $4.5 billion in response to strong demand from a broad base of investors," Citi Chief Financial Officer Gary Crittenden said in a statement. "This optimizes our capital structure and further strengthens our balance sheet."

Citi has lost billions of dollars as the global credit crunch hammered the value of risky mortgage-related securities and leveraged loans held by the company. It tapped former hedge-fund manager Vikram Pandit to replace Charles Prince as chief executive last year and is selling some assets and businesses to cut leverage.
Citi also got a $7.5 billion investment from Abu Dhabi in November and said in January that it was raising $14.5 billion more from Singapore, Kuwait and other governments.
Analysts reacted coolly to the newest push to raise capital, saying Wednesday before the announcement of the increased offering, that they remain concerned that Citigroup did not go far enough with its $3 billion target.
"The fact that the company raised such a small amount of capital at this time confounds us," Oppenheimer analyst Meredith Whitney wrote in a research note Wednesday. "By our estimates, we believe Citi needs to raise an additional $10-$15 billion or sell several hundreds of billions worth of assets in order to truly shore up its capital position."
She cited "seriously constrained" earnings power and pressure on four of Citi's 10 core businesses as continuing problems for the bank.
Analysts said Citi may have come under the watchful eye of ratings agencies that are worried it does not have sufficient capital to weather future market disruptions. This means the banking giant will need to increase its reserves significantly over the next few months.
"It is our belief that one or more of the rating agencies did not feel comfortable with the firm's current capital mix and that is why the company offered the $3 billion in common stock," said William Tanona, an analyst for Goldman Sachs, in a note to investors.
"If our assumption is correct, it suggests that additional capital raises will likely also be in the form of common equity, which is most dilutive to shareholders [and] conversely, we view this as a positive for debt holders," Tanona said.
Concern remains on Wall Street that the company may still have large exposure to mortgage-related securities and other vulnerable assets.
Citi reported a $5.1 billion net loss earlier in April as it wrote down the value of soured mortgage investments and other credit-related positions by roughly $12 billion.

Friday, April 18, 2008

Real Estate Supply and Demand in 8 mins.

This is an outstanding video in that it provides a basic overview of what is going on from a consumer demand perspective, it is 8 minutes long, and worth a viewing.

Wednesday, April 16, 2008

Mortgage Rates are Low But Millions Won't Qualify

The topic is a little stale and monotonous. But if you have any interest in mortgage rates or your ability to get a great mortgage loan in this credit crunch keep reading. Otherwise return to your regularly scheduled net surfing. You keep hearing (and watching) me say that mortgage rates are down, but that not everyone is eligible for the lower rates. This chart should help clarify:

To read it, just find the intersection of your credit score and loan-to-value. The number in the box is the mandatory mortgage fee that mortgage financier Fannie Mae tacks on to your closing costs.
The fee is calculated as:
(Mandatory Fee) = (Loan Size) * (Mortgage Pricing Adjustment) / 100
These added costs are making conforming remortgages cost-prohibitive for a lot of Americans.
The risk-based fees are officially called "Loan-Level Pricing Adjustments" although the abbreviated form of "LLPA" is used just as often. I tend to call them "risk-based fees" because it's easier to understand.
The fees shown above, by the way, are in addition to the universal fee of 0.25 on all home loans, regardless of credit score or LTV. That particular charge is called the "Adverse Market Delivery Charge" and went into effect in December 2007.
But the costs don't stop there. There are other more risk-based price changes for homeowners to know about. For example:
All 2-unit properties carry 0.500 in mandatory fees
All 3-4 unit properties carry 1.000 in mandatory fees
"Cash out" remortgages at all LTVs can add up to 0.500 in fees
The good news is the mandatory mortgage fees don't have to be paid at closing. Most mortgage lenders will trade 1.000 in fees for a quarter-percent increase in mortgage rate. This means that if your mortgage rate is 6.000% and your costs are 1.000, you can accept a 6.250% rate and skip the loan-level pricing adjustment in its entirety.
Wrapping the fees into the mortgage rate makes the monthly mortgage payment higher, but preserves a homeowner's liquidity and cash position.
Expect more risk-based fees throughout this year, especially for LTVs above 80 percent, and for specific property-types such as condos and multi-families. If you watch this show, you'll see the bigger picture and how we got to this place.
The piling-on of risk-based fees makes now a good time to consider buying or remortgaging a home. Changes to pricing are made without advance notice and we all get taken by surprise. Always to our detriment.
Mortgage rates may fall with the economy this year, but it won't matter if the cost of financing keeps increasing. If you're going to want a new conforming or jumbo loan later this year, talk to a mortgage banker today and get a plan started.

Wednesday, April 9, 2008

One's misfortune is your gain.

This magazine arrived in the mailbox today and sums up my view of the various opportunities within markets that the upheaval and perfect storm present. Make no mistake about it this is the greatest financial crisis since the Great Depression. The wave of bank failures has just started. The FDIC just added about 150 new staff members that are experienced in dealing with insolvent banks. Terrible news is everywhere, but the best deals are always to be had when everyone is running around losing their mind.
Deals abound:
Goldman Sachs Sold $500m worth of Chrysler Debt at 0.63 on the dollar. Remember the US government bailed out Chrysler in the 80's and made billions on the loan. Maybe this hedge fund will do the same on this loan. Time will tell.
A home builder sold improved land for 15 cents on the dollar (of builder's total costs).
Client's are buying foreclosed homes at 60% of what they sold for in 06 and in some markets 05.
These deals are done quickly. Just like the good old half-yearly at Nordstrom or the blue light special at K-Mart. You have to know the sky isn't falling, have the cash or financing in place and pull the trigger. These deals won't last.
I hear news from realtors across the country of multiple offers on homes in great areas that are priced right. Remember their is no such thing as a national market for housing. In Santa Monica, CA for example you can have a 2m home and six blocks over you have 500k fixers. Real estate is local and often block by block. The smart money is looking at this as the best of times. Sure prices in all markets can go lower but how many people have bought the bottom of any market? It is better to be a little early to the show than to be late and have missed it all together. Welcome to the FIRE SALE SHOW. Where cash is king.