By Kate Hughes
Mortgage brokers have come under attack over poor advice standards after an undercover Which? investigation found just four out of 50 advisers gave acceptable levels of guidance.
Over 80 per cent of those contacted failed to provide key information about the lending process, as required by the financial regulator. Some 35 advisers failed to make a proper check to ensure the individual could afford to repay the mortgage, the investigation revealed, which "mystery shopped" advisers at banks, building societies, estate agents and independent mortgage advisory companies.
Martyn Hocking, editor of Which? Money, said: "Listening to people's needs and giving tailored advice should be the bread and butter of a mortgage adviser's job, but too many of the advisers that we visited took a "one size fits all" approach or seemed as concerned with selling an insurance policy on the side. With mortgage costs soaring and the spectre of negative equity returning to the property market, it's important people get help to find the right deal from the 3,000 on offer," he added.
Chris Cummings, director general of the Association of Mortgage Intermediaries, said the findings highlighted the need for consumers to seek independent advice. "During difficult periods in the market, consumers need advice more than ever," he said. "They must be made aware what they are receiving. Independent mortgage advisers provide advice wholly focused on the individual's needs. In contrast, banks and building societies may offer only generic information."
Consumers have turned in increasing numbers to independent advisers, Mr Cummings said, adding: "The number of first time buyers using an intermediary increased to 82.5 per cent in the first quarter of 2008, 10 per cent higher than in quarter one 2007."
The report comes amid expectations of a huge shake-up in the way financial advice is provided and paid for – in an attempt to reduce consumer confusion. Currently a financial adviser can advise on the whole market, a selection of product providers or work for one company. But proposals from the Financial Services Authority's Retail Distribution Review include a uniform benchmark for professional qualifications among advisers.
All advisers would be independent of product providers, able to recommend products from across the market. In-house sales services at banks, building societies and other providers would be strictly non-advised.
source: http://www.independent.co.uk/news/business/news/most-mortgage-brokers-give-poor-advice-which-inquiry-finds-875845.html
How the Credit Crisis Has Changed Mortgages
By Melissa Cohn
There has been a lot going on in the past week alone in the financial markets. Last Friday, IndyMac Bank was seized by the FDIC — the largest bank failure in nearly 25 years.
Then over the weekend, the Fed came in with a rescue plan for Fannie Mae and Freddie Mac — the two mortgage agencies that guarantee or own approximately half of all outstanding mortgage debt in our country.
In addition, there has been talk of further bank failures, most notably banks located on the West Coast and in the Mid-West and Southern regions of the U.S.
The good news is that the Fed will not let Fannie Mae and Freddie Mac go under. They may get reorganized, broken up or consolidated, but one way or another, our mortgage giants will survive and continue to buy and guarantee loans in the marketplace.
While Fannie Mae and Freddie Mac are purchasers of “conforming” loans only — traditionally to $417,000 and temporarily to $729,000 — and therefore not a big player in our marketplace, all eyes are on their survival and all banks are watching to see the impact that the trouble with FNMA and Freddie Mac will have on mortgage rates in general.
What Does This Mean to US?
New York is primarily a Jumbo mortgage marketplace, and we are lucky to have a large group of healthy portfolio lenders (banks that lend off their own deposits) that are here and willing to lend in our market. Our portfolio lenders never got involved in sub-prime loans or the Option ARMs that have hurt the big banks so badly; therefore, they are out there still lending.
We also have new lenders coming into the marketplace everyday and they will become an integral part of our lending marketplace. These new lenders may include hedge funds and private equity firms with lots of cash in their pocket. They have already entered the commercial marketplace and we should see them shortly in the residential market.
Have Banks Changed Guidelines?
Yes, banks have changed guidelines. It is definitely harder to qualify for a mortgage today. Banks are demanding larger down payments, better credit scores and verification of income.
The rate that you will be able to get on a new mortgage will be dependent upon how strong you are from a credit standpoint. The rate on a five-year adjustable rate mortgage (ARM) is going from a low of 5.50 percent to a high of well over 7 percent. The bigger your down payment, the lower your ratios, and the better the rate that you will get.
Foreign Borrowers
International residents living in the United States can still get financing today. There are lenders that will entertain up to 80 percent loans for a foreigner who is able to document their income, assets and credit history. The rates offered to foreigners are competitive.
The biggest challenge we face is a non-resident who doesn’t want to verify their income and assets. We still have a bank available today that will entertain no income verification loans for foreigners but they demand a larger down payment and escrows of mortgage payments for 6 months.
New Development?
The good news is that banks are lending in new developments projects today, willing to be the first to close. It’s very important to be in touch with buyers who signed contracts last year as they may not understand the changes in the mortgage lending environment. A pre-approval they obtained last year may no longer be valid. Bottom line: mortgages are to be had, but don’t look to the old players to be the lenders of choice these days. There are plenty of portfolio lenders that are taking their place and if you have never heard of them, take it as a good sign that they are solvent!
Melissa L. Cohn is President and Chief Executive of the Manhattan Mortgage Company.
source:http://www.theimproper.com/Template_Article.aspx?IssueId=4&ArticleId=1988
There has been a lot going on in the past week alone in the financial markets. Last Friday, IndyMac Bank was seized by the FDIC — the largest bank failure in nearly 25 years.
Then over the weekend, the Fed came in with a rescue plan for Fannie Mae and Freddie Mac — the two mortgage agencies that guarantee or own approximately half of all outstanding mortgage debt in our country.
In addition, there has been talk of further bank failures, most notably banks located on the West Coast and in the Mid-West and Southern regions of the U.S.
The good news is that the Fed will not let Fannie Mae and Freddie Mac go under. They may get reorganized, broken up or consolidated, but one way or another, our mortgage giants will survive and continue to buy and guarantee loans in the marketplace.
While Fannie Mae and Freddie Mac are purchasers of “conforming” loans only — traditionally to $417,000 and temporarily to $729,000 — and therefore not a big player in our marketplace, all eyes are on their survival and all banks are watching to see the impact that the trouble with FNMA and Freddie Mac will have on mortgage rates in general.
What Does This Mean to US?
New York is primarily a Jumbo mortgage marketplace, and we are lucky to have a large group of healthy portfolio lenders (banks that lend off their own deposits) that are here and willing to lend in our market. Our portfolio lenders never got involved in sub-prime loans or the Option ARMs that have hurt the big banks so badly; therefore, they are out there still lending.
We also have new lenders coming into the marketplace everyday and they will become an integral part of our lending marketplace. These new lenders may include hedge funds and private equity firms with lots of cash in their pocket. They have already entered the commercial marketplace and we should see them shortly in the residential market.
Have Banks Changed Guidelines?
Yes, banks have changed guidelines. It is definitely harder to qualify for a mortgage today. Banks are demanding larger down payments, better credit scores and verification of income.
The rate that you will be able to get on a new mortgage will be dependent upon how strong you are from a credit standpoint. The rate on a five-year adjustable rate mortgage (ARM) is going from a low of 5.50 percent to a high of well over 7 percent. The bigger your down payment, the lower your ratios, and the better the rate that you will get.
Foreign Borrowers
International residents living in the United States can still get financing today. There are lenders that will entertain up to 80 percent loans for a foreigner who is able to document their income, assets and credit history. The rates offered to foreigners are competitive.
The biggest challenge we face is a non-resident who doesn’t want to verify their income and assets. We still have a bank available today that will entertain no income verification loans for foreigners but they demand a larger down payment and escrows of mortgage payments for 6 months.
New Development?
The good news is that banks are lending in new developments projects today, willing to be the first to close. It’s very important to be in touch with buyers who signed contracts last year as they may not understand the changes in the mortgage lending environment. A pre-approval they obtained last year may no longer be valid. Bottom line: mortgages are to be had, but don’t look to the old players to be the lenders of choice these days. There are plenty of portfolio lenders that are taking their place and if you have never heard of them, take it as a good sign that they are solvent!
Melissa L. Cohn is President and Chief Executive of the Manhattan Mortgage Company.
source:http://www.theimproper.com/Template_Article.aspx?IssueId=4&ArticleId=1988
Mortgage advisers 'are failing'
Many mortgage advisers give poor advice to customers, according to research by the consumers' association Which?.
Its researchers posed as customers when visiting 50 banks, independent advisers and estate agents.
They found that just four gave advice to an acceptable standard, with 41 failing to provide at least one key piece of information.
Which? said many advisers appeared more interested in selling insurance rather than giving tailored advice.
"Too many of the advisers that we visited took a 'one size fits all' approach or seemed as concerned with selling an insurance policy on the side," said Martyn Hocking, editor of Which? Money.
"There are still more than 3,000 mortgage deals out there, and the difference in cost can be thousands of pounds a year, so it's vital people do their homework and choose their adviser with care."
Which? said it had reported the mortgage advisers that performed poorly to the Financial Services Authority (FSA).
Regulations
The Which? researchers visited advisers in England and Scotland between February and April this year.
Although there was a general failure among mortgage advisers to give acceptable mortgage advice those that performed best were independent mortgage advisers
Chris Cummings, Association of Mortgage Intermediaries
Of these, 24 were banks or building societies, 13 were estate agents and 13 were independent mortgage advisers.
Which? said 41 of them failed to give the researchers all the information required by the regulations of the FSA.
This meant they failed to say if their services involved giving advice as well as information, they failed to show the customers an initial disclosure document, or they failed to give them a "key facts" illustration.
Only four managed to do these things while also checking if the customers could afford the mortgage, explaining properly the type of deal on offer, and then advising if it was suitable or not.
Two-thirds of the advisers tried to sell the researcher an insurance policy at the same time, which Which? claimed was usually unsuitable for the customer.
'Not typical'
The Association of Mortgage Intermediaries (AMI) said people needed to realise that there is a clear difference between an independent adviser and a salesman in bank or building society.
"Independent mortgage advisers provide advice that is wholly focussed on the individual consumer's needs," said Chris Cummings of the AMI.
"In contrast, banks and building societies may offer only generic information.
"The study found that although there was a general failure among mortgage advisers to give acceptable mortgage advice those that performed best were independent mortgage advisers," he added.
But a spokesman for the British Bankers' Association said the researchers' experience of advice in bank branches was not typical.
"The Which? survey covered only 19 bank branches and we do not accept that the low standard of service reported by Which? reflects the overall level of service offered by bank mortgage advisers," he said.
"Clearly if a customer feels that the adviser has been unable to answer their questions satisfactorily or is not providing the high standard of advice that they should be getting, they should take this up as a formal complaint with the bank concerned."
No improvement
David Elms from unbiased.co.uk, which is the website of the industry body for independent financial advisers (IFAs), stressed the importance of taking independent advice.
"Whole-of-market IFAs are the best-positioned of all advice types to serve consumers' needs when it comes to mortgage advice," he said.
"As the housing market has begun to slow we have continued to see consumers putting their faith in IFAs to advise them on how to finance their home loans."
At the beginning of 2007 similar research by the FSA found that only one-third of mortgage advisory firms could show they had given their customers suitable advice
source: http://news.bbc.co.uk/2/hi/business/7519755.stm
Its researchers posed as customers when visiting 50 banks, independent advisers and estate agents.
They found that just four gave advice to an acceptable standard, with 41 failing to provide at least one key piece of information.
Which? said many advisers appeared more interested in selling insurance rather than giving tailored advice.
"Too many of the advisers that we visited took a 'one size fits all' approach or seemed as concerned with selling an insurance policy on the side," said Martyn Hocking, editor of Which? Money.
"There are still more than 3,000 mortgage deals out there, and the difference in cost can be thousands of pounds a year, so it's vital people do their homework and choose their adviser with care."
Which? said it had reported the mortgage advisers that performed poorly to the Financial Services Authority (FSA).
Regulations
The Which? researchers visited advisers in England and Scotland between February and April this year.
Although there was a general failure among mortgage advisers to give acceptable mortgage advice those that performed best were independent mortgage advisers
Chris Cummings, Association of Mortgage Intermediaries
Of these, 24 were banks or building societies, 13 were estate agents and 13 were independent mortgage advisers.
Which? said 41 of them failed to give the researchers all the information required by the regulations of the FSA.
This meant they failed to say if their services involved giving advice as well as information, they failed to show the customers an initial disclosure document, or they failed to give them a "key facts" illustration.
Only four managed to do these things while also checking if the customers could afford the mortgage, explaining properly the type of deal on offer, and then advising if it was suitable or not.
Two-thirds of the advisers tried to sell the researcher an insurance policy at the same time, which Which? claimed was usually unsuitable for the customer.
'Not typical'
The Association of Mortgage Intermediaries (AMI) said people needed to realise that there is a clear difference between an independent adviser and a salesman in bank or building society.
"Independent mortgage advisers provide advice that is wholly focussed on the individual consumer's needs," said Chris Cummings of the AMI.
"In contrast, banks and building societies may offer only generic information.
"The study found that although there was a general failure among mortgage advisers to give acceptable mortgage advice those that performed best were independent mortgage advisers," he added.
But a spokesman for the British Bankers' Association said the researchers' experience of advice in bank branches was not typical.
"The Which? survey covered only 19 bank branches and we do not accept that the low standard of service reported by Which? reflects the overall level of service offered by bank mortgage advisers," he said.
"Clearly if a customer feels that the adviser has been unable to answer their questions satisfactorily or is not providing the high standard of advice that they should be getting, they should take this up as a formal complaint with the bank concerned."
No improvement
David Elms from unbiased.co.uk, which is the website of the industry body for independent financial advisers (IFAs), stressed the importance of taking independent advice.
"Whole-of-market IFAs are the best-positioned of all advice types to serve consumers' needs when it comes to mortgage advice," he said.
"As the housing market has begun to slow we have continued to see consumers putting their faith in IFAs to advise them on how to finance their home loans."
At the beginning of 2007 similar research by the FSA found that only one-third of mortgage advisory firms could show they had given their customers suitable advice
source: http://news.bbc.co.uk/2/hi/business/7519755.stm
Regulator targets mortgage fraud
The Financial Services Authority has announced tough new measures to try to curb soaring numbers of mortgage fraud cases, by tightening its surveillance of lenders and brokers.
The plans include sharing intelligence with other law enforcers and regulators including the National Fraud Strategic Authority, and increasing the intelligence received from lend-ers to improve enforcement. The regulator also intends to investigate hundreds of mortgage intermediaries, assessing their financial crime systems and reviewing the qualifications required to give mortgage advice.
"With the pressures facing UK consumers, it's not surprising that there is an expectation that levels of fraud will be on the increase", said Neil Lewis, head of Fraud & ID products at Equifax. He warned that the first quarter of 2008 showed an alarming 68 per cent annual increase in mortgage application fraud. "Fraudsters are becoming ever more inventive with ways to succeed with application fraud and, unless lenders start to deploy more sophisticated data-sharing solutions than have been traditionally used, fraud losses will increase."
But Cifas, the credit industry fraud avoidance organisation, has warned that there was little reliable data available on the true scale of the problem, and that the number of cases was likely to increase. Sue Anderson, a spokesperson for the Council of Mortgage Lenders, said: "The published figures are only the apparent cases of mortgage fraud, based on questionable data. As the housing market continues to fall, the visibility of these crimes will increase and the true extent of the problem will emerge."
Just 35 of the 140 mortgage lenders operating in the UK currently share fraud intelligence information with the FSA.
Philip Robinson, director of financial crime and intelligence at the FSA, said: "Mortgage fraud is a serious and widespread problem, and we expect the industry to do its part in tackling this menace."
source: http://www.independent.co.uk/news/business/news/regulator-targets--mortgage-fraud-874933.html
The plans include sharing intelligence with other law enforcers and regulators including the National Fraud Strategic Authority, and increasing the intelligence received from lend-ers to improve enforcement. The regulator also intends to investigate hundreds of mortgage intermediaries, assessing their financial crime systems and reviewing the qualifications required to give mortgage advice.
"With the pressures facing UK consumers, it's not surprising that there is an expectation that levels of fraud will be on the increase", said Neil Lewis, head of Fraud & ID products at Equifax. He warned that the first quarter of 2008 showed an alarming 68 per cent annual increase in mortgage application fraud. "Fraudsters are becoming ever more inventive with ways to succeed with application fraud and, unless lenders start to deploy more sophisticated data-sharing solutions than have been traditionally used, fraud losses will increase."
But Cifas, the credit industry fraud avoidance organisation, has warned that there was little reliable data available on the true scale of the problem, and that the number of cases was likely to increase. Sue Anderson, a spokesperson for the Council of Mortgage Lenders, said: "The published figures are only the apparent cases of mortgage fraud, based on questionable data. As the housing market continues to fall, the visibility of these crimes will increase and the true extent of the problem will emerge."
Just 35 of the 140 mortgage lenders operating in the UK currently share fraud intelligence information with the FSA.
Philip Robinson, director of financial crime and intelligence at the FSA, said: "Mortgage fraud is a serious and widespread problem, and we expect the industry to do its part in tackling this menace."
source: http://www.independent.co.uk/news/business/news/regulator-targets--mortgage-fraud-874933.html
Woes Afflicting Mortgage Giants Raise Loan Rates
By VIKAS BAJAJ
Mortgage rates are rising because of the troubles at the loan finance giants Fannie Mae and Freddie Mac, threatening to deal another blow to the faltering housing market.
Even as policy makers rushed to support the two companies, home loan rates approached their highest levels in five years.
The average interest rate for 30-year fixed-rate mortgages rose to 6.71 percent on Tuesday, from 6.44 percent on Friday, according to HSH Associates, a publisher of consumer rates. The average rate for so-called jumbo loans, which cannot be sold to Fannie Mae and Freddie Mac, was 7.8 percent, the highest since December 2000.
Loan rates are rising because of concern in the financial markets about the future of Fannie Mae and Freddie Mac, which own or guarantee nearly half of the nation’s $12 trillion mortgage market. The federal government has proposed a rescue, and has urged Congress to approve it quickly.
But bond investors, worried that the companies may not be as big a support to the market as they have been, are driving up interest rates on securities backed by home loans. That added cost is being passed on to consumers through the mortgage markets. For a $400,000 loan, the increase in 30-year rates in the last few days would add $71 to a monthly bill, or $852 a year.
The rise in rates is of greatest concern for homeowners whose mortgages required them to pay only the interest on their loans for the first few years. If such borrowers are unable to refinance into lower-cost loans, many of them will face the prospect of having to pay both interest and principal at higher, adjustable rates.
For borrowers with a $400,000 loan, such a jump could send their monthly payments to $2,338 from $1,417, estimates Louis S. Barnes, a mortgage broker at Boulder West Financial in Boulder, Colo.
While mortgage rates approached these levels earlier this year and in 2007 during times of stress in the financial markets, the latest move adds urgency to the government’s efforts to restore confidence in Fannie Mae and Freddie Mac. Lawmakers are expected to vote this week on a measure that would give the Treasury Department authority to lend more money to the companies and buy shares in them if they falter.
The uncertainty surrounding the two companies is the latest in a series of pressures bearing down on the housing market and the broader economy. Higher interest rates make it harder and more expensive to refinance existing debts and to buy homes.
“When we get to rate levels like this, the market just shuts down,” Mr. Barnes said.
While mortgage rates remain relatively low by historical standards, they are higher than what homeowners and the economy became accustomed to during the recent housing boom. Lending standards have also tightened significantly in the last 12 months, and many popular loans are no longer available.
A government report based on data on Fannie Mae and Freddie Mac loans said on Tuesday that home prices fell 4.8 percent in May from a year earlier. That compared to a 4.6 percent decline in April. Other home price indexes that track a broader set of loans show much bigger declines.
Worries about Fannie Mae and Freddie Mac have led to weaker demand for securities backed by home mortgages, analysts say. Inflation, which tends to send bond prices down and bond rates up, is another concern.
In a securities filing released on Friday, Freddie Mac suggested that it might have to pare or slow the growth of its mortgage portfolio to bolster its capital.
Freddie and Fannie together own about $1.5 trillion in mortgage securities and home loans, and they guarantee an additional $3.7 trillion in securities held by other investors. The companies had a combined net worth of $55 billion as of March. Analysts and critics say the companies need significantly more capital to cushion the blow of growing losses on the more-risky mortgages made during the boom.
Important players in the mortgage market for decades, the two companies have become even more vital in the last year as several large lenders have gone out of business and investors have lost confidence in mortgage securities that are not backed by the government, or by Fannie or Freddie.
This year, the regulator overseeing the companies gave them more leeway to use their capital and the companies responded by increasing their portfolios. Freddie’s holdings grew 6.9 percent in the first five months of the year from the end of 2007; Fannie’s portfolio increased 1.8 percent.
But now it appears the companies, particularly Freddie Mac, might have to slow their purchases of mortgage securities. In its filing, Freddie Mac said it aims to increase its portfolio by a total of 10 percent in 2008. A spokeswoman for Fannie Mae declined to comment on its plans.
“That’s one of the ways in which the agencies can increase capital, by slowing down their purchases,” said Derrick Wulf, a bond portfolio manager at Dwight Asset Management. “I don’t think the market expects a dramatic slowdown in purchases but there clearly is uncertainty about that.”
Mortgage rates have been driven up in part by a rise in the yield on Treasury notes and bonds. On Tuesday, bond prices, which move in the opposite direction of the yields, slumped after the president of the Federal Reserve Bank of Philadelphia, Charles I. Plosser, said the central bank might need to raise interest rates to combat inflation “sooner rather than later.”
Some analysts say the rise in mortgage rates can be explained by technical factors in the bond market that are forcing mortgage companies and banks to sell securities to manage their portfolios. These analysts add that at current prices the mortgage securities guaranteed by Fannie and Freddie should be attractive to investors. Mortgage bonds backed by Fannie Mae, for instance, are trading at a 2.1 percentage point premium to the 10-year Treasury note, up from 1.8 points on July 14.
“I don’t see how anyone could argue that the fundamentals of mortgages are not attractive,” said Matthew J. Jozoff, an analyst at JPMorgan.
In March, for instance, mortgage rates surged after some big investors were forced to sell billions in mortgage bonds. But rates fell back slowly in the spring after the selling pressure eased and other investors, including Freddie Mac and Fannie Mae, made big purchases.
This time, the coming Congressional vote on the Treasury plan to support the companies could help allay investors’ fears, said W. Scott Simon, a managing director at Pimco Advisors, the giant bond fund firm, which owns mortgage securities. “It will go a long way toward reviving demand.”
source: http://www.nytimes.com/2008/07/23/business/23rates.html?hp
Mortgage rates are rising because of the troubles at the loan finance giants Fannie Mae and Freddie Mac, threatening to deal another blow to the faltering housing market.
Even as policy makers rushed to support the two companies, home loan rates approached their highest levels in five years.
The average interest rate for 30-year fixed-rate mortgages rose to 6.71 percent on Tuesday, from 6.44 percent on Friday, according to HSH Associates, a publisher of consumer rates. The average rate for so-called jumbo loans, which cannot be sold to Fannie Mae and Freddie Mac, was 7.8 percent, the highest since December 2000.
Loan rates are rising because of concern in the financial markets about the future of Fannie Mae and Freddie Mac, which own or guarantee nearly half of the nation’s $12 trillion mortgage market. The federal government has proposed a rescue, and has urged Congress to approve it quickly.
But bond investors, worried that the companies may not be as big a support to the market as they have been, are driving up interest rates on securities backed by home loans. That added cost is being passed on to consumers through the mortgage markets. For a $400,000 loan, the increase in 30-year rates in the last few days would add $71 to a monthly bill, or $852 a year.
The rise in rates is of greatest concern for homeowners whose mortgages required them to pay only the interest on their loans for the first few years. If such borrowers are unable to refinance into lower-cost loans, many of them will face the prospect of having to pay both interest and principal at higher, adjustable rates.
For borrowers with a $400,000 loan, such a jump could send their monthly payments to $2,338 from $1,417, estimates Louis S. Barnes, a mortgage broker at Boulder West Financial in Boulder, Colo.
While mortgage rates approached these levels earlier this year and in 2007 during times of stress in the financial markets, the latest move adds urgency to the government’s efforts to restore confidence in Fannie Mae and Freddie Mac. Lawmakers are expected to vote this week on a measure that would give the Treasury Department authority to lend more money to the companies and buy shares in them if they falter.
The uncertainty surrounding the two companies is the latest in a series of pressures bearing down on the housing market and the broader economy. Higher interest rates make it harder and more expensive to refinance existing debts and to buy homes.
“When we get to rate levels like this, the market just shuts down,” Mr. Barnes said.
While mortgage rates remain relatively low by historical standards, they are higher than what homeowners and the economy became accustomed to during the recent housing boom. Lending standards have also tightened significantly in the last 12 months, and many popular loans are no longer available.
A government report based on data on Fannie Mae and Freddie Mac loans said on Tuesday that home prices fell 4.8 percent in May from a year earlier. That compared to a 4.6 percent decline in April. Other home price indexes that track a broader set of loans show much bigger declines.
Worries about Fannie Mae and Freddie Mac have led to weaker demand for securities backed by home mortgages, analysts say. Inflation, which tends to send bond prices down and bond rates up, is another concern.
In a securities filing released on Friday, Freddie Mac suggested that it might have to pare or slow the growth of its mortgage portfolio to bolster its capital.
Freddie and Fannie together own about $1.5 trillion in mortgage securities and home loans, and they guarantee an additional $3.7 trillion in securities held by other investors. The companies had a combined net worth of $55 billion as of March. Analysts and critics say the companies need significantly more capital to cushion the blow of growing losses on the more-risky mortgages made during the boom.
Important players in the mortgage market for decades, the two companies have become even more vital in the last year as several large lenders have gone out of business and investors have lost confidence in mortgage securities that are not backed by the government, or by Fannie or Freddie.
This year, the regulator overseeing the companies gave them more leeway to use their capital and the companies responded by increasing their portfolios. Freddie’s holdings grew 6.9 percent in the first five months of the year from the end of 2007; Fannie’s portfolio increased 1.8 percent.
But now it appears the companies, particularly Freddie Mac, might have to slow their purchases of mortgage securities. In its filing, Freddie Mac said it aims to increase its portfolio by a total of 10 percent in 2008. A spokeswoman for Fannie Mae declined to comment on its plans.
“That’s one of the ways in which the agencies can increase capital, by slowing down their purchases,” said Derrick Wulf, a bond portfolio manager at Dwight Asset Management. “I don’t think the market expects a dramatic slowdown in purchases but there clearly is uncertainty about that.”
Mortgage rates have been driven up in part by a rise in the yield on Treasury notes and bonds. On Tuesday, bond prices, which move in the opposite direction of the yields, slumped after the president of the Federal Reserve Bank of Philadelphia, Charles I. Plosser, said the central bank might need to raise interest rates to combat inflation “sooner rather than later.”
Some analysts say the rise in mortgage rates can be explained by technical factors in the bond market that are forcing mortgage companies and banks to sell securities to manage their portfolios. These analysts add that at current prices the mortgage securities guaranteed by Fannie and Freddie should be attractive to investors. Mortgage bonds backed by Fannie Mae, for instance, are trading at a 2.1 percentage point premium to the 10-year Treasury note, up from 1.8 points on July 14.
“I don’t see how anyone could argue that the fundamentals of mortgages are not attractive,” said Matthew J. Jozoff, an analyst at JPMorgan.
In March, for instance, mortgage rates surged after some big investors were forced to sell billions in mortgage bonds. But rates fell back slowly in the spring after the selling pressure eased and other investors, including Freddie Mac and Fannie Mae, made big purchases.
This time, the coming Congressional vote on the Treasury plan to support the companies could help allay investors’ fears, said W. Scott Simon, a managing director at Pimco Advisors, the giant bond fund firm, which owns mortgage securities. “It will go a long way toward reviving demand.”
source: http://www.nytimes.com/2008/07/23/business/23rates.html?hp
Second Mortgage Tips
Useful Refinance Loan Advice
By Maria Ny
As the 1st mortgage interest rates rapidly increase, now may be the time to refinance your variable rate home equity line of credit or adjustable rate home equity loan and convert it into a fixed interest rate 2nd mortgage. Otherwise, your payments could become more than you can afford, which could be dangerous because your line of credit is secured by the equity in your house.
By refinancing your existing second mortgage or line of credit you could save a lot of money in the long run. There are many places you can find a fixed interest rate second mortgage loan. These tips can help you keep your costs down and help you avoid unpleasant surprises at closing.
First, order your credit report from all three credit reporting agencies and check it for errors. An inaccuracy you aren't aware of could cost you thousands of dollars in extra interest or even cause a denial of credit.
Find out what current mortgage rates are and whether they are going up or down. Knowing the current mortgage rates will give you bargaining power when you shop for your new loan.
Talk with your existing lender about mortgage refinancing of your home equity line or variable interest rate 2nd mortgage. At the same time, contact at least one bank, one credit union and one direct mortgage lender. Their 2nd mortgage loans probably cost less than ones from finance companies and mortgage brokers, and one of them could possibly give you a better deal than your existing lender.
Most mortgage lenders will only loan you up to 85% of the value of your home based on the total of both the first and second mortgages. Remember that 125% Loan To Value (LTV) second mortgages or any other loan that allow you to borrow beyond the value of your home. Mortgaging your home for more than it is worth is an easy way to lose it.
The other problem with 125% LTV loans is that you may not be able to claim all of the interest you pay on the loan. According to the Internal Revenue Service, there is a limit on the amount of debt that can be treated as home equity debt. The total home equity debt on your primary residence and second home is limited to the smaller of: - $100,000 ($50,000 if married filing separately), - The total of each home's fair market value reduced by the amount of its home acquisition debt and grandfathered debt. Interest on amounts over the home equity debt limit generally is treated as personal interest and is not deductible, so you could lose the tax deduction benefit if you mortgage your house for more than it is worth.
source:http://www.bdnationwidemortgage.com/article/Useful-Refinance-Loan-Advice.html
By Maria Ny
As the 1st mortgage interest rates rapidly increase, now may be the time to refinance your variable rate home equity line of credit or adjustable rate home equity loan and convert it into a fixed interest rate 2nd mortgage. Otherwise, your payments could become more than you can afford, which could be dangerous because your line of credit is secured by the equity in your house.
By refinancing your existing second mortgage or line of credit you could save a lot of money in the long run. There are many places you can find a fixed interest rate second mortgage loan. These tips can help you keep your costs down and help you avoid unpleasant surprises at closing.
First, order your credit report from all three credit reporting agencies and check it for errors. An inaccuracy you aren't aware of could cost you thousands of dollars in extra interest or even cause a denial of credit.
Find out what current mortgage rates are and whether they are going up or down. Knowing the current mortgage rates will give you bargaining power when you shop for your new loan.
Talk with your existing lender about mortgage refinancing of your home equity line or variable interest rate 2nd mortgage. At the same time, contact at least one bank, one credit union and one direct mortgage lender. Their 2nd mortgage loans probably cost less than ones from finance companies and mortgage brokers, and one of them could possibly give you a better deal than your existing lender.
Most mortgage lenders will only loan you up to 85% of the value of your home based on the total of both the first and second mortgages. Remember that 125% Loan To Value (LTV) second mortgages or any other loan that allow you to borrow beyond the value of your home. Mortgaging your home for more than it is worth is an easy way to lose it.
The other problem with 125% LTV loans is that you may not be able to claim all of the interest you pay on the loan. According to the Internal Revenue Service, there is a limit on the amount of debt that can be treated as home equity debt. The total home equity debt on your primary residence and second home is limited to the smaller of: - $100,000 ($50,000 if married filing separately), - The total of each home's fair market value reduced by the amount of its home acquisition debt and grandfathered debt. Interest on amounts over the home equity debt limit generally is treated as personal interest and is not deductible, so you could lose the tax deduction benefit if you mortgage your house for more than it is worth.
source:http://www.bdnationwidemortgage.com/article/Useful-Refinance-Loan-Advice.html
How to Research Loan Modification Companies Wisely
The current mortgage and foreclosure crisis has been a boon for loan modification companies. This is an area of the economy that is growing exponentially as more and more Americans face foreclosure and financial ruin. This can be good news for many distressed home owners, but finding a reputable one can be tricky. Unfortunately, many of the dishonest folks who contributed to the current crisis will be looking to cash in on this as well.
There are some very simple and straight forward things to look for when researching loan modification companies to that you are not the victim of a fraudulent or less than honest company. By taking care to research loan modification companies before you begin the process you increase your chances of getting a good loan modification that will keep you in your home and financially solvent.
The best place to start is your own bank or mortgage company. If you are happy with them and feel that they have your best interest at heart you can simply apply for a loan modification process through them. Most major mortgage companies have loan modification departments for their borrowers. This is what will be keeping them in business. You may not have to look further than your current lender.
If this isn't the case and you need to find another company, you should first start by asking people you know about their experiences with other lenders and/or loan modification companies. People you trust will give you their honest feelings about their experiences. You can also research other well known banks and mortgage companies. Although these companies may have lengthy application requirements, in general they have solid practices that will help you to get a good loan. Look for companies that have good reviews and a good reputation.
Be wary of any company that guarantees any part or your loan modification. There are no guarantees in this process. The modifications made come from your unique circumstances and until the process has begun, no lender can honestly promise you anything. If you feel you are being sold a bill of goods, you probably are and should proceed with caution. A reputable company will be honest with you from the get go.
Do not pay any upfront fees for a loan modification. If a company wants an upfront payment or retainer fee just say no. With the federal loan modification programs currently in place, and many states mandating lenders to offer loan modifications to their clients, there is no need for upfront fees. This is a clear sign of someone looking to profit from your misfortune.
Finally, be sure that a loan modification company actually understands the process and has credibility. Many former bankers, investors and financial industry workers are starting up loan modification companies. It is one area that is actually seeing growth at the present time. This means that many unqualified people will be hanging out their shingles and start looking for potential customers. Being someone's guinea pig is probably not what you want for yourself given the potential outcomes of such a choice.
Finding a reputable loan modification company is the first step.
Then you need our home loan modification checklist to get you prepared
By Jon Higgins
source:http://ezinearticles.com/?How-to-Research-Loan-Modification-Companies-Wisely&id=2176352
There are some very simple and straight forward things to look for when researching loan modification companies to that you are not the victim of a fraudulent or less than honest company. By taking care to research loan modification companies before you begin the process you increase your chances of getting a good loan modification that will keep you in your home and financially solvent.
The best place to start is your own bank or mortgage company. If you are happy with them and feel that they have your best interest at heart you can simply apply for a loan modification process through them. Most major mortgage companies have loan modification departments for their borrowers. This is what will be keeping them in business. You may not have to look further than your current lender.
If this isn't the case and you need to find another company, you should first start by asking people you know about their experiences with other lenders and/or loan modification companies. People you trust will give you their honest feelings about their experiences. You can also research other well known banks and mortgage companies. Although these companies may have lengthy application requirements, in general they have solid practices that will help you to get a good loan. Look for companies that have good reviews and a good reputation.
Be wary of any company that guarantees any part or your loan modification. There are no guarantees in this process. The modifications made come from your unique circumstances and until the process has begun, no lender can honestly promise you anything. If you feel you are being sold a bill of goods, you probably are and should proceed with caution. A reputable company will be honest with you from the get go.
Do not pay any upfront fees for a loan modification. If a company wants an upfront payment or retainer fee just say no. With the federal loan modification programs currently in place, and many states mandating lenders to offer loan modifications to their clients, there is no need for upfront fees. This is a clear sign of someone looking to profit from your misfortune.
Finally, be sure that a loan modification company actually understands the process and has credibility. Many former bankers, investors and financial industry workers are starting up loan modification companies. It is one area that is actually seeing growth at the present time. This means that many unqualified people will be hanging out their shingles and start looking for potential customers. Being someone's guinea pig is probably not what you want for yourself given the potential outcomes of such a choice.
Finding a reputable loan modification company is the first step.
Then you need our home loan modification checklist to get you prepared
By Jon Higgins
source:http://ezinearticles.com/?How-to-Research-Loan-Modification-Companies-Wisely&id=2176352
How To Quickly And Easily Find Good Reverse Mortgage Leads
If you are employed in the mortgage industry then you know how important good mortgage leads are. You are also aware of the growing popularity of the reverse mortgage. This type of loan will continue to grow as the baby boomers age and are faced with the daunting task of having enough money to survive during their retirement years. If you want your mortgage business to thrive, then it is important that you find a great source for reverse mortgage leads.
You can find hundreds of reverse mortgage leads by searching on the Internet. But there are several things to take into account to be sure that you are getting quality leads. This article will help you determine what to look for in a reverse mortgage lead.
First of all you want to make sure that your leads are made up of your target market. If you are specifically looking for reverse mortgage leads then your target market should be homeowners aged 62 or older.
Another thing that you should look for in a reverse mortgage lead is the value of the home and the length of time the homeowner has been paying on the home loan. Someone who is looking for a reverse mortgage is probably doing so because they need a large sum of money for a specific purpose. This may be medical bills, home repairs, or peace of mind knowing that they have a cushion to fall back on when things get really lean.
It is important that you find leads with a lot of equity in their home. Very few people would consider getting a reverse mortgage for a small amount. They want a significant sum that would be able to help them with their needs.
When looking for a good reverse mortgage lead service, it is a good idea to search through at least three different lead generation firms or sites. Do some comparison shopping to get the best leads for the best price.
If you can find a reliable reverse mortgage lead company that is dedicated to supplying you with the best leads, then you can devote more of your time to closing business deals. That, of course, is where the real money is made.
Do your research and find a good reverse mortgage leads company. Use them and watch your mortgage business flourish.
by: Terry Edwards
source: http://ezinearticles.com/?How-To-Quickly-And-Easily-Find-Good-Reverse-Mortgage-Leads&id=775541
You can find hundreds of reverse mortgage leads by searching on the Internet. But there are several things to take into account to be sure that you are getting quality leads. This article will help you determine what to look for in a reverse mortgage lead.
First of all you want to make sure that your leads are made up of your target market. If you are specifically looking for reverse mortgage leads then your target market should be homeowners aged 62 or older.
Another thing that you should look for in a reverse mortgage lead is the value of the home and the length of time the homeowner has been paying on the home loan. Someone who is looking for a reverse mortgage is probably doing so because they need a large sum of money for a specific purpose. This may be medical bills, home repairs, or peace of mind knowing that they have a cushion to fall back on when things get really lean.
It is important that you find leads with a lot of equity in their home. Very few people would consider getting a reverse mortgage for a small amount. They want a significant sum that would be able to help them with their needs.
When looking for a good reverse mortgage lead service, it is a good idea to search through at least three different lead generation firms or sites. Do some comparison shopping to get the best leads for the best price.
If you can find a reliable reverse mortgage lead company that is dedicated to supplying you with the best leads, then you can devote more of your time to closing business deals. That, of course, is where the real money is made.
Do your research and find a good reverse mortgage leads company. Use them and watch your mortgage business flourish.
by: Terry Edwards
source: http://ezinearticles.com/?How-To-Quickly-And-Easily-Find-Good-Reverse-Mortgage-Leads&id=775541
Top 10 things to look for in a Mortgage Broker
About the Author: Cindi Sindone, Mortgage Broker
The term mortgage broker has really come under fire in recent years, and with good reason. We have all known brokers whose dealings have been less than ethical at best and somewhat illegal at worst. For this reason, I have compiled a list of things to look for in an ethical, reliable, dependable mortgage broker. I would like to get my job title out of the list of "dirty words." A good mortgage broker does not charge fees up-front.
Prior to closing, the only out of pocket expense for you should be the cost of the appraisal. This fee is usually paid directly to the appraisal company at the time of the appraisal. After this, your financial concerns should be on closing costs and down payment.
A good mortgage broker will explain terms and jargon that is unfamiliar to you.
You should not have to run to a real estate dictionary every time you have a conversation with your broker. Simply ask him to explain. If he does not, it only means that he is using your lack of knowledge in order to confuse you.
A good mortgage broker will redo the numbers as many times as it takes for you to understand them.
You should only have to ask for a breakdown of payments, rates, terms, fees, loan amount, etc. Again, don't be embarrassed to show that you don't know. Use this as a learning experience.
A good mortgage broker is available.
It should not take a week to have a call or an email returned. You really should be a priority.
A good mortgage broker under promises and over delivers.
There should never be negative surprises at closing. You should be provided with a good faith estimate very early on in the loan process and if anything is different at closing, it should be to your benefit.
A good mortgage broker gets your prequalifications done within the hour.
If you're in the process of getting prequalified, that means you are about to go out looking a prospective properties. Your broker should not be impeding this process. You need someone who is on top of things, almost as though he were investing his own money in the property.
A good mortgage broker works with a good number of lenders.
You really don't need a broker who is in the pocket of only one or two lenders. This person is not serving your interests. He is serving the interests of the lender. You need someone who is looking out for you and who will find you the best program for your situation.
A good mortgage broker is intelligent and knowledgeable.
He may not have all the answers, but he does have a great deal of them. He speaks intelligently and he listens to you when you speak.
A good mortgage broker does not answer the question if he doesn't know the answer.
Beware of people who promise you the world and then change the story thirty-five times. Of course, some things change in the course of getting a loan, but if this is the standard and not the exception, you need to find someone who will admit that they don't know, but who will find you the answer promptly.
A good mortgage broker is personable.
I saved this for last, as it really is the least of your problems, but this is a person with whom you are going to have to have a great deal of contact. This is also a person who is going to share one of the most exciting (but also stressful) times of your life. This really is no time for a personality clash.
source: http://www.biggerpockets.com/articles/top-ten-things-mortgage-cs.html
The term mortgage broker has really come under fire in recent years, and with good reason. We have all known brokers whose dealings have been less than ethical at best and somewhat illegal at worst. For this reason, I have compiled a list of things to look for in an ethical, reliable, dependable mortgage broker. I would like to get my job title out of the list of "dirty words." A good mortgage broker does not charge fees up-front.
Prior to closing, the only out of pocket expense for you should be the cost of the appraisal. This fee is usually paid directly to the appraisal company at the time of the appraisal. After this, your financial concerns should be on closing costs and down payment.
A good mortgage broker will explain terms and jargon that is unfamiliar to you.
You should not have to run to a real estate dictionary every time you have a conversation with your broker. Simply ask him to explain. If he does not, it only means that he is using your lack of knowledge in order to confuse you.
A good mortgage broker will redo the numbers as many times as it takes for you to understand them.
You should only have to ask for a breakdown of payments, rates, terms, fees, loan amount, etc. Again, don't be embarrassed to show that you don't know. Use this as a learning experience.
A good mortgage broker is available.
It should not take a week to have a call or an email returned. You really should be a priority.
A good mortgage broker under promises and over delivers.
There should never be negative surprises at closing. You should be provided with a good faith estimate very early on in the loan process and if anything is different at closing, it should be to your benefit.
A good mortgage broker gets your prequalifications done within the hour.
If you're in the process of getting prequalified, that means you are about to go out looking a prospective properties. Your broker should not be impeding this process. You need someone who is on top of things, almost as though he were investing his own money in the property.
A good mortgage broker works with a good number of lenders.
You really don't need a broker who is in the pocket of only one or two lenders. This person is not serving your interests. He is serving the interests of the lender. You need someone who is looking out for you and who will find you the best program for your situation.
A good mortgage broker is intelligent and knowledgeable.
He may not have all the answers, but he does have a great deal of them. He speaks intelligently and he listens to you when you speak.
A good mortgage broker does not answer the question if he doesn't know the answer.
Beware of people who promise you the world and then change the story thirty-five times. Of course, some things change in the course of getting a loan, but if this is the standard and not the exception, you need to find someone who will admit that they don't know, but who will find you the answer promptly.
A good mortgage broker is personable.
I saved this for last, as it really is the least of your problems, but this is a person with whom you are going to have to have a great deal of contact. This is also a person who is going to share one of the most exciting (but also stressful) times of your life. This really is no time for a personality clash.
source: http://www.biggerpockets.com/articles/top-ten-things-mortgage-cs.html
Bankers worry: Is commercial real estate next?
Small and regional banks will begin reporting their second-quarter earnings in coming weeks, and the industry is bracing for problems in a sector that has been relatively strong up to now: commercial real estate loans.
“With everything that’s going on in the market, certainly there is concern related to commercial real estate,” said Richard Fulkerson, commissioner for the Colorado Division of Banking, which regulates state-chartered banks. “Do we expect failures in Colorado? No. We’re not seeing the types of problems in Colorado, at least at this point, that a lot of the rest of the country has experienced.”
On July 11, federal regulators seized IndyMac Bank, a Pasadena, Calif.-based bank that did a lot of consumer mortgage lending. It was the fifth bank to fail this year, according to the Federal Deposit Insurance Corp (FDIC).
Colorado’s community banks keep few, if any, consumer mortgage loans on their books, and so weren’t directly affected by the subprime mortgage meltdown.
But commercial real estate (CRE) loans — a category that includes construction and land development loans to homebuilders — are a major source of revenue for most Colorado banks.
If builders can’t sell the homes because of the housing market downturn, they may default on the loans.
Other types of loans also are lumped under commercial real estate, including loans to buy office towers or shopping centers, or loans to construct owner-occupied office buildings. These aren’t considered as risky right now.
“In Colorado, most banks do have a concentration of real estate loans,” said Fred Eller, vice chairman of Colorado Capital Bank. “Real estate has driven Colorado, and Colorado is still a very good marketplace compared with other states.”
Bad real estate loans were almost entirely responsible for a 24 percent rise nationwide in nonperforming loans during the first quarter, the latest data available from the FDIC. Nationwide, banks’ past-due and nonaccrual loans equaled a median 1.7 percent of their total loans. In Colorado, that figure was 2.1 percent.
Two years ago, federal regulators began advising closer scrutiny of banks that have lent more than 300 percent of their risk-based capital on CRE deals, or 100 percent for construction projects.
Many Colorado banks were well above those guidelines in the first quarter, according to Bank Strategies LLC, a Denver-based banking consultancy.
Colorado Capital Bank, for instance, was holding construction and land development loans equal to 578 percent of its capital, and total commercial real estate loans equal to 681 percent.
That’s a lot, Eller acknowledged, but it doesn’t necessarily mean the bank is in any danger.
“We are primarily a business bank ... so we’re likely to have a little higher ratio of corporate, industrial and real estate loans to our capital than some other banks, which are also making a lot of consumer loans,” Eller said.
And Colorado Capital Bank’s level of nonperforming loans is below the state average, at 1.7 percent of all loans, he pointed out.
“I think you’ll find that the majority of banks across Colorado had a ratio that was quite a bit above that,” Eller said.
A concentration in CRE lending isn’t necessarily a problem, said Larry Martin, president of Bank Strategies.
“If they are well-structured, well-underwritten and well-conceived projects, we shouldn’t have to care,” Martin said. “I think the concern that the regulators have is that many banks may have been caught up in the exuberance of real estate lending and compromised some underwriting standards.”
Many of the banks with the highest ratio of bad loans to total loans in the first quarter — including Premier Bank, Fowler State Bank and Pueblo Bank & Trust Co. — didn’t have heavy CRE exposure. Premier’s CRE loans amounted to only 154 percent of capital, well under the 300 percent guideline; Fowler’s is a mere 10 percent, and Pueblo’s only a bit above guidelines at 352 percent.
Fulkerson said that regulators do pay closer attention to banks with a heavy concentration in real estate loans.
“When we come in to do the examination, we’re going to make sure that they have X,Y,Z — pretty much what’s spelled out in interagency guidance — in place,” he said.
But a simple concentration in real estate isn’t necessarily bad, he said.
“Banks in Colorado, particularly community banks, have done extremely well with commercial real estate lending,” Fulkerson said. “It has become a bread-and-butter source of revenue for the majority of Colorado community banks. There’s some slippage here and there, but overall performance still continues to be strong.”
source:
http://www.bizjournals.com/denver/stories/2008/07/21/story2.html
“With everything that’s going on in the market, certainly there is concern related to commercial real estate,” said Richard Fulkerson, commissioner for the Colorado Division of Banking, which regulates state-chartered banks. “Do we expect failures in Colorado? No. We’re not seeing the types of problems in Colorado, at least at this point, that a lot of the rest of the country has experienced.”
On July 11, federal regulators seized IndyMac Bank, a Pasadena, Calif.-based bank that did a lot of consumer mortgage lending. It was the fifth bank to fail this year, according to the Federal Deposit Insurance Corp (FDIC).
Colorado’s community banks keep few, if any, consumer mortgage loans on their books, and so weren’t directly affected by the subprime mortgage meltdown.
But commercial real estate (CRE) loans — a category that includes construction and land development loans to homebuilders — are a major source of revenue for most Colorado banks.
If builders can’t sell the homes because of the housing market downturn, they may default on the loans.
Other types of loans also are lumped under commercial real estate, including loans to buy office towers or shopping centers, or loans to construct owner-occupied office buildings. These aren’t considered as risky right now.
“In Colorado, most banks do have a concentration of real estate loans,” said Fred Eller, vice chairman of Colorado Capital Bank. “Real estate has driven Colorado, and Colorado is still a very good marketplace compared with other states.”
Bad real estate loans were almost entirely responsible for a 24 percent rise nationwide in nonperforming loans during the first quarter, the latest data available from the FDIC. Nationwide, banks’ past-due and nonaccrual loans equaled a median 1.7 percent of their total loans. In Colorado, that figure was 2.1 percent.
Two years ago, federal regulators began advising closer scrutiny of banks that have lent more than 300 percent of their risk-based capital on CRE deals, or 100 percent for construction projects.
Many Colorado banks were well above those guidelines in the first quarter, according to Bank Strategies LLC, a Denver-based banking consultancy.
Colorado Capital Bank, for instance, was holding construction and land development loans equal to 578 percent of its capital, and total commercial real estate loans equal to 681 percent.
That’s a lot, Eller acknowledged, but it doesn’t necessarily mean the bank is in any danger.
“We are primarily a business bank ... so we’re likely to have a little higher ratio of corporate, industrial and real estate loans to our capital than some other banks, which are also making a lot of consumer loans,” Eller said.
And Colorado Capital Bank’s level of nonperforming loans is below the state average, at 1.7 percent of all loans, he pointed out.
“I think you’ll find that the majority of banks across Colorado had a ratio that was quite a bit above that,” Eller said.
A concentration in CRE lending isn’t necessarily a problem, said Larry Martin, president of Bank Strategies.
“If they are well-structured, well-underwritten and well-conceived projects, we shouldn’t have to care,” Martin said. “I think the concern that the regulators have is that many banks may have been caught up in the exuberance of real estate lending and compromised some underwriting standards.”
Many of the banks with the highest ratio of bad loans to total loans in the first quarter — including Premier Bank, Fowler State Bank and Pueblo Bank & Trust Co. — didn’t have heavy CRE exposure. Premier’s CRE loans amounted to only 154 percent of capital, well under the 300 percent guideline; Fowler’s is a mere 10 percent, and Pueblo’s only a bit above guidelines at 352 percent.
Fulkerson said that regulators do pay closer attention to banks with a heavy concentration in real estate loans.
“When we come in to do the examination, we’re going to make sure that they have X,Y,Z — pretty much what’s spelled out in interagency guidance — in place,” he said.
But a simple concentration in real estate isn’t necessarily bad, he said.
“Banks in Colorado, particularly community banks, have done extremely well with commercial real estate lending,” Fulkerson said. “It has become a bread-and-butter source of revenue for the majority of Colorado community banks. There’s some slippage here and there, but overall performance still continues to be strong.”
source:
http://www.bizjournals.com/denver/stories/2008/07/21/story2.html
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