Portland Development Commission Announces Home Buyer Workshops


The Portland Development Commission announced 11 home buyer workshops in 2009. They’ll cover below market rate loans, home buyer tax credit programs and down payment assistance loans. They targeting moderate income buyers who need help reducing the cash they need to close the purchase or lower their payment. For more information, call 503-823-3400. Here’s a list of the workshops. All sessions start at 6 p.m.

Jan. 13, 2009 – Kenton Firehouse, 8105 N Brandon
Feb. 5, 2009 – Lents Baptist Church, 5921 SE 88th
March 5, 2009 – Portland Development Commission, 222 NW 5th
April 9, 2009 – Kaiser Town Hall, 3704 N Interstate
May 14, 2009 – Lents Baptist Church, 5921 SE 88th
June 11, 2009 – Portland Development Commission, 222 NW 5th
July 9, 2009 – Kaiser Town Hall, 3704 N Interstate
August 13, 2009 – Lents Baptist Church, 5921 SE 88th
Sept. 10, 2009 – Portland Development Commission, 222 NW 5th
Oct. 8, 2009 – Kaiser Town Hall, 3704 N Interstate
Nov. 12, 2009 – Lents Baptist Church, 5921 SE 88th

For More Information Portland Development Commission Neighborhood Housing Program
http://www.pdc.us/housing_services/home_buyer/default.asp

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Portland home price decline hits double digits, Ryan Frank, Front Porch Blog


Posted by Ryan Frank, The Oregonian December 30, 2008

Portland-area home values continued to reach new depths in October when prices dropped 10.1 percent compared to the same month in 2007, according to an index published today.

The Standard & Poor’s Case-Shiller index, one of the most closely watched housing measures, reported the first such double-digit decline in Portland since prices began to fall in the summer of 2007. Prices have now fallen back to their January 2006 levels.

Portland, along with Seattle and Charlotte, ranked among the top three markets in the index early in 2008. But their position has fallen as the housing crisis that began in the Sun Belt and Rust Belt states rolls through the Northwest. Portland and Seattle now rank No. 7 and No. 8, respectively, for the smallest year-over-year declines. Seattle and Atlanta also dipped to double-digit declines for the first time in October. (Check out Portland’s index since 1987 and an October 2008 ranking by city.)

“While not yet experiencing as severe a contraction as in the Sun Belt, it seems the Pacific Northwest and Mid-Atlantic South is not immune to the overall demise in the housing market,” David M. Blitzer, chairman of the Standard & Poor’s index committee said in a statement.

Beyond the northwest, the worst of the pain continued to be concentrated in California, Arizona, Nevada and Florida where speculators, growth and loose lending combined to drive prices far beyond sustainable limits. Phoenix, Las Vegas and San Francisco all fell more than 30 percent in October compared to a year earlier. The 10-city and 20-city composites also hit new lows at 19.1 percent and 18 percent, respectively.

The New York Times’ home page, for now, has a very cool chart for that shows each of the 20 markets rise and fall in the housing boom and bust.

http://blog.oregonlive.com/frontporch/

Pay Option ARMs – The Implosion Is Still Coming Despite Low Rates: Mr. Mortgage


There is some serious Pay Option ARM (POA) misinformation going around. Everywhere you look there are stories about how the low index value on the LIBOR will automatically ‘fix’ Pay Option ARMs and drop borrower’s payments to almost nothing. Sorry folks, no cigar.  It is shotgun stories by the major media and television personality analysts that set the market and consumer up to for disappointment every time.  Over the past year and a half this is my forth story on why a particular bailout or market event will not help the POA’s.

Like the failed mortgage modification efforts and foreclosure moratoria you read about almost daily, this will be a non-starter for most.  It is truly a shame how badly constructed these loans really are and how many home owner and bank balance sheets they have destroyed. These loans are much more toxic than Subprime ever was – at least with Subprime the principal balance doesn’t grow each month!  They are in a class of their own and ultimately will need a bailout of their own I am sorry to say.

The POA was a favorite across all borrower types especially the middle to upper-end home owner in the bubble states. The broad failure of this loan type will have severe consequences on already depressed CA real estate and on the middle to upper-end home owners in particular.

Monthly Payments / Neg-Am Set-up / Recasts / Qualifying / Negative-Equity

Pay Option ARMs have four or five monthly payment choices. The majority pay the minimum monthly fixed payment rate, known as the ‘teaser’ rate.The percentage of borrowers who opt for the lowest payment has increased as values have fallen. The minimum monthly payment increases 7.5% per year regardless of what happens to the underlying index value. Therefore, this recent drop in rates means nothing for most POA home owner’s monthly mortgage-related outgo.

With the low underlying index values borrowers won’t accrue as much negative amortization but at the end of the first 5-years, most will still see their payment jump sharply. If the underlying indices stay low for years into the future it will make for lower adjustments upward several years from now on subsequent resets, which may be helpful for some.

But this drop in rates does little for those who have had their loan for a few years in the near-term. These borrowers accrued large amounts of negative-amortization as the indices soared from mid-2004 to 2007 and this has to be factored into the first reset.

Past Underwriting Indiscretions — for much of the time that POA’s were in existence many banks qualified the borrowers at the minimum monthly payment rate or based upon interest only payments. Additionally, over 80% were stated or limited income documentation loans. Both of these factors make knowing how the borrower will react to even the standard 5-year hard recast nearly impossible to forecast given they were never underwritten to take into consideration a reset of any type.

What also must be taken into consideration is that a large percentage of underwater, over-leveraged Subprime, Alt-A and POA borrowers are defaulting even prior to their reset date due to the epidemic amount of negative equity. POA’s were mostly originated at higher LTV/CLTV’s in the hardest hit states meaning they are significantly underwater even without the compounding effects of negative amortization.  In CA, a heavy POA state, 60% of all mortgage holders are either underwater or within 5% of being underwater unable to sell or refinance.

Pay Options Have a Floor Rate That Always Results in a Payment Spike

The margins (lender profit) were very high on these loans during the ‘POA mania’ portion of the great bubble.  I have seen as high as 5% but the average for Prime MTA-based POA’s is probably around 3.25% to 3.5%.  The rates below from a large-named lender still in existence today show margins as high as 4%. The margin rate will always have to be paid regardless if the underlying index value falls to zero, which is not possible. The 1HPP (one year hard pre-payment penalty) loan below was the most popular carrying a margin from 3.025% to 4.000% followed closely by the 3-year prepayment penalty loan.

The program and rates below are from July 2006, which was the peak of ‘POA mania’.  It is based upon the MTA index, as 80% of all POA’s were and 80% of all Pay Option owners pay the minimum monthly payment.

Reference key for program below: Start Rate = fully amortized ‘payment’ rate. This increases 7.5% per year.  Points = broker rebate (yield spread premium. This is the percentage of the loan amount paid by the lender to deliver that rate and margin). NPP Margin = No Prepayment Penalty.  1HPP = 1 year Hard Prepayment Penalty.  3HPP = 3 year Hard Prepayment Penalty.

After 5-years, most POAs (other than Wachovia’s 10-year) will hard recast to pay off the remaining balance in 25-years. When the loan is recast, the payment required to fully amortize the loan over the remaining term becomes the new minimum payment, and the previous payment cap does not apply.

Standard 5-Year Recast vs. Negative Amortization Limit Recast

The 1st Standard 5-Year Recast occurs when the 61st payment is due. Standard 5-Year Recasts occur each 60 months thereafter.

A new minimum payment is calculated for the payment due on the 61st month based on the fully indexed rate at that time, the remaining term of the loan and the loan balance at that time. There are no other payment options for this (61st) month. This new recast payment becomes the new minimum payment for the upcoming 12 months subject to a 7.5% (or whatever your payment cap is) increase the following 12 months and subject to a full recast 5 years from this payment recast, i.e. when the 121st payment is due.

The 1st Negative Amortization Limit Recast occurs when (or if) the negative amortization cap is reached. Most Pay Options have a neg-am cap of 110% to 115%.  Wachovia has one of the highest at 125%. At this point, the loan is automatically recast for the remaining portion of the standard recast term (5 years) and then subject to recast at the normal scheduled (5 year) recast period.

For example, if the loan reaches the negative amortization cap on month 59, the loan goes through a Negative Amortization Limit Recast. At the end of the 5th year, on the 61st month, the loan goes through a scheduled Standard 5-Year Recast.

Most Pay Options Based Upon MTA Not LIBOR

Roughly 80%+ of all Option ARMs were based upon the MTA, which is still over 2%. The remainder is based upon the COFI, COSI and LIBOR…probably in that order as well. Very few loans outstanding are true ARM loans of any kind are based upon a short-term LIBOR index.

The MTA, also known as the 12-Month Moving Average Treasury index is the 12-month average of the monthly average yields of U.S. Treasury securities adjusted to a constant maturity of one year.  It is calculated by averaging the previous 12 monthly values of the 1-Year CMT (Constant Maturity Treasuries) Index.

There is more…

The CMT is a set of “theoretical” securities based on the most recently auctioned “real” securities: 1-, 3-, 6-month bills, 2-, 3-, 5-, 10-, 30-year notes, and also the ‘off-the-runs’ in the 7- to 20-year maturity range. The Constant Maturity Treasury rates are also known as “Treasury Yield Curve Rates”.  The CMT indexes are volatile and move with the market but more quickly than the COFI Index or the MTA Index (see historical graph below).

Therefore, it would be something else if the CMT followed short-rates down to zero. I think if this happened there would be other things to worry about than a few hundred billion in Pay Options blowing up.

**Please note in the chart above that even though the MTA is down to 2% now, it was as high as 5.25% in 2006 and 2007 forcing large amounts of negative-amortization on most all POA’s originated from 2004 until 2007.  When payment rates are so low and margins so high, many are sitting right up against their respective 110% or 115% maximum negative amortization limit which forces a hard reset prior to the 5-year scheduled reset.

Actual Pay Option ARM Payment Choices and 6-Year Payment Schedule

Below are the five payment choices available of which the majority chose the ‘Minimum Monthly Payment’, option 1). Each year the minimum monthly payment rate increases 7.5% regardless of what happens to the underlying indices.

Also below are the annual payment rates for the first 5-years up until month 61 and the hard recast. The loan scenario uses a $300k loan amount, 1.25% payment rate, 7.5% annual payment cap, 3.5% margin and is based upon the MTA taken out to the 61st month and first recast. With a 2.03% MTA and 3.5% margin the fully indexed rate is 5.53%.

It is very important to note when evaluating the following schedules that:

a) for much of the time that POA’s were in existence many banks qualified the borrowers at the minimum monthly payment rate or based upon interest only payments. Additionally, over 80% were stated or limited income documentation loans. Both of these factors make knowing how the borrower will react to the standard 5-year hard recast nearly impossible to forecast given they were never underwritten to take into consideration a reset of any type .

b) the schedules below are for new loans originated today and not take in account many who have had their loans for a few years when the underlying index values soared. All of the previously accrued negative amortization has to be re-calculated into the payment upon hard recast at 5-years or at the maximum allowable negative amortization amount of 110% to 125%.

POA Monthly Payment OPTIONS with MTA at Current 2.03% (Fully-Indexed Rate 5.53%)

 

  • 1) Minimum Monthly Payment: $999.76 (Deferred Interest/Neg-Am = $388.49)
  • 2) Interest Only Payment: $1388.25
  • 3) Fully Amortizing 30-year Payment: $1713.26
  • 4) Fully Amortizing 15-year Payment: $2459.70
  • 5) Fully Amortizing 40-year Payment: $1558.14

 

POA Monthly Payment OPTIONS if MTA Falls to 1.03% in 12-Mo’s (Fully-Indexed Rate 4.53%)

 

  • 1) Minimum Monthly Payment: $999.76 (Deferred Interest/Neg-Am = $138.45)
  • 2) Interest Only Payment: $1138.25
  • 3) Fully Amortizing 30-year Payment: $1529.52
  • 4) Fully Amortizing 15-year Payment: $2303.11
  • 5) Fully Amortizing 40-year Payment: $1358.93

Actual Year 1 through Year 6 – Monthly Payment Increase Schedule

  • 1) Year 1: $999.76 = Choice 1 – Minimum Monthly Payment (80% of cases)
  • 2) Year 2: $1074.74 = ($999.76 + 7.5% mandatory annual payment increase)
  • 3) Year 3: $1155.35 = ($1074.74 + 7.5% mandatory annual payment increase)
  • 4) Year 4: $1242.00 = ($1155.35 + 7.5% mandatory annual payment increase)
  • 5) Year 5: $1335.15 = ($1242.00 + 7.5% mandatory annual payment increase)
  • 6) *Month 61: = $1952.29 (Hard Recast to pay off loan in remaining 25-years)

IF the MTA drops to 1.03% from its present 2.03% over the next 12-months (no change monthly until month 61):

  • 1) Year 1: $999.76 = Choice 1 – Minimum Monthly Payment (80% of cases)
  • 2) Year 2: $1074.74 = ($999.76 + 7.5% mandatory annual payment increase)
  • 3) Year 3: $1155.35 = ($1074.74 + 7.5% mandatory annual payment increase)
  • 4) Year 4: $1242.00 = ($1155.35 + 7.5% mandatory annual payment increase)
  • 5) Year 5: $1335.15 = ($1242.00 + 7.5% mandatory annual payment increase)
  • 6) *Month 61: = $1,707.59 (Hard Recast to pay off loan in remaining 25-years)

 

In summary, while low interest rates are good overall, the effects that lower rates will have on the now ‘infamous’ Pay Option ARM will be muted for many reasons.  The broad failure of this loan type will have severe consequences on already depressed real estate values in the bubble states.

The only way to ‘fix’ POA’s is to re-underwrite and aggressively modify like I talk about in my recent report Mr Mortgage: My Case FOR Mortgage Principal Reductions .

**For those of you looking for another take on the Pay Option crisis with the same outcome, please check out my good buddy Dr Housing Bubble’s recent report entitled: Option ARMs For Dummies – Why 4.5% Rates Will Do Absolutely Nothing For These Toxic Assets.

http://mrmortgage.ml-implode.com/

In Foreclosure? Say No To Fakes and Frauds


 

It is amazing that just as we move out of an era of fraudulent loan officers, fake “Mortgage Planners” and Financial Trusted Advisers we are now being over run by a hoard of “Foreclosure Experts”.   Could these people be one in the same.  Just the times and the opportunities are different?

When in foreclosure there are experts out there that can help you develop a plan of action.  These people are beholden in one way or another to the state of Oregon as in they have an ACTIVE Real Estate license, Mortgage Certificate or member of the Oregon Bar.  Bottom line, if they rip you off they it is harder for them to hide.   Your legal representatives and the state of Oregon can track them down and hold them accountable.

It is never good to be in foreclosure.  But remember you only make the situation worse by not seeking the information you need to develop a plan of action.   Maybe you can not keep your home.  Maybe you should sell and buy another home on seller contract or lease option.  Maybe you can work something out with the lenders.  You have to treat foreclosure as an problem that can be solved and not the end of the world.

Information is power and with right power anything and everything is possible.   Do rot sit in place, do not allow shame to prevent you from doing what you can to resolve the problem for you and your family.

Lastly, do not listen to anyone that does not hold an Oregon License, Mortgage Certificate or member of the bar that promises to save your home or help you make your payments.  Those people have nothing to lose and everything to gain by gaining your trust.   If it sounds to good to be true….it is.  If it sounds like it is not legal….there is a good chance is it not legal.   If that little voice in the back of your head says hang up the phone…..hang up.   Use your common sence and reach out to people that can help provide you with real solutions.

Well that is enough ranting.  Keep an eye on this blog.  Will be posting possible solutions to the problems you are facing.   If they work for you….great.  If they won’t help you in your situation, feel free to send me an email or post the question on this message board. 

 

Fred Stewart
President
Stewart Group Realty Inc.