bostonbubble.com

[Hard Rain]

Curious to see if mortgage lending standards have tightened I did some digging. I started by reviewing recent home sales which might be considered risky. I examined sales in which the sale price exceeded the assessed value of the property. Remember assessments are based on prior year sales and since data indicates prices are falling it stands to reason that current sale prices should be less than assessment. Here just a few examples:

http://www.redfin.com/MA/Arlington/107-Medford-St-02474/unit-1/home/12098993

Sold for $285,000 with an assessed value of $250,100 - buyer was given a mortgage of 275,025.00

http://www.redfin.com/MA/Reading/17-Dunbar-Rd-01867/home/8698830

Sold for $268,500 with an assessed value of $237,400 - buyer was given a mortgage of 259,538.00

Here's where it get's interesting , the common thread with these transactions (and many others), the mortgage lender - Prospect Mortgage.

On July 8, 2008, failed mortgage lender IndyMac announced that Prospect Mortgage signed an agreement to acquire the majority of IndyMac Bancorp's retail mortgage branches.

Now after the debacle that was IndyMac one would assume any former employee would have been banned from further participation in the mortgage industry. No so, they run the place:

“ Bergum, the former co-chief executive of retail lending at IndyMac, is now chief executive of Sherman Oaks-based Prospect Mortgage, one of the nation’s largest independent mortgage bankers “

“Two former IndyMac Bank executives are lobbying federal officials in support of a bold plan to make it easier for borrowers who have gone through a foreclosure to get home loans.
The plan, dubbed the Second Chance Program, seeks to hasten a recovery in the beleaguered housing market by reducing the amount of time a foreclosed-upon borrower must wait before obtaining a new mortgage.
“We’ve already had 6 million foreclosures occur since the crisis started, and we have another 7.5 million people in trouble today,” said Ray Mathoda, chief executive of Long Beach-based short-sale specialist AssetPlan USA Inc. and co-author of the proposal. “We (should not be) locking people out that truly should be able to get back into a home.”

http://www.labusinessjournal.com/news/2010/apr/14/indymac-veterans-make-credit-push/

“I worked at Indymac Bank for a little over 4 years till July 2008 when — after the FDIC took management control of the Bank after a “run on the Bank” was triggered by Senator Schumer’s leaked WSJ letter — I resigned from my position as Chief Administrative Officer. My role had put me in charge of the “People” and “Expense/Cost” functions of the Company…but thankfully (I guess — given the massive blame game going on against anyone involved in the lending industry) I was not involved in any way with making loans.

http://www.flippingfrenzy.com/2008/10/23/ray-mathoda-on-whos-really-to-blame-for-the-mortgage-fraud-crisis/

[JAP]

[GenXer]

Hard Rain: Exactly. The government is creating another bubble by making lenders give these types of loans. Just go to any lending broker and ask them what's avaiable - you get the 3% down loans all over the place. We also seen some 0 down loans as well. Makes one wonder.

[Kaidran]

I think assessed values in a given town hold a reasonable trend but using them between towns does not work. Also I think they are mainly prepared on the details of the house, not the condition so you have to compare like to like.

I think that he did work out (or at least provide the data to work out) the down payment, if we know the mortgage and sale price. Am I missing something? Very nice detective work btw. If those people were using the tax credit then they would not even be putting it for the down payment, instead on closing fees.

Also could this be a good reason to encourage people to strategically default? If loans which virtually encourage people to be underwater became so toxic that even the govt would not touch them, would that not encourage tighter lending practices?

[admin]