Equity Conversion Plan

Please join me in welcoming Debbie L. Sklar to the editorial staff at Blown Mortgage.  She’s going to be writing a couple of articles a week for us here as we work to bring you ever-improving content.  I’ll let Debbie introduce herself with her first post below:

“Mortgage Mania” — this is a term that is often used when describing the craziness that has taken the country by storm thanks to those in the mortgage business. I have a few choice other phrases to describe my own personal feelings, however, they aren’t quite appropriate for an open blog.  

While some say they feel sorry for those mortgage lenders, brokers, loan officers, etc., I can’t say that I do – at all.

Living in California for the past 10 years, I have somewhat learned to “go with the laid back California attitude,” but I still maintain many of my Midwestern values. What does that mean? Well, that I try to maintain and abide by a strong work ethics. So, it is hard for me to feel sorry for an entire industry – an industry that has indeed thrown homeowners across the country into a tailspin.

Just in Southern California alone the number of Notice of Defaults rose in July by leaps and bounds according to a report by DataQuick Research. I felt the pain personally after I received a notice from my landlord’s creditors stating that he and his wife had filed for Chapter 7 Bankruptcy.

What did that mean to me? Well, after three years of being the perfect tenant, never missing a month’s rent, and taking care of their home better than they did, I had to move quickly – like within a week to find a new home — before the bank showed up to tell me their home was going into foreclosure.

Apparently, Mr. Landlord’s own home, a big McMansion that he and his wife had purchased in 2005, had already been in default for quite some time.

Ok, sure, I wasn’t the first or the last to experience such a blow! And there is little doubt in my mind that this mortgage meltdown will continue and cause more heartache for homeowners from Coast to Coast.

In these posts, I am hoping to bring you, the reader, in layman’s terms, the latest info in this saga of never-ending rollercoaster events as we move into 2009. Many critics report that we won’t see the housing market pick up for awhile. Check out the report from Treasury Secretary Henry Paulson as reported back in May on money.cnn.com.

Well, let’s hope Paulson is way off base, and try to keep our fingers crossed that more Americans won’t lose their homes. Maybe we need to wipe out the entire mortgage industry – even though most have already closed their doors according to ml-implode.com – perhaps it’s time to start fresh? Just a thought. Stay tuned.

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The writer, Debbie L. Sklar is a 20+year journalism veteran residing in Southern California, where she is a writer, columnist and editor for many local, regional and national publications. She will be a regular contributor to Blown Mortgage and may be reached via e-mail at DebbieSklar@cox.net.

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Hat tip to Chris at LO Survival Guide for this one.

The mortgage market continues to tighten, with more non-traditional mortgage products starting to exit the market. Today, CitiMortgage announced the end of it’s stated income (SIVA and SISA) and 40-year loan products, the 40-year interest only mortgage and the 40-year ARM product (which consists of a short-term fixed period followed by an adjustable rate period for the duration of the loan).

Some items of note here:

The mortgages being eliminated are the stated income and stated income, stated asset loan types. Often referred to as liar loans, these perform notoriously poorly compared to full income documentation loans (for obvious reasons). Many banks started to reduce the impact of stated income by dialing down the loan to property value (LTV) percentages associated for those loans - now they are eliminating them all together.

The 40-year mortgages being eliminated are also of note. Using a 40-year amortization was often a trick used to qualify a borrower who could not qualify under the traditional 30-year term. The extra 10 years of repayment reduced the monthly payment of the mortgage and allowed more people to qualify. This would indicate that borrowers that took 40-year mortgages were stretched on their repayment ability and therefore more likely to default.

It makes perfect sense that Citi eliminated these products (the only question is how did they survive so long). If you can’t qualify for a traditional 30-year product and have to use the extended repayment period to afford the loan there is a high probability that you shouldn’t be in the loan in the first place.

For the stated income loans it’s amazing that these were still available.

From CitiMortgage:

For all Agency Alt-A (SIVA and SISA), 40-year Fixed I/O, 40-year LIBOR ARM products - these are being discontinued. Any loans that you have under these programs must be REGISTERED BY 9-12-08, LOCKED BY 9-30-08, and FUNDED BY 10-31-08.

The company will continue to allow asset backed (i.e. stated income) loans in its portfolio, but I imagine that this will be a nearly unsellable product with rates and guidelines that make it unavailable to the many people who would want to use it.

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