I had a client who wanted to look at homes, she was not pre qualified.  I suggested that she get pre qualified before she starts looking. She insisted that she knew what she would qualify for. We find a property she likes and she wants to make an offer, I told her that she has to get pre qualified now because we cannot submit an offer with out a pre-approval letter from a lender. She contacts a bank and finds out that she can not qualify for the amount of the purchase. She qualified $75,000.00 less then she anticipated. She lost her interest in buying a home.

Kellie Clifford

August was a worse month for mortgage brokers and borrowers, according to a just-released Campbell Communications survey sponsored by Mortgage Finance. About 33 percent of home purchase closings of loans originated by mortgage brokers were canceled during August. Worse, approximately, 57 percent of the brokers’ customers found they could not refinance their adjustable rate mortgages that had resetting interest rates.

Washington-based Campbell Communication’s survey of 1,744 mortgage brokers was conducted August 23-31, and is one of the earliest “quantitative measures of the major disruptions in the mortgage originations market which started in early August,” says the survey.

Not surprisingly, the survey found that home purchase closings were most often canceled for homebuyers with subprime credit. Fifty-six percent of subprime homebuyers in August had canceled closings compared to 21 percent of homebuyers seeking prime conforming mortgages who had canceled closings, a startling high number. In 2004, in another survey of real estate agents taken by Campbell Communications back in 2004, respondents indicated that only 4 percent of home purchase closings failed to close for mortgage-related reasons.

What a difference interest rates and investors’ appetite for risk can make.

Thomas Popik, a designer of the survey, noted that the reasons for canceled closings were different depending on credit class and product category. Prime conforming homebuyers were more likely to withdraw from the transaction while subprime homebuyers were more likely to have problems getting mortgage approval, he said.

“The survey found that both prime and subprime homeowners are having trouble refinancing adjustable rate mortgages,” Popik said. “Sixty-four percent of subprime homeowners could not refinance while 50 percent of homeowners seeking prime conforming mortgages could not refinance. Subprime homeowners most commonly had issues with subprime loan programs no longer being offered and FICO scores. Those seeking prime conforming mortgages most commonly found appraised property values and loan-to-value (LTV) ratios as impediments.”

Other product categories covered in the survey were Alt A loans and prime jumbo loans. Alt A loans have lower documentation requirements for borrowers’ income and assets.

Jumbo loans have a loan amount greater than the Fannie Mae and Freddie Mac conforming limit of $417,000.

The bottom line is that loan-to-value ratios have returned to more traditional limits. For prime jumbo loans, the maximum acceptable LTV has tightened to 90 percent, the lowest of any of the four product categories surveyed. For prime jumbo loans, the minimum acceptable FICO score now averages 679, the highest of the four product categories surveyed.

Subsequently, the survey found substantially reduced mortgage broker production in the month of August 2007 as compared to August 2006. Production of prime conforming loans was down approximately 20 percent while production of Alt A loans was down nearly 50 percent.

One of the major reasons is that lenders are failing to meet their commitments to fund loans that they had previously fully approved. Twenty percent of commitments to fund subprime loans through mortgage brokers were not met during the month of August. Survey respondents indicated that one-third of their most frequently used subprime lenders in August are no longer accepting applications or funding loans. For prime jumbo lenders, approximately 15 percent are no longer accepting applications or funding loans.

The subprime problem has changed the way mortgage brokers operate. They typically submit identical applications for the same borrower to multiple lenders for the following reasons: rate shopping, uncertainty regarding mortgage approval, uncertainty regarding prevailing underwriting guidelines, and concern that lenders will not honor funding commitments. While mortgage brokers more often submit multiple applications for subprime and Alt A borrowers, this practice has become more prevalent for prime credit applicants as well. On average, mortgage brokers are currently submitting 1.7 applications for prime conforming loans; another Campbell Communications survey of mortgage brokers in 2006 found only 1.2 applications submitted on average for prime conforming loans.

“There is very little hard data available about what is currently going on in the mortgage originations and home sales markets,” Popik noted. “The Mortgage Bankers Association weekly application index is likely being skewed by mortgage brokers submitting multiple applications. The National Association of Realtors Pending Home Sales Index does not account for sales that will fall through because of mortgage issues. Our survey shows that the number of home purchase transactions falling through due to the mortgage market disruption was substantial for the month of August. Mortgage originations statistics for the month of August from government registries of deed and industry surveys will not become available for another 60-90 days. To the best of my knowledge, we have the most current and actionable data available on the wholesale mortgage market and on homebuyers served by mortgage brokers.”

Editor’s note: For information about obtaining the new survey report, contact John Campbell at (202) 363-2069, email john@campbellsurveys.com. The full survey instrument is available for viewing online at www.campbellsurveys.com/chgmkt07.

NEW YORK (Reuters) - Countrywide Financial Corp. (CFC.N) shares sank 13 percent, their biggest one-day decline since the 1987 stock market crash, on fears the largest

U.S. mortgage lender could face bankruptcy as liquidity worsens.

“If enough financial pressure is placed on Countrywide or if the market loses confidence in its ability to function properly, then the model can break, leading to an effective insolvency,” Merrill Lynch & Co. analyst Kenneth Bruce wrote. “If liquidations occur in a weak market, then it is possible for Countrywide to go bankrupt.”Countrywide debt prices fell and the perceived risk of owning its bonds rose, suggesting less confidence that the Calabasas, California-based company can pay its bills and fund operations.This helped drag down U.S. stocks, as investors bought safe U.S. government debt to escape clouds enveloping the

U.S. mortgage industry.Bruce downgraded Countrywide to “sell” from “buy” on Wednesday. “The company can survive a period of secondary market instability; however, the steps that it would take to preserve shareholder value would be expensive, likely leading to further share price declines,” he said.Shares of Countrywide closed down $3.17 at $21.29 on the New York Stock Exchange. They have fallen 50 percent this year, and the company’s market capitalization has dropped to about $12.3 billion. Countrywide did not immediately return requests for comment on Wednesday’s share price decline.Bruce’s downgrade suggests deepening problems at Countrywide, which has in the last month tried to assure investors it would thrive once the credit crunch afflicting

U.S. mortgage lenders passed.The downgrade came a day after Countrywide said foreclosures and mortgage delinquencies rose in July to their highest levels since at least early 2002. DEBT YIELDS RISEShares of several other companies exposed to mortgages also suffered double-digit percentage declines on Wednesday, including Deerfield Triarc Capital Corp (DFR.N), KKR Financial Holdings LLC (KFN.N) and Scottish Re Group Ltd (SCT.N). The KBW Mortgage Finance Index (.MFX) fell 2.7 percent.The mortgage industry is struggling as defaults rise, investors refuse to buy many home loans, and bankers curtail lending to mortgage providers. Dozens of lenders have quit the industry this year, and several have gone bankrupt.Countrywide spokesman Rick Simon declined to discuss Bruce’s report, but said: “Management is completely focused on running the business in a changing environment.”Reuters obtained a copy of Bruce’s report.Countrywide’s 5.8 percent notes maturing in 2012 fell 1.9 cents on the dollar to 90 cents, yielding 8.37 percent, according to Trace, the Financial Industry Regulatory Authority’s bond pricing service.The perceived risk of owning Countrywide bonds rose. Credit default swaps rose about 100 basis points (1 percentage point) to 500 basis points, or $500,000 per year for five years to insure $10 million of debt, traders said.Countrywide’s unsecured 30-day commercial paper yielded 6 percent to 6.25 percent, according to Deborah Cunningham, chief investment officer for money markets at Federated Investors. DISRUPTIONSBruce said market disruptions have made it difficult for many companies to obtain even short-term financing. He pointed to

Canada’s Coventree Inc. a structured finance firm that on Monday found itself unable to sell its own short-term debt. It said it later found buyers for C$600 million (US$556 million) of the debt. The Countrywide downgrade is “a big deal,” said Blake Howells, director of research at Becker Capital Management in

Portland, Oregon. The disruptions are “an issue for Countrywide and for anyone accessing pretty reliable short-term funding.” Earlier this month, Countrywide said it had access to $186.5 billion of cash as of June 30, including $46.2 billion of “highly reliable” short-term financing. Chief Executive Angelo Mozilo on July 24 said Countrywide expected to add market share, and eventually be among perhaps five lenders to dominate the mortgage market. Countrywide added nearly 7,000 jobs from January to July. Bruce said “we like” Countrywide’s franchise, but industrywide liquidity problems could erode its value.

By Jonathan Stempel  

(Additional reporting by Karen Brettell, Doris Frankel, Chris Sanders, Neil Shah and Dan Wilchins)

PARIS (AFP) -

US home loan woes caused more turmoil on world markets Friday despite the tens of billions of dollars released by central banks to stop the problem turning into a global economic crisis. London’s FTSE stock market closed a whopping 3.71 percent lower and US, European and Asian shares slumped after losses tied to

US subprime mortgages — high-risk home loans to people with poor credit histories — spread. The growing crisis caused the price of oil to fall for the third straight day as speculators rushed to bank profits on concerns that subprime fears might weaken energy demand.Central banks across the world responded by pumping tens of billions of dollars into the banking system, offering loans at lower rates to commercial banks to forestall a credit crunch that could damage economic growth.“The European financial system is facing a serious but not ‘catastrophic’ crisis,” said an analyst at

US investment bank Morgan Stanley, adding that “it may take weeks before the true depth of the credit problem is revealed.”After years of booming house prices and cheap credit — interest rates have been historically low — the

US housing market is now in reverse with loans becoming more expensive and house prices falling.This has caused high numbers of mortgage defaults and repossessions as borrowers, particularly high-risk subprime borrowers, struggle to make their repayments.Dozens of

US mortgage lenders have been put out of business and major Wall Street banks such as Bear Stearns have taken a hit.After several weeks of turmoil on world stock markets due to the subprime crisis, fears appeared to recede earlier this week.But on Thursday French banking giant BNP Paribas spooked the market when it said it had suspended three investment funds exposed to the

US housing market because it was unable to value the assets.A short time later the European Central Bank pumped a record 94.8 billion euros into the money supply — far more than it injected in the aftermath of the September 11, 2001 attacks in the

United States — and followed up with another 61.05 billion euros on Friday.The Federal Reserve for its part has pumped 38 billion dollars into the

US banking system since Thursday, intervening three times on Friday to shore up the country’s financial system.Central banks in Australia, Canada and

Japan also injected liquidity into their markets.But stock markets continued to slump across the world, with volatile US markets opening lower before rebounding and then falling back again in afternoon trade.“It’s that unnerving effect of the unknown which is spooking investors at the moment,” said analyst Henk Potts of Barclays Stockbrokers in

London.Banking stocks were among the worst hit.“Investors don’t know which banks have got exposure (to the credit problems) and the extent to those potential losses,” said Potts.But he added: “We suspect that the underlying picture is more positive than the knee-jerk reactions that we have been seeing in terms of the (stocks) sell-off for the last couple of sessions.” The International Monetary Fund agreed. The multilateral lender said Friday that the global financial market turmoil sparked by the

US mortgage sector should be “manageable” and that global economic growth would likely not be derailed. The human face of the current financial crisis is likely to be a low-earning American, possibly someone who took on a mortgage they could ill-afford and whose mortgage broker did inadequate checks on their ability to repay. The link between these people and turmoil in financial markets involves much financial wizardry that enabled banks and funds all over the world to make investments that are essentially bets on borrowers repaying their mortgages. Banks are now setting aside cash as a precaution against further losses from their bad investments and have become far more cautious about lending. This is known as a “credit squeeze,” but the fear is that this could become a veritable “credit crunch” in which companies and consumers have inadequate access to loans. A shortage of liquidity would restrict the ability of companies, and eventually consumers, to borrow, potentially slowing economic growth worldwide.by Rory Mulholland

Delinquencies jump among riskiest loans; California, Nevada hit hard

As the U.S. housing market continues to slog through a hangover from its post-millennium boom, mortgage foreclosure data released Thursday provide fresh evidence that the slow-motion unwinding of the easy-money mania is still under way. The number of residential mortgages going into foreclosure hit a record in the first quarter of the year, with the biggest increases coming in the so-called “subprime” market of borrowers with weaker credit histories. Foreclosure rates were highest in a handful of states where home prices and sales surged during the boom, including California, Florida, Nevada and Arizona.

The rate of delinquencies, defined as borrowers who are at least 30 days behind on their payments, also rose among subprime borrowers to 15.75 percent. For all mortgages, the delinquency rate dipped a bit compared with last year’s fourth quarter, but remained higher than the comparable year-ago period. The housing industry watches these numbers closely because the delinquency rate is a bellwether for more serious problems down the road, including a default by borrowers who have gotten in over their heads. Unless those borrowers can renegotiate a new loan with more favorable terms, those defaults will likely become foreclosures. While the dip in delinquencies is a positive sign, it’s too soon to say the rate has peaked, said Doug Duncan, chief economist of the Mortgage Bankers Association. “We’re not ready to say one data point is a trend,” he said. “We will probably see modest increases in delinquencies and foreclosures for the next couple of quarters.”A separate report this week by RealtyTrac reported that foreclosures for May were up 19 percent from April and up nearly 90 percent from May 2006. In

Nevada, there was one foreclosure filing for every 166 households last month, nearly four times the national average and the highest rate in the country for the fifth month in a row, according to RealtyTrac.

Some lenders are working to help borrowers who got into trouble. By making concessions, like offering a new loan with a lower interest rate or shifting from an adjustable to a fixed rate, those lenders may lose a little in the short term. But they’re hoping to head off bigger losses if the loan goes to default and the borrower’s home is sold in a foreclosure. “There’s no question that within the industry it’s kind of all hands on deck — let’s work with borrowers,” said

Duncan. “They are aggressively restructuring loans for people who, largely due to circumstances beyond their control, are in some difficulty.”

Those circumstances include a drop in housing prices in many parts of the country, which has left some recent homebuyers holding loans that are bigger than the value of their houses. So far, the biggest problems are cropping up in the relatively small subprime market, where the riskiest lending took place.No one can say for sure when the housing market will hit bottom. The outlook for an overall recovery depends on a variety of factors, including the overall strength of the economy and job market, the direction of future interest moves, and how well borrowers now facing delinquency can get back on their feet.In any case, it will be some time before the dust settles on the mortgage market and any housing turnaround can be confirmed. That’s because the process of working out a delinquent loan — whether through refinancing or foreclosure — can take months to play out. For lenders and investors who bought bad loans, the process will likely extend well into next year.“It can take 12 to 14 months for the loans to go through the foreclosure process and then be sold before a loss might be incurred (by the lender),” said Susan Barnes, head of mortgage-backed securities ratings at Standard & Poor’s.In the meantime, hopes for a buoyant spring season have come and gone for the real estate market with little sign of recovery, especially in regions where the level of unsold new and existing homes remains at historically high levels. “There are large inventories that will have to be worked off in certain sections of the country before we see a recovery take place,” said

Duncan.Meanwhile, lenders have tightened standards for new loans, which has shut some potential buyers out of the market. Rising interest rates have also slowed demand. “Certainly the evidence suggests that the housing recession is getting worse, not better,” said Nouriel Roubini, a former White House economist who is now an economics professor at

New York

University. While the number of foreclosures hit a record, the national average masks strength and weakness in different regions of the country. Markets in California, Florida, Nevada and Arizona, which  saw the biggest boom, are now feeling the most pain — and will likely take the longest to recover. Ohio, Indiana and

Michigan also saw high rates of foreclosures, according to the latest figures. But nearly half the states outside those trouble spots saw a drop in new foreclosures.

So far, it doesn’t appear that the housing recession has spread to the wider

U.S. economy. Though interest rates have bumped higher, they still remain fairly tame by historical standards. Inflation, as measured the by the Producer Price Index, appears to be holding steady, according to figures released Thursday. And despite the pinch of higher gasoline prices, consumer spending has shown little sign of slowing, based on retail sales figures released on Wednesday.

All of which leads some economists to believe that despite the financial hit to the millions of individual borrowers who got in over their heads, the impact on the wider U.S. economy will be limited.

“The U.S. is a massive economy with incredible productivity, and the non-housing (gross domestic product) has been growing over 3 percent in the last year,” said Brian Wesbury, chief economist at First Trust Advisors.

“We can absorb these losses. It’s going to be painful, and there’s still some losses to come. But it’s not the kind of thing that will drag the entire economy down.”

By John W. Schoen
Senior Producer
MSNBC

 Freddie Mac: The average for 30-year, fixed-rate at 6.53 percent

Updated: 7:29 a.m. CT June 8, 2007

WASHINGTON - Rates on 30-year mortgage rose for a fourth straight week, hitting the highest level in 10 months, as bond markets responded to strong employment growth.

Mortgage giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages averaged 6.53 percent this week. That was up sharply from 6.42 percent last week and represented the highest point for 30-year mortgages since they averaged 6.55 percent on Aug. 10.

Analysts attributed the increase to recent signs of economic strength outside of the slumping housing market including last week’s report that the economy created 157,000 jobs in May, nearly double the April pace.