My Way Lending

How does $11 billion roll off your lips? I find it a little sickening to try saying the words “lost $11 billion” and it’s not even my money. AIG reported today that not only did it find a way to lose $5.29 billion bucks this quarter; but it also reported a charge of $11.12 billion for credit derivatives going bad - like really bad.

From the Market Watch story on the massive AIG credit derivative charge down:

 

American International Group reported a $5.29 billion fourth-quarter net loss late Thursday after the insurance giant took a big charge related to the estimated market value of credit derivatives.
AIG shares fell 2.9% to $48.70 during late trading after the results.

The net loss was $5.29 billion, or $2.08 a share, vs. net income of $3.44 billion, or $1.31 a share, a year earlier, the company said. The adjusted net loss for the fourth quarter of 2007 was $3.20 billion, or $1.25 a share.

AIG was expected to make 60 cents a share, according to the average estimate of 17 analysts polled by FactSet. The estimates varied widely though, ranging from a loss of $1.20 a share to a profit of $1.68 a share.

The fourth-quarter result included a pre-tax charge of roughly $11.12 billion from a net unrealized market valuation loss related to the super senior credit default swap portfolio of the company’s AIG Financial Products Corp. derivatives unit.

AIG said these unrealized valuation declines aren’t indicative of the actual losses the unit may realize over time. Any credit losses that do occur in future won’t have a big effect on AIG’s overall financial condition. However, the insurer also noted that credit losses that may be realized by its derivatives unit could have a material effect on operating results in specific future reporting periods.

Indeed, AIG’s fourth-quarter results included realized pre-tax losses of $2.63 billion from its investment portfolio and another $643 million of pre-tax losses related to securities that were held for sale by its derivatives unit.

I’ll be your huckleberry. The net operating loss dwarfs the losses posted by Freddie Mac and are a far cry from the paltry $3 billion in write downs that UBS first took back in August that everyone said were “conservative” and meant to “clean out the system in one fell swoop.” Yeah right. Look for more of this.

I’ll have more later on this weekend once I pick my jaw up off the floor.

photo credit: Darcy Knoll

If you’re considering refinancing your home loan, finding the best lender is probably at the top of your to-do list for the loan. Finding the best lender will help you get the lowest mortgage rate refinancing your loan. Here are several tips to help you get the best mortgage rate refinancing your home without paying commission based markup or junk fees.

Avoiding Commission Based Markup

If your goal for the new home loan is to get the lowest rate possible you’ll need to get a wholesale mortgage rate. The only way to get a wholesale mortgage rate is to find the right mortgage broker who is willing to give you access to wholesale rates for a reasonable fee. How do wholesale rates work? Only mortgage brokers have access to these rates; you’ll never get wholesale from bank, credit union, or broker bank.

The problem with using a mortgage broker to refinance your mortgage is that most brokers rely on commission based markup of your interest rate as a source of income. You’re already paying a perfectly reasonable origination fee for their services; why accept a higher mortgage rate just to give your mortgage broker a commission?

This commission based markup of your mortgage rate refinancing is called Yield Spread Premium and you’ll need to avoid this markup to get the lowest possible rate.

How do you get the best mortgage rate refinancing your home? Find a mortgage broker willing to work for a one percent origination fee without tacking Yield Spread Premium to your loan. These people are out there…they are typically self-employed mortgage brokers that run their own businesses without staff or posh offices. The key is to find a mortgage broker that doesn’t employ a sales staff. These brokers always split their commissions with their salespeople are will not typically negotiate over Yield Spread Premium. The same is true of a large brokerage house…the owner is always going to want their cut.

You can start your search by checking the website of the Upfront Mortgage Broker Association. (upfrontmortgagebrokers.org) Their website lists their members by Sate and all of the brokers agree to run their businesses by certain professional and ethical standards. When you contact these brokers ask them how long they’ve been originating loans. You’re looking for ten years or longer and someone that is the owner of their business. Make sure they close your loan in the name of the wholesale lender and not their own company. Brokers that close in their own companies name fund their own loans and are not required to disclose their profit margin or markup under the Real Estate Settlement Procedures Act. This is the same reason you should never refinance your home loan with a Bank or Credit Union.

When addressing Yield Spread Premium, make sure your broker will not include this in your loan and is willing to show you the rate lock confirmation from the wholesale lender. This document provided by the lender is proof that your broker is not receiving Yield Spread Premium for marking up your rate. If the broker is unwilling to provide you this document he or she is hiding the fact that Yield Spread Premium is a part of your loan and cannot be trusted. You can learn more about getting the best mortgage rate refinancing your home and expensive pitfalls to avoid by registering for my free video tutorial.

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President Bush urged Congress to reject a new bill that would allow bankruptcy judges to modify the terms of home loans included in bankruptcy cases.  From the Market Watch story on the bankruptcy bill to change mortgage terms:

President Bush urged Congress to reject a Senate bill that would change bankruptcy laws by allowing judges to modify the terms of a mortgage as part of the restructuring of a debt. Instead, Bush said at a White House press conference, lawmakers should approve reforms to mortgage-buyers Fannie Mae and Freddie Mac and the Federal Housing Administration.

The president has a point here.  While the government clearly isn’t done bailing out folks this change seems extremely dangerous to the stability of the secondary market.  If investors are worried that judges are modifying loans pell mell they are going to be extremely reluctant to purchase securities made up of individual mortgages.  Investor interest has to be protected in this process.  Remember - they are the ones with the money!  The government sure doesn’t have it, consumers sure don’t have it - it’s the investors.

If the investors take their money off the table, or, more likely, put greater costs associated with borrowing it, it hurts everyone.  We need investor confidence to return money to the system.  The secondary market only works when investors have confidence in it.  Letting judges make changes as they see fit is a quick way to send investors running.