“Demystifying” The Subprime Mortgage Crisis And Other Questions; An Interview With Dan Crittenden

Dan Crittenden is an experienced and top producing Mortgage Banker/ Mortgage Broker specializing in real estate financing and home mortgage loans throughout the State of Washington and the United States.

Mr. Crittenden has been referred to me from a very reliable source and is here today to have a brief chat and answer a few of the questions people are having about the subprime crisis, the Washington mortgage outlook, as well as share some pertinent info of his own about the housing concern in general across the US.

His website: dan-loanman.com has some very good information in regards to home ownership acceleration, improving your credit rating, renting vs. buying, and shopping around for a loan amongst others. Take a look at his site for more info!

Hank: Hello Mr. Crittenden – Welcome to MyInvestingBlog.com and thanks for your time today! I understand that this is the first time you’ve interviewed on a blog, are you nervous? Have you heard bad things about us in the blogging realm?

Dan: Hi Hank, thanks for including me in your fun and informative site. I am excited to help clear up a lot of misconceptions about the mortgage industry problems, the mortgage outlook and any other items that may come up.

The media has, through it’s own desire to sell “ News “, and usually that has to be negative news, has sculpted, in some ways, the Mortgage mess and housing woes we are seeing today; i.e…you tell somebody enough times a piece of info, true or not, and at some point they may start believing it.

Before I get into more detail on that statement, let me answer your first question. No, I am not nervous at all. It is very rewarding to help people understand the facts instead of hype. I have not had any experience, nor have I heard much about blogging, but it seems to be a cool idea. I’ll answer the next questions and maybe the detail from above will come out. If not I’ll address what I said at the end.

Hank: Just to set the stage a little more – what exactly do you do for a home buyer? How do you make your $ from a sale?

Dan: I fully step into my clients shoes to help them construct the best strategy possible to weave their new mortgage into their short term and long term financial planning goals. I am a Certified Mortgage Planning Specialist.

There is info on my web page that goes into more detail as to what this certification means, but in short, through the last 22 years of helping people with their financing needs and the training I have obtained through people like Barry Habib and the Mortgage Market Guide along with the CMPS institute in Michigan.

I have been able to fine tune the skills to help people pick the right mortgage product to maximize the amount of money they will have to reach their financial goals – like College funding, Retirement, Wedding costs for their kids, etc…

Hank: There has clearly been a slowdown in housing purchases over the past year due to the subprime crisis. Maybe we should start with the most obvious question, What exactly IS the “subprime crisis” we’re in? What defines it? How does it affect mortgage lenders?

Dan: Let’s address what you first have stated. The housing slowdown is not a result of the subprime crisis, it is the other way around. What? You say? For about 1 ½ years, the Media has been screaming “ Housing Bubble “ ( answering my first statement here ) when there has not been a housing bubble until it became a self fulfilling prophesy about the second quarter of 2007.

At some point housing prices had to stop jumping like the chicken. A gradual slowdown would have been nice, and probably would have happened if the media pundits had not been creating worry, then panic with investors. Had it been more gradual, people who had bought homes to fix up and sell – and there were tons of them, so much so we even got to watch them on Reality TV – would have had time to notice the turn in home values and be able to sell what they had before they were under water ( most of these flippers bought with nothing down ).

Not all could have avoided being under water, but a lot could have. So, as soon as defaults started happening due to people walking on mortgages that they could not pay, because for a variety of reasons they got into mortgages they should never have been allowed into, Mortgage Backed Securities or Mortgage Bonds investors.

Lots were foreign investors hungry for our 6% to 18% tasty returns that they could not get anywhere else – who were getting monthly reports on how large pools of stated income, poor credit, low down loans were performing, started getting poor reports.

The investors then downgraded the credit ratings on these pools, literally overnight raising the rates they were expecting for these pools, and thus shutting down the ability of Banks/Mortgage companies to sell the pools of loans they had given to consumers, thus having to shelf millions of dollars of loans they really needed to sell in order to recoup the money they had lent from their lines of credit, etc.

That is why companies like American Home Mortgage, ABC and a host of others had to literally shut their doors over night. They did not have the massive capital needed to still be able to function without the infusion needed to repay what money they loaned out to borrowers off the banks lines of credit.

Most lenders have to sell their loans right after closing, a sale that the borrower many times does not know about because most banks retain the rights to collect the payments, but the loan itself has been sold. Very few retain the loan, using their own funds to lend to the borrower and not being paid back in full until the borrower sells the home or refinances. As you can see, this is a very involved process.

Hank: Do you think this is something we could have avoided?

Dan: We could not have avoided the mess because human nature drives people to succeed. And where there is money to be made, lots of it, people will do what they need to do, and some not so legal, to get to it.

When home values across the nation started going up, it took on a life of it’s own as home buyers were anxious to get in before they were priced out of buying – pretty understandable. Problem is, along with people who just wanted a home, were people who saw the golden lamb.

Tons of people found ways to buy, fix up and sell for big bucks, further driving up prices. And since lenders saw all types of loans performing, with very few going bad ( since people could sell the home and make some money if they could not make the payment, etc… ) and investors were pushing for better and better returns on the large pools of loans ( Mortgage Backed Securities ), lenders were only too happy to make it easier and easier for buyers to buy homes – thus Stated Income, low down, poor credit loans became easier and easier to get.

Throw into the mix some false/fraudulent info on the loan applications, some appraisals being overvalued, etc… and with the lenders not looking too close to the borrower info, their were loans that were destined to go bad – all it took was for values to start dropping. Bingo.

Hank: Has the crisis affected how you do business day to day? How so?

Dan: Sure, the lending industry is tightening back up, to the way we used to do loans 7-8 years ago. 0 down is almost gone – except for VA, credit standards have tightened immensely, secondary market investors are nervous about buying anything other then Fannie Mae/Freddie Mac conforming fixed rates.

Jumbo and ARM rates have jumped with most lenders to where it has put a real damper on choices the borrower has.The one thing that is very sad is that there are lots of good borrowers out there, who may not have strong credit or much money for a down payment, who deserve to get into a home.

Because of loose lending guidelines for the reasons mentioned above, these potential buyers are going to have a very had time getting into a home.

Hank: I’ve seen that the housing market has slumped in most of the US, but California and parts of Washington are still keeping with the bubble. How does that work?

Dan: Jobs baby. Wherever you have strong jobs growth, you usually have strong housing markets. There is an exception to every rule. But usually you don’t have a bad housing market when you have a strong jobs market/strong local economy. Add supply and demand, people moving in for the jobs, and you get stability in housing.

Take Seattle.

Yes, we have had a correction to values. We were overvalued due to multiple offers, etc..which at some point had to correct. But we have seen very little price reduction. Our sales are down, but only because tons of buyers are sitting the fence waiting, not wanting to be the last man in before the values drop again.

Realty is, we should be sitting in a feeding frenzy right now as prices have dropped about as much as they are going to before the dam breaks sending buyers in every direction. 40,000 net new people to the area, Microsoft hiring like there is no tomorrow, etc…and people have to have a place to live.

Hank: So rates seem to be falling again in a buyers favor right now; how are rates right now? Are they going to go lower? How much?

Dan: I have a very cloudy crystal ball sitting on my desk. No fooling. A client of mine gave it to me and it fits perfectly with that kind of prediction. And to fully explain what makes rates move and why would take a lot of typing.

Let’s just say that right now we have a tug of war going on between rising inflation caused by food and energy and a weakening economy caused by 19 Fed increases prior to about a year ago, the Housing slump and the Mortgage fallout/unemployed – latest is Washington Mutual Bank literally shutting down their Home Loan Centers and Wholesale Lending – Broker lending department.

The only place you can get a home loan with Wa Mu now is the one person sitting in the Bank branch who can take your loan application. And because of the level of pay, the best loan officers will probably seek employment elsewhere.

Rates are great. Get out there and buy and refinance. A 30 year fixed today was about 5.625%, APR of 5.75% for loan amounts at or below $417,000. I also have one Jumbo lender who has 6.25% up to a loan of $600,000, APR of 6.375%.

Also, one lender has some very low 3,5,7 year ARMs. Let me also say, beware of lenders who say they have some low rate and then say the APR is .25% to .50% or higher then the interest rate. That just means they are going to make you pay lots of points. There is no free lunch folks. Just some lenders who want you to think there is.

Hank: I like that rates are going down, what is a general rule of thumb in regards to when I should refinance? When will it save me money?

Dan: If you are going from a 30 year to a new 30 year, you should refi when the new rate is about 1% lower, then the pay back time is usually about 3 years. We really have to run each case separately to see what is best for the client.

It, again, really depends what financial planning goals they are trying to meet. My web site has some great info on how best to meet some of those goals and would be happy to discuss anyone’s mortgage/financial planning strategies with them.

Hank: To get more specific, take my house I have a 100% loan on my house at 10 and 15 year ARMs. 80% of it is at 6.325% for 10 years and 20% is at 8.020% for 15 years. Should I consider refinancing? Should I wait longer?

Dan: You probably won’t find anyone at this point who can do a refinance for you above 95% loan to the value of your home. And if your home would appraise for enough to consolidate both loans, wrap in costs and not exceed 95% of the value, you would find loans available with PMI.

Your credit score, income vs debt, and other factors will determine “approve-ability”, but looking at your current rates, if you can meet the guidelines you could save some money, enough to make it worthwhile.

Hank: At what point would you say a person should generally start looking at refinancing when they are using an ARM? Is there any benefit to refinancing a good fixed rate? At what amount?

Dan: Each case and what the client is trying to accomplish will determine when it would be good to refinance. Some ARMs are great for helping people build retirement savings. One type of loan is best at building home equity. Each product has a feature that can be used to maximize the ability to reach financial goals.

Hank: I’ve heard that you can get better deals around the country now if you’re buying property when the market is doing poorly. Are better rates given in different parts of the US? Where is the hot spot to buy right now?

Dan: Hard to say. Some areas are not good to buy in no matter how low the home values or perceived values are. Some areas have strong housing markets and might be the better places to buy.

You have to look at each area by itself. Ask yourself how long you want to keep this Real Estate asset, then look at the current and possible future economic/jobs prospects for that area. If you see an upcoming strong local economy, strong jobs, high housing demands, high quality of living, etc…like Spokane, Washington, then buy like mad.

I use Spokane because it is a prime example of an area of the country that is slowly being discovered. Great town to raise kids, close to wonderful activities, great downtown life, great schools, one of the friendliest places in the U.S, low crime, etc.. And a place where a teacher and police officer can buy a 3000 sq ft home and afford it.

Hank: What type of loans are you giving the most of these days?

Dan: Fixed rates, Jumbo fixed and ARMs with two portfolio lenders who have been unaffected by the industries liquidity crisis are the most popular, with the Home Ownership Accelerator picking up steam.

Hank: I don’t want to take up too much of your time and I appreciate you stopping by, do you have any last minute tips for readers on anything mortgage related these days?

Dan: Before you choose a lender, make sure they can answer the questions on my “ Shopping “ link on my web site. I have been addressing these questions in this blog.

If they don’t know this info I have explained, then run for the hills. Because they don’t have the foggiest idea how to help meld a mortgage into your financial planning.

Thanks Hank, glad to help!

Photos by: EricCastro, ByYour, DryIcons,clspeace, walkinggeek, Alexandra Lerman, LostInTexas

Filed Under: financial educationHouseInterviewsInvestingNet WorthReaders RequestsReal Estate

  • Eddie

    Wow, great interview Hank! Very in depth! I have one more question for Mr. Crittenden. When he says ” …two portfolio lenders who have been unaffected by the industries liquidity crisis…” Who is he talking about? I thought all lenders were hurt by the drop to the national rate, no?

  • Dan Crittenden

    Hi Eddie, glad you liked the interview.
    I am talking about Washington Federal Savings Bank in Seattle and Astoria Federal Savings in NY. They both don’t sell their loans, hold onto them, and therefore can set their own guidelines and unaffected by the secondary mortgage market. They don’t need to worry about underwriting changes from Fannie Mae, Private Investors, pricing changes from investors once they take their loans to the secondary to be pooled for sale. So their pricing is only determined by what their policies and pricing strategies are. Have a good day. 🙂

  • Jules

    I have a question! Why should a person go with a mortgage broker instead of a place like LendingTree? Don’t they do the same thing as you but on a broader scale?

  • Good interview Hank and Dan! So Dan, I’m looking to buy an investment property to rent out. Are you saying that the best place to buy real-estate now in Washington is the Spokane area? Is that the fastest growing area in your opinion? Any other high growth regions you know of?

  • Dan Crittenden

    Hi Wayne, yes, Spokane is way undervalued. You can get so much more home there. Call Randy Wells at Windermere City Group at 509-979-7400. You can also email me directly for more feedback on Spokane – ” Near Nature, Near Perfect.” 🙂

  • Pingback: Prime Time Money: Everyone’s Ready for the Tax Rebate Roundup | Prime Time Money()

  • Pingback: Festive Link Love Carnivality #6 | Free From Broke()

  • Pingback: Hanks Weekly Hangouts #27 (April 27, 2008) | My Investing Blog()

  • Dan Crittenden

    Jules,

    There is a big difference between Lending Tree, or sites like that, and what I do.
    Lenders pay to advertise on sites such as that, leaving the consumer to rely on limited info that is described about the lender and it’s products, etc….
    Give me a call and we can go through the differences.
    You can start by going to my web site at http://www.dan-loanman.com, click on ” Shopping “, and read the article. That will tell you volumes about differences between a Loan Officer that just quotes rates, and a Certified Mortgage Planning Specialist. 🙂

  • Pingback: Weekly Round Up: Washer and Dryer Edition | Green Panda Treehouse()

  • Pingback: How Do You Save Your Money? (revised repost) | MiB Smarter Money()

  • I understand that this is the first time you’ve interviewed on a blog, are you nervous? Have you heard bad things about us in the blogging realm?