Texas Mortgage Brokers know more

Bloomberg News was comparing the Savings and Loans Scandal of the 1980's to the current subprime mess. Many of the geographic areas that were effected by the S&L mess are the same ones that are being hit with the subprime problems with the excemption of Texas. After the S&L problems Texas wanted to prevent something like it from happening again so they began regulating the state's Mortgage Brokers.

"We had no regulation of mortgage brokers before 1990 and now we have some of the most robust requirements in the country,'' said Doug Foster, commissioner of the Texas Department of Savings and Mortgage Lending in Austin.

Texas decided to conduct criminal background checks and also administered testing for all their mortgage brokers. It is shocking how simple this sounds but how very few states actually do this.

"Texas is one of 32 states that require criminal background checks for mortgage brokers and one of 12 states that administer tests that prospective brokers must pass," Foster said. "The state has a 42 percent failure rate on that test," he said. "Texas also requires 90 hours of training for new brokers and 15 hours of continuing education every two years. Only Wisconsin mandates more," he said.

It is also interesting to note that Texas's 5 largest markets and Milwaukee, WI are have a less than 1% chance of home price depreciation in the next 2 years according the US Market Risk Index.

Texas is still a safe market to buy a home

The Real Estate Center at Texas A&M had a short article from a study by the PMI Group. The article talks about how the 4 major cities in Texas have a less than 1% of seeing home price depreciation

Four major Texas metros were ranked among the least likely in the country to experience home-price depreciation in the next two years, all with less than a 1 percent chance.

On the list of 50 major U.S. metro areas, San Antonio placed fifth from the bottom with a 3.95 volatility rate and a 4.02 price appreciation in second quarter 2008.

Ranking third from last was Houston–Sugar Land–Baytown, which had a 1.74 volatility rate and a 4.44 price appreciation.

Dallas-Plano-Irving came in second to last, showing a 0.93 volatility rate and a price appreciation of 2.06.

Fort Worth–Arlington came out best with a 0.89 volatility rate and a 3.07 price appreciation.

All Texas MSAs had less than a 10 percent chance of prices decreasing in the next two years.

San Antonio's appreciation rate was only second to Houston's 4.44% vs. 4.02% in the second quarter of '08. Great news for us in San Antonio. While those numbers may not look great, parts of Florida, California, and Nevada saw depreciation rates in the high teens.

The Mainland Square neighborhood in San Antonio

Mainland Square is a great Medallion Homes neighborhood right off of Mainland Road between Bandera Road and Tezel Road. The neighborhood was started in 1999 but looks like a more established neighborhood. The developer left many of the live oak trees and allowed the roads in the subdivision to follow the contours of the small hills. The houses vary in style from traditional box to bungalow style with some having detached garages. Mainland Square has some homes backing to a greenbelt and a small park with a playground and jogging trails. The end effect is a newer neighborhood that feels more like a 1950's style neighborhood.

Collateralized Debt Obligations (CDO's) Explained

The loosening of the loan qualifications by Fannie Mae in 1999 was what allowed the current credit crisis to happen. It was not the necessary cause of the crisis but it allowed Wall Street to bundle sub-prime loans into CDO's. Prior to the loosening of the loan qualifications by Fannie Mae, CDO's were made up of other types of loan bundles.
Before I make things more complicated by trying to explain what happened, watch the short video by Marketplace. It is like the UPS Whiteboard guy and an Economist had a baby that was good at explaining Wall Street derivatives. Watch the video and then follow the link to the original transcript. It won't help you get your money back but at least you will now have an idea where it went.

Cause for the Credit Crisis

Being a political year, everyone is trying to blame everyone else for the credit crisis problem that has grip the world. I found a Wall Street Journal article date September 30, 1999 that talks about the Clinton Administration encouraging Fannie Mae to extend home mortgages to people that would not qualify for a conventional loan. Fannie Mae does not originate any loans themselves but the set the conditions for the loan bundles that they buy. When they change the conditions on the loans the bank or organizations that originate the loans can loosen their conditions and sell these new "loosened" loan bundles to Fannie Mae. Full Article can be found here

This was not the only cause of the credit crisis but one condition that allowed the crisis to happen.