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I will share my plans and materials list and intend on recording my entire process from start to finish on this very helpful website for the benefit of anyone trying to do this themselves.
Gerry in Burlington, MA

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By Brian in South Burlington, VT on 4/2/2007


I am thinking about using IndyMac for our owner-built house, but I keep hearing rumors of major problems at this bank.  I don't want to start a construction loan with a company that could potentially go bankrupt.  Does anyone know how a construction loan would be handled it they did??

Thanks,

Brian


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By P in North, FL on 4/2/2007


Many subprime lenders are going bankrupt or having problems. IndyMac is not known as a subprime lender. They specialize in Alt-A loans. I have not seen or heard anything to indicate that IndyMac in on the verge of bankruptcy. Where did you hear those rumors?

There is concern throughout the mortgage industry, regarding subprime loans. Many feel that the subprime loan troubles will trickle up to affect more traditional lenders, particularly Alt-A lenders. In some instances it already has.

Some lenders think that investors are punishing them for Alt-A loans, even though those loans are not as risky and do not  have the default rate of subprime loans. Some lenders' (IndyMac is one such lender) stock prices have dropped due to these feelings.

Article on their situation.


 


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By P in North, FL on 4/2/2007


Article on Alt-A

 

M&T Shares Fall on Lower-Than-Expected Mortgage Bids

By Elizabeth Hester

April 2 (Bloomberg) -- Shares of M&T Bank Corp., the New York bank partly owned by Warren Buffett's Berkshire Hathaway Inc., fell the most since 1998 after the firm cut its earnings forecast because of weaker-than-expected demand for mortgages.

The stock tumbled $9.87, or 8.5 percent, to $105.96 at 12:02 p.m. in New York Stock Exchange composite trading. The Buffalo, New York-based company last week cut its first-quarter profit forecast by $7 million because so-called Alt-A mortgages it tried to sell fetched lower bids than predicted. M&T also said rising defaults mean it must buy back some loans it previously sold.

Shares of mortgage lenders have tumbled this year as defaults on subprime loans rose to a four-year high. Companies that offer Alt-A mortgages, a category considered at less risk of default, have said in the past month that investors are mistaking them for subprime lenders and unfairly punishing their shares.

M&T ``is among the first banks to report that recent issues in the subprime arena have, in fact, spread upward to `higher- quality' borrowers,'' wrote Joseph Fenech, managing director at Sandler O'Neill & Partners LP, in a note to investors. ``We would not be surprised to see similar-type pre-announcements from other banks.'' Fenech rates M&T stock a ``hold.''

Shares of IndyMac Bancorp Inc., another Alt-A lender, fell as much as 4.1 percent and rival Impac Mortgage Holdings Inc. fell as much as 5.6 percent. IndyMac's shares have lost almost a third of their value this year and Impac is down 45 percent. M&T Bank has fallen 13 percent in 2007.

New Century Bankruptcy

Surging defaults in subprime mortgages, those to borrowers with bad credit or high debt, have forced more than 30 lenders to close, cut operations or seek buyers since the start of 2006. New Century Financial Corp. today became the biggest subprime mortgage company to file for bankruptcy in the past year after being overwhelmed by customer defaults.

The loans M&T planned to sell didn't attract the offers the bank expected at auction, the company said on March 30 after the close of regular trading. M&T cut their value, resulting in after-tax costs of 7 cents a share. The loss on the loan buyback will cut profit by another $4 million, or 3 cents a share, the bank said.

``Even excluding the losses on the Alt-A portfolio, MTB still would have missed estimates by a notable margin,'' said A.G. Edwards Inc. analyst David George in a note to clients. He rates the shares ``hold.''

Alt-A mortgages, short for Alternative A, fall shy of the credit criteria of Fannie Mae and Freddie Mac, the two largest sources of mortgage money in the U.S. They often involve loans made with less proof of borrowers' income or assets, purchases of homes by investors or interest-only loans and ``option'' adjustable-rate mortgages, whose payments can fail to cover the interest owed.

M&T said it plans to keep $883 million of Alt-A home loans instead of selling them because management believes the bids don't reflect their true value.


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By Tom in Stroudsburg, PA on 4/3/2007


According to their 4th quarter 2006 statement they have $29 billion in assets and $5 billion of that is in securities. I think if they give you the loan they should be able to back it up. They haven't called asking to cut me short. They have a contractual obligation to fund your construction. I think if any of the major lenders file bankruptcy it would likely only be to reorganize, i.e. to dump nonperforming loans. It would not effect your construction. There are very few owner-builder lenders out there and I suspect this may ding all of them to some degree. Not much for options unless you go through a traditional builder banker arrangement.
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By Guy in San Luis Obispo, CA on 4/5/2007


Check out Stop The Squeeze for an interesting look at the current mess and how it IS going to affect us all.  When Wall Street starts financing mortgages, it ain't because they're going for a Boy Scout merit badge!

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By Tonya in Mount Sterling, OH on 8/3/2007


I am going with IndyMac and was just told that they are looking into making the PTI requirement higher.

We went from only having to have $3,700 in reserves to a possiblity of having $10,000.

This is across the board and not just with IndyMac.


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By Guy in San Luis Obispo, CA on 8/4/2007


I get emails from Mortgage Master Guide and they indicated that this past week was HISTORIC!!! as far as the new reality for mortgages is concerned.  Wall Street Journal online had a story on how Wall Street was not heavily involved in packaging sub-prime mortgages into securities prior to 1990, but soon thereafter created massive pools of subprime mortgages, mixed them in with Alt-A and prime mortgages and sliced up these pools into investment rated bonds and sold allocations of these pools based on the risk tolerance of the investor.  Riskier loan packages paid higher interest dividends and safer ones paid lower rates and for the most part there were low default rates for many years and everyone was happy. 

Well, house values started falling (i.e., the bubble started deflating), defaults rose as "exotic" loans recast into higher monthly payments and mortgage backed securities/bonds could not find buyers without offering greater incentives; higher yields for investors = higher interest rates for borrowers.  Grand result today:  no more "exotic" loans, no stated income, no stated asset, lower debt to income ratios, lower loan to value ratios, etc., etc.  The word on the mortgage street last Friday was if you are a borrower, get a loan commitment and lock, lock, lock.  Because no one knows what investors will want for interest in the coming months, even though they still like mortgages to invest in, but anything except plain vanilla FHA conforming mortgage pools are unsellable for now.  Fool me once...

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