The real estate industry is going nuts. We all see the news, read the horror stories and witness giants such as CITI and Countrywide scramble while their stock prices tumble and tumble and tumble...
Rust Belt city mayors recently met to discuss the mortgage mess. With all of the media hype, government officials are calling for changes. They are calling for help. The question is... will help arrive?
I hope not. Here is why. The mortgage mess is due to a few factors.
1. Lack of Consumer Education. Borrowers were told two things:
-Your credit will improve. This is true IF you embrace responsible spending.
-Your home will appreciate. Long term, this is always true. Short term, there are no guarantees. This is especially true for borrowers who didn't treat their home as an investment.
2. Greed.
-Wall Street was getting rich. Can you imagine 1% of hundreds of billions of dollars? -Brokers. While Wall Street was getting fatter than fat, individual mortgage brokers seized the opportunity to gouge clients on their loans.
-While 1% of hundreds of billions is hard to imagine, a $10,000 profit on a single closing hits a little closer to home.
3. Government -A president who wants to increase home ownership (Great principle, but the means to this end has proven errant).
-Greenspan. The jury is still out, BUT interest rate cuts made unaffordable homes, very affordable (for the time being).
Looking for solutions? Check out the next post.
Nov 28, 2007
Solutions....
Heads up... This post doesn't present a warm and fuzzy outlook filled with easy solutions. Most problems aren't solved the easy way.
First of all, let's start with solutions that are flat out wrong.
1 - Wall Street. Just take a peek at Citi & Countrywide stock prices. Tell me how bad any investor wants back in.
2 - Expanded Underwriting.
1. The reason this entire mess exists is a lack of underwriting standards. Essentially, people who do not qualify for loans received them.
Wall Street learned its lesson. It's done.
So should the government jump in and take on all of these bad loans? NO WAY!
I completely agree with the government expanding FHA standards to some extent. For example, people who were never late on their mortgage prior to the rate adjusting deserve to refinance. However, everyone does not deserve to get bailed out!
So what is the answer?
TIME! There is a ton of inventory on the market. There are too many builders. There are too many borrowers who simply can not afford their home. There is a lot of downward pressure on the housing market. We are not in a short term market. It's a buy and hold market.
My advice to you.
Get off of craigslist. Start working with a qualified Realtor. Make them show you some comparable sales. You can get a great deal. Buy the cheapest house in the best neighborhood and reap the rewards!
First of all, let's start with solutions that are flat out wrong.
1 - Wall Street. Just take a peek at Citi & Countrywide stock prices. Tell me how bad any investor wants back in.
2 - Expanded Underwriting.
1. The reason this entire mess exists is a lack of underwriting standards. Essentially, people who do not qualify for loans received them.
Wall Street learned its lesson. It's done.
So should the government jump in and take on all of these bad loans? NO WAY!
I completely agree with the government expanding FHA standards to some extent. For example, people who were never late on their mortgage prior to the rate adjusting deserve to refinance. However, everyone does not deserve to get bailed out!
So what is the answer?
TIME! There is a ton of inventory on the market. There are too many builders. There are too many borrowers who simply can not afford their home. There is a lot of downward pressure on the housing market. We are not in a short term market. It's a buy and hold market.
My advice to you.
Get off of craigslist. Start working with a qualified Realtor. Make them show you some comparable sales. You can get a great deal. Buy the cheapest house in the best neighborhood and reap the rewards!
Nov 14, 2007
Why Not?
I was chatting with a friend from home a few weeks ago. Soon, we started talking about mortgages. Here is his scenario.
30 year fixed loan
90% financing
Low interest rate
This young lad has made some pretty wise decisions! After all, he is planning on living in this home for a long time. He is in the right loan product and he is locked in at a competitive interest rate which will save him thousands of dollars over the life of his loan.
Problem: He is putting every spare dollar towards paying off his mortgage as soon as possible.
Question: Why is this a problem? Won't this save him even more money in interest paid?
Answer! Before paying down your mortgage, take some time to evaluate your overall financial situation.
1 - Do you have any other debt that carries a higher interest rate? (i.e. auto, personal loans, credit card debt)
2 - Do you have at least enough money in the bank to cover 6 months of expenses?
3 - Are you on pace to retire at the income level you desire?
For those who are not carrying extra debt, have substantial savings and are investing for retirement.... go ahead and pay that mortgage down.
For the rest of us.... don't do it!
When you pay towards a fixed rate mortgage, you lose liquidity. In other words, that money is no longer yours and you can no longer access those funds.
What will happen if you lose an income or encounter unforeseen expenses and find yourself unable to make your mortgage payment? Will the bank give you a credit for the extra payments that you have made?
Nope. The bank will begin the foreclosure process. Not only would you lose your home, but you'd lose all of those extra payments as well. Yikes!
Don't fear! With a little education and a little bit of discipline, you can build some reserves, save for your retirement and pay down your mortgage early!
30 year fixed loan
90% financing
Low interest rate
This young lad has made some pretty wise decisions! After all, he is planning on living in this home for a long time. He is in the right loan product and he is locked in at a competitive interest rate which will save him thousands of dollars over the life of his loan.
Problem: He is putting every spare dollar towards paying off his mortgage as soon as possible.
Question: Why is this a problem? Won't this save him even more money in interest paid?
Answer! Before paying down your mortgage, take some time to evaluate your overall financial situation.
1 - Do you have any other debt that carries a higher interest rate? (i.e. auto, personal loans, credit card debt)
2 - Do you have at least enough money in the bank to cover 6 months of expenses?
3 - Are you on pace to retire at the income level you desire?
For those who are not carrying extra debt, have substantial savings and are investing for retirement.... go ahead and pay that mortgage down.
For the rest of us.... don't do it!
When you pay towards a fixed rate mortgage, you lose liquidity. In other words, that money is no longer yours and you can no longer access those funds.
What will happen if you lose an income or encounter unforeseen expenses and find yourself unable to make your mortgage payment? Will the bank give you a credit for the extra payments that you have made?
Nope. The bank will begin the foreclosure process. Not only would you lose your home, but you'd lose all of those extra payments as well. Yikes!
Don't fear! With a little education and a little bit of discipline, you can build some reserves, save for your retirement and pay down your mortgage early!
Nov 12, 2007
Where on Earth?
Greetings!
I apologize for disappearing. I can't believe it's been so long since my last post! A couple of updates....
1 - I'm officially a married man.
2 -I just returned from beautiful Cabo San Lucas
It is good to be back and I'm excited to get back in the swing of things. I hope you have all been doing well.
I apologize for disappearing. I can't believe it's been so long since my last post! A couple of updates....
1 - I'm officially a married man.
2 -I just returned from beautiful Cabo San Lucas
It is good to be back and I'm excited to get back in the swing of things. I hope you have all been doing well.
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