You Asked For It!

Consumers have cried out and their prayers have been answered!

Bad loans made by bad people in an effort to rob honest, hardworking Americans.

Save us President Obama, save us!

We need more laws to protect us honest folk.


Congratualtions, prayers have been answered. Realtors, mortgage companies, appraisers are all being more scrupulously evaluated than ever before. There are more laws and you're real estate documents are longer than ever. Your appraisal is more involved and costs more than ever. Today, there are hundreds of dollars in additional fees to be paid by you, the hardworking American consumer.

The irony is mind boggling.

Wall Street drives these markets, not Congress. When lending standards dipped so low that they were no longer profitable, lending stopped dead in its tracks. It's been dead for quite some time now.

Wall Street realizes that these loans are a poor risk, so they've closed their doors to the underqualified. If you want to go subprime in today's market, you'll have to go FHA.

Top 10

Ugh... Still in the top 10.

Good news is we aren't #1.

1. Detroit 4.9%
2. Stockton, Cal 4.86%
3. Vegas 4.2%
4. Riverside 3.8%
5. Sacramento 3.2%

9. Denver 2.6%

These of course are 2007 foreclosure statistice provided courtesy of Realty Trac. The US Average is a 1% foreclosure rate.

There is no doubt its a buyers market. Plan on living in to your place for 5 years or keeping it as a rental property.

Rate Cuts!

A little bit more info on mortgage rates & how rate cuts impact them.

So many times in the news you hear that the Federal Reserve has cut interest rates. Shortly thereafter clients begin calling and ask me how much the interest rates on mortgages have dropped.

First point, the Fed rate is the rate at which member banks may borrow short term funds directly from a Federal Reserve Bank. The discount rate is one of the two interest rates set by the Fed, the other being the Federal funds rate. So what does this mean? Very simply when the Fed Rate drops the interest rate at which banks borrow money drops as well. Therefore when the Fed’s cut rates the banks can borrow money cheaper.

Now the real measure of how interest rate will change with respect to mortgage rates is the yield on the 10-yr Treasury Bonds. When these bonds go up the yield goes down (it is an inverse relationship for those of you who understand some basic mathematical principles). When the yield drops the rates on mortgages generally drop. One thing I would like to point out from my observation of the markets, sometimes the Fed cuts rates and the stock market begins to rally. This rally brings the prices of stocks up and people begin to sell bonds. When the price of bonds begins to drop their yields go up and as a result the interest rate on mortgages goes up as well. I have also seen times when the Fed has cut rates and the interest rates on mortgages have dropped. So how do I know if interest rates will drop? The general rule is to track the yield on the 10 yr treasury bonds and if I really knew how to track bonds each day maybe I would be a bond trader on Wall Street.

Dirty Rotten Scoundrels...

Also known as mortgage brokers...

I found an interesting article online discussing mortgage brokers on cnnmoney.com today. Here is an overview.

"A good one (mortgage broker) can save you time & thousands of dollars over the life of a loan."

"It's up to you to understand the loans you're being offered and the fees involved."

Key Questions:

Do I need a broker?
-Do you understand mortgage products? 30 fixed, 2/28, 3/27, IO
-Do you know where rates are right now? 30 fixed, short term
Brokers can help. They have access to wholesale rate sheets from many banks & have the time to shop rates. Afterall, its their job.

Who can I trust?
Find out the following:
-How much does the broker stand to make on your loan?
-How will the broker make money (Fees &/or yield spread premium)
-If you don't feel comfortable, talk to another broker!

Am I getting a fair deal?
-$0 application fees. ONLY appraisal ($350) & credit ($13 - $25) should be charged in advance. That being said, these fees should not be required to complete an application.
-What are the pros & cons of at least 3 different types of loans
-Understand terms of loan (rate, fixed or adjustable, prepay, margin, rate cap, etc)
-The broker should be able to guarantee fees once the loan is locked.
-Request paperwork (a copy of the HUD-1) before closing & compare them with the good faith estimate

http://money.cnn.com/2007/07/24/real_estate/salesman_factor.moneymag/index.htm

Happy Dance!

On the 15th, Tanna & I sold our first investment property. We bought at the right price, didn't overdue the rehab process and successfully sold the property for a property in a very difficult real estate market. We put $8,000 into the property and made almost $10,000 in profits. Tell me where else anyone can see that kind of return on their money?

It was a peice of cake... Or not.

I will say that I just passed real estate investing 101. However, it was NOT easy. It was one of the most challenging and rewarding tasks that I've ever taken on.

I feel like a giant gorilla just climbed down off of my shoulders...

Some advice for those of you considering real estate investments:

• It won't sell tomorrow. Plan on hanging onto the property for 5 years. That being said, do enough updating so the property can be rented out. Wait until the market starts to take off before 'flipping' the property & putting it on the market.
• How long is your snorkel? Know your worst case scenario. If the property goes vacant or unexpected expenses pop up what is going to happen? Will you find yourself calling relatives and friends to stay out of foreclosure? Don't get in over your head!
• Get past appreciation. You make money buying at the right price and cash flowing. If you are banking on appreciation, you're going to need to hold onto the property for a long, long time.
• Get the right loan product. The right loan will help you meet your goals and maximize the return on your investment. There is no 'one size fits all' loan. Get the right loan for your needs.

I'm not an investment expert (yet). I believe that I am on my way. Wishing you all phenomenal returns on your real estate investments in 2008.

5.875% + 6 months no payment!

This morning, I heard an ad on the radio selling an amazing loan program!

5.875% 30 year fixed rate + No Payment for 6 months!

Wow! It sounds too good to be true.

It is. I haven't called in to shop this loan program, but before getting excited let's take some time to guess where 6 months of payment freedom comes from. It's going to be one of two places:

1 - EQUITY!
2 - Closing Costs (Since we'd be talking about 6 months of payments rolled into your closing costs, I think its fair to say that this 'payment freedom' will in fact be 'equity payments.')

There is no such thing as a free lunch. This program simply offers you the opportunity to eat up your equity. However, it may be a good fit for a select few people.

Let's say you have great credit but have just experienced major unforeseen expenses and need some help to get back on your feet. Perfect!

On the other hand, if you are incapable of living within your means and need payment freedom to pay down $15,000 in credit card debt, this isn't a solution. It's a band aid. The real problems? Financial management, self-control and budgeting.

Shady marketing is just that.... shady! The company has one goal, and that is phone calls. Once you've called, I hope you are ready to be told that you don't qualify because of ________ (select one or more: credit, employment, assets), but you do qualify for this higher interest rate loan that will allow you to skip two months payments!

I hope they mention that every refinance allows you to enjoy no mortgage payment for two months.

I also hope that they disclose where the money for this payment freedom is coming from.
A - Equity
B - Closing Costs

I encourage you all to trust your home to financial professionals who are not transaction driven, but people driven. You deserve a consultation where your needs and goals are discussed. Let's all get past minimum payments and start talking about how you can work towards financial freedom! It can be a reality, but it's not going to fall into your lap!

Wishing you all a wealth of real estate knowledge in 2008.

What To Do?

"Matt, we're buying our first home in June. How do we get the whole process started?"

Congratulations!
Buying a home (especially your first) is an extremely exciting time. Many times, it is a roller coaster process as you find the perfect home, make an offer and obtain financing.

1. Establish a Budget & Get Preapproved. I would run numbers based upon a 6.5% interest rate. Rates are lower than that right now, but we're still 6 months out. Establishing and remaining within your budget is vital! When you are preapproved, find out when your rate will be locked.
2. Find a Realtor. Typically, references are the best resources. Know anyone who has purchased a home recently and had a great experience? Make sure that your Realtor treats this purchase as an investment.
3. Start shopping. Take notes to remember each property. As you narrow down your choices, have your Realtor pull some comparable sales in the neighborhood to make sure that you're getting into a sound investment.

“Should we put money down? If so, how much?”
I'm not a financial investor and won't pretend to be one. However, some basic financial principles need to be applied.

I would start with 3% down in order to qualify for FHA financing. You'll obtain great rates & will lower your mortgage insurance premiums. The more money you put down, the lower your mortgage insurance payments. However, mortgage insurance is only required on homes whose financing exceeds 80% of the value. For that reason, I would not recommend putting more than 20% down as it will not improve your financing. Conservative investments offer returns that exceed the 6 – 7 % mortgage rates so reducing your principle may not always be the wisest investment.

There is one big problem when you pay down your mortgage. Liquidity. Once additional payments have been made, your monthly payments do not change. Should you run short on cash, the bank will not float your payments for 30, 60, or 90 days, they will begin foreclosure proceedings. Ugh.

Always have a plan for a worst case scenario. If you do decide to put additional money towards principle, obtain a HELOC first. This line of credit will provide the necessary liquidity while allowing you to accelerate the pay off. This is a win, win. You have access to your equity & you will reduce the amount of time you are exposed to the interest rate, thereby reducing your effective interest rate!

Hope this helps! Happy home buying!

Fed Rate Cut = Higher Mortgage Rates?

Yes! (Well this time anyway.) Why? Mortgage rates follow the bond market, not short term interest rates. Mortgage rates are also influenced by inflation concerns.

http://www.bankrate.com/nltrack/news/mtga/Dec1307_mortgage_analysisa1.asp?ec_id=brmint_ns_mortgage_20071213

So do rate cuts affect mortgage rates? Sometimes....

Theft or Adverse Possession?

http://www.landgrabber.org/

Heard about the family in Boulder, CO who lost 34% of a property they were planning to build on to adverse possession? Check it out!

Enough Already!

Log onto msn.com or yahoo.com or espn.go.com.... After clicking on an article or two, you'll notice that there are mortgage ads. 4.65%

Wow!

The aids fail to tell you that this requires either negative amortization or a rate buy down. These products may be the right fit for a very select few borrowers. However, for 99% of the population, its not reality!

It's a teaser!

It's shady advertising.

If a company tries to earn your business by advertising a rate you don't qualify for, is that really someone that you want to trust with the financing of your greatest asset, your home?

So Proud....

I had the chance to catch up with one of my friends at a wedding this past weekend. Soon, we were discussing their first home purchase. They had been shopping and shopping and shopping...

The found the one and made an offer.

The seller refused to budge.

The moment of truth.... Should they:

1) Take the deal. Afterall, they love the house!

2) Walk away.


WALK AWAY! The great news is.... they did! There are too many homes on the market to let the seller control the transaction. It's a buyers' market and buyers who allow sellers to control the transaction may find themselves singing the upside down blues!

Merry Christmas Adjustable Rate Mortgage Holders!

United States Treasury Secretary Henry Paulson is extremely optimistic that many of the big players in the mortgage industry are going to go to work for thousands of homeowners.

A deal is in the works to extend the lower introductory rate on fixed rate mortgages for 1 - 7 years. My bet is that when it is all said and done, we'll be looking at 3 years.

This is phenomenal news! If it goes through, it will be the government's greatest achievement in alleviating the mortgage meltdown!

http://hosted.ap.org/dynamic/stories/M/MORTGAGE_CRISIS?SITE=CODER&SECTION=BUSINESS&TEMPLATE=DEFAULT#

Sunny Skies Ahead?

Probably not. However, here is a little hope that Colorado will be one of the first states to recover from the mortgage crisis.

http://www.rockymountainnews.com/news/2007/dec/01/states-foreclosure-rate-drops-to-no-7-in-nation/

Problems...

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.

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!