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.

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!

MSNBC Agrees

Here is a recent article concerning new build homes. I've already written a blog on the topic. For more info, check out this link http://www.msnbc.msn.com/id/21151323/ and scroll down my blog to find 'Don't Buy New Homes.'

Can you imagine buying a home with an adjustable rate mortgage at the peak of the boom with hopes of double digit appreciation only to find yourself $25 - $50,000 upside down only two years later?

These people are left with two difficult choices:
1 - Eat the adjusting payments
2 - Lose the home to foreclosure

Horrible. Horrible. Horrible....

Housing Recovery! Housing Recovery?

“Fresh evidence suggests the Denver-area housing market may be in the early stages of recovery, even as the national housing market faces an even bigger slump.”

“Housing is a bargain in the Denver area compared with many other places,” states Mike Foster, director of land acquisitions for Century Communities.

“Denver is a low-risk market. It will be easier for companies to relocate to our market than to relocate to other markets,” continues Foster.

“Is it all roses in the Denver marketplace? No. But it is not as bad as all of the doom-and-gloom talk either,” affirms real estate agent Gary Bauer.

I’m not ready to stand here and guarantee that the Denver market will recover in the next 6 months. I’m not ready to promise double digit appreciation. There are too many houses on the market and the real estate finance industry is still finding itself. Basically, there are too many unknowns. However, the future doesn’t appear to be all doom and gloom. There is hope!

“Not long ago, Denver was the most expensive housing market ‘anywhere in the U.S. without a beach.’ But because the Denver-area housing market has been flat for so many years, it will recover faster than other areas that, until recently, saw a huge run-up in prices.”

-“Home Prices Hint at Turn.” Rocky Mountain News Business 2. 9/27/07

Who Cares?

"You just need to treat every deal like it might close."
"I can't."

Tuesday, two loans died. I had to make two difficult phone calls to good people who need to refinance.

"I'm sorry. I can't help you refinance right now." I proceeded to try and help provide a plan of action that will allow them to refinance as soon as possible, but the ugly truth is that they are stuck in adjustable rate mortgages that are adjusting. They are going to have to scrimp and save to pay their bills each month.

I was sick.

1 - I saw a few thousand dollars in commissions slip away.
2 - I couldn't help my clients.

I'm not going to pretend like my clients welfare is my only concern. Not true. I have bills to pay. I have my own mortgage to worry about. Loans are my income!

I'm also not going to act like my dissapointment and heartache were reserved for my checking account alone. It flat out sucks being in a position where you have to tell someone that their payments are going to continue to go up and there is nothing that I (or anyone else) can do about it. Bottom Line: We're dealing with peoples' homes here! There is a lot on the line!

Yesterday, I asked a client not to lose any sleep at night. We are working out some credit issues for him. I truly hope he slept well.

I didn't. I laid in bed trying to think of different scenarios and how to make this refinance a reality. Afterall, shouldn't you trust your home loan with someone who will lease sleep at night over your financing, so you don't have to?

I take great pride in caring a lot about every deal and more importantly, about caring about my clients' financial well being. Some days, I'm sleepless. Some days, I feel sick. Some days, I get to shake hands with satisfied clients who have either bought a home or saved hundreds on their mortgage. Those days keep me coming back and are the reason I love my job.

Winners & Losers...

In all markets, there are always winners and losers. It doesn’t matter if you are vested in stocks, commodities, precious metals or real estate.
**Note: If you own a home, you are a real estate investor!
Right now, the real estate industry is taking a beating due to a credit crunch (% of people with access to financing) and huge inventories (foreclosures + new developments).
Losers: Those who have adjustable rate mortgages in declining neighborhoods.
Why? They can’t refinance! This is horrible. I’ve encountered numerous files where the borrower has done everything right. They pay their bills and take care of the property. Unfortunately, their neighbors lack the same commitment and/or resources. Their homes have been foreclosed upon and driven down prices. Ugh…
Losers: Those who wish to sell their home.
Why? Their house may not be worth what they paid for it, they may have lost out on profits that existed a couple of years ago, it will likely take much longer to sell and there are fewer eligible buyers! Ugh…
Winners: Those who are preparing to buy their first home!
Why? Over the long term, homes will appreciate. Treat your home like an investment! Use a competent agent who will provide good comparables!
Winners: Long term real estate investors!
Why? Fewer eligible buyers + thousands with foreclosure damaged credit + huge home inventory = Higher rents and more cash flow potential properties! Once again, you must buy right!
Losers, don’t lose hope (or sleep). Maybe you can rent out your current residence or even do a lease to own! Maybe, you’ll just have to sit tight for a couple of years while the market recovers. There is hope & a light at the end of the tunnel!

Time for a Recession?

“Detroit, Cleveland and some smaller Rust Belt cities are experiencing a traditional bust, in which economic woes spread to housing. In San Diego, the housing decline seems to be a self-generated phenomenon, the product of too-high prices and too-crazy lending practices.”
Basically, there are a lot of reasons that the housing industry is struggling. Economic woes obviously go hand in hand with housing woes. People without jobs are going to struggle to make their payments. No shocking revelations here….
The big question is “Will housing woes result in an economic recession?”
Housing prices have dropped 3.2% nationally during the past 12 months. Over 36,000 in the mortgage industry have dissipated over the course of the past year. “46% of new jobs between 2001 and 2006 in the US were credited to real estate, residential construction and other housing related Labor Department jobs.”
Managing director of the Economic Cycle Research Institute, Lakshman Achuthan, says, “Having a jobs report come in negative does not mean that a recession has started.” The risk, however, is there.
Time for some personal insight… I don’t believe a full blown recession is at hand. Inflation looks to be stable which could me a rate cut in the very near future. The federal government is becoming actively involved as government backed programs are loosening up a bit and providing relief for some distressed homeowners.
Bottom line: There are a lot of bad loans out there that are going to keep a large inventory on the market BUT builders are pulling out, government backed programs are expanding and Wall Street seems to be settling down a little bit. Not all subprime loans are destined for foreclosure. Most subprime borrowers do pay their mortgage and do know the terms of this mortgage. I’m proud to be one of them.
**Statistics and other information drawn from Time Magazine 9/24/07.
http://www.time.com/time/magazine/article/0,9171,1661682,00.html

Real Estate's Fault Line

There is plenty of blame to pass around concerning who is at fault for the real estate bust that is making headlines almost every day in major publications, nightly news and coffee shop chit chat.

I’m going to boldly be a complete pansy and just spread the blame around to everyone.
· Consumers: Know the terms of your loan! Can you afford the monthly payments? Is your loan going to adjust? If so, when? What is the margin? What is the cap? Know your worst case scenario!
· Mortgage Brokers: Keep your buyer’s interests and welfare the number one priority! Very simple. Ask some questions. Educate buyers on loan products. Be a resource!
· Wall Street: Don’t demand loans that aren’t proven performers!!

Whoa! How on earth does Wall Street fit into the mix? Here is how the loan process works.
1. Loan officers take loan applications and send them in to mortgage companies/banks which underwrite (review) the file & fund the loan. At this point, the consumer has closed on their home and the loan process is completed, right?
2. Not even close! Most banks are not portfolio lenders. In other words, most banks bundle millions/billions of dollars in loans sell them as mortgage-backed securities.
3. At this time, the new owner of the mortgage can use the securities as collateral to issue bonds for financing other deals! Homeowners pay the interest that covers interest.
4. These securities are rated by risk groups (tranches) for investors. Riskier loans pay more.
Now you can really see where the demand for risky loans came from. A LOT of people made a ton of money. Mortgage brokers, banks and Wall Street Investors.

The problem occurred when homeowners were unable to make payments for various reasons. Suddenly, the money needed to pay bond interest is not there! At this point Wall Street starts slamming doors closed. Mortgage companies have no one to sell their loans to and lack the capital to hold onto billions upon billions of dollars in mortgages. Doors close! Companies disappear over night.

People who were eligible for loans 9 months ago can’t even come close to qualifying today. What does this mean for Denver??

We have a huge inventory of homes on the market right now. We have fewer eligible buyers. The worst is not over in the housing market! We’re looking at a couple more years of slow real estate.

Time Magazine recently did a nice article on Denver real estate. Check it out.
http://www.time.com/time/magazine/article/0,9171,1653635,00.html

Hate Your Neighbor?

I can think of a couple of good reasons to really dislike your neighbor.


1 - Sold on the fact that the development would take off, you purchased in the first phase. The development tanked and your neighbor bought the same house 8 months later for $50,000 less. That hurts & leads to an awkward conversation at the next barbeque.

"I love your house! Did you guys get in when the builder was slashing prices and giving away upgrades as incentives?"
"No. We paid $50,000 more and didn't get jack squat for upgrades. I'm going to go grab a drink (perhaps a shot or five) right now."

The good news is, you really don't have to harbor the anger towards your immediate neighbor for long. Why?

2 - From your porch, you can see a new development being built. That's great right? The area is taking off!! Long term, that may be true. If you want to sell your house in the next five years a different picture is painted. You will be competing against new builds! In other words, you were $50,000 upside down to start with and now you might be $70,000 upside down because in order to sell, you'll have to beat the prices of new homes!!

Bottom line, new home sales are up, but prices are not. The market remains in turmoil. More houses + Fewer buyers = Struggling housing market

http://articles.moneycentral.msn.com/Investing/Dispatch/070824markets.aspx

Not Ugly for All...

I spend a great deal of my time working with people in the mortgage industry. It's easy to get caught up in the headlines and horror stories of lender upon lender shutting their doors.

One company paid for happy hour and as it ended they sent text messages to all of their employees announcing that they didn't have a job anymore.... Ouch.

I firmly believe that the mortgage and real estate industry faces a couple of challenging years ahead as loan programs reemerge and real estate inventories dissipate.

Sometimes, I forget about the people who all of these market woes will provide a tremendous opportunity!

1 - 1st time buyers.
IF you know you're going to stay in the property for a few years.

2 - Investors
IF you are ready to deal with renters and all the hassles associated for the next four or five years and have some cash reserves.

Another One Bites the Dust....

Accredited Home Lenders is the newest lender to all but close its doors.

They are laying off 1,600 of their 2,600 workers.
They are closing their retail doors.
They are cutting back wholesale loan products.

In other words, there are enough people left to answer the phones and tell mortgage brokers that they can not do any loan that isn't conforming.

I spoke with a sales rep for a mortgage company about a file. His rates were a little off so I'm taking the loan someplace else. I jokingly said,
"Do me a favor and stay in business. You'll be the only ones left and nobody will care what your rates are!"
"I'm scared. I've already got my resume ready in case we shut our doors," he replied.

Bottom Line: The mortgage business is scary. We're facing a couple of difficult years.

http://biz.yahoo.com/ap/070822/accredited_home_lenders_restructuring.html?.v=2

If You Think Michael Vick Has It Bad.....

It could be worse...

Today, Capital One closed a subsidiary, GreenPoint Mortgage. For the 1,900 people who just lost their jobs, Michael Vick's guilty plea is neither here nor there.

The mortgage and real estate industry are in deep trouble and it continues to get deeper. The ingredients are creating a perfect storm of sorts in real estate.

1- House inventories are high which is putting a lot of downward pressure on the market.

2- Loan programs are disappearing. 1st time buyers can no longer buy and those wishing to sell their homes and move up are unable to do so.

The next couple of years are going to be challenging.

http://online.wsj.com/article/SB118764159728403271.html?mod=MKTW