0 Recession Not Over:Treasury Sec Can't Even Sell His Home

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Detail: Recession Not Over:Treasury Sec Can't Even Sell His Home

0 Real Estate Supply and Demand in 8 mins.

This is an outstanding video in that it provides a basic overview of what is going on from a consumer demand perspective, it is 8 minutes long, and worth a viewing.
http://www.youtube.com/watch?v=Cus4opgTJb0

Detail: Real Estate Supply and Demand in 8 mins.

0 Fired: Heads roll as Mortgage Bets Collapse.

This has been a dramatic week on Wall St. We have seen multi-billion dollar losses disclosed from almost all global banks. CEO's at Citigroup and Merrill Lynch have been sacked because of mortgage losses and unacceptable risk management. The shoe dropped when the $100 billion dollar M-LEC super conduit that CITI and other banks were working to setup with the US Treasury dept stalled. I wonder why. Heard in the back alley of Wall St,"Psss, hey I have a box here of mortgage paper that we modeled to be worth $20 billion. Would you loan us money against it? We are a little low on liquid cash because we are investing so much in these great mortgages. Oh no, you can't look inside, but trust us we have more PhDs calculating the value of these holdings than any other bank. We are CITI after all." The idea was to package all the junk mortgage paper in a massive pool and have other banks buy the paper. The problem continues to be that everyone is valuing the paper according to some rocket science model not what the market price is. Granted their isn't a real market for subprime or ALT-A, aka scratch and dent mortgage paper. To get an idea how bad it is inside the belly of mortage lending, here is a chart of 2007 Prime HELOC loans. These are perfect credit borrowers. Known as the ABX-HE-AAA. What this means is that the average current value of these loans is .70 on the dollar. This is largely because of an illiquid market, foreclosures, defaults and the great unknown of how these loans will perform in years to come. In the foreclosure wave sweeping the nation HELOCs are completely wiped out. Total loss. So the market believes right now that a third of the money lent will never be paid back or recovered in foreclosure. Gee, no wonder it is very difficult to find a HELOC to turn on the household ATM above 80% loan to value.
Credit will continue to get tighter until the losses stop. It could be years of bank confessions as the unwind occurs and the bubble deflates. I would expect to see residential real estate to fall in the bubble markets through 2011 because of all the resetting paper. The foreclosures that are on the market now are people who stopped paying in Feb/Mar, well before the credit freeze, high gas prices, and the fall of real estate price declines really gathered momentum. It's called creative destruction. The weak hands give up assets to the strong buyers. Houses in bubble areas continue to get more affordable for people running the make sense economic calculations. The buyers that are circulating now at open houses are putting 15-20% down payments, getting fixed rates and fully documenting income. Sure prices might drop but they are in it for the long haul and they can easily make the payment on their $500k home that some fool bought for $700k in 2005. This decade won't soon be forgotten for it's massive excess and dramatic belt tightening following the bubble.

Detail: Fired: Heads roll as Mortgage Bets Collapse.

0 Pain or Pleasure:Two Charts.

I present for your viewing pleasure or pain depending on your position in this market the latest mortgage reset chart and the foreclosure time table.

Remember that the foreclosures that are on the auction block or listed on the local MLS have been in process for many months. Word on the street is that lenders are trying to delay foreclosures in the "HOPE" that the borrower will be able to begin making the payments again. Seldom happens. The bulk of foreclosure filings won't occur in my informed opinion until 2009. The big resets of ALT-A(above subprime but below prime) occur in the period of 09-11. This will be very interesting, as these folks will reset to full market rates or if they are smart they would have refinanced their mortgage before the market rate reset.
We live in an instant society, unfortunately this slow unwind of Candyland prices will take years. Every bubble cheerleading pundit wants to say, "It's over and we go up from here." How long in your infinite wisdom will the unwind last? Comment, your opinion counts.

Detail: Pain or Pleasure:Two Charts.

0 Your real estate hasn't dropped like this property.

In a stunning transaction, a Los Angeles luxury Condo Development Sold today. The developer Fifield Cos. has sold an unfinished Wilshire Corridor condo development - once touted as the city's most high-end - to a Dubai developer for $95 million, some $30 million less than a recent valuation. The recent tightening in the luxury mortgage market and declining real estate values in CA forced a sale. Foreign investors are flush with cash and the steady decline of the dollar vs their currencies has made the U.S. an attractive investment opportunity for large real estate players overseas. This is reminiscent of the flood of money from Japan during the 80's. Now it is oil money from the middle east that is searching for an attractive home in the U.S. market. I wouldn't be surprised to see more deals in the coming months especially for luxury condo and hotel properties.

Detail: Your real estate hasn't dropped like this property.

0 An option for today's home sellers:Lease-Options

The subprime fallout has made the once-slam-dunk home loans more difficult to obtain. While some neighborhoods continue to be very active, other areas have slowed considerably.
In addition, the first notion of "back to school" already has hit many second-home owners who are beginning to schedule the "winterization" of the family cabin. Instead of going through another off-season with little use and significant maintenance, some owners will use the last few weeks of the summer season to show -- and hopefully sell -- the family getaway, raising for-sale real estate inventory levels in popular areas.
If your house or cabin already has been sitting for sale long enough to bite into your comfort and affordability zones, you might want to consider a lease-option.
A lease with an option to buy often can solve a two-mortgage problem for a seller, and provide a cash-poor buyer with an opportunity to "try out" a house while getting a portion on the monthly rent credited toward a down payment.
Many sellers make a commitment to purchase another house contingent on selling the one they're already in. But when it comes time to purchase the second house, or lose it, the prospective buyer can be faced with making payments on two homes if the first one has not sold.
A 12- to 18-month lease agreement, with an option to buy within the lease period, can solve problems. Here's how a typical lease-option works:
1. The buyer and seller agree on a purchase price, usually a figure somewhere between today's market value and the anticipated market value 12 months down the road.
2. The seller gives up tomorrow's presumably higher value for money in hand today. The buyer pays a bit more than today's value in exchange for very little cash down. Let's say buyer and seller agree the price will be $335,000.
3. The seller charges the buyer a nonrefundable fee for agreeing to this option. The amount can vary depending on factors such as how eager the seller is to move and the size and quality of the house. Typically, the higher the fee, the better the buyer maintains the property.
4. Let's use $3,000 for the fee in our hypothetical transaction. The fee is in addition to the monthly lease payments. And we'll have the seller give the buyer the right to purchase the property for $335,000 at any time within the 12-month lease period. If the option is exercised, the fee could be considered part of the down payment.
5. The lessee has made no down payment, hence the monthly option fee is typically higher than rental market rates. The two parties agree on what portion of the rent will be applied to the down payment. Any amount can be credited. For example, if the monthly fee is $2,000, $800 could be credited to the down payment. (If the seller really is not eager to sell, he may not agree to a higher rent credit.)
6. Buyer and seller must be sure to specify both lease and sale terms in the agreement. For example, when the time comes for the buyer to exercise the option, if the interest rates are at 8 percent, the buyer may not be able to qualify for a loan. It's a good idea to set an interest-rate ceiling in the agreement, or ask the seller to finance the home when conventional rates hit a certain level.
Sellers should read their mortgage agreements carefully before entering a lease-option agreement. Some lenders may activate a "due-on-sale" clause if the seller enters into a lease-option with another party. Many times, lenders will permit a specific lease-option period if notified in advance. And, lenders usually are more willing to participate when they are assured of future business -- like the seller's or buyer's new mortgage loan.
Some realty agents have been reluctant to seek lease-options for clients because they have been unwilling to gamble their commissions on whether the option would be exercised. Others are skittish about deferring their commission until a deal is solidified. However, when open-minded agents understand a lease-option could keep a deal together and result in future business, the concept is readily accepted. A small piece of something is better than a large piece of nothing?

Detail: An option for today's home sellers:Lease-Options

0 Job Losses Heaviest in months.

What's the trickle down from these job cuts? Many of these have occured in the hottest job areas. Have you heard any stories or any anecdotial evidence of this affecting your local economy?

Detail: Job Losses Heaviest in months.

0 Property Speculators first to default.

The Mortgage Bankers Association (MBA) has released a report showing that as many as 1 in 5 mortgages currently in default in California belongs to borrowers who are not living in the homes with the defaulted loans. The default rates for investor loans were even worse in Nevada, Arizona and Florida, where one-quarter to one-third of all defaulted mortgages as of the end of June were related to investor loans, according to the report. The MBA defines "defaulted mortgages" as those that are 90 days or more past due or in foreclosure. The rapid rise in default rates has led some members of Congress to call for urgent action to aid borrowers who are threatened with the loss of their homes. But the MBA report suggests that some of these borrowers do not deserve to be helped. Many of the vacant foreclosed homes popping up throughout the U.S. these days were bought by speculators who planned to "flip" their investments for a quick profit but got trapped with the market took a sudden down-turn. "Defaults are on the rise in most parts of the country, but it should be recognized that it is not always the case of a homeowner losing his or her home but is often the case of an investor gambling on a continued increase in home values and losing that gamble," said Doug Duncan, the MBA's chief economist. Many of these investors have "simply walked away from the mortgages," Duncan said.

This is the moral hazard regulators and bankers speak of. People don't want to bail out property speculators that are a large part of the foreclosure problem in the previously hot markets.

Detail: Property Speculators first to default.

0 "When should I buy a home?" The quick answer.

Thousands of numbers, graphs, charts and economic reports can be boiled down for the first time home buyer looking in the previously smoking hot markets for the quick explaination to the question of "When should I buy a home?" When you see this chart of Countrywide's total national foreclosure inventory that they own and are trying to sell via thousands of realtors across the country start to stabilize and then move down again things are getting better. I don't think that will happen until 2010-11 as the amount of loans resetting to much higher rates is just starting in earnest this Oct/Nov, right before Christmas. These are homes that went to the auction step and Countrywide was the high bidder and won because they were trying to protect their skin in the game. Chart courtesy of the good guys at Countrywide Foreclosure Blog. Here is a recent scheduled adjustable mortgage reset chart also:

Detail: "When should I buy a home?" The quick answer.

0 Jumbo Mortgage Meltdown Freezes Luxury Housing

The media has done a very poor job of relaying the collapse in the jumbo mortgage market. The term jumbo mortgage loan refers to any loan that is higher than the maximum dollar amount established in Fannie Mae and Freddie Mac's guidelines. At this time, any loan for a single family property greater than $417,000 is considered a jumbo loan. The limits increase to $533,850 for two-unit properties, $645,300 for triplexes and $801,950 for 4-unit homes. There are also some areas of the Country where the limits are higher including Alaska and Hawaii.

But, what does that mean for housing in high cost areas like CA, NY, FL, etc? The guidelines for doing a jumbo mortgage have tightened dramatically in the last few days. Lenders such as Indymac, Countrywide and WAMU have increased reserve requirements and stopped taking stated income for loans with less than 20% down. The interest rates for full doc jumbo loans in CA have risen by .50-.75% for the most prime credit worthy borrowers. A client making $200k gross income(everybody right?), with 1k monthly payments on the credit report for cars, putting 20% down qualified for an 825k purchase using standard debt to income ratios two weeks ago. You move rates to 7.75% and the client only qualifies for 777k. Jumbo mortgage rates are averaging 7.75% for this scenario for a 30Y fixed. Which everyone should have, it makes no sense to gamble with an adjustable if you are planning to live in the home more than a few years.

As the guidelines continue to tighten, and the reality of the freeze in the jumbo market sets in you will see sellers drop their prices as we move toward the credit freeze of winter. Buyers can no longer go to their mortgage lender and get the rocket fuel financing that propelled the luxury market between 650k-1.5m. Above these loan sizes clients tend to have substantial active and passive income from stocks, bonds, and small businesses to manage almost any lending squeeze. Working class vs asset class. Don't worry about the rich, they always find a way to make it. Keep your head on and remember it's never different this time. Please post your thoughts.

Detail: Jumbo Mortgage Meltdown Freezes Luxury Housing

0 The new word of the day is NO!

The mortgage market is undergoing a rapid change that the public at large is only coming around to slowly. People believed that money would flow to anyone with a pulse at terms that were increasingly better than their previous mortgage loan. The game was going fine till people took on more debt than they could pay. The mortgage defaults started and picked up speed at the start of 2007. Then, the investors started to slowly tighten guidelines and then it was a race to the bottom. Small lenders in order to compete and keep volume flowing keep very loose lending guidelines. They then began having trouble selling these to Wall St, who packages the prime and subprime mortgage loans and sells them to investors.

The mortgage interest rates couldn't rise much because people couldn't qualify even with an interest only or a 40Y fixed mortgage. The investors weren't being compensated for the added risk but there was an instatiable appetite for yield or a rate of return better than safe government bonds. Eventually, all this consumption of bad mortgage debt lead to severe problems. Lending depends on keeping the money flowing; borrowers making payments, and default rates staying predictable. Everything has changed and the mortgage investors are in a holding pattern till the dust from the collapse settles.

The biggest toxic mortgage product in domestic and international portfolios is stated income loans for subprime or ALT A clients. People had used stated loans as a way to qualify for rates and loan programs that they otherwise would not qualified for. But, that game ended when we had gardners and secretaries stating that they made 100k+. The investors didn't believe the income and the underwriters turned the files down. Many people had used refinancing as a way to bid time. They couldn't make the mortgage payment but they could refinance, pull cash out and make the new payment again for a few months.

Mortgage loan rates will continue to rise for risky loan scenarios. Millions of people are unable to refinance their loan now. They may be aware of this and list their home for sale, or go into default; or they are clueless staring at their plasma they bought at Bestbuy. The average increase for people with adjustables is 2%. An average loan balance in Southern California for example is 350k. With a 2Y fixed or 5Y fixed interest only done a few years ago the payment would be $1750. With the first adjustment their new interest only payment moves to $2333. If people are complaining about gas prices. Think about the impact of that payment increase on the average middle class family. That payment doesn't include the property taxes or home owners insurance.

Of course, adjustable loans are used from the conforming loan market to the super jumbo loan market for the multimillion dollar homes. The difference with the larger balance loans is that the lenders require larger down payments and much lower debt to income levels. Most jumbo clients can easily handle their first adjustment. This is not true within the conforming loan market. I do not believe that people are prepared in anyway for their first adjustment. Almost, $2 trillion dollars of mortgage loans adjust in the next twelve months. It will be interesting to see how people handle the coming wave of change. Borrowers are more likely to hear NO or sorry a lot over the next few years.

Detail: The new word of the day is NO!