I’ve got so many topics to talk about but very little time. I have to start somewhere.
Just months ago it was not uncommon (understatement) to see 100% financed nothing down purchase transactions with various ARM’s tied to LIBOR or other indices coupled with hefty pre-payment penalties, interest-only hybrids with no escrow impounds for taxes or some other mortgage product. I’m not talking about other communities in other States. I’m talking about right here in the land of Microsoft, Boeing, T-Mobile, Fred Hutch, UW, Costco, Navy, Zillow, Zymogenetics, Google, Amazon, Starbucks, Safeco, Zumiez, PACCAR, Weyerhauser and a myriad of other companies scattered up and down I-5, I-405 and beyond. To be sure, our escrow company was not ordained by the Dept. of Financial Institutions as the “only” place to close these transactions. We are small. The title companies closed thousands of these loans all across the country. Tens of thousands.
Today, March 12th, 2008, the loan packages are so different. For one, they are much smaller in size. They are not littered with ARM Riders, Balloon Riders, Pre-Payment Penalty Riders or 2nd’s/HELOC’s and many other forms that made files so thick. I’m not calling Costco as often to order more business checks that would be allocated for paying off consumer credit cards (Pottery Barn, Nordstrom, Visa, MC, Toyota, GM, Ford Credit, Home Depot, etc…). And the FICO scores are much more improved than before.
Today’s lending environment is what sustains stable markets. It is what keeps people in houses rather than turning them back into renters again. Stable markets are where the conversation with real estate professionals is centered around employment, communities, schools, jobs vs. centered around making a killing flipping houses or it is a no lose proposition as an “investment.” Stable markets are one in which hard working staff in mortgage lending, title, escrow, or related fields such as construction trades etc.. are not looking for new jobs or not walking up to their desk on a Monday morning looking at all their belongings in a box placed on their desk.
A Remarkable Period In Time
I think a lot more people are starting to “tune-in” to what is happening in the housing market and, moreso, the developing story (s) in the credit markets. Over the past five to six weeks, I’ve been all over the Puget Sound region assisting our clients. From Bellingham to Puyallup to those living in condo’s in downtown Seattle and communities in the Eastside. Housing and more specifically the health of the local housing market is on the mind, front and center. No longer is the client sitting across from me talking about the kitchen remodel or trip to visit relatives or making money in real estate. It is “what are you seeing in the market,” “is my interest rate good,” “do you think rates are going higher?” etc… No longer is the conversation couched around “making money on this property,” or “equity.”
I honestly don’t think we can call this market, either across the country or locally, a “changing” market anymore. It has materially “changed.”
From Bloomberg:
“Fannie Mae said it would generally require down payments of at least 20 percent on such adjustable-rate mortgages for home purchases by borrowers with credit scores above 700, out of a possible 850. Freddie Mac said that it would allow such ARMs with 10 percent down. Freddie Mac will require at least 25 percent down payments of borrowers with credit scores between 660 and 700, while Fannie Mae is requiring only 20 percent down.”
Further, Fannie Mae’s CEO Richard Syron, had a blunt assessment of the market and the agency’s role:
“It’s “perverse” that Freddie Mac and Fannie Mae, the two biggest providers of money for U.S. home loans, have been encouraged “to put people into homes that they end up losing,”…..
Courtesy of The Big Picture Blog, Fannie Mae’s Syron also remarks that the market price drops “are only 1/3 done” among more dire analysis.
JP Morgan Chase…sorry Nevada, 65%CLTV max. Wow.
Jump to the bottom to add your comment. ↓
38 responses so far ↓
1
Garth
// Mar 12, 2008 at 8:22 pm
S-crow,
How could you leave out the headline from the bloomberg article:
<blockquote
Rules Let Too Many Poor People Buy Houses, Syron Says
Too funny.
2
Rhonda Porter
// Mar 12, 2008 at 8:49 pm
I know I’ll probably get pummeled for this… most subprime mortgages are performing (around 80% I believe). I’m proud of those who are doing well…who possibly got a once in a lifetime opportunity and are doing what they are suppose to do.
Right now I’m helping a lady by refi’ing her out of her subprime loan she got from another lender. She’s thrilled. Whether or not some may judge that she should or should not be a home owner, what ever she did to wind up in her subprime mortgage, she’s corrected.
I didn’t read the article (I’ll go back and do that) about too many poor buying houses… before I write more…perhaps I’ll do that.
3
Rhonda Porter
// Mar 12, 2008 at 8:54 pm
Okay…I read the article…I’m more stunned by:
“Syron’s compensation from Freddie Mac in 2006 was $14.7 million, according to data compiled by Bloomberg”
The programs they’re referencing are the MyCommunity, FannieFlex, HomePossible programs. These are far from subprime and are either tightening due to Fannie/Freddie guideline changes or due to pmi changes.
I still think the biggest problem in this mess was the OVERstated income loans…all types of demographics couldn’t wait to over-state their incomes to buy homes they couldn’t afford. Why?
4
S-Crow
// Mar 12, 2008 at 9:14 pm
Yes, that reminds me of watching commentators a few months ago on CNBC say, “look, the subprime issue is contained, it’s such as small fraction of outstanding loans that are having trouble.”
Fast forward today…pick your headline.
5
Scotsman
// Mar 12, 2008 at 9:46 pm
Reading Market Ticker, it seems Fannie has a good chance of going under by the end of the year. Here’s the relevant section:
“Now let’s be a bit more realistic. Like, for example, what’s being reported here:
“At the end of September, nearly 4 percent of prime mortgages were past due or in foreclosure, according to the Mortgage Bankers Association.”
Oh my. About 1 in 2 of loans that get in trouble eventually foreclose, which means I might have been being nice, and by the way, that’s for September of 2007. Its gotten worse since hasn’t it?
So exactly how exposed are Fannie and Freddie?
Well, let’s assume that the prime foreclosure rate were to hit 2%, which is about double where it is now. Let’s further assume recovery is a generous 60% (current recovery rates are running under 50% according to various industry source.)
This means we’d have losses of 40% of 200 bips, or 80 basis points. This is more than double the capital reserves available!”
The point here is that Fannie/Freddie are probably bankrupt at the current loss rates, based on old data, and as losses accelerate their demise is assured. Now THAT will throw a serious wrench in the market….. as if it weren’t bad enough already!
The market is already finished if 20% down becomes the new norm, and if prices have indeed only fallen 1/3 of what Fannie’s own analysts expect, then the risk of those cumulative reductions in collateral values must also be priced into the model. 30% down, anyone? Who buys then?
Cue the Pink Ponies!
6
b
// Mar 12, 2008 at 9:56 pm
Rhonda -
The sad fact is that they had to overstate their incomes to qualify for a home they could have bought with their real income several years earlier. I think what happened is that intrinsically, most people “knew” the house they could afford for their income. The problem is that prices disconnected so greatly from value that their income needed to be 2x for the same exactly house, so they lied instead of sitting out.
Also, it seems that 80% performing would be pretty good these days, and most will slip far underneath that over the coming months/years. Bloomberg just did a very interesting analysis of many 2006/2007 vintage bonds (the gist is that IBs are insolvent but the Fed isn’t forcing their hand). Needless to say, some of the results are horrific so far:
Within one AAA index, the $79 million Deutsche Bank bond, known as ACE 2005-HE-7 A2D, is rated AAA by S&P and Moody’s even though 18 percent of its loans are in foreclosure, 15 percent of the properties have been seized by lenders and about 10 percent have been delinquent for more than 90 days.
7
b
// Mar 12, 2008 at 10:00 pm
Here is a followup interactive graph for that Bloomberg analysis, its very interesting to see the kind of garbage the Fed is going to be trading treasuries for!
8
Jillayne Schlicke
// Mar 12, 2008 at 10:22 pm
Watch for more LOCAL layoffs at local title and escrow companies, watch for more realtor and mortgage loan originator attrition, layoffs at local builders. We are just getting started here in the Sea area.
All companies are facing losses. The best way to cut expenses fast is to reduce staff and make existing staff pick up the slack/work harder.
Even though many subprime loans are performing, the historical data of the rise in foreclosures means that lenders were making bad loans. Subprime should have been underwritten with more scrutiny, not less. Now we’re all going to have to pay for this for the next 7-8 years.
9
economist
// Mar 12, 2008 at 10:25 pm
30% down, anyone? Who buys then?
Me.
10
Garth
// Mar 12, 2008 at 11:37 pm
The CDO’s and SIV’s invented by the government to sell a couple hundred billion in S&L debt they acquired through the FDIC as a result of the S&L scandal is the underlying source of the liquidity that the real estate and buyout markets used so heavily the last couple of years. The adjustments made to banking regulations caused the S&L scandal.
Japan and the S&L scandal were all about problems with lenders who had loans on their balance sheets, this crap is CDOed. SIVed sliced all up and rated by questionable agencies and then sold all over the world at all sorts of ratings (money market funds and venture capitalists parking cash have lost in commercial paper and auction rate notes already) . Since big money advisors were telling clients these vehicles were as good as cash, and they had been since there invention, they were a popular place to store cash short term and make some money. Those who parked cash in these vehicles at the wrong time find it stuck and declining in value rapidly.
From what I can tell for those who where without a chair when the music stopped nobody really know who owns how much and what it is worth yet.
11
Sorin
// Mar 13, 2008 at 12:03 am
30% down, anyone? Who buys then?
Me.
Ditto.
12
Ray Pepper
// Mar 13, 2008 at 6:28 am
“all companies are facing losses” Not so fast!…
500 Realty continues to out perform ALL expectations and continues to post month over month positive cash flow …………But, then again we have no doubt, In your 7-8 year time-frame many things will change for the benefit of the consumer.
Anyone know of any “washed up Realtors.” ? We can use them! P/T or F/T. Send them our way. But, can they pass our exam and interview process? Its not easy…
In the end, its all about change…. It takes a wash-out to change an industry. There are far too many Realtors, Mtg Reps, and why the heck do we need all those Title-Escrow companies?
Bring it on!
http://www.500Realty.net
13
vboring
// Mar 13, 2008 at 7:32 am
i know this isn’t exactly the venue for it, but my brother used 500realty to sell a house in Kirkland about 3 years ago and really liked the experience (i’m sure that making about $100k in two years of ownership didn’t hurt, either).
having used 500realty, he couldn’t understand how redfin could be an interesting company. why pay more than $500 for the same service?
it is sort of on topic, right? talking about the company side of the RE industry.
14
Cougar
// Mar 13, 2008 at 7:49 am
Ray,
$500 REALTY, INC. has been in business since Date of Incorporation 02/05/2007. You come on this blog (and many other Seattle blogs) promoting yourself and have been asked not to self-promote as a “troll” . Yet you have only been in business for a little over 13 months, you don’t have a qualified track record to prove your business let alone be in business next year!
1) Advertise with The Tim on the sidebar, your business is booming, you can afford it. (If you qualify, his requirements are quite high)
2) Stop self promoting, remember, this is Seattle Bubble.
15
laxtosnoco
// Mar 13, 2008 at 8:48 am
Rhonda asked why people overstated their incomes to get loans. I don’t think RE professionals deserve all of the blame, but behind every one of these loans there were probably two experts nodding their heads and encouraging the buyer with phrases like:
“Real estate always seems expensive. If you sacrifice for a few years you’ll thank yourself when the value climbs.”
“You shouldn’t try to time the market. Even though prices are high now, you should buy for the long-term. Besides, RE prices always go up.”
“Every month, you are throwing away your money on rent. Even if it’s a stretch, don’t you want to stop paying your landlord’s mortgage and start paying your own?”
16
newbie
// Mar 13, 2008 at 8:50 am
Agreed Cougar! I am tired of little Ray of sunshine thats always shining on 500 realty.
On a different note i was listening to the radio today and Truth In lending Act (TILA) company is claiming Seattle is one of the most undervalued cities in the US.
I guess everything with the name TILA makes me sick.
17
Ray Pepper
// Mar 13, 2008 at 9:20 am
HAAAAAAAAAA…I knew it would start. So V Boring. You used us 3 years ago! Fascinating. I opened the doors Aug 12, 2007. Before that I was Pepper Realty Inc.
Not sure who you used that had a 500 in it? Nice try!! No blatant pumping here. The spies are on the Bubble trying to discredit.
I cannot stop the blatant attempts of people to discredit 500 Realty. I’m sure it will continue but I assure you this. There will be many more compamies like 500 Realty coming.
BOOK IT!
18
The Tim
// Mar 13, 2008 at 9:29 am
Ray, I really do think you need to tone down the self-promotion a notch or two.
19
Ray Pepper
// Mar 13, 2008 at 9:33 am
BTW Cougar and Newbie……Message boards are about embracing change. I have been called a Troll once on Rain City. I had never heard of the word TROLL. I looked it up and I’m surely not. I always stay on topic and usually address someone who makes remarks that are inaccurate.
Such as “all companies are facing losses.” I believe she may have been the young lady on Rain City. Who knows. But, I assure you this. Any investor type consumer, who knows about us, will seek this type model out when it comes time to buy. IF THEY KNOW WE EXIST!
When I take the time to Post I WILL ALWAYS make a reference to 500 Realty. The message is far too important not to. So get used to it.
FYI we have been in talks with Tim about advertising. But with our committment to CNBC in Tacoma and Seattle, the Trade Shows, the sale of our building MLS # 27170808, and our Move closer to Seattle its just not time yet.
I believe you spend too much time crying about a company which is here to GIVE to the Consumer instead of all that EXTRACT it leads me to believe you have a REASON for not wanting the message to be heard!
I hope I’m right!
http://www.500Realty.net
20
Mike2
// Mar 13, 2008 at 9:41 am
Rhonda Porter
I know I’ll probably get pummeled for this… most subprime mortgages are performing (around 80% I believe).
How many homes does the 20% that isn’t current on their payments represent?
I’ve seen the national mortgage performance rates bandied about “93% are still paying” etc. That 7% that isn’t paying may represent a full years worth of home inventory that’s about to hit the market. And that’s assuming things don’t get any worse.
21
Ray Pepper
// Mar 13, 2008 at 9:49 am
Tim, if you want me to be a robot and cheer the charts like many here I will. But, I hate charts. Just look at C, WB, WM, LEN, BZH, TMA and that will sum up all the charts. Thats all I NEED to see.
Its your blog. I will become more reserved and passive. At least I will try.
But, how can you identify who VBoring is. I have all my records from 3 years back and WE NEVER SOLD A HOUSE IN KIRKLAND 3 years ago. 9 Years ago we sold a mobile.
How can I identify who my previous customer was so I can thank them for the business? HMMMMMMMMMMMMM?
http://www.500Realty.net
22
Greg Perry
// Mar 13, 2008 at 10:23 am
S-Crow
I appreciate what you said here, “Today’s lending environment is what sustains stable markets. It is what keeps people in houses rather than turning them back into renters again. Stable markets are where the conversation with real estate professionals is centered around employment, communities, schools, jobs vs. centered around making a killing flipping houses or it is a no lose proposition as an “investment.”
Presently we’re in a fairly normal market. The recent markets were an abberation.
People sometimes use the word investment and speculation (gambling?) interchangeably.
23
Silver9
// Mar 13, 2008 at 10:23 am
Well all I can say is thank god we are returning so some semblance of reality in real estate.
Sadly I am still expecting a lot more pain as markets contract and prices return to levels that are affordable by actual, not stated, incomes. Most of the folks I talk to who think Seattle-area prices will never drop have also never experienced a downturn; their whole investing experience is based on the financial aberration that was the past 10 years.
What i fear is that markets will freeze up and we will have our own Japan-circa-1980’s experience. The factors involved here are much larger than any one city or the normal supply/demand factors in housing. They are also much larger than the average citizen understands, our financial education system being what it is…
Interesting times, indeed.
24
Olaf
// Mar 13, 2008 at 10:46 am
I’m going to try to wrestle this back on-topic.
Here’s a question for those of you with real estate experience. Given this changed market, and the new skepticism and higher barriers for buyers with spotty records, how does this affect buyers with GOOD credit?
More to the point: I’m a first-time home-buyer (home-hunter), and I sat out the madness, I saved my money, and I now have stellar credit and a sizeable down-payment (20% or more, easily). I should be the borrower that lenders are looking for now, right? And yet, I can’t figure out how I leverage my good credit into lower interest rates. Every loan officer I’ve talked to says, Sure, they’re happy to set me up with a loan, no problemo. But it’s the exact same 30yr fixed deal they give everybody else: there’s no discount, no lower interest rate, nothing, even though I’m the lowest-risk borrower they’ve seen all week.
This is an amateur’s question, I know, but I can’t figure it out. How do you make your good credit pay some dividents when buying a house?
25
Markor
// Mar 13, 2008 at 11:12 am
Olaf, I suggest you check out John DesCamp at BellevueHomeMortgage.com. As a loan broker, he can tell you the lowest rate among the many lenders he works with. I did many refi’s with him (as rates fell) and always got the lowest rate I could find. His service and attention to detail are excellent. If there’s any reason why he can’t get you a better than average rate for your excellent credit, he’ll give you the straight reason, since he’s a broker working for you, and the lenders are just his vendors.
26
S-Crow
// Mar 13, 2008 at 11:14 am
Olaf,
First thing that comes to mind is you have little competition in terms of boots on the ground. Certainly, depending upon the area you are interested in buying, that relationship may change. But, you don’t have to worry going into the market place to snoop around that you will be asked by your agent to get used to the idea of not doing inspections and be ready to pay much more for a home than the asking price. Agents have been asking and receiving price reductions from listings for months now.
Two, shopping for loans does give you leverage. I’m seeing a lot of fees from loan Brokers getting more competitive (you can infer what that means).
Three, time. You have been patient. It will reward you.
27
Markor
// Mar 13, 2008 at 11:15 am
Also, you should know that you can and should negotiate on rates. You should always ask for a lower rate. Ask for the “good credit discount” and make it clear that you’re shopping around.
28
steve-o
// Mar 13, 2008 at 11:17 am
Hey, reading Ray’s comments is one of the reasons I come to this blog. He keeps things lively.
Ray is real. I know him personaly and what you read is 100% him. What he lacks in tact he makes up for in honesty (the two are related, yes?).
Just want everybody to understand that he is not a mole. troll whatever. (what’s a troll?)
29
Alan
// Mar 13, 2008 at 11:32 am
People think “troll” means a big ugly thing with no manners that lives under a bridge.
I always had a different interpretation. A troll is someone who participates in trolling.
http://dictionary.reference.com/search?q=trolling
“To fish for by trailing a baited line from behind a slowly moving boat.”
Ray is trolling for customers. Anywhere else he would be called a troller. On the internet we call him a troll because it conjures the image of big, ugly, thing with no manners that lives under a bridge.
30
Marc
// Mar 13, 2008 at 11:38 am
Olaf,
Excellent credit and a healthy downpayment are a huge plus when it comes time to make an offer. Make sure you emphasize your qualifications to the seller in a cover letter. This is especially a good idea in high end homes where there are fewer buyers. I recently prepared an offer for a surgeon on a seven figure home and I explained to him that the seller should be grateful to be dealing with such a solid buyer considering the turbulence in the mortgage market.
On the other hand, I explained the opposite scenario to another client selling a condo to a buyer using a city/state funded first time home buyer program. The buyer has little or no money down and is entirely dependent upon a government program for her loan. It goes to show that when qualified buyers are few, sellers have to take what they can get and they should really appreciate it when a solid offer comes in.
Oh yeah, last bit of advice, shop houses that have been on market for awhile and low ball, low ball, low ball.
31
softwarengineer
// Mar 13, 2008 at 2:45 pm
DOES ANYONE REMEMBER SEATTLE HOUSING DURING 1979?
It took one good professional or labor union job [back then, semi-skilled labor union workers made more than college professionals] to pay the mortgage and another to eat and get to work.
I rented back then. But money markets were as high as 18% interest back then, not this horrifying 3.5% today. You could safely pile money away fast back then and the housing busted too. Win/Win.
Today, its a joke. Sure, housing is flat or losing ground fast in Seattle, but the saving rates are pathetic. Gas, food, college loans, clothes, automobiles, etc, etc, make saving a 20% down for a house horrifying.
No wonder the restaurants seem a lot emptier lately.
32
Joel
// Mar 13, 2008 at 3:04 pm
If lending is already back to normal then how can it be that I can still get a new house for the cost of a months worth of lattes?
33
Olaf
// Mar 13, 2008 at 4:27 pm
Thanks for the advice, everybody. But I guess my point was, is there any way to get an individual lender or bank to cut you a deal because you have good credit? I understand about shopping around for loans, and I understand how to leverage my good credit to convince the seller to give me a discount… but what I don’t understand is how to get the LENDER to reward me for being a lower risk borrower.
I know this happens in commercial lending (companies with good prospects negotiate lower rates or cheaper terms from the bank), but maybe it simply doesn’t happen with mortgages.
Maybe banks just don’t care that you’re a good credit risk, since they plan on packaging up your mortgage and selling it off, anyway.
34
S-Crow
// Mar 13, 2008 at 4:32 pm
OIaf,
The gatekeepers to lending are mortgage brokers. So, you need to do your negotiating there. Having a credit worthy and serious borrower is worth a lot to brokers.
I understand what you are vying for.
35
steve-o
// Mar 13, 2008 at 4:38 pm
Alan (29),
Thanks for the info on troll(ing). I thought it meant you were acting like somebody you weren’t (like a mole).
Yah, Ray is trolling. But his posts are so "golly" interesting it doesn’t bother me much. Actually Troll would be a good knickname for him ;o). I’ll try it out tonight and see how it goes over.
36
Ray Pepper
// Mar 14, 2008 at 8:30 am
Well Steve -o ..Thanks for the Plug ..I guess.
Appears Rhonda Porter has the power over at Rain City and deleted all my entries. Just a shame. She couldn’t answer any of my questions… Kept calling me a troll…and Don’t feed the TROLL! A bit rude!
She cannot stop the message that will continue to be heard even louder in years to come. I applaud Red Fin and anyone else that can upstart a NEW Brokerage that helps the consumer! The consumer is going to need all the help they can get in coming years.
The Rhonda’s of the World who do NOT educate their clients will fall off the map. The Mtg Reps/Realtors who do NOT act in the best interests of their clients will also join Rhonda.
You see there is an “unspoken” relationship between the Agents who FEED their Mtg Reps. God forbid a Mtg rep tells a consumer..” Hey, help your agent find your home and you will get 9000.00 ( or so) . it will pay all your closing costs and you will have more money for all new carpeting and be in a better financial position.”
You see the Mtg professionals that choose not to educate are as bad looking as my vision of a TROLL!
http://www.500Realty.net
37
Faster
// Mar 16, 2008 at 9:46 pm
Ray, you are either a troll or a Spammer - take your pick.
We get it, you run some little realty company and you want more customers. You’ll even give us a free t-shirt. I got that from the first 100 times you posted it, please don’t feel you need to post it another 100 times.
38
Alan
// Mar 17, 2008 at 12:31 am
I have a lot of respect for Rhonda based on her blogger image. I can’t say the same for you, Ray. You have been repeatedly asked not to blatently advertise your company on here and on raincityguide. The fact that you continue to do so shows a tremendous amount of disrespect.
I applaud your effort to make a new business model work. It probably is a good model. I have little doubt that you know what you are doing in the real estate business. But the disrespect you show makes me not want to use your company.
You are more likely to get customers here by adding value to the conversation without the constant plugs.
Jump to the top of the comments. ↑
Leave a Comment