Seattle Bubble

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.

From Calculated Risk:

JP Morgan Chase…sorry Nevada, 65%CLTV max. Wow.