Seattle Bubble

Side Commentary and thoughts: Sorry I’ve been unable to post much over the summer here and at RCG.  I’ve been exceptionally busy with lots of projects and family stuff.   Plus, I’m freaking out that one of my kids is going to be a Freshman in high school starting in a week or so.   But, I’m intensely following the developments of the Agencies (Freddie and Fannie) and the changing mortgage guidelines (FHA, Conventional programs) and how it will impact the market and what it means for positioning our small business going forward.   Unfortunately, in the escrow business, our business is highly dependent upon how real estate agents and loan officers perform and have positioned their business to weather this storm.  If they do no business, we follow suit.   There are some exceptions to this, but it is mostly the way it is.

I could write lots of posts on the challenges escrow firms (true independents like our office that are not owned by mortgage brokers or real estate brokers or title companies) face when our incomes are derived from our customers (agents and lending industry) and not our paying clients: buyers, sellers and those refinancing.  It is one of the other great wonders of the world and in my view, costly to consumers.  I suppose you could say, “when in Rome, do as the Romans do.”

The IndyMac debacle was interesting because we received work from their Bellevue office.  It was interesting because about a week prior to their FDIC takeover (which many argue quite effectively due in large part to the lovely Senator from New York, Mr. Schumer’s letter to the OTS which subsequently initiated some $1.3 Billion in depositor withdrawals in an 11 day time period) we e-mailed staff that we worked with and they indicated no talk of problems at all.   Why is it that staff sometimes is the least likely to see the writing on the wall?  Anyway, the rest is history.   Losing the IndyMac work was not helpful.

Money is what drives this real estate market folks and the tougher it is to obtain financing the tougher time this market will have, both nationally and in our Puget Sound region.   Following all the developments in the local and national scene has been exhausting to keep up with, but I must comment that I’ve really enjoyed the conversations here and the active debates.

I have to confess that I have never been so fascinated by this economic-environment-lesson in business, banking, finance and how it all works.  I have learned so much, and yet still feel as if I’m not even scratching the surface of understanding it all.   I know I don’t understand it all.  If there is any discouragement or frustration I have about this correction, it is still centered and pointing clearly at the real estate industry’s moving parts (with emphasis on the lending community) for creating and fostering this mess.   There are still countless industry participants that still blame the media for this (I heard this again at a BBQ I attended a few days ago).   And, there are a lot of frustrated sellers who just can’t sell in this environment.  Got some friends in that situation.  It is not fun observing  the financial bleeding and you can do nothing, never mind the social impacts and families being broken up over finances.   The social-economic issue is for another blog.

WAMU

A few days ago Mrs. S-Crow received an e-mail from a loan officer/customer who is at WAMU.  I presume that we were one of many recipients of the e-mail that discussed WAMU’s offer of 5% CD’s which is higher than most banks and credit unions are offering.

Calculated Risk also mentioned the development this afternoon.    Lots of speculation about what this means for WAMU.

Redfin rolled out some great new statistical features today that are definitely worth mentioning.

Automated market statistics broken down by city, neighborhood, or zip code, with charts showing inventory, price per square foot, and price reduction trends over the last year.

CEO Glenn Kelman announces the new features in a blog post today:

Redfin released a big, beautiful new version of its website last night. For the first time in years, there’s a whole new web page on the site — not just a map and a web page for each property on the map — but a set of graphs, pictures, charts, numbers showing all the pricing trends for each of the 9,000 neighborhoods, postal codes and cities Redfin covers. This is the good stuff, drawn straight from the MLS databases real estate agents use to list properties and the tax rolls that counties use to record sales.

It’s a big deal, because consumers have never had access to reliable real estate data down to the neighborhood level.
…
Now you can see what’s really going on with your neighborhood’s prices, right now: dollars per square foot, numbers of homes for sale, days on market, price reductions. We split out condos and houses because they’re priced so differently. The pricing graphs show listings and past sales separately, so you get a view of what sellers expect and what they really got.

He also takes the time to go through a few other new features they have rolled out for home shoppers, so definitely go check out his whole post.

To access the spiffy new statistics, just type in a city, zip code, or neighborhood into the Redfin search field, wait for it to populate the map, then click “View [the area you typed] Inventory & Pricing Trends” in the upper-left corner of the map.

These tools are a great resource for figuring out what’s going on in the “hyper local” real estate markets that interest you. Kudos to Redfin for coming out with such great resources for home buyers and sellers to track what’s going on in their own back yard.

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.