This is worth a read.

Latest from Ben Stein

Thanks Manuel for a photo of this cow moving against the herd.

I just looked at the San Jose Mercury News’s real estate blog, Square Feet. It appears they, like many news outlets, are having an identity crisis with the current condition of the real estate economy. Below are 2 postings that were posted on the Square Feet blog, by the same writer. They were posted on consecutive days, the 18th and 19th of October 2007.

Take a look at this story they posted on October 18th entitled Bay Area Home Sales at a Two-Decade Low In September.

… And in Santa Clara County, again for all types of homes (new and resale, houses and condos), the rock-bottom month was Feb. 1991, when 997 homes sold. For sales of just resale houses, the lowest month was Feb. 95, with 684 houses changing hands. Let’s bear in mind, though, that there were a lot fewer homes to sell in the Bay Area back in the early 1990s, so it’s possible that last month’s numbers are in fact scraping near record-low territory.

They make it appear as if the Bay area real estate economy is tanking. Yet, before you make that assessment read the posting, Silicon Valley Luxury Market Soldiers On which was posted on the 19th of October.

A report out this week from Alain Pinel Realtors showed that 227 homes sold for $2.5 million or more in the third quarter in seven of the Bay Area counties, compared to 195 of those high-ticket homes that sold last year during the same period. That’s an increase of 16 percent. The counties in the survey were San Francisco, San Mateo, Santa Clara, Santa Cruz, Monterey, Alameda and Contra Costa.

Reading the October 18th article could cause arrhythmia, while reading the October 19th article may make you bullish beyond belief. So, how can these 2 articles be written just 2 days apart and paint such a different picture of our real estate economy? This answer is complicated. First, the media is often behind the real estate curve. Second, it is my opinion that the media is not a good place to get tips and tactics for you next real estate sale or purchase strategy.

So, my interpretation of the disjointed news above, is that our markets have been made more volatile by a lack of liquidity and the negative press this crisis has created. This means that we will see many ups and downs in the months to come. Don’t fret over the downs and jump for joy over the ups. There is much opportunity in change, if you are able to take advantage of the situation.

Get good representation from a successful Realtor in your area who can help asses your ability to act. Then look at the facts when deciding to make your next transaction. Rates are still low compared to historical averages. In general listed homes are having less buyer activity and are more willing to negotiate. This is a fantastic buyers market for those that are qualified buyers with good down payments. Get a qualified mortgage adviser that can help you navigate the complicated mortgage markets.

It is my interpretation that the robust high end real estate surge that the above October 19th article refers to, as smart action by top 1% income earners to enter a market where they get both a good rate and a great price. Having both these opportunities at once is rare and will not last for ever. These movers in the market are truly buying against the herd.

I watched this presentation for the first time several months ago. At first it put me in a mood of sadness. It is a powerful presentation that shows how our world is ever changing. In this sea of change we must navigate our family, lifestyle, and financial ambitions. In the last week I have spoken with several clients that have asked for assistance with finance, trusts, and real estate. I have found that life is a balancing act where we attempt to create harmony. When we act without considering our concerns we create future breakdowns. This presentation illustrates that none of us make desicions in isolation. The endless change that we encounter in the world is always knocking us off balance. We then act to balance ourselves once again. After watching this presentation for a second time, just 5 minutes ago, I felt a rush of happiness and exhilaration. There is great opportunity in constant change!

The media’s job is to sell their product and they know that bad news sells.  If you listen to enough bad news, you will believe that everything is getting worse all around you.  But that’s just not true, things are getting better in almost every way.  

Clear-Eyed Optimists

I’m old enough to recall the days in the late 1960s when people wore those trendy buttons that read: “Stop the Planet I Want to Get Off.” And I will never forget that era’s “educational” films of what life would be like in the year 2000. Played on clanky 16-millimeter projectors, they showed images of people walking down the streets of Manhattan with masks on, so they could avoid breathing the poison gases our industrial society was spewing.

The future seemed mighty bleak back then, and you merely had to open the newspapers for the latest story confirming how the human species was speeding down a congested highway to extinction. A group of scientists calling themselves the Club of Rome issued a report called “Limits to Growth.” It explained that lifeboat Earth had become so weighed down with humans that we were running out of food, minerals, forests, water, energy and just about everything else that we need for survival. Paul Ehrlich’s best-selling book “The Population Bomb” (1968) gave England a 50-50 chance of surviving into the 21st century. In 1980, Jimmy Carter released the “Global 2000 Report,” which declared that life on Earth was getting worse in every measurable way.

So imagine how shocked I was to learn, officially, that we’re not doomed after all. A new United Nations report called “State of the Future” concludes: “People around the world are becoming healthier, wealthier, better educated, more peaceful, more connected, and they are living longer.”

Yes, of course, there was the obligatory bad news: Global warming is said to be getting worse and income disparities are widening. But the joyous trends in health and wealth documented in the report indicate a gigantic leap forward for humanity. This is probably the first time you’ve heard any of this because — while the grim “Global 2000″ and “Limits to Growth” reports were deemed worthy of headlines across the country — the media mostly ignored the good news and the upbeat predictions of “State of the Future.”

But here they are: World-wide illiteracy rates have fallen by half since 1970 and now stand at an all-time low of 18%. More people live in free countries than ever before. The average human being today will live 50% longer in 2025 than one born in 1955.

To what do we owe this improvement? Capitalism, according to the U.N. Free trade is rightly recognized as the engine of global prosperity in recent years. In 1981, 40% of the world’s population lived on less than $1 a day. Now that percentage is only 25%, adjusted for inflation. And at current rates of growth, “world poverty will be cut in half between 2000 and 2015″ — which is arguably one of the greatest triumphs in human history. Trade and technology are closing the global “digital divide,” and the report notes hopefully that soon laptop computers will cost $100 and almost every schoolchild will be a mouse click away from the Internet (and, regrettably, those interminable computer games).

It also turns out that the Malthusians (who worried that we would overpopulate the planet) got the story wrong. Human beings aren’t reproducing like Norwegian field mice. Demographers now say that in the second half of this century, the human population will stabilize and then fall. If we use the same absurd extrapolation techniques demographers used in the 1970s, Japan, with its current low birth rate, will have only a few thousand citizens left in 300 years.

I take special pleasure in reciting all of this global betterment because my first professional job was working with the “doom-slaying” economist Julian Simon. Starting 30 years ago, Simon (who died in 1998) told anyone who would listen — which wasn’t many people — that the faddish declinism of that era was bunk. He called the “Global 2000″ report “globaloney.” Armed with an arsenal of factual missiles, he showed that life on Earth was getting better, and that the combination of free markets and human ingenuity was the recipe for solving environmental and economic problems. Mr. Ehrlich, in response, said Simon proved that the one thing the world isn’t running out of “is lunatics.”

Mr. Ehrlich, whose every prediction turned out wrong, won a MacArthur Foundation “genius award”; Simon, who got the story right, never won so much as a McDonald’s hamburger. But now who looks like the lunatic? This latest survey of the planet is certainly sweet vindication of Simon and others, like Herman Kahn, who in the 1970s dared challenge the “settled science.” (Are you listening, global-warming alarmists?)

The media’s collective yawn over “State of the Future” is typical of the reaction to just about any good news. When 2006 was declared the hottest year on record, there were thousands of news stories. But last month’s revised data, indicating that 1934 was actually warmer, barely warranted a paragraph-long correction in most papers.

So I’m happy to report that the world’s six billion people are living longer, healthier and more comfortably than ever before. If only it were easy to fit that on a button.

Mr. Moore is a member of The Wall Street Journal Editorial Board.

By Curt Van Emon

The opportunity to move against the herd is in front of us right now.

Common sense tells us to buy when rates are low.  Sounds reasonable, right?  But let’s take that thought further and see where it leads.

If we accept that common sense tells us to buy when rates are low, then:
Common sense tells us to buy when there are the most competitors because common sense by definition means that most everyone will arrive at the same conclusion.
Common sense tells us that if we are to get the house we want, then we must outbid every competitor who is bidding on that house.

Remembering the principles of supply and demand, we know that this will drive the price higher.   This must sound familiar to those who have been in the Bay Area real estate market over the past few years and who have routinely witnessed 10 to 15 offers on homes for sale. 

Now that rates are higher relative to the last five years, common sense is that maybe buying right now is not such a great idea.  If common sense is telling you to not buy now because rates are higher, then:  
Common sense is telling you not to buy when there are fewer competitors and less pressure for a house price to be bid up
Common sense tells you to sit on the sidelines when it is a “buyer’s” market

It seems that common sense leads one into taking actions that have them compete with the most bidders and to sit on the sidelines when there are fewer bidders.

Might it be better to buy when rates are high and there are fewer competitors?  We always hear that it is more effective to not follow the herd and we see an excellent example of this in today’s higher interest rate market.

The borrower always has the option to refinance if rates drop. This gives buyers the opportunity to buy a house where there are fewer competitors and then to lower the costs later if rates decline.

Some buyers cannot afford or qualify for loans at the higher rate.  This is good news for those buyers who can afford and can qualify.  This is what it means to have fewer competitors.  Some will choose to not buy because of higher rates and others will be forced out of the opportunity by the market mechanisms at work.

Talk with your Realtor® to get specific grounding about what is happening with properties in the area where you’d like to buy.  Are the days on market increasing?  Are there multiple offers or are properties selling to one offer? 

Come talk with us at Opes. We’ll work with your situation with our proprietary Future Value Tool™ which creates a personalized financial forecast for each of our clients.   With the results, we can help you assess what you can responsibly afford that still enables you to fund your retirement, college expenses and lifestyle expenses. 

Perhaps going against common sense will enrich you in ways you never expected.       
If there was ever an opportunity to move against the herd, it is in front of us right now.

Randy Pausch is a professor who has only a few months to live.  Listen to his “Last Lecture”, it is inspiring and moving.

See the Randy Pausch Story on Google video

Intaxication:  Euphoria at getting a refund from the IRS, which lasts until you realize it was your money to start with. 

~From a Washington Post word contest

 
Thanks d_b_Solis for the Photo

This is a powerful essay mostly for providing us the opportunity to notice if we are in conversation with our spouse or not about such an important issue.  If you are not married, then get into conversation with someone such as a financial planner, your folks, a good friend, etc.  Design and action will come through engaging in conversations with others about your specific situation and concerns.

‘Can We Talk?’

The 10 most important questions you and your spouse should ask each other about retirement — and probably haven’t

By GLENN RUFFENACH
September 22, 2007; Page R1, Wall Street Journal

Presumably, most wives and husbands take time to discuss the big issues in their lives: whether to have children, which career paths to follow, and who gets to control the TV remote. Presumably, most wives and husbands take time to discuss the big issues in their lives: whether to have children, which career paths to follow, and who gets to control the TV remote.

So why aren’t spouses talking about retirement?

A study published earlier this year by Fidelity Investments in Boston underscored what many financial planners already know: Wives and husbands aren’t taking time to discuss and plan for later life. In Fidelity’s survey of 502 couples — in which spouses were questioned individually — 41% disagreed when asked whether at least one partner would work in retirement, and 35% differed when asked about each other’s expected retirement age. In all, only 38% said they worked together on financial planning for later life.

“It’s hard for couples to talk about this,” says Aaron Skloff, a chartered financial analyst who runs his own planning firm in Berkeley Heights, N.J. “People think about their needs in chronological order. They’ll say, ‘We want this vacation home now,’ or ‘We want this private school for our children now. Retirement? That’s something that’s going to happen in our 60s. We can put off planning for that because it’s so far away.’ ”We asked financial advisers and couples across the country to identify the most important questions that spouses should ask each other about retirement — ideally, at least five years before leaving the office. In many cases, their suggestions focused on lifestyles first, and finances second. Here are the most-suggested conversation starters, along with some advice and observations from those interviewed. (more…)

Thanks Roboppy for this tasty image.

I just finalized a transaction in Campbell, California. The property was put into contract post credit crunch so it is a good estimate of the type of rate you can get on a jumbo loan if you have good credit and a stable job. Through the process of selling this home and working with this buyer, I found something I have not heard often in this market. There is a lot of opportunity floating around in all of this volatility.

The client purchased an approximately $1,200,000 home from a developer. The property was the last home the developer had to sell in this community. In fact, the home was in contract with another buyer and fell out because of financing issues due to the credit crisis. We negotiated with the developer and knocked the price down by over $100,000. We also negotiated that the seller would pay 3 points (approximately $30,000) towards buying down our buyer’s loan interest rate. Negotiations like this did not exist in our previous market. In terms of a buyers ability to negotiate, this is the best market in Campbell I have ever seen!

Well now, you may be asking, “What was the buyer’s rate?” The buyer financed approximately $1,000,000 on a 10 year fixed loan. We used the points (paid for by the seller) to buy the client’s rate down to 6.125%. This experience really made me think. My client’s rate ended up being lower then the average 10 year fixed rates (average rates were around 6.5%-6.75%) before the credit crisis.

This experience has convinced me more than ever that this is a great buyer’s market. Well qualified buyers in this market can negotiate with sellers like never before and still get great rates. It is highly uncommon in the Bay Area real estate market to get both the benefit of negotiation power and a good rate in the same transaction. Undoubtedly, you will continue to hear many news outlets speak of the crisis and how volatile the market is. But, remember the facts in this case study the next time you hear the media speculate about the national or Bay Area real estate markets. I know one thing is for sure, some buyers are using this turmoil to get tremendous deals in this market.

This is the kind of news that mortgage industry people are looking for to signal a loosening in the liquidity crisis.  I am not reading too much into this as it’s a small amount relative to what’s currently at stake.  Good borrowers are going to get loans.  Anyone who you wouldn’t want to personally loan your money to probably isn’t going to get a loan.  Those are the kinds of standards being put in place now, if it is your money, would you lend to them? Indymac Bancorp in Pasadena said that last Friday it traded $240 million of AAA bonds backed by jumbo fixed-rate home loans and $350 million of AAA bonds backed by jumbo adjustable-rate loans — the first bonds it’s traded in 36 days.    

The market for jumbo loans, which are prime loans greater than $417,000 in most states, has been rocked by a lack of investor confidence in all home loans except those with some kind of government guarantee.

Here’s more from Indymac’s blog:

While the trade prices on these sales are still outside historical ranges, they do reflect an improvement over several “fire sale” trades made by others in recent weeks. We are encouraged by these sales as they represent the first small sign that the ice is beginning to melt, and some modest liquidity is beginning to return to the private-label mortgage market. It appears as though, given the current historically wide spreads, significant tightening of underwriting standards by lenders, and the updated rating agency models requiring stronger subordination levels, investors are beginning to recognize that private mortgage-backed bonds may offer strong risk-adjusted returns. This further supports our decision last week to re-enter the prime jumbo mortgage market after a brief hiatus.

Fed Has to See States on the Brink From Housing

By Jim Cramer
RealMoney.com Columnist
8/23/2007 2:51 PM EDT

Can we do without Florida, Arizona, California, Nevada and Michigan? Does it matter if we lose them? Do we care if the builders who dominate in those areas go under? Do we care if the homeowners who have home equity loans on top of regular loans who bought homes from 2005 become squatters?

These are the questions that you have to ask when you consider the Fed’s next move. You have to ask them because of the giant resets. We are in month one of a two-year cycle of resets that should drive 7 million homeowners out of their homes if the Fed doesn’t cut.

How do I get those projections? The spring selling season of 2005 is when our problems really began. That’s when 50% of the buyers started taking these mortgages that are so deadly, the ones with the teasers that often were soon after accompanied by home equity loans. These people bought homes in the spring and closed in June and their loans are resetting now, at astronomical rates.

You have to ask these harsh questions because the most recent filings of the major homebuilders show a dramatic decline in cash and a continuation of the building of new homes that is just killing us. You must ask these questions because the states I have mentioned could be crippled by these defaults.

These are the reasons that the Fed must ease. The Fed can pretend that it won’t matter. And I am not averse to every homebuilder going under; they were reckless lenders. But I can’t help think that the employment claims and the retail sales and the basic economy will be hurt badly by this domino chain that has just begun.

When I hear talking head after talking head say the fundamentals are sound in the country, they are saying that none of this stuff matters or that it won’t happen at all. I can’t buy that. I read too many 10-k’s and follow too many real estate situations for me to think that it won’t matter.

Oh, and if I hear one more rich person come on-air and say that these buyers all made the wrong choices, I am going the throw a brick at the TV. If there is a more innocent group than these people I can’t think of it:

1. Alan Greenspan pushed these mortgages as a great way to buy a house.
2. The mortgage companies didn’t help as they let a lot of loans out that they shouldn’t have because the investment banks would buy anything.
3. Many people bought homes because it was the way the American dream has played out: it’s been a great way to build equity and to get a tax break.
4. I hear ads constantly for home equity loans, they sound incredibly enticing and I can’t blame anyone who took them.
5. The Fed raised rates 17 straight times for heaven’s sake so even if your house stayed the same price it would be a problem anyway.

These are the people we can’t help? Meanwhile, the homebuilders keep debasing the value of these homes with more building?

Now, understand that this is a relative issue. We set up Fannie MaeFNM - commentary - Cramer’s Take - Rating to help this situation, but the government has decided that’s not right anymore. We just subsidized the farmers who are rich as Croesus for no reason at all. We build everything in Iraq and a few months later the stuff seems to get blown up or torn down. - - - to help this situation, but the government has decided that’s not right anymore. We just subsidized the farmers who are rich as Croesus . We build everything in Iraq and a few months later the stuff seems to get blown up or torn down.Excuse me for caring about not-so-wealthy Americans.

Are things better than they were a week ago, before the Fed cut of the discount rate? No, not at all. We continue to deteriorate. Do I think that things will be better by year-end? Yes, if the Fed cuts and cuts but without it, things will really get ugly and we will lose all of those states. Lose them in a way that I think is unforgivable and just plain stupid because it doesn’t have to happen.

Random musings: I am not a big Bill Gross fan, but I think he is right about the need to get the Federal Housing Administration and Fannie Mae and the Federal Home Loan Banks moving, and about the need for a Resolution Trust — as he puts it in his September client letter, “an RMC — Reconstruction Mortgage Corporation” — for homeowners. He’s being a real statesman.

136

Here’s where I go to watch the continued implosion of the mortgage market.  There are many articles and explanations of what’s happening.  If you have specific questions about your loan situation and I am sure that many of you do, give me a call and I’ll help you get settled.

From the front lines of working directly with Realtors® and with mortgage clients, I see there is a need to move to a new commonsense that fits the new situation.  Our old commonsense doesn’t work in a new situation; in fact, it can be counterproductive to being successful.  So we need to adjust our actions to the new situation so we can compete more effectively.  By “we”, I mean home buyers, Realtors® and finance providers.

The old commonsense was that mortgages were a commodity to be priced off of a rate sheet and a borrower could call around and get quoted a rate and they could be sure that it would be available.  As a strategy, for most people, I think this was flawed and we are now seeing much of the result of that in the foreclosure stories that are now abundant.  That’s a different story to be written at a different time.

The old commonsense was that the home seller had all the power and the buyer had to give in to most demands that the seller had. The old commonsense was that a Realtor® didn’t have to be too concerned about who the mortgage provider was.  Yes, there was concern about the on line lender being able to perform but generally any other pre-approval was accepted without much concern for who it was or who the underlying lender was.

Now, let’s look at the new situation and how our commonsense needs to adjust. Mortgages are at this moment not a commodity to be priced off of a rate sheet and delivered with 100% certainty by any company that has Home Loan in their name.  The new commonsense is that the mortgage needs to be sourced from a large brand bank.  Trust is now, once again, important.  It always was but people tend to forget that when the money was flowing so freely.

Use a mortgage bank that can source several different large banks so your buyer has back up protection.  The Realtor® and the home buyer need to know who the end lender is and if it isn’t a household name, then don’t trust it.  By household, I mean Bank of America or Wells Fargo.  Countrywide is still probably okay so I’d make sure that the pre-approval is at least with two of those three.

The home buyer has gained power in this market.  They can use it by asking for credits to help pay closing costs and to buy down the rate.  There are buyers who have been knocked out of buying because the programs are not available for them anymore or the qualifying terms have changed or the rates are now out of reach for what they can afford.

The Realtor® now needs to get more involved understanding the source of the funding.  If they don’t, they may get surprised when their deal falls through because a lower tier bank is unable to fund the loan.  By getting involved, I mean, ask who the lender is that has approved the loan.  Ask to see the approval from the lender.  If your buyer goes directly to Bank of America, have them also go talk to Wells Fargo.  With my company, we can lock with each of them to protect the client so they only need to apply once.

Also, know that everything is going to take more time and the lender can choose to institute new policies without notice.  One of these we have seen is to do a pre-funding audit to give the loan a last look before releasing funds.  This can add 3-5 days to your funding as the lender sends it through the bureaucracy to get signatures.  I’m not talking about just the little banks doing this; expect the large banks to do these actions as well.

Mark and I have been working closely to develop strategies for buyers in this new market situation so they can be successful in getting the house and in having an exceptional rate so they do not need to hope for a refinance later.  Let us know if you want to review the strategies and the numbers.  Perhaps we’ll post some of our thinking at a later time. 

I generally leave the real estate and cool house stuff for Mark to write about but with the mortgage market imploding at the moment, all I have to talk about is the subprime mess, foreclosures, bankruptcies, loan companies closing and I’m tired of this downer news so I wanted to post something cool. 

A client told me about this site today and recommended that I take a look. It’s a cool modular housing design and the tour is actually an amazing piece of work.  I’ve never seen a house tour quite like this one, it is beautiful and entertaining.

Anyway, check it out and let me know what you think.

http://www.livinghomes.net/tour.html

By Jim Cramer
RealMoney.com Columnist
8/13/2007 6:02 AM EDT
Click here for more stories by Jim Cramer
  
It’s time to look at what will happen now that the Fed has staked out a position that bails out neither the hedge funds, nor the mortgage companies, nor the 7 million homeowners I believe borrowed money between 2005 and 2006 that they can’t repay to take down houses that are worth less than they paid for them.

In other words, what’s Ben Bernanke’s plan? And why could it actually work and leave us, a year from now, a much stronger, better country? Or to put it succinctly, what happens if Bernanke’s right, and what could go awry if he is wrong?

Just for the record, I’m betting that the cost of Bernanke’s plan and the possible effects of it on the real economy and on real people are too great, and I have staked out the position that he’s going to hurt the country with it. But I have to admit that after the hurt we could end up being in a decent place.

In this multiple-part series, though, I am going to take Bernanke’s side and show you how his smart but conceivably heartless plan makes sense — might even be brilliant — if it works according to plan.

First, let’s set the stage of what Bernanke’s aiming at destroying even if the Federal Reserve, under Alan Greenspan, actively aided the speculative process.

Ever since Alan Greenspan lowered rates dramatically to get the economy moving again after 9/11, it made sense to buy a home with limited financing. Home prices had moved up steadily pretty much since the 1930s in this country and they have been a terrific way for Americans to build equity.

Both the Bush administration and the Federal Reserve actively promoted home ownership, but, for the sake of this series, let’s take their actions off the table. They simply did what had always worked: making homes more affordable. Unfortunately, they made home too affordable, so affordable that it made sense to buy more than one, or, in many cases, nine or 10. The homebuilders cooperated by buying as much land as they could and building homes for a couple of hundred thousand dollars and selling them for more and more each year, a truly great scenario for their gross margins. It’s why homes became growth stocks instead of cyclical stocks.

The homeowners did great, with the ones that put down the least doing the best. In a typical 2 and 28 loan, a teaser loan, homeowners could put down next to nothing for two years and then, if they wanted to, flip the house or refinance at the low short-term rates the Fed set.

Banks had always loaned to homebuyers and either kept the loans on their books, particularly the high loan-to-value ratio covenants made to people with good credit and a lot of money down. The ones that weren’t as good credit were put together into big baskets and sold as mortgage-backed bonds to institutions that wanted to get a better rate than Treasuries for what looked like it wouldn’t be a lot of risk at all.

The business was so good and there were so many loans to make that mortgage brokers sprung up all over the place. Unlike banks, these institutions had no deposits to loan against. Instead, they used loans from major banks to originate the mortgages and put them in baskets, too.

The boom was so great that, after awhile, the mortgage brokers and the banks grew sloppy, many times giving loans to people who should not have gotten them and asking them to put almost nothing down. Remember, the economy had gotten strong, employment was strong and houses still appreciated. Things hummed along. The mortgage bankers accessed low-cost money as the investment banks moved in aggressively to package their loans and make a ton of money selling them to everyone from insurance companies, such as AIG (AIG - commentary - Cramer’s Take - Rating), to banks, like the German and French banks we learned about this week, to hedge funds.

The latter had a particular appetite for these bonds, because they could take capital, borrow 10 times against it, buy these mortgage-backs and make the difference between the mortgage bonds and Treasuries. It was a simple, consistent trade that investors loved, particularly funds of funds, which supply the capital to most of the big hedge funds these days.

In fact, things got so out of hand that beginning in late 2004 mortgage brokers lent homeowners not only mortgages but home-equity loans on top of the mortgages. It made sense, with homes appreciating between 10% and 20% per year!

Even homebuilders got into the act in the end, seeing a quick way to sell homes and make extra money.

While new home sales grew to more than 1.5 million a year, another roughly 5.5 million buyers purchased homes from 2005 to the end of 2006. Of these, probably 50% elected to take teaser rates, and many then took home equity loans on top of that. We don’t know how many did that double-shot, but from the looks of things, it could be as high as 20%.

Some of these loans were covered by mortgage insurance. Some were small enough to be sent to Fannie Mae (FNM - commentary - Cramer’s Take - Rating) for packaging, but Fannie Mae had gotten in a lot of trouble for a few years back based on mismanagement so it wasn’t able to buy as many as it used to. Its regulator, OFHEO, had cracked down and limited its ability to borrow — the caps you hear about. Same with Freddie (FRE - commentary - Cramer’s Take - Rating). They pretty much became irrelevant to the scene.

Throughout this period the Fed sensed, correctly, that the economy was overheating — and took interest rates up 17 times to slow things down.

But the rate increases didn’t slow things down and the economy boomed, employment remained high and houses continued to sell well.

Until the fall of 2006.

Yes, everything was humming along, until the fall of 2006.

(more…)

Thanks mkreyness for this spider web photo.

Yesterday, I was having a conversation that made me realize how truly difficult it is to find a good real estate agent. Finding someone who performs many transactions for both buyers and sellers may be tough enough. Yet, a truly valuable and powerful agent is transacting regularly, knows the ins and outs of their local markets and has the ability to surround their clients with a network of other professionals that have uncommon knowledge and can act to care for their clients concerns.

A power full agent and their team of advisors must be competent to make valuable grounded assessments, which will end up saving their clients time energy and money. A year ago this idealist philosophy may have seemed trite, but being a powerful agent that truly takes care of their clients concerns, has become necessary. With our current market changes no longer can an agent just put a sign up in a client’s yard and 2 weeks later receive multiple offers that exceed even their client’s wildest dreams. In today’s market an agent must back up their assessments, and assumptions with results. The average assessment is no longer useful, when market condition swirl making some areas hot while others are cold. In order to beat market expectations an agent must provide valued assessments that are uncommon and not always intuitive.

Agents must make sure they design buying and selling strategies that leave their clients in positive housing situations. Agents must have a mindful eye towards financial hardship, insurance risk, aesthetic concerns, and social interaction. With this understanding you can now see how difficult it can be to find someone competent to take care of your real estate concerns. Agents must practice as real estate professionals not as real estate laborers.

The attached article tells us what is happening on the margin.  The large institutional buyers are declining to buy the CDO’s that they used to buy because they cannot trust the ratings being given by the rating agencies.  This will impact mortgage pricing meaning that the mortgage rates for “A” paper loans (as well as Alt-A and subprime) are rising and risk premiums are increasing significantly.  Further, many of the loans at the margin are simply going away (100% stated, no ratio, no income-no asset loans).  If you want to look a little deeper at what’s happening, follow the link.

Stopping the Subprime Crisis

The attached article tells us what is happening on the margin.  The large institutional buyers are declining to buy the CDO’s that they used to buy because they cannot trust the ratings being given by the rating agencies.  This will impact mortgage pricing meaning that the mortgage rates for “A” paper loans (as well as Alt-A and subprime) are rising and risk premiums are increasing significantly.  Further, many of the loans at the margin are simply going away (100% stated, no ratio, no income-no asset loans).  If you want to look a little deeper at what’s happening, follow the link.

Stopping the Subprime Mess

What has become of us? My inbox and my home mailbox are stuffed with spam, our blog gets 10-20 pieces of spam per day in our comments section. The messages are always ridiculous. My loan is pre-approved evidently at about 100 different places, my pharmacy orders are piling up somewhere and classmates keep sending me e-cards. I won the French lotto recently and a Nigerian woman needs to talk with me about depositing some money for a period of time in my bank account. Just this morning at home, I received a phone call with a recorded message that said, “Please hold, I have a call for you”. I hung up.

While I was writing this, I checked back to my email and here’s a new piece of spam, “Thanks for your Pharmacy order # 01096.” How ridiculous. Do people really fall for this?

Our company has been receiving calls from clients saying that someone is calling them and representing that they are with our company. I’m pretty sure it’s an attempt to get Social Security numbers from our clients or to try to have them refinance their loan thinking they are doing this with a company they trust.

It’s pretty easy to avoid getting caught up in the spam and scam game. Get a good filter to block spam (mine dumps them into a spam folder and keeps them out of my inbox), NEVER respond to a spam message and if someone calls you do not give out any personal information. It’s safest just to hang up. The onslaught of this stuff won’t stop, in fact, I predict it will increase as technology drops the cost to almost zero to send these messages. With a cost of zero, the return is significant if just one client falls for their scheme.

I have to go, evidently I’ve won a free trip and I have to call someone I don’t know to give them my personal information so I can claim the prize.