Real Life Real Estate Blog

Sacramento’s under $300K market is “popping,” and many first time home buyers aren’t preparing themselves to take advantage of it.  I get calls everyday from folks who’ve finally made the decision to get into the real estate loop. The problem now is TIMING. For the first time in 2+ years, I run a report for active listings in the morning, show about a half dozen homes, pick one we like, call the agent to see if any offers have been made…and find out that the home has just gone pending with 3 to 8 offers.

So what’s happening out there? Well, the investors are swooping in like hawks and scarfing down anything that has a pulse. They often make all cash offers on the best deals; namely bank-owned REO’s. How does a first time home buyer have a chance in this market? The solution is to get PRE-APPROVED, have a good down-payment (borrow it from family if you must), and be ready to pounce the second something scurries onto the market. A good agent can follow default short sale properties and place a low offer just to see if you get it! They should continue to follow the defaults that don’t sell … and be ready when it re-lists as an REO listing from the bank. All can be done simultaneously. Many inexperienced buyers don’t know you can make offers on different properties at the same time. So find a good, honest loan person to help you be armed and ready. I have a few trustworthy sources …as I’m sure many an agent does.

Zillow.com is adding yet another “user friendly” element to their website. Kevin Boer goes into great deal about it in an article on his site, 3oceansrealestate.com.

Just now Ben Bernanke and the FED announced yet another rate cut. The FED’s discount rate was cut 3/4 of a % to 2.5% and the FED Funds Rate was also cut 3/4 of a % to 2.25%. I know most people think that rate cuts are good and they look that way because people automatically think that rates going down means adjustable mortgage rates go down…not true. A lot of people’s rates can actually go up because they are tied to other indexes that rise when the FED rates are lowered. If you are one of those lucky people whose adjustable mortgage payments went down, congratulations! You can thank Ben Bernanke for decreased housing expenses and for inflation that makes everything else in your budget more expensive. This is quite a gutsy move for the FED to pull when one of America’s biggest and oldest financial institutions, Bear Stearns, went from something like $150 a share to being bought for $2 a share by JP Morgan in a week! If that isn’t a Great Depression style bank run, I don’t know what is. Check out CNBC.com for more details about the cut or read Pat Kitano’s article about Bear Stearns on Transparentre.com

It’s official. The conforming loan limit has been temporarily raised. While it won’t save the economy, it will definitely make it easier on those who are encountering difficulties when looking at their home finance options. Check out this article in the Seattle Times.

I feel as if there should be horns blaring from every mortgage office in America with the news of a bill that will raise the conforming loan amount from $417K to $625-$725K. Either number would add some much needed help. One of the main obstacles in doing a loan in California or New York or any area where the median home price is more than $150K is the conforming loan amount. Most people don’t know what the conforming loan amount is, so if you are not already privy to it, here it is. The conforming loan amount is the maximum total loan amount (includes fees, taxes, insurance,etc.) that either of the two government entities, Fannie Mae or Freddie Mac, will guarantee to buy on the secondary market. What does that mean? That means that under the current rules, if your bank does a loan for you for under $417K and they can’t sell it on the secondary market as a mortgage security, the government guarantees them that either Freddie Mac or Fannie Mae will buy them. Because loans over this amount are somewhat more risky because there is no guaranteed buyers for the banks, these loans cost more and are often prohibitively expensive to home buyers.

It’s been floating around news rooms all over the world that Bank of America bought Countrywide. This seems like a very smart move for B of A CEO Kenneth D. Lewis. He’s taking advantage of the markets downturn to buy out and absorb one of his company’s biggest competitors in the lending market. Having already invested some $2 billion in Countrywide in August, B of A purchased Countrywide for an additional $4 billion bringing the sticker price to $6 billion dollars including Countrywide CEO Angelo Mozilo’s estimated $36 million in walking money. While some critics say that it may not be a good idea for B of A to incur the risk inherent in Countrywide’s poorly qualified loans, I say nay. While it may seem like an odd decision right now, B of A is obviously playing for the long run; something Countrywide never payed attention to.

This is indicative of two things I see happening as a result of the “mortgage mess,” that will lead us into an economy where only the big banks are going to survive and get bigger. First, large banks are bulking up liquidity in order to participate in a buyer’s market by keeping consumer interest rates near the same level as before the cuts and they are closing their doors to the wholesale brokers who make loans from multiple banks. Second, CEO’s of failing financial firms who are packing their desks are also throwing sweet severance packages into their saddle bags as they ride off into the sunset. This gives CEOs who are sweating the current market some relief because they know at least they can take the money and run, regardless of shareholder interests or poor performance. So what does this all mean? It means that their is an incentive for CEOs of smaller financial firms to sell to big banks resulting in fewer banks which will completely eliminate the wholesale brokers and decrease competition. The era of big interest rates from a few big banks is coming back into vogue in the next decade and Bank of America is leading the way. Perhaps Kenneth D. Lewis is in the process of writing a theatrical masterpiece called, Death of a Wholesale Mortgage Broker.

The Fed is meeting again on December 11^th. With everyone talking about the mortgage crisis, the possible problems with regular credit markets, and the fact that the rate was cut twice in several months after no change for four years, it’s making people wonder, “Will they cut the rate again?” I find myself asking the same question while crying out with every fiber of my being, “NOOOOOOOO!”

One might ask, “Don’t you care about homeowners who could lose their homes?” Of course I do. It is never good to see people losing their homes. However, trying to save everyone who is looking at foreclosure, regardless of which party was at fault for creating loans that are best described as sins against financial nature, would hurt our economy. I’m not saying that the sky is falling or that it will fall if the rate is cut again. But one who tries to keep their finger on the pulse of the economy as a whole, cannot help to think that another rate cut would make for some stormy weather.

Read more…

Washington News You Can Use: The Internal Revenue Service unveiled news on September 17, 2007 regarding a special web section dedicated to possible tax breaks and relief provisions for property owners facing short sale or foreclosure. However, many desperate sellers I’ve come in contact with in the past few months are not yet aware of these possible benefits. The IRS urges all owners to research their options carefully. For instance, rental and business property owners may find limited relief, while primary residence owners may find a bigger reprieve. Check out their site to see what kind of tax bite you may or may not incur…

With the current credit crisis under way, I’m sure some of you are wondering where in the country the most foreclosures are occurring. Whether you are someone looking to invest, simply find a bargain, or you want to see how many fewer Jones’s there are to keep up with; the ten states with the largest amount of foreclosures this year are listed on the Forbes website. I’ve listed them here in order of most foreclosures to least.

1.California 214,499 Per Capita: 1.86%

2. Florida 181,370 Per Capita: 2.86%

3. Illinois 74,323 Per Capita: 1.89%

4. Texas 62,344 Per Capita: 1.09%

5. New Jersey 55,281 Per Capita: 1.80%

6.Arizona 38,954 Per Capita: 2.05%

7. Colorado 32,819 Per Capita: 2.04%

8. Georgia 31,134 Per Capita: 1.12%

9. Nevada 30,276 Per Capita: 4.05%

10. Utah 8,700 Per Capita: 1.36%

I was never a boy scout. Camping and fishing were, and still are, very fun activities for me but I was able to do them without dressing up in a funny uniform. Maybe I was too self conscious as a kid. Despite not liking the uniform, I did like some of the principles the Boy Scouts had, especially their motto to always be prepared.

As a loan consultant I speak with people all day long about their financial situations and the only conclusion I can come up with is that not too many homeowners used to be Boy Scouts, because no one I speak with comes to the phone with the tools they need to get financing. I’m not saying they are stupid, they just haven’t prepared or don’t know what they need to do in advance to help them get good loans. Hopefully I can make the situation a little easier for the both of us. If a borrower is better prepared from the bat, the person doing the loan is going to be able to finish the process a lot sooner and be armed with the knowledge about that person that he/she needs to be able to custom fit a loan to that client.

There are four main factors that mortgage professionals look at in determining what kinds of loans they can do for someone. By the way, if you haven’t told your mortgage professional any of these factors and they quote you a rate that you are “pre-qualified” for, it’s hooey. No one can tell you what your rate and payment will be unless they have analyzed these key facts:

1.Loan to Value Ratio

2.Credit Report (yours and your spouses)

3.Income Documentation

4.Your Financial Goals

Loan to Value Ratio (LTV): Before you pick up the phone and call the 1-800 number on the “Refinance Now!” letter you received in the mail from “your bank,” (if you read the letter carefully, chances are it’s not from your bank) find out exactly how much you owe on your home including: second mortgages, withdrawals from home equity lines of credit, judgments (i.e. back child support or collections attached to the title of the home), and good old tax liens along with your first mortgage. All of these things have to be paid off in a refinance. Compare what you owe with what your house is worth. Don’t be discouraged if the percentage seems high. If you owe 90% or more of what your house is worth, don’t give up hope, you just have to get creative and work harder to find something that’s right for you. Also, keep in mind that if the LTV is 80% or more, you are not going to get that 5.875% everyone is shooting for.

Credit Report: Never give your social security number to mortgage professionals, unless you have chosen the one you want to work with and credit simply needs to be verified for the loan program that you already discussed with that person. If you are shopping for a loan, each time someone pulls your credit report, your score can go down 1-2 points. Five phone calls later, and your score went from a 600 to a 590. That can be a big difference in what you are eligible for. An easy way to look at your credit is with one of the credit report websites. I’ve heard that www.annualcreditreport.com is quite good, but I can’t vouch for it personally because, well, as a loan consultant I don’t need to! Do some research to find one that gives you your full report with information and scores from all three agencies without charging you a ton of money (it only costs $10-$15 to check someone’s credit). You can also go to your bank most of the time and for a small fee you can request them to give you a credit report. If you are married, always get the report with both spouses on it. Your credit report is an essential tool in getting financing. It allows you to see what you owe and to whom you owe so you can determine your LTV. Also, if you know your exact score, mortgage professionals have an easier time finding exactly what they can do for you without having to pull your report and cost you points off of your score. Remember, your credit score is not the highest score you receive from the three agencies. Unfortunately it is the middle number of the three. If I have scores of 615, 631, and 650, I don’t have a 650. As far as the bank is concerned, I have a 631. I frowned too when I found that out.

Income Documentation: This is quickly becoming a hot-button issue in the mortgage industry. First of all, it is the hardest obstacle to overcome in finding a loan for someone. Second, banks are tightening their guidelines and many of the loans that were possible two years ago just can’t be done today or can only be done at a higher rate. Lastly, it is the one factor in financing that people know the least about. Often when I speak with people they may know what they owe on their home and what their credit score is but have no idea how much money they make each month, their monthly bills, whether they are a W2 employee or a 1099 self-employed person. This is a huge factor in finding a loan because the banks want to know how you are going to pay their money back. Find out how you are taxed, what your employment status is (self or otherwise i.e. retired), how much you make each month, and how much you have in savings, retirement accounts, or any other liquid or semi-liquid assets you have such as money market accounts or certificates of deposit.

Your Financial Goals: Chances are if you were asked, “What are your financial goals in refinancing your home?” you would simply say, “Duh, a lower rate and payment. What else you stupid mortgage broker?” Everyone wants the lowest rate and payment possible. To mortgage professionals that is a given. They know that if someone has a 6.5% mortgage, chances are they won’t go for an 8% mortgage, and they shouldn’t unless the value was sucked out of their house and they are looking at 8% or foreclosure. What you really need to figure out is if you want a normal, secure 30-year fixed mortgage, or if you don’t care about risk and you want to take out all the equity you can and invest it in securities that have a higher return than what you pay in interest. Think about how you want to fit your home into your finances for the rest of your life because it can be your biggest asset or like a lot of people it can be your biggest liability. Discuss this with your spouse before hand, and if you did your homework and find a professional who knows something about mortgage planning, discuss it with them and formulate a strategy on how to best use your mortgage to help you achieve your over all financial goals. This is the part that good mortgage professionals will talk with their prospects about for the longest amount of time because it helps them find a product that truly benefits their client.

Just like a lawyer prepares to make his/her case before the court, so must you prepare to make your case before the bank. Applying for financing is exponentially easier if you can prove that you can pay the bank back. The more details you know about the four factors above, the better prepared you will be to get a good loan and avoid becoming a statistic.