President Bush Urges Congress To Act
"Mortgage foreclosures and late payments are expected to worsen. Some 2 million adjustable rate mortgages are to reset to higher rates this year and next."
So says an article which was posted today on Yahoo Finance. Here is a link to the article which suggests that President Bush is going to propose some sort of assistance to homeowners who have been hit by increasing interest rates, as well as the downturn in the housing market.
http://biz.yahoo.com/ap/070831/bush_housing_slump.html?.v=1The market will continue to correct itself and, as a result, a great buyer's market will become even better.
Chandra Toop on the "Liquidity Crisis"
It's all over the news and the papers, the "liquidity crisis" in the mortgage industry.
You may have even heard about dry closings where loans didn't fund and loan products disappearing or changing causing buyers to no longer qualify. Everywhere I've been this last week I've had people asking me,"What the heck is going on ? ? ?"OK - I'll do my best to explain in layman's terms a pretty complicated process to help you understand what's happening. ...
There are two types of mortgages: Conforming loans are your FHA, VA & Conventional. They conform to certain guidelines set out by the government sponsored entities Fannie Mae and Freddie Mac and the VA and Dept. of HUD. Non-Conforming loans are everything else. These are the "Sub-Prime" loans for folks with credit issues, "Alt-A" loans for borrowers with good credit but other special needs such as stated income and/or assets, no downpayment, etc, and "Bank Portfolio loans" which is when the bank lends it'sown money.
The problems started earlier this year when sub-prime loans started having higher delinquency and foreclosure rates. As the year progressed...the Alt-A market began seeing delinquencies rise as well. Alt-A is where the problems are now. Hang in there with me - it'll start to make sense in a few minutes.
How the mortgage industry works: With the exception of Bank Portfolio loans, all other loans are sold regardless of who the customer is making their payments to.
#1 Customer gets loan from mortgage bank or broker.
#2 Bank or Broker sells that mortgage to secondary market investors likeFannie Mae, Freddie Mac and other institutions.
#3 Secondary Market investors package these mortgages as "securities" orbonds which are then sold on Wall Street to individual investors, mutual funds and others.
It usually takes around 60 days from the time a loan closes for it to reach Wall Street, which is an extremely important point to remember - keep hanging in there with me.
The banks that made the Alt-A loans set the rates based on what they were accustomed to the Wall Street investors paying for them, and built in a small profit for themselves. Wall Street investors started getting nervous about the amount of risk they were taking [
with Non Conforming loans - Alt A, etc] and demanded higher rates. The big problem for the banks is that once a loan is closed they can't go back to the customer for more money [
ie. higher interest rates or increased origination fees underwriting fees, etc], so rather than selling the loans at a small profit [
as they had hoped to do] they were forced to take huge losses -on every loan [
presumably because investors were willing to pay less for the loan than the lenders expected, which resulted in a loss of money on each loan rather than a small profit on each loan]!
Think about this . . .Thousands of loans, millions of dollars of losses per day! For 60 days! Remember that's how long it takes to get the loan to the investor after closing so the banks have 60 days worth of loans they've already made that they have to sell at a loss. The bank very quickly uses up the reserves it has - then has to decide if it can afford to borrow enough money to stay in business for the next 60days and if so - is that a smart business decision?
That, my friends is a "liquidity crisis". That is why so many lenders have closed down or cut back and why programs for your buyers [
the more creative programs, more risky programs, programs which are less stringent on buyer's financial condition] are disappearing by the hour .
There is so much more to this. You need to know what kinds of financial institutions are or will be affected. You need to know what factors affect interest rates and what direction they'll be moving in. Those things I'll have to save for later in the week or first of next because this has been long already. Be sure to read the FAQ attachment - it's very helpful. Feel free to share this email and if you'd like for me to come by your office to talk to the group just let me know and we'll get something scheduled.
If you have buyers that need my assistance - I'm just a phonecall away. Peoples First is not one of the lenders at risk so I promiseI'll be here tomorrow, and next week and next year (Lord willing - as Papawalways says).
Contact Chandra of People's First Community Bank at 850-916-8105.
Real Estate Market Update July/August 2007
Finally! A Real Estate Market Update! This is long overdue. Please accept my apologies.
Many of you have heard the reports and are wondering what's going on with the recent much publicized mortgage malady. If so, you are probably wondering how will it effect the Real Estate Market. I've heard from a number of experts in the Mortgage industry and I'll post a letter from one such friend/expert very soon.
My own opinion is quite simple. A glut of mortgages, refinancings, equity lines, etc. were issued during the unbelievably awesome Real Estate market of 2004 and 2005. Homeowners saw an opportunity to cash in on the equity in their homes by refinancing/selling/purchasing at the higher market value, and/or by taking out huge equity lines of credit on their homes. Of course, all of this was fueled by the law of supply and demand. A shortage of homes for sale, coupled with high demand throughout 2004 and much of 2005 caused home prices to skyrocket. As prices increased to an unrealistic level, the tables soon turned, and, by 2006 we began to see inventory increase, sales decrease, interest rates creep up, days on market creep up and prices begin to fall.
2007 has largely followed suit. However, a stabilizing of the market seems to be in effect. We've seen an uptick in sales, a down-tick in available listings and only a slight drop/stabilization in the price of homes. Will this continue?
Back to the mortgage malady. The problem for some who bought/refinanced/took out equity lines in 2005/2006 is that they are not able to sell their homes at a price that will allow existing mortgages and equity lines to be paid off. Adding to the pressure on homeowners, is higher property taxes, higher insurance premiums and increased interest rates that have occurred as variable interest rate loans have reached maturity. Some of these folks have had to face foreclosure. The bottom line, mortgage companies have had to absorb the losses and some have been unable to do so.
How will this effect you the buyer or seller? The news is not all bad. In fact, I think it will have a net positive effect in the long term. In the short term however, buyers tend to be "scared off" by unsettling news. Whether it is news of war (last year saw a tremendous lull during Israel's invasion of Lebanon), terrorist acts, or some other global newsworthy event, buyers are distracted by news. The news in the mortgage industry is sure to cause buyers to pause for a moment before moving forward. So we may see some of the recent market trends encounter a slight bump in the road. However, when the news dies down, and buyers realize that folks are still buying and selling, they will return.
Although lenders have tightened their belts a bit, the average person is still obtain financing at reasonable interest rates. In fact, I've had more buyers this year than I had all of last year. All the while, the fat is being trimmed and we are correcting towards a more healthy market environment.
More good news... Sellers who have the ability to adjust to the changing market are cashing in on this environment. It is still a good time to sell. I closed on a home today which the sellers bought in May of 2004. Back then they paid about $150K for it and they closed on it today for $225K! Now, that's not bad at all! These folks are taking the proceeds and retiring to their farm just outside of Atlanta, GA!
So, is it a good time to buy? You bet. Especially since there are SO MANY homes on the market! By and large, homes are much more reasonably priced than they were even 3 months ago. Even so, in most cases buyers are still able to dictate the terms of the sale, especially on homes that have been on the market for awhile. Many sellers are desperate and MUST SELL! So the patient buyer (depending on the type of financing and assuming the seller is willing to make "seller concessions") may even be able to purchase a home and bring NO MONEY to closing. That happened to one of my buyers (VA 100% financing) at the end of July... they even got their earnest money deposit back!
One big number worth pointing out before I close. The number of available listings continues to decline! At last check there were just over 6800 active listings which is down approximately 200 from last month. That is encouraging. I'll have more on the numbers in my next update, which I hope will not very many days from now. Just after labor day, I'll provide an update on the current market trends.
For now, let your friends know that you know a good trustworthy Realtor who knows how to list and sell in this market, and who'll be glad to assist them in their next Real Estate need!
Tom Robertson
"In Him we live and move and have our being."
