Blog On Dirt - Everything on Real Estate

Are we in a Turnaround?

Pamala Meador — Wed, 02 Jul 2008 18:10:00 GMT

Now may be the time for your to find your next home or investment property. The pace of sales has been relatively stable since August. The National Association of Realtors reports that U.S. home and condo re-sales inched higher in May.

Re-sales of U.S. houses and condos rose 2% to a seasonally adjusted annualized rate of 4.99 million in May from 4.89 million in April. It's the highest sales pace since February. The median sales price in May was $208,600, down 6.3% from a year ago. It's important to note that many sales aren't counted in the realtors' survey because they do not go through the multiple listing service.

Regionally, sales rose 5.5% in the Midwest, 4.6% in the Northeast, 2% in the West, and fell 0.5% in the South. Lawrence Yun, NAR's chief economist says, "It'd be premature to say the improvement marks a turnaround".

Real Estate is all local - but these stats do heald a smidge of good news. I think the median sales price being down, is a good thing for sales in general. As we see prices getting more attractive, more people will be buying.

What we need now for prices to begin to rebound is lower inventory levels. I believe we are still many months away from that, the mess with the distressed and REO properties still need to work it's way out of this market before prices will recover and begin to rise.

As I always say, if you are in it for the long term now is a great time to buy.

In Morgan Hill, San Martin and Gilroy sales are picking up, just last week our percentage of closed transactions in Morgan Hill, that is houses that sold last week rose 100% from an average of 7 for the past four weeks to 14. Figure that number of Single Family Homes sold in the last 90 days were only 32, 14 in one week is impressive. We are making progress.

Market Make-up or What's so Short about Short Sales

Pamala Meador — Mon, 30 Jun 2008 03:59:00 GMT

I have been doing a bit of calculations on the make-up of the market for Area 1 in Santa Clara County which consists of Morgan Hill, San Martin and Gilroy. Last week I went through all the listings and found out which were a Regular Sale – which I call a seller with equity who has decided today is a great time to sell, a Short Sale – which I call a seller with no equity and needs the banks help in order to sell his property and a REO/Bank Owned property which is basically a foreclosure.

I wanted to know how much of the “actives” on the market were really saleable. Which means homes where the principle owners is the decision makers – such as the Regular Sale or the REO/Bank Owned properties and how many “actives” were homes that were in great distress and where the owner needs the bank to forgive some debt in order for the sale to proceed. My thoughts are that the “Short Sales” aren’t really saleable in the traditional sense of the word, that we have added an additional party that needs to be negotiated with in order for title to transfer.

This is not to say that you can’t sell a “Short Sale” it is just that it takes a very special skill set from the listing agent to get a “short sale” sold. When the lender is taking it in the “Shorts” (by the way that is not where the term “Short Sale” comes from) they are not too happy about letting the borrower off the hook, paying what would be considered normal and customary sellers fees and are really not too pleased about paying a realtor anything at all. The banks know they need us, like we also need Proctologists, we just don’t like seeing them very often and in the case of the banks when they are writing off sometimes hundreds of thousands of dollars if they can take from the agents, they will.

Another disheartening aspect of Short Sales is that if we can’t get all parties, including the bank(s - there most often is more than one) to agree, the house could be sold at auction out from underneath the buyer. At that point in the near future you should see that property come back on the market as a REO and your chances are excellent at getting a closed sale. Banks love money but hate Real Estate – unless they can loan money against it and get paid back.

So… here are the stats and I for one thing they are very telling.

As of June 22, 2008 in Morgan Hill 74% of all listings were of the Regular Variety, 6% were REO’s and 18% were Short. Of all the Pending Sales in Morgan Hill 57% were Regular, 13% REO and 30% Short. That tells me that 30% of all the sales out there may or may not be sales and that depending upon the Agents and the Banks may or may not close.

As of June 29, 2008 in Morgan Hill we have added 20 new listings and 9 homes have gone pending this week. Of these homes 50% were Regular, 15% REO’s and 35% Shorts. A disturbing trend if the coming weeks continue to see the erodsion of our Regular sales and an almost 100% jump in our Short Sale percentage. When we look at Pending Sales we see in Morgan Hill of the 9 sales that went pending last week 44% were Short and 56% were Regular sales, there were no REO’s that went pending last week. Again a jump in the Short Sales going pending, but if the Agents are following the MLS rules that only means that they received an offer on the property and they are beginning the long and often protracted negotiations with the bank.

Looking at Gilroy for June 22, 2008 51% of all the Active listings were Regular, 18% were REOs and 39% were Short Sales. Of Pending Listings there are only 23% of all pending listings in Gilroy of the Regular kind, 35% are REO’s and 42% are Short Sales.

When we look at this past week in Gilroy they added 20 new listings and 40 homes went pending or into contract. Looking at the make-up of these listings and sales 40% of all the new listings are Regular Sales, 30% are REO’s and 30% are Short Sales. It is the Pendings in Gilroy that really tell the story, only 18% of all the Pendings were Regular, 28% were REO’s and 55% were Short. So here it looks like “Gilroy is Selling” which is what I heard from more than one local agent – I am not so sure if 22 of all the sales this past week were Short Sales. I would say that Gilroy is trying to sell – maybe the agents should focus on the properties that are a bit easier to sell first.

If you just look at Actives vs. Pendings and don’t take into consideration the Make-up of those numbers you can get a skewed perspective of what is happening in the market.

There is no question that Short Sales are a drag on this market, however if you are going to try to purchase a Short Sale make sure you have boundless energy, limitless patience and a great agent who knows how to negotiate the many pitfalls that accompany Short Sales.

My advice to all my clients is to look at the Regular Sales and the REO’s first, there is great value in those properties and you can negotiate a great deal. If the Short Sale is the home of your dreams, then by all means work hard to get it, but be prepared for the process.

Where has all the Money Gone? Long Time Passing.

Pamala Meador — Wed, 25 Jun 2008 02:27:00 GMT

In Morgan Hill, San Martin and Gilroy – the South Santa Clara County where Gentleman Farmer meets
Old MacDonald and Ancient Hippies, Yuppies, Yippees, Dinks, Drinks and Drunks crowd Downtown is
this Paradise or Paradise Lost? A few years hope abounded, new Los Gatos, new Saratoga was on
everyone’s lips, growth with x-rated abandonment suited some where others favored a more
measured and often times misguided view on controlling growth. Downtown revitalization took many
forms and poor Gilroy’s downtown revitalization program was in full swing for the third time. And
what is with those speed bumps in Morgan Hill, whose brilliant idea was that?

Now we have a market that is full of what we lovingly call “distressed” properties. But to what extent,
and where has all the money gone? Can we look at land use practices and conclude that over building
and poor planning contribute to the mess we are in. Do the City Fathers have a piece in the mortgage
meltdown? No, they did not buy the houses, lend the money and walk out on the loans. But they did
give a green light to certain building practices and in there; “It’s a beautiful Day in the Neighborhood”
attitude do anything to hedge against the dark clouds that were loaming in the distance. If everyone is
borrowing to buy – what type of community are you really building?

Now the “CHICKEEEENS HAV E COOOOMMME HOOOME TO ROOST” to quote a recent Reverend.

I am not advocating Government intervention into this problem; I think the market needs to correct
this imbalance so that we can get back to a balanced market. The sooner the private sector comes in
and picks up these properties and turns them into productive properties the better off we will be.
What do I mean by productive properties, I mean properties that are owned by people who are both
paying the mortgage and the taxes and contributing to the community or people who are renting
these properties out to people who are contributing to the community.

The real loser for the community is the Seller that has to sell but is not forced to sell. The one with
equity and that for whatever reason has decided that this is the time to sell. Hopefully they have a
great agent that can navigate them through this difficult market, help them with the touch choices and
get them sold at the highest possible price.

Mortgage Tracker

Pamala Meador — Tue, 17 Jun 2008 01:49:00 GMT

Mortgage Interest Rates

Historical Mortgage Rates

Where have all the Lenders Gone - Long Time Passing

Pamala Meador — Mon, 16 Jun 2008 15:16:00 GMT

Here is a great post by Rick Soukoulis about what is happening in the mortage industry and what we can expect in the future. Thanks Rick for keeping us all up to date.

What the heck is going on here? Washington Mutual has closed virtually its mortgage
lending centers. Countrywide is being sold to the Bank of America. B of A says it will
eliminate many of Countrywide’s programs. Getting a loan seems like it’s no longer as easy as
it used to be.

Again, I ask, what the heck is going on?

First, getting a loan is going to be different, but it’s going to get easier.

The big players are running for the exits, it shouldn’t be all that surprising. Many of them
were overly aggressive, ignored service and thought they could still get plenty of business by
simply lowering their standards.

They were partly right. They got plenty of business by giving loans to people who would
never be able to make the payments. They made some money upfront, but they’re now
taking tens of billion in losses as these borrowers default.

I could have told them: You can get plenty of business by that old fashioned thing called
service.

So what's next, what the heck is going on?

Second, there will be fewer choices. And that's probably okay. A person buying a home
doesn’t need 20 page rate sheets. Most buyers will do just fine with a traditional ARM, a
thirty year fixed, or perhaps a loan that is fixed for five years.

At some point, too many programs just confuses everyone.

Third, the regional lender will probably re-emerge as the mega-lenders exit the business.

The regional mortgage banker will know the local markets, be more involved with local
realtors, and will offer a service level that hasn't been seen for decades.

One effect I hope will return will even be the regional mortgage banker getting back into the
loan servicing business.

It used to be that borrowers could drop their monthly payment off at the local bank that
made them the loan. Over time, companies such as Washington Mutual and Countrywide
bought up all this local servicing, and they now service portfolios well over a trillion dollars
in size!

Borrowers now mail their monthly payments to some anonymous post office box in a city
they never heard of.

What’s worse is trying to resolve a problem.

When people’s loans were serviced by the local bank or mortgage bank, a borrower could
always go down there in person to talk to someone. This all but ceased in the 1990’s because
of outsourcing, and if a borrower was able to somehow get out of Voice Mail Hell and
actually speak to a human, it was often someone half way across the world.

While they might sincerely wish to help, communication was never the same. Borrower’s
frustration was rampant.

But as the mega lenders are retreating from the business, and as regional players return, I
believe we will once again have borrowers going back to the model of yesterday, when they
could talk to someone at a local servicing center who could actually solve their problem.

There will be many other ways the regional mortgage bankers will make life easier for buyers
ands realtors alike. It’s hard to know what these will all be, but I think that they will all be
positive.

Rick Soukoulis
Chairman and CEO
Intero Mortgage
408.578.8700
rsoukoulis@Interomortgage.com

Short Sales in Santa Clara County

Pamala Meador — Fri, 13 Jun 2008 04:55:00 GMT

Did you know that 43% of all the pending sales in Blossom Valley are Short Sales? or that 41% in Berryessa are short sales? Compare that to 2% in Los Gatos and we can see that it really is Location Location Location.

Or did you know that 47% of all the active listings in South San Jose are Short Sales? or 45% for Alum Rock.

Are Short Sale Listings really Active? The one thing I know about a Short Sale is that there is nothing Short about it.

In Area 1 where I work, Morgan Hill, San Martin & Gilroy the stats are 28% of all the pendings are Short Sales and 24% of all the listings are Short. I would bet a Starbucks that over 60% of the Shorts are in Gilroy.

Why does this matter? Well... when we listen to National Media making generalizations about the Real Estate Market and predicting more blood in the streets with recovery coming in maybe 2012 or 2023. The only thing I can say is maybe in some places but not really in the Center of the Known Universe which is, frankly the Silicon Valley.

Lets Get Up & Look for Work - I hate Starving in Bed!

Pamala Meador — Sat, 07 Jun 2008 22:57:00 GMT

The reality of the Real Estate Business is that every day we go out and look for work. We might be looking for a buyer at Open House or a seller through our sphere, a Great Agent always listens for the deal. This market is a great crucible for Agents, Brokers & Loan officers.

Check out this article - some frightening statistics.

It reminds me of a saying that one of my Art Instructors told me, "The difference between a Successful Artist and an Unsuccessful Artist is that the Successful Artist kept working". In this business where rejection is one of the only constants and that staying focused and managing your time effectively is critical, I can see where is would be easier to "get a real job". My problem is that no one would hire me. I am too focused, driven and assertive to be a good team player. I was once told that there was no I in Team, but there wIn and I am here to get my clients the Win and get them what they want. Plus it will be fun you'll love it.

All in all I think it is a good thing to get the part-time, non focused agents out of the profession. There is too much at stake for the clients to have someone who just dabbles in Real Estate handling their deal. The deals are tough, the competition is fierce, the clients (even great ones) can be challenging (its alot of money) but there is nothing better than putting together a difficult deal and seeing everyone get what they want.

Rates to 4.75% - California Dreamin' or Realty in the Making

Pamala Meador — Sat, 07 Jun 2008 22:29:00 GMT

Rick gives another compelling arguement as to why rates will continue to go down even if the Fed don't do any more rate cuts. Give us Hope Rick - Give us Hope!

The Chance of a Lifetime

What do you think your business would be like if 30-year fixed rate mortgages fell to 4.5%?
Would your phone be ringing off the hook? Would listings come pouring in and buyers be
lining up to over-bid?

You know the answer better than I do, but I know something about mortgages.

And I’m here to tell you that this is very likely to happen. In fact, I’m 100% convinced that
mortgage rates will be below 5% at some point during this year?

Why?

The answer is a concept that applies to much of life, a term that statisticians call Reversion to
the Mean.

If you remember high school math, the Mean is just another word for the average. So
Reversion to the Mean just means that things return to the way they’ve been in the past.

I don’t know how many of you are baseball fans, but let me use that sport to give you an
example. Let’s say a baseball player averages 23 home runs a year for the first seven years of
his career. Suddenly, he hits 47 home runs in his 8th year.

Reversion to the Mean theory states that his 8th year was probably an aberration that won’t be
repeated, that he will probably return to his statistical average of hitting somewhere around
23 home runs.

Another way of looking at it is that flukes do happen, but they’re just flukes and not a whole
new level of performance.

So what the heck does this have to do with a 4.5% mortgage rate?

The answer is that there has been a statistical relationship between the rate on 10-year
treasury bonds and mortgage rates that has been remarkably consistent for decades.

Going back to the 1970’s, and probably earlier, pricing on mortgage rates has consistently
been 1.0 to 1.5% over 10-year treasuries.

As I sit here writing this, mortgage rates are 2.25% higher than 10-year treasury rates, and
they were actually 2.75% higher last summer.

Trust me, my friends, this is not some new way that the capital markets are pricing
mortgages. It is the ultimate fluke, a result of everything awful you’ve read in the business
headlines the past 7-8 months.

The capital markets have been going through very difficult times, and the so-called Mortgage
Meltdown has thrown everything into a temporary state of confusion.

But we always return to old patterns of behavior, and things always revert to the mean.

Quite simply, the 10-year treasury is at 3.5% today. So if we add the historical spread of say
1.25, it means that mortgage rates should be 4.75%.

Aside from Reversion to the Mean, Congress has loosened the rules that govern Fannie Mae
and Freddie Mac. They authorized the two entities to increase mortgage purchases.
Secondly, the Federal Reserve has begun buying mortgage backed securities. They typically
limit their buying and selling of securities to bonds issued by the U.S. government, but their
move into mortgage securities should also bring more liquidity to the mortgage markets, and
it should also drive rates somewhat lower.
The Fed will buy up to $200 billion in mortgage securities while the Home Loan Bank will
make available another $100 billion. That’s a whole bunch of liquidity coming into the
market, and it can only help drive mortgage rates lower.

Only you know what impact this will have on your real estate business.

But it can only be for the better, I recommend that you be prepared for it.

This could be the chance of a lifetime.

Things Revert to the Mean, and we will have rates below 5.0%.

Rick Soukoulis
Chairman & CEO
Intero Mortgage

Conforming vs Jumbo Conforming - Limits go up But so do Rates! What Gives?

Pamala Meador — Sat, 07 Jun 2008 22:18:00 GMT

Rick gives us hope in the never ending Challange of "whos got the best loan".

One thought that with the conforming limites going up that the affordability of homes in Morgan Hill and other parts of Santa Clara County would ease up a little bit. But NO..... Instead of Conforming and Jumbo all that the Fed's increasing the limits on Conforming did was create a new category of "Jumbo Conforming" which has a higher interested rate than the regular Conforming loan.

It has a lot to do with Banks not really knowing what their risk factors are so they add a bit more interest to make them feel a bit more comfortable. But Gee Wizz, when will there be any balance. Rick says November and is willing to buy coffee to back up his claim - any takers? Pamala Meador

Fights on

Many years ago, a young and brash boxer named Cassius Clay predicted he’d knock out the
Heavyweight champion, Sonny Liston. When he accomplished this goal, he was asked about
his bragging so much.

“It ain't bragging if you go ahead and do it” he said.

Cassius Clay became Muhammad Ali, and the rest, as they say, is history.

Is bragging just another form of prediction, although one that luckily comes true?

It’s hard to say, and certainly, in the area of economics, predictions have a way of making
even the most prescient and intelligent look foolish.

As one man put it, “Wall Street indices have predicted five of the last nine recessions”, or as
another put it, “Forecasting is the art of saying what will happen, and then explaining why it
didn’t.”

Funny quotes, all, but let’s look back at this column for the past few months.

Our two biggest predictions did come about.

Biggest was my firm belief that spreads would tighten, a fancy way of saying that mortgage
rates would go down without the market going lower.

Second, was that underwriting standards would be relaxed, especially the down- payment
requirements.

I don’t want to be seen as patting myself on the back. Not at all. I’ve been in this business
over 27 years, and to me, it was obvious and inevitable that these would happen.

In many ways, government as well as private sector policy had caused the housing crisis. So
it was obvious that they would have to make some changes to undo that crisis.

In my view, the down payment requirements that Fannie Mae recently relaxed were the most
crucial to those of us who work in the Silicon Valley and San Francisco Bay Area.

When people are paying $ 700,000 or more for a home, the difference between 20% and 3%
down is huge. It makes all the difference in the world as to whether a family can buy a house
or not.

But what might a crystal ball show for the next year or so?

First, the higher loan limits are set to expire December 31 of this year.

I’m 100% certain that with an election coming up, Congress will absolutely extend these
limits.

No politician wants to be seen pulling the rug out from under the American homeowner,
especially in the middle of san election year.

Second, the economy clearly appears to be under stress, and this will keep pressure on rates.
I’ll say I’m 98% certain that rates aren’t going up, and that they’ll probably continue to come
down.

Third, the difference in rates between conforming (loans under $417,000) and Conforming
Jumbo ($417,000 - $729,000) will continue to shrink, as we have seen over the past several
weeks. Fannie Mae and the Fed are working diligently to drive rates between those two
categories closer together, and they have made great progress in a very short time. It will get
even better.

Let’s meet here, same time, same place, in six to nine months and see if these three predictions
will have turned out to be right.

Better yet, give me a call to set a date by which I come by you’re office, maybe meet in
November or so, and we can discuss it in person.

And maybe we can even set a bet at who buys coffee in November.

Rick Soukoulis
Chairman & CEO
Intero Mortgage

Who owns the Loan Anyway?

Pamala Meador — Sat, 07 Jun 2008 22:08:00 GMT

I think Rick hits a home run with this article. It clearly outlines the problems we in the business have of dealing with the debt instruments that are on these homes. I call them veggie-matic loans which were sold with the same type of excitement and wild abandonment that have been associated with veggie-matics the world around. Pamala Meador.

Foreclosures and other opportunities

Have you ever noticed the changes in late night ads and infomercials for real estate
opportunities? During a boom period, the late night ads are all about how to buy with
nothing down and how to build an empire of rental houses. People who bought the
programs tell all speak glowingly into the camera about how much they are making in
a week, and it seems they’re always filmed from some beach in Hawaii where they’ve
presumably retired to.

But isn’t it kind of amazing how quickly the ads change once the real estate cycle turns?

Over the last few months, I’ve noticed a not-so-subtle change, as most of these late night
ads now tell us how much money there is to be made in foreclosures, short sales, and
other side effects of a difficult real estate environment.

Are these ads accurate? Is there big money to be made during times of great stress in
the housing markets?

They answer is that there can be, but that it’s gotten much more tricky this time around.

Why do I say that?

In the old days, and this may have been just 15 years ago or less, dealing with
foreclosures and the like was pretty simple. There was a good chance that the loan was
owned by a local bank or savings & loan, and many realtors developed relationships
with the foreclosure departments tat these banks.

When good deals came along, the bank would call the realtors they worked with, and
everyone made money.

Like a lot of things in modern life, things have gotten much more complex.

It sounds strange, but it’s not so simple to understand who owns a given loan anymore,

You’ve all heard of securitizations, right? It’s taking a large number of loans and
putting them into a mortgage-backed security of some sort and then selling that
security on Wall Street.
It’s like a bond that’s backed up by a whole bunch of individual mortgages.

That part sounds pretty simple, and whoever owns that security really owns the
underlying mortgages.

For a number of reasons, we now have financial “engineers” who take a lot of thee
securities and then slice them into thin pieces. They’ll then take these thin slices from
maybe 10 different mortgage securities and combine them into new securities.

I know it sounds strange, but a single loan could end up being a part of 5-10 different
securities. One might get the interest payments of the loan, while a totally different
security might have the principal payments. One security might absorb the first 10%
loss on a loan, while another security could absorb loses that exceed that 10%.

If you’re getting just a bit confused, well, it is confusing.

When you’re dealing with foreclosures, short sales and loan modifications, at some
point you need to talk to the owner of that loan. At some point you need the owner of
that loan to sign off on what you’re trying to accomplish.

If it’s unclear who owns that loan, you’ll most likely need a decision that can only come
from the owner of that security, or perhaps the custodian.

And not to scare you, but here’s a very possible scenario: The loan you need a decision
on could be part of a mortgage security owned by the Michigan State Teachers
Retirement Fund. But another part of that loan could be owned by an insurance
company in Japan.

How the heck will you ever get a decision on your proposed loan modification or short
sale? Unless you know your way around this world of securitizations, or unless you
know someone who does, you might not ever know that the custodian for these
securities can make the decision.

My point is quite simple: Financial engineering by Wall Street has made things more
complicated, but there is some good news to this situation. There are mortgage
professionals who understand this process and who can guide you through it
successfully. Intero Mortgage is here to help.

Rick Soukoulis
Chairman & CEO
Intero Mortgage

Conforming Limits - Good News for Santa Clara County Real Estate

Pamala Meador — Sat, 07 Jun 2008 22:05:00 GMT

Another Great Article by Rick Soukoulis.

FNMA Article #2

Do you remember reading Tale of Two Cities back in high school? About the only thing I
remember from it was the opening line: It was the best of times, it was the worst of time…

When I see that opening line occasionally, it sometimes seems that the book was
probably describing the world of real estate and mortgage finance. Doesn’t it seem that
if you’re in real estate that things are never just nice and steady?

Doesn’t it always seems like boom or bust, like there are no listings or too many of
them, no buyers or too many?

Over the years I've had real estate and Loan Offices alike tell me how they'd love to
have a job that wasn't so volatile and where things were more predictable.

I can understand that but I also know that volatility makes possible unlimited financial
opportunities. All those jobs that are steady and predictable probably don’t pay very
well.

So what’s all this have to do with today’s market?

Well, it occurs to me that if we’re in a business with lots of volatility, we have to take
advantage of the good periods, and need to make hay while the sun is shining and the
government stimulate package just brought out the sun.

A perfect example is the new FNMA jumbo loan limit, the fact that buyers can get
financing FNMA rates on loans up to $729,750.

First, this is unbelievably great news for people here in the bay area. It means that the
payments on these jumbo loans are going to be lower and that borrowers can more
easily qualify. Much more easily.

Second, and here’s the part about making hay while the sun is shining, these limits are
just temporary. They expire on December 31 of this year!

The message is clear. Things couldn't be better, but they will come to an end – or at
least change dramatically – by the end of the year. It’s quite possible that it will be hard
to get jumbo loans again, and it more than probable that it will be harder to qualify
buyers at that time.

A few short months ago it was hard to get a jumbo loan, and it was harder to qualify
deals. There was lots of creative financing, and boy, some of these deals sure did get
complicated.

It’s a vanilla world again. Low rates and good financing, there’s no need to spend
hours looking for a loan, and we’re back to the environment where a good loan office
will get a borrower exactly what he wants.

This is a perfect environment for Intero Mortgage and Intero Realtors to work together.

Rick Soukoulis
Chairman and CEO
Intero Mortgage

And both should be out closing as many deals as possible right now, before those loan
limits drop back again in December.

The history of Fannie Mae and why it is important

Pamala Meador — Sat, 07 Jun 2008 21:53:00 GMT

This is a great article by a gentleman that really knows his mortgage stuff. It was published before the conforming loan limits were raised but I thought that there was some great information here. Reading between the lines the S&L crisis and our current mortgage meltdown might have been avoided if Fannie Mae has been a bit more conservative. But then what do I know. Pamala Meador

Fannie Who?

If you live around Washington D.C. and feel a desperate need for some chocolate, you’ll
probably head to the nearest Fannie Mae candy shop. In parts of the East Coast, Fannie Mae
is their version of See’s candy.

In the rest of the country, Fannie Mae is perhaps the most important government sponsored
agency that no one knows anything about.

So what the heck is it, what do they do, and why does it matter?

First, it doesn’t really affect you if you’re going to rent the rest of your life.

But if you're a homeowner, someone who wants to be a homeowner, or a realtor, it matters a
great deal.

Let’s take a look at its history.

Fannie Mae was originally chartered during the New Deal. It was meant to be a source of
liquidity to the banks, prepared to buy mortgages so that the banks could re-lend the money.
In fact, it did very little of this for decades, and it only became a big business in the early
1980’s.

If you’re over sixty, you might recall how it used to be when you were looking for a
mortgage. You would walk into an S&L, and as amazing as it sounds today, they would
often tell you they were “all loaned up.” This meant that all their deposits were lent out, and,
as they’d tell you, you could come back in a few days and see if they had some new money to
lend.

It could be because some loans paid off, or perhaps because they took in some deposits.

As crazy as it sounds, it was this way till the late 70’s and early 80’s when Fannie Mae
started getting much more active.

By buying loans, Fannie Mae freed up money for the banks & S&Ls lend again.

It provided liquidity, which is really fancy way of saying that it supported housing values. If
you think about it, it makes total sense that housing values would decline if there is no
mortgage money around.

As California housing prices climbed in the last 30 years, Fannie Mae became less and less
relevant in California.

Why?

The answer is that Fannie Mae sets a limit each year on the size of mortgages they can buy.
Right now, it’s a max of $417,000 per loan. While that might be enough in rural North
Dakota, it's just not enough in most parts of California.

I know what you’re thinking. You're thinking a big So What?

It actually matters a great deal.

If you get a Fannie Mae loan today, that is, one that’s $417,000 or less, your rate is
significantly lower than if you get a so-called jumbo loan over that amount.

Go over $417,000 – even by just on e dollar - and your rate will jump almost a full point.

In round numbers, the monthly payment will jump about 10% once you go over this
threshold.’

One of the more exciting things coming out of Washington, aside from Fannie Mae chocolate,
is the possibility that Fannie Mae will raise its loan limits. Congress is getting close to raising
it a whopping 75% to $730,000.

Just imagine. With higher Fannie Mae loan limits, monthly payments will be lower and that
will make it infinitely easier to qualify borrowers.

Does it matter?

You bet it does!

If it goes through, Realtors should see values stabilize, sales increase, and borrowers get easier
to qualify.

It matters a lot!

Rick Soukoulis
Chairman and CEO
Intero Mortgage

New Home vs Short Sale or REO

Pamala Meador — Sat, 07 Jun 2008 19:00:00 GMT

Here is a nice run down on pro & cons regarding purchasing new construction or looking for that
deal of a life time in distressed property land. I agree that a deal can be found working with
sellers or banks that need to move a property fast - but the buyer should always beware - if a deal
is too good to be true it probably is.

Bank owned (REO’s) foreclosed or short sale (SS’s) homes can be had at bargain-basement
prices, but foreclosures typically include:
Lack of maintenance and care throughout the property;
Multiple offers and uncertain closing dates;
Distressed properties in surrounding areas;
“As Is” purchases.
Used and worn finishes, faded, torn and stained carpeting, poor painting, one coat stucco
systems, old roofing materials; cracked tile and formica, etc;
Poor return on equity as the market improves;
Poor energy efficient appliances, insulation, and heating and cooling systems which will add to
monthly maintenance and utility costs.
Shoppers should see value in a new home that they can't find in an existing home:

New homes provide fit and finish warranties by the Builder;
New construction techniques, new plumbing system, new electrical system, new technology
systems;
New homes finishes are perfect, no carpet stains, no poor painting, etc.;
New homes can typically provide customized finishes i.e. floor coverings, countertops, paint
colors, etc.;
Now homes will provide a safer structure to reside in resistant to earthquakes and storm events;
New homes will appreciate at a greater pace than older used homes upon market recovery;
New homes typically provide automatic irrigation systems;
New homes will exhibit a stronger property tax to equity and sales value basis upon market
recovery;
New homes will provide the Buyer accurate closing schedules;
New homes exhibit modern electrical systems, modern plumbing systems, modern structured
wired systems, etc.
New homes will provide significant efficiency in Title 24 energy savings for heating, cooling and
lighting systems that are guaranteed to save the homebuyer money every month.

This is not to say that you can't find a newer home in distressed property land - you can, but
people who are losing their home are the necessarily keeping the property in tip top shape.

The Credit Quiz

Pamala Meador — Sun, 26 Aug 2007 00:42:00 GMT

My dear Friend Laura Lundy, Real Estate Loan Consultant with Washington Mutual in Morgan Hill - call her at 408 776 2862 - sent me this Credit Quiz and I liked it so much I wanted to share it will everyone. Take it and let me know how well you did.

The Credit Quiz

Over the past decade, consumer advocates have worked hard to help consumers better understand what credit is and how to handle it in order to improve their credit positions.
A recent quiz on credit, released by Credit Plus, a Maryland-based credit services firm, can help consumers better understand other issues that can impact their credit scores. The answers are all true or false: Let’s get started.

1. Consumers can raise their credit score by paying off an account that has been turned over to their creditor’s collection department or to a collection agency.
False. At least most of the time. If an account has recently gone into collections, it is best to pay it off. If it is an older account, leave it alone. The rationale for this is that credit scoring systems place the greatest emphasis on the most recent activity in an individual’s credit record.

When a consumer pays off a collection account, it registers as recent activity, which can lower a credit score. Credit Plus says that if the date of the last activity exceeds twelve months, then it is best to leave it alone.
If a borrower is required to pay off accounts as part of the loan approval process, it should be done as part of the loan closing so as not to affect the pending contract.

2. Consumers can better their credit score by closing credit accounts.
False. Closing an account can actually lower a credit score. Instead of canceling cards, pay down the existing balances and keep them under 30 percent of the available credit limit.

Or, if one card is maxed-out but other cards have little or no balances, transfer the excess debt from the first card to the others so the balances drop closer to the 30 percent target limit. Credit scoring models rate debt utilization – the amounts owned on accounts – almost as much as payment history.

3. Credit Scores can be raised if the consumer has a savings account.
Again, False. Credit scoring systems only look at credit issues. Lenders may require cash reserves as part of the loan approval, but that has nothing to do with credit scores.

4. Borrowing money from a finance company is no different than borrowing from a bank.
False. Credit Plus says that not all credit accounts are ranked equally. Credit from finance companies will score lower than a bank card, travel or entertainment card, oil card, or automobile loan. However, if the credit profile shows an even mix of the different types of credit, then the impact on the score should be relatively small.

5. A credit score will be improved by using a consumer credit counseling service.
False. A credit counselor negotiates for the consumer to lower payment on an overdue account, but it will probably still show up on the credit report as a late payment.

6. Consumers only need to worry about their credit score when purchasing “big ticket” items, like a home or car.
False, again. Low scores will impact the consumer any time they apply for a loan or for credit.

7. A consumer’s credit score can differ depending on the item purchased.
True. The use of credit scores in the mortgage industry came after credit scoring in many other industries. As a consequence, different industries use different scoring models, and the scores can vary by as much as 50 to 60 points. Mortgage lenders typically use a FICO-based scoring model developed specifically for the mortgage industry.

8. A finance company credit card (one you might obtain from a furniture or electronic store) scores the same an any other credit card.
False. Finance company cards weight more heavily on credit scores than do others. These types of cards typically allow consumers to open store accounts with the creditor often setting the limit to the cost of the purchase which essentially maxes out your credit limit well in excess of the desired 30 percent balance.

9. Negative credit information will stay on the consumer’s credit record forever.
False. Negative information will generally remain on a consumer’s record for seven years. Bankruptcies can stay on for ten years, while federal tax liens stay on or are removed as “determined by a prescriptive period.” Though a bankruptcy may affect a consumer’s credit score for a longer period, it does not exclude them from obtaining a mortgage loan. Many lenders will allow mortgage loans within one or two years of a
“BK”.

10. If a consumer has poor credit, a good way to start rebuilding it is by obtaining a secured credit card or asking someone to co-sign on a credit card application.
True. Not having enough positive credit can be a major contributing factor to a low credit score. Positive credit can be added to the credit profile by obtaining a secured credit card, which requires a cash deposit equal to a pre-approved credit limit. Again, remember the 30 percent balance limit. Also, if someone you trust, or more importantly, someone who trusts you, will co-sign for a credit card, you can also help to establish or improve your credit score.

So, how did you do? Whether you got a perfect score or had a few things to learn, we hope that this quiz was fun… and useful. Please share the Credit Quiz with family and friends who you think would like to know more about how they obtain – and maintain – a great credit score.

Don't forget Laura Lundy for all your Real Estate Loan needs in Morgan Hill, San Martin or Gilroy and of course Pamala Meador for all your Real Estate needs. Laura can be reached at 408 776 2862 and Pamala can be reached at 408 891 4931.

It will be fun - you'll love it.

What Brokers are saying about the Tightening Credit Market

Pamala Meador — Thu, 16 Aug 2007 13:16:00 GMT

I got this email yesterday from a great Agent friend of mine - Russ Warrick, it was passed to him from a Broker Friend, but I don't have his name. I thought it had some great information about the changing credit market and how it has and will continue to affect the sale and purchase of homes.

Here is what Russ said in his email:

Hi Everyone,
I really appreciated the attached, for an opinion from a 3rd party, as a true depiction of our current financial and real estate climate.

This is what a Seller that truly needs to sell soon needs to get a copy of, in my opinion.

Russ

Here is that Article

Just last week, American Home Mortgage and its wholesale counterpart, American Brokers Conduit, became the latest casualties of the credit crisis. Last year, this company closed over $58 billion in home loans. Despite being, by all accounts, a well run business, market conditions forced them to file for bankruptcy, leaving nearly $800 million in loans unable to close. Tens of thousands of borrowers have now been left without financing as a result of companies like this going under.

Clearly, with over 100 national lenders having now closed shop in the last eight months, this is no longer simply a subprime lending issue. The credit market is experiencing unprecedented turmoil that, according to Mike Perry, CEO of Indymac Bancorp, is "broader and more serious than past disruptions."

What does this mean to the real estate market?

Sellers can no longer be reluctant to accept offers or reduce prices. Tightening credit and diminishing mortgage products will continue to reduce the pool of qualified buyers. This, along with the increase in national inventories, means now is not the time to hold out for the "best" price possible.

Buyers with credit issues or who have difficulty providing required documentation can no longer sit on the fence. If market conditions change, buyers who qualify for a loan today may not qualify a few weeks from now for the same exact loan. Just this week, many lenders have stopped offering no Doc loans, and some lenders have even pulled back on all forms of stated loans. As market conditions continue to change, a buyer's pre-approval status can disappear even more quickly, delaying or spoiling the deal.

Subprime and Alt-A refi candidates, especially those with ARMs scheduled to reset over the next 12 months, need to act now - even those with a pre-payment penalty. ARMs borrowers struggling with monthly payments now might be shocked to know that monthly payments can double in some cases once an ARM resets.

What does this mean to you as a real estate agent?

Not only is it essential to protect your clients and your transactions, it is your fiduciary responsibility. If you have any ongoing transactions that rely on this type of financing, you must work closely with those involved on both sides. As an educated mortgage professional, I will utilize my experience and resources to help you and your borrowers to navigate through these turbulent times. Don't leave your buyers or sellers in the hands of random mortgage providers.

My Favorite Title Rep Samia Reichel Talks about Market Conditions

Pamala Meador — Thu, 09 Aug 2007 18:11:00 GMT

Dear Pamala,

Please find below a link for This Month’s Issue of The Real Estate Report. I’ve summarized the information below, I know it seems like a lot of reading, but trust me…it’s very powerful information to share with your clients.

It’s been a crazy past couple of days in the mortgage industry. If you have somehow managed to escape the news….here’s what’s going on.

Over the last several days, the mortgage world, as we know, it has changed.

We know that the Sub Prime Lending market had created huge restrictions over the last several months due to mortgage rate adjustments on ARM loans causing a mess in the Foreclosure Market. What is typically assumed on ARM’s is that when they roll over into the adjustable portion of the loan they can only go up or down 2% each year. While this is correct the caveat to this is for the FIRST CHANGE ONLY the rate can move up or down the full cap amount which is usually 5%. If a LIBOR ARM (todays’ LIBOR is 5.28%) were to change today from a 4.75% rate that was available 5 years ago and the ARM had a 2.75% margin the new rate would be 8.03%. On a $500K loan the principal and interest payment would change from $2,457 to $3,679 or appx a 50% increase. This coupled with decreasing values is what is causing many foreclosures especially on high LTV homes.

The changes we’ve seen since Thursday of last week, is that the Sub-Prime mess is spilling over into parts of the Prime Mortgage Market. The secondary mortgage market investor has gotten nervous with all of the changes in the lending landscape; with foreclosures on the rise and the housing market slowdown, investors simply do not want to take the risk they once did. Therefore, the investors will not buy many of the loans they did once before and this is why we are seeing many banks not offering all of the mortgage products they did previously. The ability of the secondary mortgage market to buy these commodities (mortgages) is called liquidity. We are now seeing a lack of liquidity. They are still in the market, but they want to be compensated for their risk.

What does this mean…..Well, it means that any loan that is non conventional or non traditional is going to be harder to get and cost borrowers more. Experts do not see any problems with a standard conventional loan (i.e. 30 year fixed at or under $417,000.00). Many lenders have slapped on stricter standards for Stated Income or Stated Asset loans. The cost for Jumbo Loans have gotten more expensive as well due to the fact that Jumbo Loans cannot be sold to Freddie Mac or Fannie Mae; these loans are sold to investors on the secondary market and have seen increases of ¼% to ½% or more in rate over the last week.

Below you will find links to an article with more information on this topic as well as other articles I think you will find informative. Please feel free to pass these on to your sellers and buyers to keep them informed on the market conditions.

Despite the ever changing environment, we have still seen over 10,000 sales in Santa Clara county through June of this year! Sellers are still selling and buyers are still buying. The key is keeping your clients informed and helping them make educated decisions. It’s all of our jobs to keep a level head and assist people through what can be a very emotional event.

I hope you find this information practical. If you know of any other agents in your office that you think would benefit from these articles, please let me know and I will be happy to contact them and provide them with the same valuable information I’m providing to you.

http://rereport.com/scc/print/SamiaReichelSCC.pdf

All The Best

Samia

Sales are Down – but Why Not Prices?

Pamala Meador — Sun, 05 Aug 2007 23:05:00 GMT

Listening to all the negative news about real estate could have you running for the Pepcid AC or Imodium AD or both. It would seem like the sky is falling with all the bad news. Foreclosures up 200% (never mind going from 1 to 3 is a 200% increase) sub-prime is imploding the market place (never mind that it is 14 % of the total loans out there and only 1.25% of them are late) Sales are down 25% (never mind the resent sales pace was not sustainable) all this points to a burst of the bubble. It sounds like you should enjoy your house now for tomorrow there will be the economic equivalent of Katrina right here in Santa Clara County.

Yes, Chicken Little – the Sky is Falling! … Or is it?

The California Association of Realtors has just come out with their mid-year report card and from where I am sitting it doesn’t look half bad.

Since 1970 when they started keeping these records the number of units sold in 2006 were 477,460 this is the 11 highest (yes highest) year on record. 9 of the record years were since 1998 with the other two years being 1979 and 1980. Yes 2006 was down from a year ago – but taking a more measured and balanced viewpoint – we did pretty well over all. 2007 is a bit slower but not as slow as 1982 when less than 200,000 units were sold.

Real Estate has always been a long term investment. Too bad news cycles are so short sighted.

Prices are another area where we see great strength. Medium Prices in the San Francisco Bay area are up 9.3% (Yes I said UP). In Santa Clara County they are up 4.5%. So if you are looking for that 20% decrease in prices before you buy, you might be waiting forever. The best news is that there is more inventory on the market so buyers have more options and less competition. This combination has been long in coming for buyers and it is amazing to me that more buyers are not taking advantage of this great opportunity.

Even our first time home buyers who didn’t have a down payment, which by the way was about 40% of all first time home buyers are doing just fine. Just keep making that payment and turn off CNN.

Oh, but these are the people who are in ugly loans that are adjusting out of this world and they will be defaulting and then the Sky will fall. Got you on that front.

Not so fast – the foreclosure rate is up and seems to be trending up but we are still under 1% - where in the mid 1990’s foreclosure rates were as high as 2%. Mortgage lates are also trending up with the latest figures being a smidge over 1% compared to the whopping 6% we saw in the early 80’s. So we have a long way to go before we even approach all time highs. With the economy in the Valley very strong, we can easily absorb a 2% foreclosure rate with little or no effect on prices. Yes there might be a home in your neighborhood that sells below market, but not that low or frankly you would buy it.

Interest rates are still great, not out of this world fantastic, but nowhere near double digits. The money supply is tightening and there seems to be a bit of panic in lending land – but that should straighten itself out by the end of this year – when everyone will know that the sky has not fallen, it was a great time to buy and they missed it, then they will all jump in again and wonder what happened.

Morgan Hill, San Martin and Gilroy are great communities to purchase. Compared to the rest of Santa Clara County they hold great values and you still can get lots of house for your dollars. Don’t hesitate to jump into this market. As a buyer you have more choices and less competition. I don’t see why more people won’t take the optimistic plunge and get what they want.

And no Chicken Little the Sky is not Falling!

Great Article on Real Estate Investment

Pamala Meador — Sun, 22 Jul 2007 14:38:00 GMT

As I was surfing around I found this great article on Real Estate Investing. It gives good advise and sound strategy. One shouldn't race out with checkbook in hand and purchase houses, we have seen that lately and many are finding that has left them in a very tight place. Check it out. I think you will find it helpful.

The Morgan Hill, San Martin and Gilroy Cities of Santa Clara County still has some nice properties that are good investments and nice flippers. Our barriers to entry are higher than other parts of the country because the best flippers are in excess of One Million Dollars - not for the faint of heart. You are not playing with the big boys.

Not all Sub Prime is the Same

Pamala Meador — Sat, 14 Jul 2007 21:04:00 GMT

Everyone is talking about the Sub Prime Loans and what it will do to the Real Estate Industry at large and I agree to a certain extent. But as Real Estate is Local so the Sub Prime Loan problem is local also. There are some Counties in California where there is virtually no Sub Prime Loans – so how can foreclosures of these loans affect the Market there? Other Counties upwards to 40% of all loans held in those Counties are Sub Prime, so hold onto your halter Harriett we are in for a bit of a bumpy ride.

Areas that were advertised as “Affordable” seem to be the hardest hit. The house might have been larger, newer and cheaper than other areas but how solid is the investment. Even if you are not in a subprime loan 4 out of 10 of your neighbors are and what do you think that will do to your value if only 1 out of 4 walk away from their homes. The Banks or now the Bankruptcy Judge will do what they need to do to liquidate the property just as soon as possible, eroding your equity in the process.

It goes back to you get what you pay for.

Santa Clara County is expensive to purchase a home in – there is no getting around it. But if you are waiting for the Sub Prime foreclosures so that you can buy on the Cheap – think again. In Santa Clara County only 16 out of 100 loans out there are Sub Prime. A number that though painful to some is absorbable in this highly desirable area.

I am not saying that there are no Short Sales in Morgan Hill or Foreclosures in Gilroy, but it is the exception rather than the rule. Yes there are deals and bargains to be had – but not at deep discounts. For that you might want to go to Hollister in San Benito County were 4 out of 10 of your neighbors are in Sub Prime Loans. That is a bit more difficult to absorb.

Historically the Foreclosure rate is it high, yes because this valley has been so prosperous and the economy has been so good for so long that there has always been a buyer out there. Now due to the lack of consumer confidence that is plaguing the Real Estate Market as a whole, buyers are fearful to purchase.

This is creating a set of circumstances where one day pent up Buyer Demand will explode and the market will be off and running again. Then everyone will be wondering why they did not buy today.

The Ups & Downs in Real Estate

Pamala Meador — Fri, 13 Jul 2007 19:14:00 GMT

I found this great ride. It plots the Real Estate Prices from 1890 to the present, then sets them on a Roller Coaster so that we can all take the ride. What struck me the most was the ending - but I don't want to give it away. Follow this link and take a ride. Let me know what you think.