Tuesday, December 27, 2005

I'm BACK! "celebrity" FB story, random thoughts, and more...

I hope everybody had a nice long holiday weekend and that not too many of you are suffereing a holiday hangover! I had a great Christmas myself, and I enjoyed the time off. Based on many of the comments and e-mails I received, it seems that you missed not having any new content or posts. Well, I'm back, and hopefully I will be able to keep the high quality content going! It isn't easy writing GOOD content on a daily basis. It takes quite a bit of time. I wish I could blog more, but I still have to make a living. I could probably make more money making license plates in prison....but I enjoy sharing my experiences and the e-mails and feedback that I receive in return. I have been using the downtime to work on a few projects to fall back on if/when the housing market/loan business take a turn for the worse. I'm working on my backup plans now so that I can make a seamless transition if things get bad. OK, enough rambling from me...just wanted to let you know where I'm coming from.

I'd like to thank one of my readers for sending me this "celebrity" FB story from the Boston Herald. Some of you might have seen it already, but it is worth looking at again. It is a short one, so I'll post it here:

Emily Rooney, host of WGBH’s public affairs show “Greater Boston,” fears she has landed hard on the wrong side of the real estate boom.
Rooney just closed a $1.5 million-plus deal for a Back Bay condo on tony Marlborough Street. That’s the good news.
The bad news: Rooney’s West Newton tudor is still on the market for more than $1.7 million, three months and counting.
“I am the cliche example of what is happening to the real estate market,” quipped Rooney, who served as news director for Channel 5 for years.
Rooney’s predicament could be a warning to Hub condo high-rise developers banking on empty nesters landing in town after selling their suburban homes.
With her children now grown, Rooney put her suburban house on the market in September as she moved forward with the plans to buy her Marlborough Street condo.
She banked on a quick sale of the West Newton home, but the only thing that moved forward was her Back Bay condo purchase.
Too far along to pull out, Rooney recently closed on the three-bedroom condo.
But she now finds herself in the tricky situation of having no idea when she will be able to move into her Back Bay condo as she faces the continued demands of maintaining and selling her suburban home.
Rooney’s real estate woes come as unsold homes pile up across the suburbs and buyers become picky after enduring years of a sellers’ market.
“I have had a lot of lookers,” Rooney said. “The buyers are waiting. Nothing is selling right now in the suburbs.”


Let's look at this situation for a moment, because I have seen many situations like it here in SoCal. Maybe I'm just not a "risk taker", or maybe from past experiences I know this guy named "Murphy" likes to show up so I like look at things through "plan B" eyes. It is amazing to me how people just ASSUME that they can put their house on the market and it will sell for what they are asking (or more) and very quickly. Just because your "friend" sold in 2 days for more, doesn't mean that TODAY, YOU will too!! Repeat after me: "past performance is NO guarantee of future results". That quote is all over the place in the financial/investment industry, but nowhere to be found in the RE business.

I know it's old...but many people still haven't heard of it. What happens when you ASSUME?!??!

A: You make an ASS out of U and ME....except in this case, it is just U that is being made an ass. The RE agent got their money, the seller got their money, the loan officer got their money...what did you get (besides a piece of property...you got a lot of debt, a stressful situation, and a financial NEED to sell your original home quickly). Think any of the 3 parties are going to care. Nope, they will pay you lip service and "feel your pain", but in the end, they have YOUR money, in THEIR bank account already.

I had this happen 2 times in the past few weeks. I was supposed to do the loan on the new houses, but the only way these loans could happen is if the borrowers got EXACTLY what they were asking. These borrowers didn't have the reserves to pay for closing costs etc. They needed to sell their homes and use the cash to pay off debt and closing costs so they would QUALIFY for the new, bigger house. I was completely amazed how these people were affording their current mortgages, much less how they could afford a home that was about 200k more. Needless to say, I didn't end up doing either of the 2 loans, and I assume the borrowers are still living in their prior homes. I have no idea if they are still on the market or not. They might have been advised to "wait until spring" when thing will inevitably "take off again". One of the offers was only 20k lower than the 600 or so thousand they were asking, but the borrowers needed a full price offer to "make it work".

If you talked to enough Real Estate professionals, you would think that RE is like a NASCAR track: you slow down around the holidays like a major curve, then springtime you "take off" down the straightway...and it is this way EVERYTIME.

Back to our "celebrity" living in million dollar homes. I know nothing of the financial situation of this borrower, but I assume that a "news channel director" of 5 years doesn't have the income to afford the mortgages on 3 million dollars worth of property. I assume they don't have a ton of reserves, because if they did, it wouldn't be that big of a deal that they have made 1-2 months of mortgage payments on 2 houses. The biggest reason why I think they don't have the reserves is because if they did, this story probably would NOT be in the NEWSPAPER!!!! When you buy a new home, depending on when you close, you can easily get 2 months without having a payment due. You will still be accruing interest, but you won't have to make a payment. It IS a good thing that they are "moving down" in price instead of up. It just amazes me that people will close a purchase deal without having completed their sale beforehand. What is soooo hard about extending escrow, working with the seller, or even WAITING until your property has sold. I know it stinks to lose a deposit, waste people's time, or not get a house you really want...but are any or all of those things better than putting yourself in a stressful financial predicament?!?!? Losing a 10k deposit sucks....getting behind on 10k a month mortgage payments on your 1.x million dollar home sucks more.

I hope all goes well for our Boston celebrity. I just wish people would look at something other than the "best case" scenario when making major financial decisions (I consider 6-figure decisions "major"...but that's just me).

I like to play dumb when talking to financial planners to see what they really know (I have Series 7, 63, insurance licenses...but haven't used them in a while). I can't stand the guys that use 12% as an annual rate of return when doing a "plan" for somebody. 12% is not a baseline rate of return that should be used. Something more like 6-8% would be more accurate and give a more realistic picture for people. The same thing needs to happen in the RE industry. There needs to be a reasonable expectation set for "appreciation". It amazes me how people now think that 6-10% annual appreciation is low or normal for RE when historically, it tracks very close to inflation.

I will use this to lead into a great thread I was a part of over on Ben's blog. The topic was loan disclosures, and how good a job the industry does with disclosing things like payment shock, pre-pay penalties, etc. with these "exotic" loans. Here is a link to the story and posts: Fed's Flunk on loan disclosures. I'm not going to rehash it all here, but it is worth reading the article and the insights and comments over there.

Well, I hope I'm not too rusty after a few days off. I look forward to the comments and feedback!

SoCalMtgGuy

20 Comments:

Blogger mtnrunner2 said...

Welcome back, SoCalMtgGuy. I missed reading your posts over the holidays. You're a witty and interesting writer. I like your site and Professor Piggington's sites (www.piggington.com) the best. He has lots of data, you have good stories. I also am thinking of a good career for a downtime economy. With an MBA and engineering degree (but out of the workforce due to kids for many years), I thought a job in consumer credit counseling might be secure, satisfying, and in great demand.
I read comments on Professor Piggington's site about new mortgage guidance, http://piggington.com/node/178, and he writes:
So what effect will these guidelines have? Is this just agency ass-covering, or will these regulations be enforced? According to the document,

"The Agencies will carefully scrutinize institutions’ lending programs, including policies and procedures, and risk management processes in this area, recognizing that a number of different, but prudent practices may exist. Remedial action will be requested from institutions that do not adequately measure, monitor, and control risk exposures in loan portfolios."

End of quote
This makes it sound like there would be some repercussions. But your company loosened its lending standards the next day, so I'm just curious who would really be paying attention to this.

12/28/2005 4:44 AM  
Anonymous Anonymous said...

Weird. A local celebrity who thinks it's a good idea to take on more than a million dollars in debt because she'll be getting another million real soon now. It's almost enough to make me think that some media people are -- what's the clinical term? -- fucking idiots. But surely that can't be true.

Just started visiting this blog before the holidays. Glad to see you're posting again. Keep up the good work!

12/28/2005 7:04 AM  
Blogger Lou Minatti said...

Welcome back, SoCal. Glad you're back.

12/28/2005 7:36 AM  
Blogger renting in mass said...

In this case, the news director may well have significant reserves. Her father is Andy Rooney of 60 minutes fame and she used to work nationally with ABC News.

12/28/2005 8:12 AM  
Anonymous Anonymous said...

The Blairs have also made some risky real estate choices:

http://tinyurl.com/adkf9

"There’s good news for those praying for a property price crash: Tony and Cherie Blair have just bought a house, and for the last decade they have been one of the best contrary indicators of the market around. Cherie may have been pretty shrewd when she picked up their last house in Islington for just £375,000 after arranging a swap with the previous owners, saving them the stamp duty and estate agent fees. But her decision to then sell it for £615,000 in 1997 when a well-flagged housing market boom was just getting under way was disastrous. The house was back on the market in May, with an asking price of £1.69m. Cherie was reported to be furious at having missed out on a cool £1m."

12/28/2005 8:40 AM  
Blogger 41cadillac said...

Found from another blog. Rooney's father is Andy Rooney of 60 minutes. So not to worry plenty of money from daddy.

12/28/2005 9:05 AM  
Blogger SoCalMtgGuy said...

I'm just wondering WHY it was NEWS then.

Andy Rooney for the most part uses logic in his 60 minute segment. I haven't seen him in a long time, but I can just see him doing a segment on people making dumb choices in this great "RE rush". I don't know how willing he would be to fork over money to help an adult family member who made poor choices. Again, I have no idea though.

It is just weird that it was news. If a millionaire buys 2 big homes, nobody thinks twice about it...unless there was talk about being strapped. That is all that I'm saying.

Either way, the story is out there, people are reading it, and it only adds fuel (however little) to the fact that the "housing bubble" might be getting close to being over.

SoCalMtgGuy

12/28/2005 9:39 AM  
Blogger AZgolfer said...

SoCal

Have you thought about becoming a credit counselor? Aparently the new BK law requires the applicant to get counseling. Might be a big need for this type of service in the next few years.

See Ben's blog for an article on the rise in BK's.

12/28/2005 9:49 AM  
Blogger renting in mass said...

She could be strapped. Having that kind of cash flow isn't necessarily easy, even if there is money in the family. I'd have to agree that she made a bad decision, although her worst case scenario probably isn't that bad ("Hi Dad ...").

My guess is that the news story is a high end version of the typical news story - do a story on the current trend (housing slowdown) and find an individual example for quotes.

By the way, great blog. It's been nice to find your blog and Ben's. In the past, it was hard to find material like this and I was a few years too early to the housing is overvalued party. I thought people going into real estate 2+ years ago were getting in late. Good luck on the backup plans - it's smart not to wait until the last minute.

12/28/2005 10:10 AM  
Blogger SoCalMtgGuy said...

azgolfer,

I have thought about a lot of different things. I don't know how much "credit counselors" get paid though. Anybody know?

I really want to have my own business or company. Just trying to figure out exactly what that is. Freedom is important to me, as is doing something I truly enjoy. Even if property drops in CA, most "salary" jobs don't cut it in CA. Even if property tanks, I still think you need to do 10k a month to live in CA. That is the golden number for me right now. I just need to find something where I can hit that consistently.

10k sounds like a lot, but after taxes and everything else, that will provide a decent lifestyle, while still saving money, having health/disability insurance, funding retirement, etc. I don't want to be one of those Californians I see all too often that hit their 40's and 50's and THEN want to think about retirement. They have "looked rich" and lived a lifestyle for 20 years, but have really "nothing" to show for it.

SoCalMtgGuy

12/28/2005 10:18 AM  
Anonymous Anonymous said...

I'm not sure what's so bad about her situation. Yes, she needs to sell the old house, but I'm sure she could sell it quickly if she lowered the price. And she'll probably still clear a big profit on the place. She apparently prefers to live in the city, and soon she'll be able to do just that.

12/28/2005 10:28 AM  
Blogger Metroplexual said...

Welcome back, SoCalMtgGuy.

I was jonesin'. Needed my blogfix. I mentioned your blog in the NY Times RE Blog "Walkthrough".
That blog is doing a talk on bubble blogs and how if they are a hot topic that somehow it is a trend that once discovered it is over.

I don't get the logic but I told them the realities out there that i learn from blogs and how blogs are the only way it gets reported.

The only way your stuff is going to be reported is by this blog or when the prosecutors finally start arresting some of these crooks in the RE Biz.

http://walkthrough.nytimes.com/?p=150

12/28/2005 10:33 AM  
Blogger need 2 leave CA said...

Hi SoCalMtgGuy. I provided the article. I am also amazed at the stupidity of supposedly educated people. I too have a series 6 and 63, insurance license. I am interested in doing the financial counseling, but don't know how much it pays. I love your site, as well as Bens and Patricks. Thank you for the wonderful dissection and explanation of the Rooney FB story.

12/28/2005 11:19 AM  
Blogger need 2 leave CA said...

http://sittingprettyfinancially.blogspot.com/2005/12/reset-button.html

Check out this pompous FB. Hope she loses her A$$. Let's give her some ideas. Haven't heard regarding the generous offer that I made to her.

Ciao

12/28/2005 11:23 AM  
Blogger moonvalley said...

socalmtgguy.....
you ought to give serious thought to writing a book about all of this. You have a great style, and explain things so well besides a very wry sense of humor. I would think that a book from an "insider" would do very well.
Then on to F@cked Borrower...The Movie! As long as I can pick up the rights to that.... cheaply of course.

12/28/2005 11:42 AM  
Blogger Idaho_Spud said...

Hi SoCal,

I'd like to echo the others in welcoming you back to blogworld after the holiday break.

I use the word 'holiday' intentionally because I have no idea which one you celebrate and I'm polite and thoughtful enough not to jam *my* idea of a holiday down your throat ;)

Anyhow, you were missed.

Had a chat with my (elderly) mother today. She's retired on social security and some investment income (not much).

Some shaman was trying to get her to do a cash out refi into an ARM loan, in the high five figures. I have no idea how they convinced her that she needed to borrow that kind of cash... Fortunately my mother was diligent enough to read the 'truth in lending' document.

She called the woman back about the payment potentially doubling, who then told her 'that won't happen, we'll just refinance again.'

My mother then called her financial advisor and had him discuss the refi with the broker - and I guess he chewed her ear off :) The broker called my mother back and said she needs to get a new financial advisor, because he doesn't "get it". Funny, I don't "get it" either.

Anyway, rest at ease: Mom's not going to become a f@cked borrower.

12/28/2005 6:52 PM  
Blogger SoCalMtgGuy said...

idaho spud,

That is excellent that you brought that up. I have been in offices when some borrower said they were going to "run it by their financial advisor" before moving forward. I can only hear 1-side of the conversation...the broker trying to convince the bwr they need to act now and this is the best investment they can make. On occasion it ended with a phone slammed down...and the broker going..."idiot can't think for themself and has to run it through their financial advisor".

I don't say anything, but I'm smiling inside my head.

You know WHY they want them to take out more cash?!?!?!? So they get paid more....pure and simple.

Not that doing the loan would have made your mom an F'd borrower, but it is a good thing she didn't do the loan.

I'm amazed at how lax some lenders are when dealing with retired borrowers. My lender will ONLY do full doc with retired borrowers...but they will do I/O and ARMs. Another lender I was at, would ONLY do fixed rate loans with retired borrowers...but I don't know if that has changed in the year or so since I left. Many other lenders will do "stated" loans on retired borrowers.

Thanks for the comments...

SoCalMtgGuy

12/28/2005 7:06 PM  
Blogger need 2 leave CA said...

Idaho Spud. A mortgage broker would question someone on why they should run a financial move by their financial advisor. That A#SH0L# of a mortgage broker obviously had no concern for your mother. What a novel concept. I would assume someone would run a legal matter by their attorney because they have specialized knowledge. The financial advisor had your mother's best interest at heart, which obviously does not include an unneeded loan. Glad she didn't do it.

SoCAL - I would love to contribute and see the BOOK and the MOVIE. It will be a smash in a few years.

CIAO

12/28/2005 8:54 PM  
Blogger SoCalMtgGuy said...

Thanks for the support for a book/movie. It kind of got me thinking...

I have some ideas, anybody know somebody in the publishing/movie industry that could help get me started or point me in the right direction.

If so, just have them send me an e-mail.

If I could find a way to make a living by educating others...while entertaining them as well, that would be great.

Thanks!

SoCalMtgGuy

12/29/2005 12:10 AM  
Blogger Former LA Homeowner said...

SoCal,

I suggest you contact HGTV and A&E for pilots of a F@ucked Borrower TV show. Otherwise, you need to be a stock/bond broker or go to medical school to earn $10K a month ;-). Welcome back.

12/29/2005 10:23 AM  

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