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