Thursday, February 15, 2007

I KNEW it was coming!!

BKWhat?!?!? ask.

Maybe some of you have heard them already, but I just heard my first commercial on the radio that goes something like this (not exact by any means…waiting for it to come on again):

“Do you have one of those ‘hard to understand’ mortgages that gives you several options to pay at the end of each month? Are your payments increasing and you were not aware of it. These ‘option ARM’ mortgages are very complex and things might not have been explained to you properly. If you have one of these mortgages you could be eligible for compensation! If this sounds like you, then give us a call for a free consultation. We might be able to help you get all your money back! So call Uraviktom & Playaviktom…attorneys at law.”

I don’t guess I should hold my breath for ONE of the ‘get-rich-quick-in-a-no-money-down-real-estate-late-night-infomercial’ students to take personal responsibility for their ’sure-thing’ real estate transaction going south. Why do that when there are lawyers just waiting to paint you as a victim…and financially illiterate judges and juries just waiting to hand you ‘free money’.

Don’t get me wrong, there are some people that did get screwed, but many more knew EXACTLY what they were doing. And if they had made those ‘easy riches’ they sure as heck wouldn’t be getting a lawyer to make sure they ‘paid back’ the person who they ‘got rich off of’.

The unfolding of this real estate bubble is going to be nasty…and this is ONLY the beginning. Just don’t expect to hear that from any ‘professional organization’ in the industry.

Stay tuned…


Friday, February 02, 2007

OC Register…NOW the risks are ‘front page’ news

If you didn't see this weekends Marketplace section in the OC register, you should check it out. Here is the link to the main article that was on the front page of the Marketplace section: Subprime's grip slips. This is the section that normally had articles about the unstoppable OC real estate market and how you should 'buy today'.

I found the picture that was the backdrop for this article very interesting. Not only was it in color, but it was 9.25" by 16.25". Here is a smaller version of the picture: oc grip slipsas you can see, it is an 'orange' holding a house from going over the edge. How OC real estate gains are 'in the bag'!

I almost spit my OJ across the paper when I saw the quote that was highlighted beside the article:

"We have no interest in putting people in homes that they can't afford" -- Some Executive VP

I think that deserves a classic Top Gun "BULLSH!T" cough!! Are you kidding me? Come on people, this isn't rocket science. These guys had NO problem getting rich when the getting was good. Sure, it wasn't completely their fault by any means. But don't tell me that you don't have any interest in putting people in homes they can't afford. If you didn't have that interest, you wouldn't allow things like stated income for 100% interest-only loans. You would require a pay stub or W2 every once in a while.

I remember people buying 600-800k homes with 6-10k in the bank. Really! I saw all of their accounts and was amazed that lenders would do it. If you only have 6k in savings, you don't need to be buying a plasma TV, much less a 600k new home!

After you read the article, check out the 'buying it in...' section. This link just so happens to be the 'buying it in Mission Viejo' section. I like this house because it is a $620k home which is about the 'median' home price in Orange County. This section gives 3 options of how to 'afford' this house. Granted they use these archaic standards such as 33% of income on a housing payment as well as this thing called a '30 year fixed' loan. I don't know what it that means, but 30 years sounds scary. I'm going to sell it in a year for a 6-figure profit anyway... I just read a great book called "Getting Rich in Real Estate the Casey Serin Way". I highly recommend it!

Anyway, back on track. Well, here are the numbers they arrived at to buy this 'median' priced home:

24831 Daphne West, Mission Viejo 92691
Year built: 1973
Bedrooms: 4
Bathrooms: 2.5
Home size: 2,180 square feet
Lot size: 4,680 square feet
Sale date: Oct. 13
Last sold: Feb. 13, 2004
Last price: $620,000

FINANCINGThree ways to buy a $620,000 home, based on interest rates as of noon Thursday, no points and $4,000 in closing costs.30-YEAR FIXED
Loan assumes 5% down payment, 7.00% interest (7.02% APR).
Down payment: $31,000
Loan amount: $589,000
Monthly payment: $3,919
Req'd. annual income: $181,185
Cost as % of income: 33%30-YEAR DUE IN SEVEN
Loan assumes 10% down payment, 6.75% interest (6.77% APR).
Down payment: $62,000
Loan amount: $558,000
Monthly payment: $3,619
Req'd. annual income: $165,702
Cost as % of income: 33%30-YEAR ADJUSTABLE
Loan assumes 20% down payment, 1.5% interest (7.61% APR). Adjusts annually with a 7.5% cap per adjustment and a life ceiling of 9.95%, tied to 11th District Cost of Funds, plus a 3.45% margin.
Down payment: $124,000
Loan amount: $496,000
Monthly payment: $1,712
Adjusted payment: $3,500
Req'd. annual income: $152,566
Cost as % of income: 33%
Payment fully indexed, based on current rates.


I highlighted the required annual income required to responsibly purchase these houses, and it seems to be just a smidge higher than the median income of Orange County. Actually, even 2 people earning the median income of Orange County would be hard pressed to afford 1 median priced home. But don't worry, the lenders would NEVER (cough-cough) want to put somebody in a house that they couldn't afford.
But not to worry...people have been saving large amounts of money and using this savings for large downpayments! These large downpayments mean smaller mortgages and therefore not as much income is needed to support them. So it all makes sense.

On a not-so-important side note, I saw an article today that said the savings rate is now at a level similar to the Great Depression. (Well crap...there goes my 'everybody is saving' theory...along with my blogging credibility) The savings rate was negative .4% in 2005 and negative 1.0% in 2006. This was the lowest savings rate in 73 years and only the 2nd time ever with 2 years of back to back negative savings rates. The last 2 years of negative savings rates were 1932 and 1933. I really think saving money is over-rated and not that big of a deal really. My house has gone up in value so much and I just got a new HELOC so I'm off to Fashion Island and South Coast Plaza. I'll check out the comments later...

Stay Tuned...