Monday, December 19, 2005

Winding down into the holidays...

Things are slowing down as we head into the Christmas and New Years Holidays. Most of my brokers are closing out their pipelines and not doing much (if any) origination (getting new loans). I looked at 3 stated deals today. Nothing terrible, but nothing to get excited about either. One of them was an 80/20 condo purchase. I guess the bwr is seeing things "slow" a little bit and wants to jump on before the train "takes off again" in the spring. I think many people are going to be in for a little surprise come springtime...when the train they ran so hard to catch...backs up to where they were standing.

I have some bad news. Our company had a conference call today, and just when I thought standards were going to tighten some, they did the opposite. I'll give more details later this week. It looks like the only thing slowing the market is higher rates and the high cost of housing right now. I really wish I knew what was going on in these "investors" heads. I wish they would put their foot down on the nonsense that is now passing as a "loan".

I will do my best to keep posting through the holidays. I won't be spending too much time in front of a computer the next week or so...and hopefully you won't either! Since I am getting more traffic each day (thank you everybody!) I might repost some of my earlier comments so that more people can read them.

Fill in the blank:

If your relatives start making New Year's resolutions to "flip-more-condos" in 2006 after watching Carleton Sheets videos, and pounding egg-nog....

I will _______________________________.

Thanks for stopping by...and keep checking back.



Blogger moonvalley said...

Thank you! Have a great holiday, I'll miss the updates, but I will try and catch up on what I've missed so far. I'm very disappointed at the non-tightening business. Distressing to say the least. I fear some of my friends up here who want to sell, have been trying to sell to no avail , even with lowered prices will be waiting till the spring, and doing 25k kitchen rehabs in the meantime.Good Lord!

12/20/2005 12:57 AM  
Anonymous Anonymous said...

Thanks for the great service you've been providing. I spent the last twenty-four months trying to educate my students that this is a cyclic business. To the extent that I was able to dissuade some of them into getting into this ridiculous market, I suspect I'll be receiving emails of thanks. I'm guessing I'll also receive a few emails that will explain how a student (or two) wishes they had listened to my advice.

12/20/2005 6:58 AM  
Blogger r patrick said...

I will _______________________________.

I actually posted Cassandra's lines from the Illiad last time this came up.

"I will smile and nod at the great deal they got on a 340K fixer upper with no stairs to the basement"

"I will agree with them that an 80/20 is the wave of the future and that PMI is extinct and downpayments are a thing of the past"

"I will not say wow you paid this much for this little house, nestled up like riders on the 5 ( well not this week ) during rush hour?"

"I will agree with them that my 31K loan indeed does not make me a 'real' homeowner compared to their 300-400K in debt"

"I will not argue when they tell me that having a 15 yr fixed at a low rate and aiming for pre-payment is stupid because I am miniming my tax deductions"

"I will not explain to them again that I pay less in interest in A YEAR than they pay A MONTH"

"I will not call them FHB's to their faces when I can afford to goto school and sorta work and they could really use another job."

"I will not argue market fundamentals with my Sisters BF's Dad, until my Mother is ready to bring me outside and beat me. Even if both of his Uncles one who is a businessman and the other is an invetment banker and are good at it and agree. It is not worth the lecture all the way home"

Many of the FHB's know they are screwed but it takes more humility than most ( myself included ) to stand up and go oh crap this did not go as planned.

Some plan on riding it down and then going chapter 7. Some plan on just paying the minimus until they die and letting them try to get the money out of the corpse. Some expect parental estaes to bail them out.

The question is once you know your in trouble what do you do? When you see things going to hell around you what do you do?

Do you put your hands over your ears and hide in the galley or do you face the coming storm lashing the rigging?

Did you choose to save seed and store up for the coming winter or did you spend it all in the saloon on whiskey?

Did you pay your bills and live within your needs or spend all your money on a flimsy house or take out all the paper gains via heloc for cars and vacations?

Survivors or sheep, the choice has been made and a lot of people seem lined up ready to be sheared and slaughtered.

12/20/2005 7:01 AM  
Anonymous Anonymous said...

Sorry if this is OT, but it seems like this is a "freeforall" posting area. I had a question for your smart loan/RE folks here. I'm wondering if I'm coming out on top by renting on the north side of Chicago.

Currently living in a 2+ bedroom flat in a two-storey greystone built around 1900. We get a free garage, onsite laundry, and ample storage in the basement. Radiator heat.

Currently rent for 1250 a month, but since we signed during the off season, it's likely to go up to 1400 in may.

From what I hear, my landlord bought the building for 800 grand. So in theory, my flat costs 400 grand to buy (if you divide in two).

Now I'm sure I can get a nice condo with 2+ bedrooms in my area (Wrigleyville/Lakeview, 1.5 miles from the lake, if you're familiar with Chicago) for around 300 grand, albeit probably in one of those new cookie-cutter POS instead of a nice old greystone/brownstone.

Now, I don't have much for a down payment. I'm sure I could scrape together at most around 5 grand in a few months. However, I do have 55K income and a good credit score (always pay off my bills and credit card).

So where do I stand in paying rent, versus mortgage/fees/taxes minus the tax deductible and potential appreciation/depreciation? I always get into discussions with family members that it's *always* smarter to own than rent, but I have difficulty proving my point that I'm saving money because I am unsure of the numbers.

I'm submitting the post anonymous, but I've went by the name Ferromancer earlier.

12/20/2005 8:18 AM  
Blogger Lou Minatti said...

I wish they would put their foot down on the nonsense that is now passing as a "loan".

People like you and Ben are doing your part. There is no way of measuring something like this, but I bet you two (and your readers) have saved many people from plunging off into the abyss.

Have a graet Christmas!

12/20/2005 9:26 AM  
Blogger Sensible Lender said...

All of the 100% financing loans on stated income is going to be the undoing of this market.

The lender I am with requires at least 10% down and 6 months of stated income in a liquid account to be approved for stated income. Way too sensible, and explains our terrible record with currently no foreclosures or REO.

12/20/2005 11:33 AM  
Blogger SoCalMtgGuy said...

Anon 8:18

Check back later today or tomorrow and I'll try and get another "should I buy or wait" post done.

Do you know what the homeowners association dues would be on the place you would buy?

WHat would the taxes be?



12/20/2005 11:46 AM  
Anonymous Anonymous said...

I live in cook county, Illinois. So far, here are the most coherent explanations of the property taxes I would pay:,0,1015207.story?coll=chi-classifiedover55-hed

It seems like the condo fees are usually around $100 per month.

12/20/2005 12:41 PM  
Anonymous Anonymous said...

Merry Christmas.

I too have fought the demons and other well-meaning friends the past couple years who have all purchased houses while I continue to rent. I don't care about the paper appreciation (which is going to retract anyways). I value my freedom to tell my employer to take a hike and be moved out tomorrow towing a trailer with all my beloingings across the country. If I am fired today I won't be worried tomorrow about making a mortgage payment and I will likely be in the Bahamas on a long-needed vacation sipping a mai-tai and letting a beautiful girl give me a massage.

Meanwhile some of my well-meaning friends continue to call and harass me about 'missing the boat' in regards to a home. Although I've tried to explain to them fundamental economics in regards to supply/demand I know the message doesn't get through. How could I know what I'm talking about when the chief economist for the National realtors assn is on tv touting the benefits of home ownership?

"I will _____"
avoid rubbing it in your face when you're underwater on your home even though I told you so.

12/20/2005 1:00 PM  
Anonymous Anonymous said...


Renting does give you a bit more flexibility than owning a home, however, you are still potentially saddled with a lease for an extended period of time. You have to find a subletter (if allowed by your landlord), and even then a sublet doesn't cover all the original costs of renting.

Conversely, if you have a mortgage you have to find somebody willing to buy your house. I would have to say finding a subletter is much easier :)

I have kept myself from getting into arguments with a friend who just jumped into the real-estate game. He bought a 2-flat that's not quite as nice as the greystone I'm living in for around 600 grand with an interest-only loan. He's renting the top floor to another tenant. I wish him luck and hope he can somehow make the payments and not have the market fall out from under him.

I have another friend who bought a crappy old condo built in the 1960's out in the northern suburbs (Glenview). It's one-bedroom, far away from any public transportation and cultural institutions, basically a concrete box with carpeting and some drywall to make rooms, all for somewhere over 200 grand. I know he's happy and "proud to be an owner", and loves suburbia, but I just feel so bad for him.

I have a HILARIOUS story about a recent-immigrant who borrowed a million to tear down a perfectly nice house (again in Glenview) and build a glitzy mansion on top of it, and is trying to pass it off for something ridiculous like 1.3 million, and hasn't had so much as a nibble. I've been trying to get my friend to email you the whole story on him. We've nick-named him "Flipper".

12/20/2005 2:38 PM  
Blogger SoCalMtgGuy said...


I have seen everybody trying to flip something (not just immigrants). I have seen successful businesses men pulling out all the stops (and equity) to buy more property. People in SoCal just think that any 800sq ft shack with bars on the windows is a bargain at $600,000. They will tear it down, or fix it up and try to sell it for $999,000 in 2-3 months time.

I actually saw that "property flip" show (or whatever it is called) this weekend for the first time. Guy bought some 1000sqft absolute crapbox of a home for about $545,000. He put $80,000 into it...I'll admit, they did nice work. They actually did some REAL construction and added sqft to the house. Then they were putting it back on the market 2-3 months later at $745,000. Too bad they don't tell us what it sold for (if it did).

12/20/2005 4:17 PM  
Blogger Jim A said...

Anon: my reccomendation is have your payroll office take a $100-150 disbursement out of every paycheck and send it to a savings account at a bank that you don't use. If, after 4-6 months you don't have any difficulty paying bills, increase the disbursement. This does two things: you'll be saving money for a downpayment, and you'll discover what kind of monthly payment you can ACTUALLY afford. When PITI on a place that you want to live in is equivalent to rent plus the disbursement, THEN you can start looking.

12/20/2005 4:24 PM  
Blogger Out at the peak said...

Lending is going to be loose again? That could keep consumer confidence high. Now we have to rely on the average person's brains which spells prolonged disaster.

12/20/2005 4:36 PM  
Blogger ReardonSteel said...

For relatives I like:
I will.......send them a fake letter from Alan Greenspan letting only them in on my secret plan to bring down the world economy in January before stepping down, and encouraging them to make no financial moves at this time except to hoard cash.

For relatives I can't stand:
I will.......tell them that I've always been intimidated by the fact that they were smarter than me and I think their plan is brilliant. In fact it is such a sure thing that it would be reasonable for them to buy an exotic sports car right now because the given wealth headed their way is "just around the corner"

12/20/2005 9:23 PM  
Anonymous Anonymous said...


You're correct there is a lease on the place I'm living, however it does have a decent buyout clause and I could leave tomorrow by forking over a little over $1200 if I can't get them to work a deal out, which they often do for $0 just to get new tenants in who will pay higher rent.

12/21/2005 4:49 PM  
Blogger what_da said...

Kudos to u for ur insights. I have sold my house and I am waiting in the sidelines. Playing devil's advocate... here is an article that seem to disagree with this bubble business. Care to comment?

12/29/2005 11:59 PM  

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