A quick market update, a yahoo poll, and comments
Whew! ...is it the weekend yet?!?!?
I know we have a few more days, but wouldn't it be nice to trade places with this dog for a while?!?!?
Anyway...let's get down to business. I'm sure many of you are wondering what I'm seeing in the market right now. I'm seeing a bump in activity, but much of that activity is not translating into loans. There seems to be more activity on the A-paper side of the business at this time, but overall, things are still pretty slow.
I was talking to some other reps from 3 different companies, and they were seeing much of what I have been seeing. They are looking at less loans, and what they are looking at, is somewhat tough to get funded. I can't say that I'm seeing any great FB stories right now. Just the typical stuff where you can't help the person get the cash out/payment/rate they want. I think many people are accustomed to being able to refinance and automatically lowering their monthly payments and/or getting cash out. I'm seeing lots of borrowers that 'want it all'. They want lower rates, lower payments, and more cash out...and they get mad when the broker tells them they can't have it all. It will be interesting when these people are forced to do something when their ARM adjusts.
There is a commercial on the radio in San Diego all the time for "Paramount equity and mortgage" that tells listeners that rates are going up and to refinance now...and that the average home went up over 40 thousand last year...and you should get some cash out now...yada yada yada. That said, I think borrowers are thinking about refinancing, but they are putting it off when they see what the rate/payment would be right now. I'm seeing more people that would rather keep their lower payment now, and hope for the best in the future, instead of locking in a slightly higher payment on a fixed rate loan at this time. The thought process is to keep the low payment now, and just sell when it adjusts. And we all know what happens when everybody tries to sell...or at least should happen. The CAR seems to think that prices will continue to rise as the inventory grows...but I think we tackled that in my "economics 101" post.
Along those lines, check out this poll that I found on Yahoo! (the direct link to the poll wouldn't work, so the poll will be on the right hand side of that page) The question is:
| If you're thinking about selling a piece of real estate, what's your time frame? | |
| Thanks for voting! | Since Jan 20, 2006 |
| I'm holding out for a high price. I think there's steam left in the housing market. |  20 % |
| I'm actively trying to sell now. | 41 % |
| I'm undecided. I don't know which economic piece of news to believe. | 39 % |
Since things are slower right now, I'm being proactive and looking at other options and working on some other projects while I see exactly what is going to happen with this market. That said, what do you want to hear about?? I think I have answered a lot in the comments and through e-mails, but what else is really weighing on people's minds. I really like using the blog to educate, inform, and help people. There are lots of very experienced readers and posters other than myself....if you have questions or comments this is turning into a very good place to get some good answers and feedback.
Thanks for stopping by!
SoCalMtgGuy
posted by SoCalMtgGuy at 10:19 PM
35 Comments:
This comment has been removed by a blog administrator.
I am hearing similar commercials on the radio. One I heard yesterday said I could do a refi for $500,000 and my payment would be $1,400 a month (IO for FBs). They also said no income verification. (Stated income) I think they also said 100 % value (80-20).
Thanks for the education. Now myself and your other readers know better than to go anywhere near these weasels. I think these refi boiler room guys make used car salesman look good.
1/25/2006 5:30 AM
Banks are losing interest in loaning cheap money to the shipping industry too. So if they are being warned to refinance now, I would suspect that they have a good idea where the rates are headed. Might this be an indicator where the mortgage rates are headed.....
1. Cheap finance drying up
ACCORDING to leading shipping accountant and business consultant Moore Stephens, shipowners looking to refinance should make their move now as all the indications are that the cheapest finance in shipping history is likely to come to an end soon as the banks start to look for new markets.
In the latest issue of The Bottom Line, the Moore Stephens Shipping Industry Group newsletter, Chris Chasty, head of the firm's shipping group, says, "Banks are getting edgy and, although there is a lot of cheap money available now, and owners have equity to match it, the sensible banks have begun to call the bottom of the bank cycle. When major shipping banks are lending at 85 basis points over LIBOR to second-tier owners - and they are - commonsense begins to seep into bank credit committees."
Chasty says that banks should start thinking about where else to lend, should seek out niche and emerging markets, and should stop chasing the known names. Owners, he adds, should refinance right now, before the banks take the initiative.
You think you could talk a little about Private Mortgage Insurance(PMI). As i understand it, PMI protects the lender against losses should the borrower default. Arent all these high risk FBs paying PMI? Alot of discussion has been made about the quality of loans being underwritten. If/when FBs start defaulting, wont these risky loans be 'protected' by PMI?
Who/what is PMI? Is it truly private or is it some sort of quasi-government agency? Do they have enough $$ reserves to cover losses? Are PMI premiums going up to reflect the additional risk?
You don't pay PMI if you do an 80/20 loan which is what most 100% financing is these days.
my question would be along the lines of timing...
loan on $440k property
$330 1st, $110 HELOC
1st is libor 1st 2 yrs @4.75, unlocks in sept 06, would be libor +2.25 margin
HELOC adjusts monthly, now @8%
plan was to refi in sept 06, combine into one loan, ditch the heloc
either a 5/1 or a fixed product
got in with the intention of living in a home, not getting rich quick
i would do it (refi) now except...the 1st has a soft prepay, 6 months interest (~$11k)
if i can wait until sept 06, no ppp
reading these blogs scare the hell out of me though
recent sales in the area in the n/hood of mid $530-550
it's like watching a tired horse rounding the final stretch...ideally come refi time there would be an 80% LTV situation, a refi (not trying to take any money out or anything like that)
...but the market definitely has signs of running out of gas.
thoughts? just for a slow day...i know the ppl on this site are more doom/gloomers, but would you wait until sept 06 to refi and eat the ppp?
i like the house, but my horizon is ~10 years here, not forever.
at least 2 more fed rate hikes on the horizion by sept. from what i can tell.
no other consumer debt, $80k year, single/'steady' job +10 yrs, current i/o notes ~2500 mo
just something to put on the discussion table for midweek
feeling OK, but there is a nagging FB in here somewhere
PMI is not used on SUBPRIME loans. PMI is for conforming loans and A-paper loans where 1 lein is over 80% LTV.
No subprime loan has PMI. I have done quite a few 90-100% loans for "A-paper" borrowers because the PMI savings alone made the deal worth it. For a while there, subprime rates were not much different from A-paper rates...especially if the borrower had "a" credit. A bwr could do a 100% 1-loan on the subprime side and get a better payment than an 80/20, or by putting some money down and paying PMI.
Combo loans are the other way to get around PMI on the a-paper side. I would say 80/10 and 80/20 are the 2 most popular. With the 80/10, the borrower is putting 10% down, and has an 80% first, and 10% second.
Most of the 'exotic' financing out there doesn't have PMI attached to it.
I hope this helps some....
SoCalMtgGuy
BubbliciousBrooklyn, your specific questions relating to PMI are not easily answered. PMI entities can and have gone broke (in insurance lingo we call it "insolvency.") Because the regulation of insurance companies is generally a matter of State law, you've got a bunch of State Insurance Commissioners that get involved in the processes associated with handling insolvencies. Needless to say, it probably isn't worth spending much time discussing.
SoCal,
I saw the numbers today. I also read that LA Times piece about 1 out of 13 CA homes being "worth" over $1 million. I think this bust is going to end up worse than many feared. California is living on borrowed time.
need advice
Good morning, everybody.
I need some advice from your guys.
My husband and I have a disgreement. He wants to buy a house now, but I prefer to wait.
We are first time home buyers. We have got more than 20% down saved for a house within 600K. His salary is about 130k. He does not believe price will go down that much, since we want to buy in a good school district, but I have my doubts. We moved from D.C to San diego at the end of 04.We are now renting a 2/2b apartment for $1600/month. The house we are thinking to buy is about 509k--539k. Shall we buy now or continue to rent?
Any advice is welcome.
I was confused. You are overall seeing less applications, but seeing more A paper. Then the three reps you talked to are seeing more tough to get funded (subprime?) applications?
Is the A paper consisting of purchases or refi with or without cash out?
anonymous buyer:
You should really find out how much it would take to rent a house versus owning one (fixed rate mortgage+tax). Do not fudge the numbers with an ARM loan. You will find out that in the hot markets that it would cost double or more owning than renting. In my situation in Northern California, a $4000/mo mortgage+tax (assuming 10% down) house rents for $1300/mo! See the fundamental disconnect?
Please click all of the blog links and read what everyone has to say before getting yourself into a money pit! Many conclusions lead into a worldwide correction.
Several of us will buy in a few years when things shake out. In the meantime, renting a house is cheap and lets me save even more money.
out at the peak
From talking to the brokers, the loans they are getting done are mostly A-paper.
On the subprime side there is an in increase in "activity", as far as pricing out loans, but not much is coming in the door as submissions and fundings.
During the holidays there weren't that many loans to even look at. Now there is more to look at, but they don't make sense, or the bwr doesn't like the rate/payment/etc.
I hope that clears it up some.
SoCalMtgGuy
I'm curious what neighborhood in SD are you looking to buy in? I haven't seen any houses in neighborhoods with good schools here that go for 509k--539k here. Houses in my area(92105)were going for around 500k last spring.
I'd wait for sure. I see prices are already on the downslide. For the 500k it cost last year for a house in 92105, this year I could buy a much nicer house in 92123 better neighborhood, more sq footage, two baths instead of one, a family room, etc.
I don't think you have anything to lose (except buyers remorse) by waiting.
Thanks for your advice, buys.
It is a townhouse in 92131 area San Diego. We need to buy there because our 7-year-old daughter is in elementary school.
...92131 area San Diego. We need to buy there because our 7-year-old daughter is in elementary school.
Need? No, remove the emotion from your analysis. You would like to have your daughter in this district. That's not even remotely the same thing as needing to buy a townhouse. I'd be willling to bet that the difference twixt owning and renting in this market would pay for some of the very best private schools. With $120k in the bank your downpayment covers the first $6,000 of tuition if you want to look at it that way. So, you'd be foregoing $6k on th interest from the down and you'd be paying $6500 in taxes that you don't pay (directly) now. $12,500/yr buys a nice elementary school education.
Well,here is why I would wait to buy. Inventory is waaay up in SD. If it keeps going at this rate it will easily surpass the massive surplus we had in during the last RE bust in 1995. Just check the MLS, Inventory in 92131 is really high. Scripps Ranch has 114 SFH for sale and 74 condo/townhomes for sale.
Scripps Ranch is a fantastic area to buy in but I really think you'll be able to do so much better next year, like a house instead of a condo.....be patient.
If this is one of those online webpage polls I would take it with a grain of salt. They really don't capture a real pulse. They are oftenskewed because of who would stumble on the page.
Pete
Anonymous in San Diego -- Sit your husband down in front of Professor Pigginton's blog. He will feel smart as he reads all the charts, graphs, and analysis that explain why San Diego housing prices are indeed going to go down that much.
And that's much better than feeling stupid because you owe $400,000+ on a house that has dropped in value back to $320,000 or so.
Putting 20% down in California right now is a good way to cut your own throat. It's very likely that prices will drop more than 20% in the most overpriced areas, so you're essentially throwing away over $100,000, just to get into a house a couple years sooner.
You'll be tempted to point out that renting is costing you $19,200 a year, so $100,000 is just about five years of rent. But don't forget that if you buy, you'll be paying $40,000 or so annually for the same level of shelter... and you'll have lost the ability to accrue interest on the original $100,000-ish.
So let's say prices drop just 20% in three years. If you buy now, you've paid $100,000 down, plus three years of $40,000-ish a year, for a total of $220,000. But your $500,000 house is now worth $400,000 -- and three years into a 30-year mortgage, you still owe almost $400,000. So you've paid $220,000 to put a roof over your head and pay down a couple thousand in principal. And now you have a choice between petitioning to adjust your property taxes downward or being stuck with PMI, since your LTV is way over 80%.
Now, you rent. You've spent $57,600 for shelter. In the mean time, you've invested your $100,000, so it's a little bigger. If you were really house-hungry, you've also saved the difference between your rent and the hypothetical mortgage. You do the math on how much wealthier you are.
quick San Diego inventory note...
Per zip realty:
Monday 1/23..... 15,668
Tuesday 1/24.... 15,715
Wednesday 1/25.. 15,802
Not huge percentage wise, but adding 134 properties in 3 days is not the direction to be heading.
SoCalMtgGuy
Pete,
I know it isn't the best poll in the world, and I said take it for what it is worth. It is just another small piece of info. Nothing special, but does show what some people are thinking.
Thanks for stopping by!
SoCalMtgGuy
Thanks again for all of your advices. Personally I agree with all of you.
I don't think it is a good time to buy, either, but my hubby thinks settling down is more important than just money, motionally. We also want to provide a good school, good environment for our daughter. Right now we still have half of our stuff in the storage, so it is not very convenient and motionally we don't feel settled down in an apartment.
With his stable job and pay, he feels we can afford it and we plan to stay in the house for at least 5 years.
We looked at a few houses since last August in 92131 area. Recently they seem gradually are all under contract. There are still lots of buyers are buying, I guess. Old listing price is down, but some new listing price is even higher. If interest rate won't go higher, the price won't drop down that much, especially good area.
It is hard to make a good decision.
Anyway, thanks again.
anon,
See my post under "popular posts" titled "should I buy...or wait".
I know there is an emotional attatchment to owning right now, but buying at the top of the market will leave a worse feeling.
It took 8-11 years for many SoCal properties to get back to their 1990 highs...so a 5 year time frame isn't that long.
I have 3 friends that were in similar positions to yours. All 3 bought because they wanted to own, and 'didn't care' if it went down. I have spoken with 2 of them recently, and they try to 'explain it away', but they are sick at watching similar properties sell for less money than what they paid.
Even if you can "afford it" is sucks knowing you could have saved 20-40k just by waiting a few more months...and this slide has just begun.
I'm not here to tell people what to do, just give them as much data/info as possible so they can make an informed decision for themselves.
I wish you the best whatever decision you make.
SoCalMtgGuy
An interesting little clip from an article on ABC News site:
Mary Overton's American dream was truly a gift, a four-story Brooklyn brownstone she bought from her landlord in 1983 for about $15,000.
"He told me I could pay $299.11 a month rent, and then in four years I had it paid for," Overton said.
But she remains in danger of losing her home because of an Ameriquest mortgage she took out last year to finance home repairs.
On paper Mary Overton looks like a strong applicant for a mortgage, even at age 74. Loan documents show she has a total monthly income of $4,600, tenants, a job and a retirement account with $54,000 in the bank. Except, she says, none of that was true when Ameriquest approved her for a $285,000 loan.
The mortgage required payments of almost $2,300 a month. Overton, a widow, said she and her grandson lived on government benefits of less than $800 per month. She said her mortgage document was a work of fiction created by her Ameriquest loan agent.
While Overton wanted a loan that could be financed with home equity, she claimed Ameriquest sold her an adjustable-rate mortgage starting at 8.99 percent, which could rise to 15 percent.
The company charged almost $23,000 in loan fees, then, she said, sent the balance of the mortgage to a contractor, without her approval.
Anonymous - wanting to buy a house now? You can rent a house in the Poway Unified School District for $1/sq ft. We rented in Green Valley (2500 sq ft house on .5 acre, beautiful neighborhood w/ large trees and horse trails) for $2500/month. We were building our house, and moved into it Sept 05. We sold 3 months later, collected our cash and stashed it in a CD earning 4.5% interest in 4 months. We made a lot of money bec. we owned the land since 2000. Anyway, we sold to get out while we still had equity. Prices will drop by 50% to get back in line with where they should be had the loose financing not created this housing bubble. If you like to live in a house, go rent. You can find rentals in any neighborhood. We are renting again in Poway, and despite our 3 moves in the last 3 years, our kids have not changed schools once. There are so many rentals, it's unbelievable. I talked the landlord down on the rent.
SoCalMtgGuy - Why is there no PMI on subprime loans? Isn't that the loan where you would really need it? Do you know who will be f*d when all the subprime loans default? Who are the purchasers of the loans, is it pension funds? Is the SD pension fund going to go bankrupt in the next year?
Why is PMI in use today at all? Since most banks are not holding loans, what is the use of PMI? For loans that require is, for whom is PMI offering protection?
Anonymous, if you can afford to buy a house right now in the current environment, then by all means, do it.
But affording a house means being able to come up with the 20% down payment. Affording a house means having a reliable mortgage payment that isn't going to balloon five years from now. Affording a house means that your mortgage payment is going to be nothing more than ~35% of your monthly income (roughly the CA average over the last 25 years).
If that describes you, then all you have to do is stay in the house for a long time and maintain your current income level, and you will weather the burst of the bubble.
I think if you put yourself in a situation where your house destroys you financially, it will have an emotional effect quite different from what your husband is imagining.
And remember -- even if you can afford the home, you'll be reminded that you overpaid each and every month for the next 30 years. If your mortgage payment is $2200 per month, and prices drop by 50% over the next six years, you'll be paying $1,100 more -- per month -- for your house.
It's only money, true, but that can't be fun. And if finances ever get tight -- your daughter needs braces at the same time the house needs a roof, a relaitve gets into financial trouble and turns to you for help -- that extra $1,100 per month will hurt even more. Actually, it'll be more like $1,300 per moth, because you'll be paying more in property taxes too. $1,300 is nothing to sneeze at.
Also, do you really want to live in a townhouse forever? If you buy now you'll be living there for a very long time.
Anonymous,
At this time renting is definately cheaper than buying in 92131. We are currently renting a brand new McMansion in Scripps Ranch for a fraction of what it would cost to own. No property taxes, no repair bills, no landscaping expenses, no hassles. As for the appreciation gravy train... That train is currently stopped and slowly starting to roll back.
mikeinsj said: "Why is PMI in use today at all? Since most banks are not holding loans, what is the use of PMI? For loans that require is, for whom is PMI offering protection?"
PMI is used for Loan to values over 80%. Since this is sound and accepted practice, banks that keep their loans in portfolio require this (the auditors check.) Loans purchased by FHLMC and FNMA also require this. These loans are typically put in mortgage-backed securities, so it protects the bond buyer/holder and FNMA/FHLMC since they guarantee the bonds.
In actual use, very few loans use PMI because of the 80% first loans combined with second loans up to 20% as discussed here. Part of the reason is that PMI payments are not tax deductable as is the interest on the first and second loans. The other is that the first and second loans are typically interest only, fixed for only 2 to 3 years. This structure gives very low initial payments that are not available for loans with PMI. The companies that issue PMI policies have guidelines that typically require loans with longer fixed periods and amortizing payments.
"Paramount Equities
Lending with Expertise!
Paramount Equities Mortgage!"
I hear this commercial at least 10 times a day and I think I hate it more than I hate hearing Tom Shane ("you have a friend in the diamond business!")
vespabelle,
remember the ones from weeks ago...
"if your interest rate is higher than fiiiiiive percent....."
I'm sure they are getting activity...you don't spend that much on advertising for this many months without a return on your money.
What station do you hear them on???
SoCalMtgGuy
...or the 'it's the biggest no-brainer in the history of mankind' guy...stfu!
Anon-
Have you checked out some of the housing bubble blogs? - especially Ben Jone's "thehousingbubble2.blogspot.com".
As other posters have mentioned, you can rent a nice house in a good school district. You can find a house with plenty of space so you can get your stuff out of storage.
We have the 20% down and the income for a nice house in our area, but no way are we going to throw it away just so that we can have a house today. Our rent is less than 1/2 of what a house pmt. would be and we live in a very nice neighborhood.
Get on the bubble blogs and let the hubby read for himself. You're posting here because your gut is telling you the odds are not good right now. Good luck. Losing a lot of $$$ never feels good.
"...should I wait or ahould I buy? (in San Diego)...
Just a thought-- my ex declared bankruptcy just under the wire last fall. As he had several mortgages/HELOCs on a stucco cracker-box in the Santee area, he is being foreclosed on next month. This is NOT a house or neighborhood you'd want to buy into, but I wonder how many more will be coming on the market within the next 6 to 8 weeks as a result of all the last-minute filings?
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