Doesn’t March 16th seem like so long ago now?? That’s when the Federal Reserve offered $29 billion to back JPMorgan Chase’s buyout of investment bank Bear Stearns. I don’t think many people realized the severity of that and no one could have predicted what has gone on in the past 6+ months. The entire U.S. banking landscape has changed forever. Gone are some of the most recognizable companies in the world — Bear Sterns, Lehman Brothers, Merrill Lynch!
The housing/credit crisis list of victims include:
1) Bear Stearns
2) Merrill Lynch
3) Lehman Brothers
4) AIG
5) Indymac Bancorp
6) Countrywide Financial
7) Washington Mutual
8) Wachovia
You can also add Fannie Mae, Fannie Mac, Goldman Sachs, and Morgan Stanley to a list of firms that are barely standing after being beaten up. It’s expected that many other banks will fail in the next year, so it will get worse before it gets better.
What does this all mean to the average consumer? Well when the dust settles, the banking industry will be much regulated and borrowing money will be a bit more challenging. That’s not necessarily a bad thing considering that the practice of risky loans was what helped fuel the current fire that is the U.S. economy. Also, the Big 4 banks that will be the pillars of the banking industry will be JPMorgan Chase, Citibank, BofA, and Wells Fargo. Lets hope they learn from the many mistakes that have occurred over the past 5+ years!
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Many economists and experts predicted this day would come — the Feds finally took over Freddie Mac and Fannie Mae. What this means is that the U.S. government will inject money into the two companies in an effort to increase mortgage funding and help stabilize the troubled housing market. For consumers, what it really means is that it will lower mortgage costs and make credit more available. However, this doesn’t come cheap. The total bill for taxpayers could exceed $64 billion!
There’s no doubt in my mind that the takeover of Freddie and Fannie are crucial to correcting the housing downturn. But, it’s just one piece of the puzzle and is in NO way the silver bullet. People are still losing their homes and there’s a surplus of inventory in the majority of markets.
The move is more like a step in the right direction. It also helps the U.S. shore up it’s financial standing within the international community, especially with the G-8 nations. Although the Russian and Chinese economies are becoming major world players, there’s no doubt that the world’s economies are still heavily invested/linked into the U.S. economy. Although it took awhile, Europe is starting to feel the affect of the slowing U.S. economy.
Only time will tell how this move will impact the housing market. I think in the short term, it will help with consumer confidence and liquidity. But in order for things to really turn around for the long term, more has to be done. Who knows, maybe we’ll see another rate drop by the Fed soon?
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Saturday, August 23rd, 2008
Posted by Administrator in
Real Estate
I’ve had to educate my buyer and seller clients on short sales since they’ve become so common in the market. Short sale homes are property being sold for less than (”short of”) what is owed on the mortgage. Basically the seller is “under water” on their home and will need to sell at a loss. Unfortunately, while the seller is the one marketing the home, the lending institution is the ultimate decision maker. And they could choose to turn down the short sale offer and allow a property to go through foreclosure proceedings.Based on my experience, when an offer is submitted on a short sale property, it has taken, on average, 2-3 months before the buyer even gets a response from the lending institution. Because of this delay, the majority of short sales never close. Not many buyers are patient enough to wait around. A lot could happen in 2 months — more attractive, lower priced homes come on the market, interest rates go up, buyers don’t like what they see after closer examination of the home, etc.
So why such a lengthy delay? Nobody knows for sure and it really depends on the bank. But I think the main reasons are that 1) even though short sales were common in the 70’s, banks haven’t had to deal with them in a long time so they’re not set up to make the process more efficient, 2) the loss mitigation departments within the banks are probably extremely over-worked due to all the short sales, foreclosures and REO’s that they have on their plate. And I’m sure they prioritize everything and short sales probably don’t top their list. And the other main reason why these take so long really has to do with Wall Street. Two-thirds of all mortgages are owned by Wall Street investors (nationally and internationally), so the banks aren’t necessarily the final decision makers in some cases. Each investor has separate rules about how it handles short sales. And you can expect even more delays if there are two or more banks involved.
Bottom line that I tell my buyer clients: Stay away from short sales. You’re probably better off waiting for the home to become an REO. However, if you’re doing an all-cash offer (yes, that still happens), you have better odds since the banks and investors love the cash!
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Despite growing concerns over inflation and the weakening U.S. dollar, The Federal Open Market Committee left rates unchanged. It was the first time since last summer that they didn’t lower rates.
It will be interesting to see if any moves are going to be made from now until the November election. Perhaps the Fed will keep rates as-is until a new administration takes over the White House.
As evident in my previous postings, I’m a big fan of the WSJ and the great job they do in parsing the Fed’s statements (top).
Another good read is a Newsweek article on The Return of Inflation? A bit concerning, but good history lesson on the Fed’s moves and it’s impact on inflation.
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Thursday, June 19th, 2008
Posted by Administrator in
Real Estate
I’ve had a lot of people ask me what an REO property is now that it seems like they’re everywhere. Basically, an REO property is home that is owned by a bank or lending institution. An REO is different from a short sale or foreclosure property in that the bank has already tried to sell it and wasn’t able to. The bank then takes over ownership of the home from the seller. In most cases, this presents a great opportunity for buyers and/or investors. Naturally, the bank does not want to keep the REO any longer than possible.
Banks and lending institutions aren’t in the business of owning property. Most of them dread it because in some cases the Federal government can penalize them for each REO they acquire. So they are motivated to sell (who isn’t right now?) and thus, are willing to sell below market price. Plus, they are a lot easier and quicker to work with than short sales.
Generally REOs are a great investment as long as you know what you’re getting into. The banks want to get rid of these homes, and if you find the right property and are ready to make the serious investment, it can be a great way to get off and running in the real estate business!
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Thursday, May 29th, 2008
Posted by Administrator in
Real Estate
The National Association of Realtors has agreed to change its policy on Internet home-sale listings to settle a long legal battle with federal regulators who have accused the group of anti-competitive behavior that harms consumers.
Essentially this means that online real estate brokers will be guaranteed full access to listings of homes for sale. Traditional brokerages will not be allowed to exclude their listings from their online competitors. However, for the past two years most sites have had access to all brokerages’ listings based on a decision by NAR to suspend their policy.
In my personal opinion, this was long overdue. The fact that NAR even had this policy in place shows the old school thinking they have. Opening up the MLS benefits everyone. In this day and age, people do not want restrictions on what they view online. Having that policy was not only anti-competitive, but shows how paranoid NAR is.
Having said that, I still believe using a traditional brokerage is better than an online company. Buying and selling a home is the largest financial decision that most people will ever make. It shouldn’t be something you do with a click of the mouse. You should do your homework, interview Realtors in person, and then develop a rapport with them. Odds are, that you can only get that by working with a traditional brokerage.
Feds broker deal on home listings (SJ Merc)
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Ever since Congress passed the economic stimulus package earlier this year, many people were waiting for the rates on the jumbo-conforming loans to drop. Well the wait seems to be over. Last week, the jumbo-conforming loans (mortgages between $417,000-$729,750), were slashed by one-half of a percentage point by many lenders. Although the criteria for jumbo-conforming loans are still stricter than the standard conforming loans, the move should help people that are refinancing as well as home buyers.
There hase been some recent signs that the overall economy is recovering, which could offset the ongoing weakness in the housing market. News from the Commerce (pdf) and Labor Departments, along with comments from Fed Chairman Ben Bernanke, helped bolster optimism with the financial sector.
Hopefully the mortgage relief will spur more housing activity as we approach the Summer. My concern is that inventory typically spikes during the Summer months, so if sales are flat or down, the economy and consumer confidence will decline even further. It also doesn’t help that we could all be paying $5 for a gallon of gas!
Mortgage Relief Arrives (SJ Mercury News)
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Thursday, April 10th, 2008
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Real Estate
I guess it should come as no surprise that after seeing it’s stock price take a tumble over the past year coupled with the current housing crisis, Washington Mutual announced that it will exit the wholesale lending business. The nation’s largest savings-and-loan has been badly hurt by rising delinquencies and defaults on mortgages.
The bank will close all of its remaining stand alone Home Loan Centers and layoff about 3,000 employees. However, the company did get a cash infusion of $7 billion from an investment group led by private equity group TPG. The injection is aimed at pumping life back into the company which will help it revise its strategy, slim down and revamp management.
Lets hope they get back on their feet quickly. Although consumers can still go through the WaMu banks to get home loans, anyone working with a 3rd party loan broker will not have access to WaMu’s lending business. My fear is that with the housing crisis and looming recession, we’ll see more companies get out of the business, thus giving consumers less options.
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Halla Lu Ya! The FHA finally boosted the conforming loan rate in 14 California counties, including Santa Clara County. The temporary increase boosts the conforming loan limits from $417,000 to $729,750 in Santa Clara County. In addition to the tax rebate checks, the higher loan limits were another key ingredient of the economic stimulus package introduced earlier this year.
So what does this all mean? Basically, interest rates on most mortgages will go down because the loans can be purchased by Fannie Mae and Freddie Mac. The previous loan limits were so low that a high percentage of Bay Area buyers over the years did not have conforming loans, they had jumbo loans — which came with a higher interest rate because they are riskier. Although this will greatly impact first time homebuyers, it will also benefit other second and third time home buyers as well.
The government, along with Realtors, lenders, contractors, etc. are hoping this move will help jump start the housing economy by essentially making it more “affordable” for people to buy homes. Although I am all for the increase, my concern is that we maybe in the same boat next year or a few years down the road.
Why not make the new FHA loan limits a permanent fixture? Is a one year bandage really enough?
Read more here.
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The WSJ always does a great job in parsing the Fed’s statement. The move by the Fed wasn’t a surprise and the financial markets probably would have freaked if it was anything less than 50 basis points. While this may provide some short term relief to the mortgage meltdown, it could have a much worse long term affect.
If you stop and think about it, in a span of 10 days, the Fed Fund rate dropped by 1.25%! There are many things to blame for the current poor economic conditions that we’re in. But one of them, and many “experts” feel the same way, is that under our buddy Alan Greenspan, the Fed made rates too low back in the day. It was too easy to get cheap money. Could this happen again? Lets hope not. The dollar is only getting weaker and oil prices continue to climb. And the Fed can’t keep coming to the rescue.
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