BRADY MORTGAGE AND REAL ESTATE

The Value of A Local Real Estate Professional

"Real estate is a local business, driven by local buyers and sellers, and best served by local professionals."
- Gary Keller, Founder, Keller Williams Realty- February, 2000

How has the rising popularity of Web 2.0 sites changed the face of real estate ?  Not a whole bunch.  In fact, most of the information gleaned from the new wave of real estate technology sites is wholly incorrect.  Just ask a San Diego homeowner, looking to refinance.  The frustration in their voices are deafening when they pull up their home on Zillow.com and discover that the market value is far below the "Zestimate"- I know; I deal with it every day.

Jon Dalton, a Phoenix Realtor, wrote about this very issue yesterday:

Case in point … this morning someone asked about whether it’s the right time to buy real estate in Casa Grande, a city about one-third of the way between Phoenix and Tucson in Pinal County. The first two agents to answer were from California - one from Mountain View, the other from San Francisco. Aside from pointing to an Altos Research chart, as one of them did, they don’t know a thing about Casa Grande. Probably couldn’t find it on a map if you spotted them the county. But they feel they have sufficient expertise to answer a market-specific question about the area.

Jon's correct on this.  Local real estate markets are subject to certain intangibles that no "research house" can accurately grasp in "real-time".  Local economic factors, like a plant closing, or a new company relocating, or in the case of Casa Grande, rising grain prices, can dramatically impact a real estate market- looking at past economic data won't tell you that.  The expertise you receive from a local Realtor is chock full of an analysis of local trends, gossip, and rumor- that can be important.

Trulia Voices, for example, has hundreds Realtors answering market sensitive questions.  This question was asked by a first-time home buyer in San Diego.  Fully half of the responses were from agents more than 300 miles from our market- one from Atlanta.

Most of the good Realtors I know in California specifically concentrate on their area of expertise.  While the principles may seem to be the same, the nuances of a local market, even when buying a bank-owned property are widely different.

There are submarkets in certain cities.  In San Diego, La Jolla and Del Mar are holding their prices well while Eastlake and San Elijo hills are rapidly decreasing.  Dan Green tells us that quality real estate information is granular, not mosaic.  His visuals really bring the idea to life.

San Diego home buyers should work with a local real estate professional.  Lenders with a real estate license may offer you a chance to "save money" for  "writing up the offer".  That could end up being extremely costly.  If you need a referral to a good San Diego Realtor, I'm glad to point you in the right direction.

Jumbo Loans Are Back!

Indy Mac is one of the market leaders in Alt-A Lending (stated income, low down payment, jumbo).

I received an e-mail from IndyMac on Thursday:

Indymac^® is pleased to announce the return of our Alt A Jumbo product offering, now expanded with additional guideline flexibilities for your customers.

Features:
Loans to $2,000,000
Up to 95% LTV to $500,000
Full Doc, Stated Income, No Ratio and NINA documentation types¹
Purchase, Rate and Term, and Cash Out Refinance
Primary Residence, Second Homes and Investment Properties
Borrower paid and lender insured MI options

Wait, that's not all!

Downey Savings is offering us a one year ARM, up to $1.5 million at 5.0%.  They also allow us to refinance properties with no seasoning.  This means that they will use the appraised value as recently as one day after the close of escrow.

The crisis isn't over but we can see that the industry leaders are back in the Jumbo Loan market again. 

Redfin Commissions Going Up?

Glenn Kelman of Redfin:

We may change the way we price our service as commissions change; the premise of our business is that we can make real estate more customer-centered, efficient and straight-forward, in which customers come to us, technology makes the transaction more transparent, and agents are paid on customer satisfaction.

No arguing that we need to be paid in one way or another, but this seems to be a worthwhile project regardless of how we are paid.

You can see the actual text here.

ActiveRain.com v. Move.com

Active Rain sued Move.com for failure to complete a contractual agreement to buy the network.

Rather than has out all the details here, I'll lead you to some interesting reading:

That "nosy NELA lady", Cheryl, breaks the news.

Owen lays out the complaint

Stefan begs you to judge whether Active Rain has the "secret sauce"

Joel wonders about the catfight.

Greg suggests that those who live by the sword, die by the sword.

Kevin attempted a two minute valuation with a specific guess about Active Rain's value.

I chose sides, then guessed about who the star witness will be and why both parties got in bed.

Oh, if you're not in the real estate or technology business, you just don't care about this drama.  If you are, then this will consume you for 2-3 days.  Come Monday, we'll be back to approving the un-approvable loans and selling the un-marketable houses.

But...for now, a brief RE.net soap opera.  We will return to our original programming tomorrow.

New Home Sales Drop: The Silver Lining in the Housing Cloud

Many economists awaited the new home sales data, released 30 minutes ago.  It didn't look pretty.  Here's Joe Richter from Bloomberg:

      Sept. 27 (Bloomberg) -- Sales of new homes in the U.S. dropped more than forecast in August and prices plunged by the most since 1970, pointing to a worsening housing recession that spells more cutbacks in construction.         

      

Purchases declined 8.3 percent to an annual pace of 795,000, the lowest level in more than seven years, from a revised 867,000 rate in July, the Commerce Department said today in Washington. The median price dropped 7.5 percent from August 2006.

Let's find the silver lining in this report: The median price dropped 7.5 percent from August 2006.

Why would I refer to that as the silver lining?   The builders are FINALLY realizing that price is to motivation of the buyer.  Incentives were offered by home builders as a way to protect their prices in a falling market.  Vegas trips, new cars, and decorating credits just weren't getting the job done.  Stubborn home builders are finally pricing their inventory to sell. 

Existing home sellers should take notice of this.  This will create downward pressure on prices. 

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Small Steps Today Prevent Jumping Off A Cliff Tomorrow

Have you ever wondered the significance a seemingly minor decision had on your life?  I do. 

I moved out west, from Philadelphia, at the age of 25.  I had a pretty cushy life going in Philly town.  I worked as a securities broker and was favored by the management of my employer.  When other brokers left the firm, I was reassigned some of the best accounts.  I worked hard to gain that favor but it definitely gave me an advantage over the other new brokers.

I chucked it all for a move to Phoenix.  I wanted to live a warm climate.  It cost me a bunch of money, too.  One of my contemporaries just retired, from our old employer, after twenty years service as a stock broker.  That may very well have been my story, to...IF...I just stayed put in Philly. 

Retired at 42.  Sounds appealing, doesn't it?

The prescient Jeff Brown rekindled these introspective thoughts with his article "The Little Things Matter" :

So what small changes can you make to your investment strategy to have this kind of impact on your portfolio? Assuming your current agenda is capital growth, in anticipation of retirement – here are some tweaks you might consider.

• Is your equity to value over 65-70%?  Consider reinvigorating your leverage
• Time for a move? Seriously consider cheaper, out of state, growth regions
• Reassess your current position – don’t lose money via procrastination
• Have unused depreciation piling up?  It’s a gold mine – take advantage
• Unused capital today, can cost you six figure$ in retirement income --      really
  

For the record, that’s just the short list

The little things DO matter.  I learned the principle of systematic saving from my parents.  That's given me options in life, options to avoid some bad decisions.  Those little crumbs I've stored have built themselves into loaves of bread.  They're not quite big enough to feed me in my old age but substantial enough to give me peace of mind that I'm on the right track.

Battleships turn more quickly than rowboats.  Little adjustments, on the bridge, at the start of the trip, have a profound effect on the navigation.  Chart your course today so you avoid stormy seas tomorrow.

Jeff reminds us, the little things really DO matter.

San Diego Mortgage Rates Report- September 26, 2007

Jumbo mortgage rates in San Diego improving; fair news for conforming mortgage rates in San Diego.

We advised San Diego home buyers to cautiously float their loans last week; nothing happened to mortgage rates.  There is still an irrational fear in the mortgage rates markets about inflation which is causing the lenders to remain stubborn about pricing.  We are changing our stance to a locking bias.  That's research talk for "we think you should lock your loans because we're chicken about the economic figures due out towards the end of the week".  So, if you haven't locked in your loan, and you're less than 21 days from your close of escrow, go ahead and lock.

Rates we're offering, for loans under $417,000, as of September 26, 2007:

Program                    Rate                    APR

Annual ARM            5.625%                5.693%

3/1 ARM                 6.000%               6.070%

5/1 ARM                 6.125%               6.217%

30 Year Fixed          6.125%               6.217%

Rates subject to qualification and market conditions.  Equal Opportunity Lender.

Now, for some REALLY good news.  Pricing for jumbo rates in San Diego is improving.  Rates for stated income loans in San Diego are getting lower.  If you have applied for a loan that is greater than $417,000 or are not documenting your income, we think you can safely float the rate.  Wall Street investors are dipping their toe in the jumbo and stated income loan markets and starting to buy those loans. 

The portfolio lenders that scalped us when the Wall Street investors stopped buying jumbo loans (portfolio lenders don't sell to Wall Street; they hold the loans) are now aggressively pricing their jumbo loans.  The  jumbo mortgage rates are still not as competitive as they were on July 31, 2007 but THEY ARE IMPROVING.  This aggressive move by the portfolio lenders tells us that the conduit lenders, that sell jumbo loans to Wall Street, are getting good news.

Call me at (858)-503-2318 for jumbo mortgage rate pricing or e-mail me.

In summary, lock loans under $417,000 and float loans over $417,000.  The liquidity crisis ain't over but the desert we've lived in since August 2, 2007 is starting to smell like rain.  That's good news.

Remembering Aaron

Lani Anglin and I write on the acclaimed Bloodhound Blog.  We've never met but we share a whole bunch of things in common.  We've developed a "friendship" commenting on each other's weblogs these past few months. 

Lani lost her brother, yesterday, in a tragic car accident, as he drove to her home.  She reports:

To me, the important thing to know is that the crazy kid in the funny video is my newly 24 year old little brother Aaron who died yesterday on impact. He was driving to my house (to make another silly video) and was driving with his wife (Aleisha Anglin, 25) and their two babies (Eleanor who turns 1 THIS week and McKenzie who is only 6 weeks old).

Aleisha & Eleanor should be released today and McKenzie is in the ICU in improving condition. We have tons of family surrounding us and St. Thomas More parish is providing food this week for our entire family!

Aaron was awesome and his marketing work can be found at http://benaaronanglin.carbonmade.com. He was confirmed in the Catholic faith last week, laughed his butt off at ICanHasCheezburger.com with me this week.

We were born 18 months apart (Irish twins) and grew up as best friends with so many lame stories.

Greg Swann points out the practical needs of the family:

Aaron Anglin is survived by a wife and two very young daughters. The way I’m reading things, he died without life insurance, which puts those three ladies on a very hard road.

If you can spare something for them, put it in the form of negotiable funds — cash, cashier’s check or money order — and overnight it to:

      Aleisha Anglin
      c/o Lani Anglin
      2719 Costa Azul Cove
      Leander, TX
      78641

April is working on setting up a donation account with Bank of America, and I’ll amend this post when that account becomes available.

But: I will promise you that there are people who will want to be paid now, and this young family will have immediate and ongoing needs. There was a time in your life when fate could have hit you this hard. Now is your chance to redeem that good fortune.

Please join me by remembering Aaron and his family in your prayers.  Any help you might give the family will be appreciated.

Debunking Guttentag

Jack Guttentag is a Professor Emeritus at the well-known Wharton School of Business at the University of Pennsylvania.  He is also known as "The Mortgage Professor" on the internet and the founder of the Upfront Mortgage Brokers Association.

I always thought a lot of Jack until he advocated a price-fixing scheme in mortgage brokerage; his advice was anti-competitive and potentially costly to the consumer.  Needless to say, I've read him with a jaundiced eye since that advocacy.

Jack attempts to counsel a mortgage broker about why the concept of equity optimization is unsuitable for most folks.  This article reveals that "The Mortgage Professor" is completely out of touch with the realities of the housing market and the challenges of Generation X and Y.  In short, Jack advocates financial planning techniques that were suitable for generations that were protected by corporate paternalism.  Consumers over the age of 50 certainly would benefit from Jack's advice. 

Something happened on the way to the American Dream - a "good" corporate job no longer became an expectation.  Mass layoffs, termination of defined benefit pension plans, reduced health care benefits, and uncertainty of employment became the norm for Generations X and Y.  We watched our parents' life unravel as they were shuffled off to early retirement with a lump-sum of retirement money and no financial education.   Most of us have will work for ten different companies and have 2 or 3 distinctly different careers in our adult life.  Surely, this is a far cry from the mantra of "do well in school, get a good job, and pay down your mortgage; the company will take care of you."  Corporate America left Generations X and Y behind while they were devising a way to take care of baby boomers.

Housing, for Generations X and Y, is much less affordable than it was to our parents and older cousins.  The hyper-inflation in housing, caused by the baby boomers, has driven the cost of housing to an all-time high (as a percentage of income).  Members of Generation X and Y have a less likely chance of EVER paying off a mortgage than did their parents and older cousins.  If the premise of a fully-paid house is false, why fear the debt?  In reality, home equity can be an excellent tool for Generations X and Y to comfortably provide for their children's education and their retirement.

In Jack's criticism of equity optimization, he gives you the specific reason why you SHOULD be actively segregating home equity to achieve financial goals; arbitrage. Read his paragraph, "Shaky Premises of the New Wisdom".  He dismisses the advice as being suitable for only people in a "high tax bracket" who invest in a 529 plan.  Jack forgets two things:  state income taxes and life insurance contracts.  State income taxes add to the attractiveness of the equity optimization approach.  Life insurance contracts  are a vehicle that allows for the upside of the stock market with capital preservation.  The growth and subsequent withdrawal (when structured as a policy loan) are tax free.

State tax rates lower the after-tax costs of funds (the mortgage).  Equities, as a long-term investment, have continually outperformed most other asset classes.  Borrowing money from your house to invest in the stock market, then, becomes a LESS risky approach when viewed over an extended period of time.  Leveraging up the homestead to buy a high flier, penny stock, is not the approach.  Investing in a well managed account that returns an equivalent of a basket of stocks, however, is.

If you like the prestige of taking financial  advice from a Wharton professor, follow what Jack Guttentag is saying on the internet.  Understand, however, that your children won't have the luxury of attending Wharton because you won't be able to afford it. 

Unless you mortgage your house.

Realtors Hold the Power to Clean Up Lending

San Diego Home Blog is on my short list of daily reads.  It is hosted by Scripps Ranch Realtors, Kris and Steve Berg and is one of the best-written real estate sites in the country.  Steve Berg offers a list of suggestions to regulators to enhance the housing recovery.

Here is the interesting part of his article- all of the suggestions are lending related but Realtors have the power to enact corrective action.  The California Association of Realtors can decide to change the future of California real estate.

A few of Steve's suggestions and my advice to CAR about how to enact them:

Prohibit mortgage brokers from acting as real estate agents for the same principal in a transaction (and vice-versa). This is a total conflict of interest.

Separation of these two disciplines allows for objective advice. If CAR prohibited its members from engaging in any type of lending activity, not limited to but including ownership in an affiliated lending institution or brokerage, they would lead the country away from this conflict of interest.  

Establish a separate license for mortgage brokers and require an Agency/Fiduciary relationship with their borrowers.

That law is actually in place.  Mortgage brokers and their agents, licensed under the California Department of Real Estate, require a fiduciary capacity from its licensees for lending related advice.  The California Association of Mortgage Brokers called for separate originator licensing at its convention last summer.  CAR can achieve this objective by contractually requiring that a loan commitment be issued by a CAMB member.  This way, CAR can insure that it's members' clients will receive objective advice from a licensed loan adviser, acting in a fiduciary capacity.

The problem with this suggestion is that it completely eliminates the federally-chartered banks.  Washington Mutual, Bank of America, Wells Fargo, and Wachovia Savings (nee World Savings) would be completely eliminated from retail loan origination in the State of California. 

Require a minimum of 5% down payment (except FHA and VA) unless borrower is Bill Gates or of similar credit

CAR can write the minimum down payment requirement into its contracts.

Eliminate pre-payment penalties or, at a minimum, allow borrowers to purchase, upfront for a reasonable fee, an “escape clause” from pre-payment penalties after the first year of a loan on homes where the loan-to-value is greater than 95%. Yes, an appraisal is needed, but you would need it for a refinance, anyway.

The aforementioned minimum down payment requirement solves that problem.

Absolutely, positively outlaw the use of negative amortization loans. No matter how many times it’s explained to people, most still don’t get it.

I disagree with this because all of my clients with negative amortization loans know exactly how they're used.  They fully understand the risks associated with them and use them as part of a financial plan.  I think if the Realtors cede their advise to the licensed fiduciary lending agent, they won't have to concern themselves with this.  However, if this issue were of great enough interest, CAR can simply instruct its membership to not represent buyers with negative amortization loans.

Steve's other suggestions are targeted at the government sponsored loan programs and legislative loan limits for government-sponsored entities.  He suggests that  loan limits be raised to accommodate California's hyper-inflationary housing economy.   This suggestion is a great one but will have little impact on the real problem for housing in California; the houses are just too darned expensive.  Californians just don't make enough money to support the inflated prices they pay for homes.  Either the median income has to rise in California or the prices will inevitably fall.

CONCLUSION:  The California Association of Realtors, acting as a self-regulating organization, can clean up the lending problems in our state by establishing better practices. Currently, Realtors have the fiduciary capacity to buyers to serve their interests above their own.  CAR has the power to effect change.  The question is, "Will they use it?"

This article is also posted on the Active Rain Real Estate Network.  Click the link to see the comments from industry professionals.