BradyLoan.com

San Diego Mortgage Rates Report: October 5, 2007

Our fear from Wednesday was justified.  I hope you took our advice and locked your mortgage rate.

From Wednesday:

I'm still maintaining my lock-in at loan application recommendation.  I just don't see a tremendous amount of upside to floating the mortgage rate.  There is an underlying fear of stagflation in the markets.  The American consumer had the flu, caused by the arrested access to easy money.  Higher oil prices create a commodity-push inflation effect that The Fed (thankfully) won't ignore.  While I agree with the folks from PIMCo that the consumer's flu could throw our economy into a mild recession, I'm not convinced with their conclusion that the Fed will aggressively cut rates to stave it off.

We have four MAJOR economic reports coming out Friday, all employment related.  If they are anemic, mortgage rates could drop dramatically; lenders will renegotiate rate locks to  reflect that drop.  If they appear inflationary, you'll be protected.

Nothing has changed for the near term; lock-in mortgage rates at application.

I don't see rates shooting up dramatically but they will trend a bit higher.  Wall Street understands that the Fed won't cut rates in October.  Faced with choices between staving off a recession and fighting inflation, Bernanke will opt for inflation fighting every day.  If the risk of inflation supercedes the risk of recession, the Fed won't cut interest rates.

Lock-in rates at application.  Lock-in rates at application.  Lock-in rates at application.

if things change, you'll find it out here first.

Dove Campaign for Self Esteem and Real Beauty

Thanks, Athol for the link to this website.

Draw the line, parents.  Don't let this happen to your daughters!  More coming, here on America's Mortgage Broker.

Countrywide in Trouble With Employees? Have a Wristband Guys!

I'm not the lone wolf, here.  Countrywide's employees filed a class action lawsuit against the company for violating the Employees Retirement Income Security Act (ERISA). The Law Firm of Hagens, Berman, Sobel, Shapiro represents the employees:

According to the complaint, Cruz and other employees relied on information supplied by the company, its CEO and other plan fiduciaries in making the decision to contribute to the plan, and according to the complaint, the company, its CEO and the other fiduciaries misled him and other employees.

The suit claims Countrywide CEO Angelo Mozilo repeatedly certified financial statements he knew were misleading in an attempt to cover the high-risk loans his company was selling, all the while telling a different story to investors and ignoring analyst recommendations to compile a reserve.

According to the complaint, Countrywide offers two components in their employee 401(k) plan. The first is a participant contribution plan, where employees can make voluntary pre-tax contributions out of their base pay. The second aspect is a company match plan where Countrywide matches up to a pre-determined percentage.

For the latter portion of the plan, from October 27, 2005 until August 9, 2007, Countrywide provided the match through company stock.

Of course, Countrywide's corporate culture won't stand for this.  They'll offer them a wrist band and scream "Protect Our House !"

 

Countrywide In Trouble With Mass. Pension Fund

Countrywide is being sued by the Massachusetts  State Pension Fund.  From the Boston Herald:

Michael Travaglini, executive director of the state pension system, said the state will seek to become the lead defendant in any class-action case. It will file suit by a court-ordered deadline of Oct. 15, Travaglini said.

The state suit, like others, will likely charge Countrywide with misrepresenting its financial condition to investors.

The state lost between $15 million to $20 million due to Countrywide’s fall.

This is what I've been screaming about since April 1, 2007.  Countrywide' Financial s Chairman, Angelo Mozilo, has been speaking out both sides of his mouth to Wall Street.  Wall Street swallows this crap like a fat kid gorges on sweets.  Their weak spot?  Countrywide has a good "franchise".  What Wall Street means is that they have a great retail presence in the Midwest- the "heart" of the country.

The good ol' heartland ain't what's causing them problems; it's their home state of California.  Oh, yeah...and Arizona, and Nevada, and Florida.  The go-go states led the real estate boom of the first half of the decade and Countrywide led the charge with negative amortization loans.  Now, they have to face the music when they restate their earnings do to accrual accounting methods:

The rest of the option ARMs remain on lenders' books, where for now they're generating huge phantom profits for some lenders. That's because, according to generally accepted accounting principles, or GAAP, banks can count as revenue the highest amount of an option ARM payment -- the so-called fully amortized amount -- even when borrowers make only the minimum payment. In other words, banks can claim future revenue now, inflating earnings per share.

For many industries, so-called accrual accounting, which lets companies book sales when they contract for them rather than when they receive the cash, makes sense. The revenues will eventually come. But accrual accounting doesn't apply well to option ARMs, since it's more difficult to know if unpaid interest will ever cross a banker's desk.

Don't buy stock in Countrywide Financial.  Angelo will continue the duplicitous statements, Drew will keep leading cheers, and Bank of America will buy them next year.  Bof A will buy them for no more than 18 bucks a share and probably closer to $8/share.

Countrywide In Trouble? Protect Our House!

Former Chargers linebacker, Drew Gissinger, is starting a viral campaign at Countrywide Home Loans.  Aside from hiring a a damage control PR firm, Gissinger, has instituted a signed pledge from employees, complete with a rubber wristband embossed with the saying " Protect Our House !"

Good Grief!  I'm a Bolts fan.  Heck, I've always been a Countrywide fan until last year.  This is too much!

Gissinger rallied the troops with his rendition of a Knute Rockne speech:

"Let's call it like it is, as I mentioned earlier, it's gotten to the point where our integrity is being attacked. NOW IT'S PERSONAL!" says the transcript of a talk made last week by Mr. Gissinger. "... And, WE'RE NOT GOING TO TAKE IT!"

The irony?  Both the Chargers and Countrywide Financial are suffering the same problems- poor leadership from the top.  Spanos and Mozilo are both greedy, amoral and outdated.  Do us all a favor, guys.  Sell the Chargers to owners who give a crap about their fans and sell Countrywide to owners who give a crap about the American homeowner.

Hey!  Maybe Bank of America can buy them both!

San Diego Mortgage Rates Report: October 3, 2007

                  

I'd like to start off this morning's report by recognizing my wonderful wife, Debra.  We were married October 3, 1998 at St. Mary's Basilica in Phoenix, AZ.  Today makes it nine years.  Debra balances the demands of family and work beautifully.  Our daughter is an example of the former and our business profitability is a testament to the latter.

I clearly remember the day she changed my life with those beautiful blue eyes.  Her beguiling smile still stops me in my tracks today.  I love you, Debra.

I'm still maintaining my lock-in at loan application recommendation.  I just don't see a tremendous amount of upside to floating the mortgage rate.  There is an underlying fear of stagflation in the markets.  The American consumer had the flu, caused by the arrested access to easy money.  Higher oil prices create a commodity-push inflation effect that The Fed (thankfully) won't ignore.  While I agree with the folks from PIMCo that the consumer's flu could throw our economy into a mild recession, I'm not convinced with their conclusion that the Fed will aggressively cut rates to stave it off.

We have four MAJOR economic reports coming out Friday, all employment related.  If they are anemic, mortgage rates could drop dramatically; lenders will renegotiate rate locks to  reflect that drop.  If they appear inflationary, you'll be protected. 

I'm going to feature JUMBO mortgage rates today ($417,000-$1,000,000):

PROGRAM                RATE          APR

Annual ARM               6.250%      6.487%

5/1 ARM                    6.500%     6.697%

10/1 ARM                  6.750%     6.926%

30 Year Fixed            6.875%     7.124%

Rates available as of October 3, 2007.  Subject to change and qualification.  Equal Opportunity Lender.

It is important to note that Jumbo mortgage rates are starting to decline.  Wall Street has finally flinched and is buying jumbo loans again.  The pressure  from portfolio lenders caused the big boys to recognize that  shutting off the faucet was costing them money.  Greed and fear are the two motivators on Wall Street; they recognized that they threw the baby out with the bathwater and have let the "greed" factor overtake the fear factor" .

Contact me for a personal rate quote.   

More Fed Rate Reductions Says Bill Gross of PIMCO

Bill Gross of PIMCO is one of my monthly reads.  He is the widely known Chief Investment Officer for Pacific Investment Asset Management Company (PIMCO), one of the largest fixed-income money managers in the world.

The October, 2007 edition of his Monthly Investment Outlook is bearish about the economy.  Mr. Gross expects housing prices to decline because of a potential blow up of the credit markets.  In short, Mr. Gross and the gang at PIMCO aren't so sure that the credit meltdown is over.  From Bloomberg.com today:

Sales of new homes tumbled 8.3 percent in August to the lowest in more than seven years and house prices dropped the most in four decades, the Commerce Department in Washington said last week. Consumer confidence fell to the lowest in almost two years in September, according to the Conference Board's index of confidence.           

``The big picture is you're going to have a consumer that is going to be pulling back significantly,'' Pimco's Kiesel said. ``The rate cuts by the Fed are unlikely to save housing.''           

The Fed's Sept. 18 reduction of its target federal funds rate to 4.75 percent was ``intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets.''

Bill Gross thinks the the result will be a Fed Funds rate that is a full percentage point lower, than it is today, within 6-12 months:

PIMCO’s view is that a U.S. Fed easing cycle historically has required a destination of 1% real short rates or lower. Under a conservative assumption of 2½% inflation, that implies Fed Funds at 3¾% or so over the next 6-12 months. Actually that’s only two, 50 basis point reductions, something that could, but probably won’t, be accomplished by year-end. Don Kohn’s asymmetric elevator will likely be interrupted by false hopes of a housing bottom, fears of a dollar crisis, or misinterpreted one month’s signs of employment gains and faux economic strength. The downward path of home prices, however, will dominate Fed policy over the next several years as will the lingering unwind of related financial structures and derivatives that have yet to be discovered by the public, and marked to market by their conduit holders.

Bill Gross is NOTORIOUSLY early in his predictions BUT, he's always right.  Expect the Fed to opt for saving Jane Q. Homeowner by lowering rates rather than propping up Daddy Warbucks by protecting the dollar's value.

             

 

Strange Bedfellows= Beautiful Offspring

I caught a comment the other day and reported here:

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.

To see the full effect of the significance of this comment, ya gotta click the link.

The part of the comment I omitted was:

Perhaps you could write a post outlining the reforms you’d like to see the real estate industry undergo, and how we could go about making those reforms? A manifesto like that would be a great read. Apologies if you’ve already written it and I missed it.

WHOA NELLY!  I should say "Whoa Odysseus !"  Did Glenn Kelmann Really Ask Greg Swann for Advice? Why would he do that?

The answer?  Both Glenn and Greg share a common philosophy that real estate brokerage, as is practiced today, is broken.  While their respective approaches to the problem differ, they do agree on that one thing; real estate brokerage, as is practiced today, is broken.

A similar meeting of the minds, in the mortgage industry, happened last December. While our approaches to blog promotion differed, a fundamental belief that the customer needed better treatment from mortgage service providers was evident.  That meeting resulted in an exchange, outlining the future of transparency in mortgage services.  Two people, the maverick and the traditionalist, striving to capitalize on their commonalities.

The real result will be Ratespeed and my participation as a beta tester.  I'm not so certain that it will "change the industry" but I'm too chicken to gamble against it.   

So, what is the significance of the missed comment?  This very well may be the tipping point for Redfin.com.  Glenn Kelman recognizes that his pricing model may very well never reach profitability. However, his premise that real estate brokerage can be performed more efficiently is not flawed.   His commitment to the "very worthwhile project" is refreshing for those of us who believe that our industries could stand to improve.

...and nobody can doubt that Greg Swann won't let da man keep him down. 

Strange bedfellows sometimes produce beautiful offspring.  Let's keep our eye on this one.

PS- The dance has already started.

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.

To see the full effect of the significance of this comment, ya gotta click the link.

The part of the comment I omitted was:

Perhaps you could write a post outlining the reforms you’d like to see the real estate industry undergo, and how we could go about making those reforms? A manifesto like that would be a great read. Apologies if you’ve already written it and I missed it.

WHOA NELLY!  I should say "Whoa Odysseus !"  Did Glenn Kelmann Really Ask Greg Swann for Advice? Why would he do that?

The answer?  Both Glenn and Greg share a common philosophy that real estate brokerage, as is practiced today, is broken.  While their respective approaches to the problem differ, they do agree on that one thing; real estate brokerage, as is practiced today, is broken.

A similar meeting of the minds, in the mortgage industry, happened last December. While our approaches to blog promotion differed, a fundamental belief that the customer needed better treatment from mortgage service providers was evident.  That meeting resulted in an exchange, outlining the future of transparency in mortgage services.  Two people, the maverick and the traditionalist, striving to capitalize on their commonalities.

The real result will be Ratespeed and my participation as a beta tester.  I'm not so certain that it will "change the industry" but I'm too chicken to gamble against it.   

So, what is the significance of the missed comment?  This very well may be the tipping point for Redfin.com.  Glenn Kelman recognizes that his pricing model may very well never reach profitability. However, his premise that real estate brokerage can be performed more efficiently is not flawed.   His commitment to the "very worthwhile project" is refreshing for those of us who believe that our industries could stand to improve.

...and nobody can doubt that Greg Swann won't let da man keep him down. 

Strange bedfellows sometimes produce beautiful offspring.  Let's keep our eye on this one.

PS- The dance has already started.

Downtown San Diego Real Estate: A Good Deal?

I just got off the phone with a bright Realtor who specializes in the Downtown San Diego real estate market.

Denny Oh, of Prudential California Realty, writes a weblog called www.SanDiegoh.com.  He submitted a post to the weekly Carnival of Real Estate.  This week, Matt Padilla of the OCRegister, selected Denny's article:

6 Reasons Why Downtown Isn't Overbuilt

In this article, Mr. Oh cites that a reduction in inventory and  strong pre-sale market supports the current pricing in the Downtown San Diego real estate market.  He notes that the developers are not  controlled by debt (they've paid off their loans) and are not subject to the selling pressures that come with a construction loan.  Most intriguing to me was that the Downtown San Diego residential community will triple in the next 22 years.

His summary is enticing:

Is all of this new to you? Does it seem to contradict what the Union Tribune says? There is no bubble and in my opinion, Downtown is not over built. Yes there’s a lot of inventory coming onto the market, but it’s spread out over time. In addition to this, there are very few high quality products coming on.

Once San Diego gets its corporate side going, which it slowly is, Downtown San Diego will be one of the nicest, most sought after metropolitans in the nation. We’re young, but we’re going to be great and you should take advantage of it while you can afford to.

In my opinion, buyers will have the best deals from now, through 2008. If you have any questions, or comments, I’d love to hear them. And if you need someone who knows and works the Downtown market, I’d love to get in touch with you.

I think that the real test of proper pricing for Downtown San Diego real estate is revealed when we analyze properties like a long-term investor may.  We are getting close to parity here.  If a property can create net positive cash flow, with a 20% down payment, and a a current market rate, interest-only loan, the game's over.  Long-term investors will flock to that purchase no matter what the near-term pricing does.

Here's why.  Investors believe in the long-term viability of the Downtown San Diego residential market, they just don't like the short-term negative cash-flow.

eg:   The unit can produce $2150/month in rent, what is a "safe" purchase price?

Let's reverse engineer this question:

A 7%, interest-only loan, will cost $5.83 per thousand.  Taxes. .83 per thousand.  Estimate .83 per thousand for the condo association fee (which may be high). This brings us to total carrying cost expenses of $7.49 per thousand.  Depreciation, however, can save $1.06 per thousand for someone in a combined, 35% marginal tax rate (check with a tax advisor).  The net carrying costs would be $6.43 per thousand.

Now, divide the $2150 by the net carrying costs per thousand.  Youll come up with a loan amount of $334,370.  Divide that loan amount by .8 (to reflect the 20% down payment) and you get a purchase price of $417,630.

Let me offer some disclaimers here:  I'm not saying that the price of $417,630 is the absolute bottom of the market for this property.  What I'm suggesting is that the  property becomes attractive to long-term investors at that point.  Buy and flip types will be sorely disappointed if they try this at home.   I'm also saying that you may not be able to get this particular property for this price.  Real estate has utility (as a place to live). A premium may be built into the pricing to reflect that utility.

 

Cash flow analysis, as a long-term investor might perform, is a good way to analyze properties in this market.  It demonstrates a pricing support level.  Nothing replaces the value of a local real estate professional.  Based on what we see from Mr. Oh's article; it is clear to me that he has a grasp on the Downtown San Diego real estate market.