One of the reasons we’ve been able to increase our business is our ability to advise clients.  A recent re-posting of a subprime mortgage post from a year and a half ago seems darn near prophetic.  The post ends with these two lines:

This subprime implosion will force lenders to ensure their buyers have good credit and good documentation to back up a mortgage. This all translates into a tightening of the underwriting requirements and a “liquidity constriction.” [ed. emphasis added]

And what have we seen this year?

The tightening of lending standards, the tightening of the purse strings of the banks, and a general unwillingness to move the real estate ball forward until SOMETHING shakes loose.

On the heels of reposting that article, the RSS reader threw out another gem of an article from this past weekend about loan modifications.

Photo Courtesy of iron fillings

Is this that something?

Loan modifications could be the answer to many homeowner’s problems.  But is this the answer to our current housing debacle?  Does renegotiating the monthly payment and/or interest rate on a mortgage ensure that the housing market slows its decline more quickly?  Does this simply delay a bottom to the market?  Is it a false bottom?

This author believes that if the terms of a mortgage CAN be changed, that it goes a long way to easing homeowner anxiety.  It will definitely assist in keeping families in their homes.  As pointed out in the article, the current loan

modification programs that the FDIC is currently utilizing simply defer principal amounts and allow rate modifications to slowly snap back to the original over 5 years.

The subprime blowout is not over?

So, cruising around today on the RSS feeds and bump into this little beauty of an article on Inman News. Nevermind the icky feeling I get seeing two sumo wrestlers practicing their sport, there is something special about an article that describes how the most recent housing boom was somehow influenced by mortgage-backed securities (MBS) and collateralized debt obligations (CDOs) as “six-inch hooker heels.”

As written about earlier this year on this blog, the subprime mortgage market is like a briarpatch. You may know exactly what you are looking for, but the density and tenacity of the “wait-a-minute” vines quickly cause one to loose track of what it was they went into the briarpatch for in the first place.

The odd thing about the stand out phrase, is that it is not aimed at how attractive the subprime mortgage product was to the consumer….and attractive it was! That descriptor is used to describe how attractive MBS and CDOs were to ratings agencies looking for a better return on their money.

So is the subprime implosion over? A recent discussion with a financial planner at Merrill Lynch revealed they believe it to be overhyped and therefore not nearly as large as predicted. And then there is Bill Gross, the manager of PIMCO, the world’s largest bond fund, and the originator of that wonderful descriptor. Here’s his take on the subprime market from the article:

Gross says that using the current default rate of 7 percent on subprime mortgages — which he says equates to total losses of between 3 percent and 4 percent — “the holders of some BBB investment grade subprime-based CDOs will lose all of their moolah because of the significant leverage.” And if subprime total losses hit 10 percent, he predicts, “even some single-A tranches face the grim reaper.”

At the end of the day, home buyers still have a lot of inventory to look over. Interest rates, while they have shown their desire to inch up, are still near historic lows. This subprime implosion will force lenders to ensure their buyers have good credit and good documentation to back up a mortgage. This all translates into a tightening of the underwriting requirements and a “liquidity constriction.”

For more on this topic or questions about real estate, contact Team366 here.

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If you are entering the Ann Arbor real estate market for the first time or are considering a move into your next home, take note that this is the time to buy.  We’ve talked previously about timing the market and why that is likely a tougher thing than just jumping into the market feet first. 

This time, I want to point out the numbers to you and why making a move in this “bad” market is likely in your best interest!

First Time Home buyers:

Just get into the market, find a home that you can afford!  Mortgage rates are great and the amount of inventory (homes on the market) is high.  This is the time to be looking for your first home.  You can begin your search with Team366’s Search and Save.

Move Up Buyers:

You recognize that buying a larger home now is a sound financial move, but you’ve got a place to sell.  Should you try and sell in this “bad” market when you know you will take a hit just so you can get into a larger home?  It depends, but the answer is likely yes.  Here are some points to consider.

A few years ago things looked like this for the move up buyer:

• Value of first home: $250,000
• Move up home value: $400,000
• Difference in larger mortgage or money invested is $150,000

Now, the market has changed the numbers a bit:

• Current value of first home:  $175,000
• Move up home value:  $280,000
• Difference in larger mortgage or money invested is $105,000

While the drop in the value of the first home is huge (30%) that same drop applies to the home you are purchasing.  By selling and buying now, in this market, you are looking at $45,000 in savings under this scenario.  If you’ve got some significant equity built up in your first home, then the numbers are even better.  In fact, you could very easily be paying the same monthly on your new home, as you did on your first home! 

More Resources:

Team366’s Listing Syndication Service:  Utilizing the latest in online real estate marketing techniques and technology, Team366 has created a unique marketing system.  Incorporating narrated walk through videos and an extensive syndication list, Team366 routinely generates between 450 and 1,000 links back your property.  And, we take the guess work out of what the market believes your property is worth!  Call today to learn more:  734.564.7465

Team366 Search and Save:  Check out currently available properties, create your own search and save properties you are interested in!

 Update:  As soon as this went live, I found another article that tells me this is the time to buy!  While the title is misleading, this article buried the biggest bit of news:  59% of those polled believe this is a great time to buy!

On October 2nd, at a Bloomberg hosted event in London, Greenspan pointed to the CDO’s as a reason for subprime market implosion.  From the Bloomberg article:

“People always say it’s the subprime market that created this crisis,” Greenspan told investors at an event hosted by Bloomberg LP in London. “It’s the subprime asset-backed market” which did, he said. “As a consequence of that, there’s going to be some rethinking about collateralized debt obligations.”

“The Wall Street firms were under real pressure to supply asset-backed securities, and the Wall Street firms were pressing the lenders to give them more raw material,” Greenspan said today. “Credit standards just went straight down, and applications for subprime mortgages soared. The consequences of that are evident.”

So what are consequences for the Ann Arbor housing market?

 Credit standards are tighter than we have seen in the past 4-6 years.  To qualify for a near zero down loan, your credit score will need to be stellar.  Consequently, we are also seeing the return of higher down payments to purchase a home.  The days of $5,000 down on a house may not be entirely behind us, but they sure are becoming a less frequent occurrence.

Even in this market of high levels of inventory and a near historic low cost of money, homes are still selling!  People still need to buy a first home, upsize because the family is expanding, or even down-size as the family moves out.  As the charts from Big House Data continue to show, there is nearly 85% of the same level of sales happening this year, compared to last…that’s means that less than one out of five buyers have disappeared from the market.

Call Team366 today to learn how you can benefit from today’s real estate market.  As challenging as it appears, it is a great time to be in the market!

So, cruising around today on the RSS feeds and bump into this (behind Inman subscription wall now…) little beauty of an article on Inman News.  Nevermind the icky feeling I get seeing two sumo wrestlers practicing their sport, there is something special about an article that describes how the most recent housing boom was somehow influenced by mortgage-backed securities (MBS) and collateralized debt obligations (CDOs) as “six-inch hooker heels.”

As written about earlier this year on this blog, the subprime mortgage market is like a briarpatch.  You may know exactly what you are looking for, but the density and tenacity of the “wait-a-minute” vines quickly cause one to loose track of what it was they went into the briarpatch for in the first place.

The odd thing about the stand out phrase, is that it is not aimed at how attractive the subprime mortgage product was to the consumer….and attractive it was!  That descriptor is used to describe how attractive MBS and CDOs were to ratings agencies looking for a better return on their money.

So is the subprime implosion over?  A recent discussion with a financial planner at Merrill Lynch revealed they believe it to be overhyped and therefore not nearly as large as predicted.  And then there is Bill Gross, the manager of PIMCO, the world’s largest bond fund, and the originator of that wonderful descriptor.  Here’s his take on the subprime market from the article:

Gross says that using the current default rate of 7 percent on subprime mortgages — which he says equates to total losses of between 3 percent and 4 percent — “the holders of some BBB investment grade subprime-based CDOs will lose all of their moolah because of the significant leverage.” And if subprime total losses hit 10 percent, he predicts, “even some single-A tranches face the grim reaper.”

At the end of the day, home buyers still have a lot of inventory to look over.  Interest rates, while they have shown their desire to inch up, are still near historic lows.  This subprime implosion will force lenders to ensure their buyers have good credit and good documentation to back up a mortgage.  This all translates into a tightening of the underwriting requirements and a “liquidity constriction.”

A sad, yet interesting phenomenon has been happening with greater frequency in the realm of real estate.  That’s the talk of and acceptance of short sales as a way to sell a home.

Short sales, in the “Cliff Notes” version, are the way for sellers to negotiate directly with a bank or note holder the difference in sales price and amount owed on the loan. In other words, a short sale is when a seller realizes that they cannot continue to make payments, cannot get out of the house what they owe in the current market, yet negotiate with the holder of their mortgage note to “forgive” the difference between the loan balance and the sale price of the property.  It is the final option, in many cases, prior to outright foreclosure.

Many of the foreclosures that Michigan is seeing is a result of a higher unemployment rate, coupled with a high number of subprime mortgages.  A subprime mortgage is a loan that has a higher interest rate attached to it due to the buyer’s risk level.  For example, the buyer might have had bad credit scores, didn’t have a huge down payment, or any down payment.  Those subprime notes, once executed, were then sold on the secondary market.  This means that the bank that initiated the loan recognized that they could sell that 8.5% note on the secondary market to some entity that wants an 8.5% return on their investment.

Oftentimes, banks will bundle batches of these notes for sale to the secondary market.  Some the purchasers of these notes have been Real Estate Investment Trusts (REITs), who purchase these notes by way of Wall Street and the bond market.  Those markets have some pretty stringent terms that dictate what level of performance they expect to see out of their investment.

The recent intractability of the note holders to consider short sales is likely a direct result of the bundling and sales process that happens on Wall Street.  No longer is the performance of the note directly tied to a bank, rather it is under the scrutiny of bond holders in the form of REITs and other investors.

Credit given to Paul Starner, coach and mentor, for his ability to stare at an issue and think it over a few different ways.  His recent chat enlightened his students and got the tired synapses firing again!

Anyone following recent news about Countrywide and other lenders will see a trend. A rising percentage of their sub-prime loans are experiencing delinquent payments.

So what do rising rates of delinquency have to do with buyers?

In the not too distant future, it is very conceivable that higher credit scores will be necessary for higher loan to value ratios. In other words, underwriting requirements will be tightened thereby making it difficult for some to secure financing.

There has never been a time like now to purchase a home: high amounts of inventory and low mortgage rates. This news could signal a normalization of the market. 

Buy Now!

Don’t you know that the one person who came through the open house was a renter in that same complex and was renting a unit for about $40 cheaper than the monthly mortgage payment?

Technorati Tags: Michigan Real Estate, Photo, Market

RealEstateJournal.com, the real estate wing of the Wall Street Journal online, has this article about the increase in pressure to move from an ARM into a fixed rate mortgage and some of the pitfalls you may experience.

While there is simply no easy way for me to summarize the article, I will say that if it smells too good to be true, it likely is. To that end, if you find yourself needing to refinance your existing mortgage and are at a loss as to whom to turn to, allow me to make some recommendations of lenders that will walk you thorugh every step, answer all your questions, and treat you to the Black-Tie Service you deserve.

Technorati Tags: Real Estate, Michigan, Mortgages, Refinance, ARM