Category: Housing & Real Estate

WSJ provides 10 reasons to buy a home

Posted on by Evan in Housing & Real Estate

Brett Arends wrote THIS PIECE in the WSJ today in which he provided 10 reasons why buying a home makes sense.  It’s worth of checking out, here’s a summary:

1) It’s a buyer’s market so buyer’s can get a great deal

2) Mortgage rates are cheap

3) Tax benefits of homeownership

4) When you own a home you can do whatever you want to it

5) It’s typically hard to rent in the best locations

6) Owning real estate offers inflation protection

7) Home Equity is traditionally not as volatile as stocks

8) Having a mortgage offers forced savings

9) There are a lot of different homes on the market so you should be able to find something that works

10) Sooner or later the housing market will return

Canadian Mortgage & Real Estate Markets

Posted on by Evan in Housing & Real Estate

NPR did a feature on the Canadian mortgage & real estate markets today which you can listen to HERE.  My uncle manages a real estate company in Vancouver, BC and I recall a conversation I had with him a few years ago during the sub-prime boom.  He asked me about the underwriting standards at that time and I remember he was blown away by the relaxed approach.  I also remember him telling me that the sub-prime craze had not imported into Canada.  Fast forward to today and overall the Canadian real estate market remains healthy.  I got to see my uncle last weekend and he said his business remains healthy.  Maybe we could learn a thing or two…

The debate over the future of Fannie & Freddie begins

Posted on by Evan in Credit Crisis

A little backdrop to this post.  Fannie & Freddie got into financial trouble HERE.  They are bailed out HERE.   As you may recall Fannie Mae & Freddie Mac, two critical players in the US mortgage market, are currently owned by the Federal Government and are technically in conservatorship.  The US government has sunk almost $150 billion into the two companies since they took them over back in 2008 and many politicians are calling for the bleeding to stop.  Earlier in the week officials met to begin the debate on the future of Fannie & Freddie.  Click this link to read more about the meeting.

Part of the reason rates are so low now is because investors believe that the mortgage-backed bonds are guaranteed by the strength of the US government.  Therefore, from a practical standpoint less government involvement would ultimately lead to higher mortgage rates.  However, conservatives will argue that low mortgage rates is not worth $150 billion every couple years.  They have a point….

Great reporting on subprime mortgage crisis

Posted on by Evan in Credit Crisis

I am on vacation this week which means I have some time for some good reading.  And although I plan to spend my week finishing up the 3rd book in Stieg Larsen’s Millenium Series I wanted to post a couple bits of excellent journalism for those who might be looking for some summer-time reading on the subprime mortgage crisis.

First, I want to thank Kevin Sanger @ the JGP Wealth Management Group for sharing THIS ARTICLE with me almost a year ago.  Yes, a year ago, and I finally sat down and read it last week.  Michael Lewis dives deep into the fund managers that bet against subprime mortgages and struck it rich.  These managers realized that the folks who were investing in subprime-backed mortgages had no idea what they were buying and saw that it would unravel.  It is a great insider look into the secondary market for mortgage-backed bonds.

Also, NPR’s Planet Money bought a sub-prime mortgage backed bond a few months ago and have been reporting on it periodically.  In these two podcasts (#1 and #2) they fly to Florida to confront some of the mortgage holders who owe them money AND report on a $200 million fraud scheme.

Mortgage Provisions in New Financial Overhaul Bill

Posted on by Evan in Housing & Financial Legislation

The Financial Overhaul Bill which will be signed into law soon when President Obama pens his name on the legislation.  The bill is over 2,300 page long and includes new rules for nearly all facets of the financial economy.  Although much of the attention thus far has been on provisions focused on limiting large bank’s proprietary trading activities there are substantial new rules created for the mortgage industry.  The Mortgage Banker’s Association released THIS SUMMARY last week which does a good job of touching on the highlights.

The chatter in the mortgage industry thus far is that it remains to be seen how regulators will enforce the new laws.  Therefore, it could be quite some time before we can measure the bill’s impact.  For now, here are a few highlights that drew my attention:

Good

a) One of the duties of the newly created Consumer Financial Protection Bureau (CFPB) is to “conduct financial education programs out of special office of financial literacy.”

b) Prohibits loan originators from steering borrowers into loans with more adverse terms than they qualify for.  If the loan originator is found to have violated this rule they will be liable for additional costs.

c) Prohibits long-term prepayment penalties.  Lenders must always offer a loan option with no prepayment penalty.

d) Requires lenders who securitize mortgages to keep a least 5% of risk on their own books.

Bad & Ugly

a) The new 5% risk retention requirement above will likely improve underwriting quality but it will also cause costs to increase which will be reflected in higher interest rates.

b) Prohibits from making loans without having documentation of income that supports the ability to repay the loan.  In many cases this is good but unfortunately this provision will hurt self-employed borrowers and applicant’s who have significant assets but not much in the way of “documentable” income.  Stated income loans are officially dead.

c) Adds several new Truth-in-Lending disclosures many of which already are covered on the new Good Faith Estimate which came out January 1st.

d) Imposes more regulations and requirements on appraisals.

In reading through the summary it looks as though Congress wrote into law many provisions that the free market had already taken care of (i.e. “stated income” loans are no longer offered).

Macro view on debt

Posted on by Evan in Credit Crisis

If you’ve been a regular reader of “My Mind on Mortgages” over the years then you know that I am a big fan of the Economist magazine.  I appreciate their global perspective and use of economic theory in explaining current events.  From time to time they publish special reports on hot topics that are very good.  In this weeks issue they did a special report on debt.  Here are some links and some interesting excerpts:

–A Cultural Perspective: “The battle between borrowers and creditors may be the defining struggle of the next generation.”

–Consumer Debt: “At the end of the second world war in 1945 consumer credit in America totalled just under $5.7 billion; ten years later it had already grown to nearly $43 billion, and the party was just getting started. It reached $100 billion in 1966, $500 billion in 1984 and $1 trillion in 1994, or around $4,000 for every man, woman and child. The peak, so far, was almost $2.6 trillion in July 2008.”

–Digging Out: “If being able to borrow makes people feel richer (however illusory the sensation), having to repay the debt makes them feel poorer.“

PDX is named an “elite city” in the Economist

Posted on by Evan in Housing & Real Estate

I like to provide hyperlinks to articles when Portland is mentioned in the national and international press.  The Economist (my favorite news periodical) recently published THIS ARTICLE in which Portland is compared to other international cities such as Vancouver BC, Stockholm, and Freiburg, Germany.  It’s worth a read.

Future of Fannie and Freddie could be wrapped up in amendment

Posted on by Evan in Housing & Financial Legislation

The WSJ is reporting in this post that an amendment to the financial overhaul is bill is expected that would end the government’s subsidy of Fannie Mae & Freddie Mac in the future.  If you’ll recall the two quasi-governmental agencies that secure somewhere around 70% of all conventional mortgages in the US were taken into conservatorship by the Federal Government back in 2008.  The new bill would eliminate federal subsidies of the two agencies.  Given the financial conditions of each we can safely assume that should this bill pass they’d need to be dissolved or reorganized in order to survive.  From a free market perspective I don’t think this is such a bad plan.  However, Fannie & Freddie play a crucial role in keeping borrowing costs relatively low in the US.  The elimination of these two giants would certainly make borrowing more expensive on the part of consumers AND make mortgages harder to qualify for.  For a detailed explanation of the crucial role that Fannie & Freddie play in our mortgage market read THIS POST which I wrote back in July of 2008.

Here is a summary of the bullet points in the amendment:

1) The conservatorships for both companies would end two years after the bill becomes law, though the government would be able to extend it for another six months if necessary.

2) Three years after the conservatorship ends, their government charter would expire. Then the companies would have 10 years to operate under a special holding company so that they can dissolve remaining mortgages or debt obligations they held as government-sponsored enterprises.

3) After the companies leave conservatorship, their mortgage assets would have to steadily decline, capital standards would have to go up, and the size of loans they would be able to purchase would shrink.

4) The companies would have to pay state and local taxes.

5) Fannie Mae and Freddie Mac would have to pay a fee “to recoup full value” of the government guarantee they enjoy.

6) It would reestablish the $200 billion funding limit the government set up for both companies in 2008. On Christmas Eve 2009, the Obama administration lifted that cap to an unspecified level.

What’s that lurking in the “shadow”?

Posted on by Evan in Housing & Real Estate

Barclay’s Capital released a study yesterday indicating that, according to their calculations, there are currently fewer banked-owned properties for sale than previously thought.  This might come as a surprise to those who work in the real estate industry.  Their numbers show that at the end of February there were 480,000 homes for sale nationwide that were bank-owned.  This differs from Realty Trac’s estimate of over 700,000.

What I thought was more interesting however was their predictions for “distressed sales” moving forward.  According to their thinking foreclosures will continue to increase as will the supply of bank-owned property on the market for the next 20 months.  They believe that the supply of bank-owned homes will peak in January of 2012.  If you’re a bargain hunter whose been waiting on the “perfect time” to strike a deal you may interpret this to mean that there’s plenty of time.  And you may be right.  BUT, there is a significant amount of debate about the correct way in which to make these estimates.  The reality is that no one knows for sure and the variables they use to make these calculations are assumptions that are subject to change drastically.  It’s always good to exercise patience and employ due diligence when making a large investment.  But, I think some of these reports are as credible as fortune cookies.

Mortgage Late’s Decline in March

Posted on by Evan in Housing & Real Estate

Many housing market analysts remain concerned about the impact that foreclosures will have on the housing in the next few months.  The pace of foreclosure remains high and that means a banks will be bringing REO to the market for months and probably years to come.  However, we received good news today that may be an indicator that the pace of foreclosure is slowing.  LPS applied analytics reported today that the number of homes in foreclosure has fallen by over 600,000 since the beginning of the year.  Furthermore, the number of mortgage that are delinquent decreased by over 8%.  This is a positive sign for the housing market and hopefully a trend that will continue.