by Anton Blewett on February 21, 2008
By Anton Blewett, Cell: (650) 996-2028
Since buying my home in 2006, I received over 100 solicitations for private mortgage insurance (PMI), a policy that promises to repay a percentage of my primary loan if I default (because of disability, unemployment or any reason). Besides luring borrowers into paying additional money, PMI is required by some lenders when a down payment is less than a certain percent. Recently the number of borrowers defaulting on their loans rose greatly. As a result, some mortgage insures reported huge fourth quarter losses. Consequently mortgage insurers r tightened underwriting standards in response.
The good news: the mortgage insurers are not going bust. Unfortunately the bad news is two-fold:
- Because mortgage insurers tightened underwriting standards, buyers with low down payments have a harder time qualifying for loans. Result: fewer buyers qualify.
- More claims means less insurance capital, and less money means less future policies. Result: fewer buyers qualify.
As fewer buyers qualify, the buyer pool shrinks. As the buyer pool shrinks, demand decreases and prices usually drop. And so the housing market takes another hit.
How is our local market impacted?
Because the cost of ownership is so high in our area, many local buyers purchase with lower down payments. Twenty percent down on a $900,000 home is $180,000 (which doesn’t include closing costs). That’s a lot of cash! So far none of my clients had problems qualifying for loans because of PMI. Still, I assume some local buyers are impacted. The good news: there is a wide array of mortgage loans. While one lender requires PMI on 10% down, another requires it on 5%. In my opinion, these changes ultimately impact the market 3-6 months from now. In the meantime, much of the Peninsula still records flat or positive appreciation.
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by Anton Blewett on February 20, 2008
By Anton Blewett, Cell: (650) 996-2028
Well…
- It doesn’t solve the massive financial losses, to the tune of billions, of financial firms that invested in mortgage securities that tanked
- It doesn’t solve the situation for home owners in or going into foreclosure
- It doesn’t loosen the tight lending standards making it hard if not impossible for many homeowners to purchase a new home
- It doesn’t solve the large inventory of unsold homes
The Fed rate cut doesn’t solve the damage done; it does, however, encourage borrowers who do qualify to get off the fence and buy. Rates may not drop this low for decades to come. Savvy homeowners understand this, so they are taking advantage of the long-term financial gains that low-rates provide.
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by Anton Blewett on February 19, 2008
By Anton Blewett, Cell: (650) 996-2028
Countrywide Financial started tagging ZIP codes and counties as “declining markets.” In recent weeks, the major lender sent mortgage brokers a list ranking the softness factor of hundreds of counties. The scale ranges from 1 to 5 with 5 being the softest. Soft translates into risky. So in areas rated 4 or 5, borrowers are now required to put down 5% more than the previous minimum required. If a program previously required 5%, then it requires 10% after the tagging. In areas rated 1 to 3, the 5% additional deposit is required only if the appraisal report indicates an oversupply of available houses.
Where do the Bay Area counties stand in the Countrywide Financial ratings?
Level 2: Marin, San Francisco, San Mateo, and Santa Clara
Level 3: Napa
Level 4: Alameda, Contra Costa, Sonoma, and Solano
Countrywide will likely penalize borrowers in the latter four counties and require larger down payments.
Level 4 Counties: What are the effects?
Tagging counties as “declining markets” and imposing down payment penalties may perpetuate the current situation. Large down payment requirements make it harder to purchase a home in these areas. As the buyer pool shrinks, prices continue to fall and the market declines further. On the flipside, lending to unqualified borrowers with no money or little money down created much of the mess today.
What are your thoughts? Fair or unfair? Is tagging ultimately good for our market, or will it create a self-fulfilling prophecy? Please comment. Next week, I will make the case for and against tagging counties as “declining markets.”
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by Anton Blewett on October 19, 2007
By Anton Blewett, Cell: (650) 996-2028
It’s funny how brief moments shift our decisions, how easily we are swept by the tides of the day. Just this morning, as I was leaving Café Borrone, I hit the elevator button to go to the parking floor. While waiting for the elevator to arrive, I walked over to the announcements of coming authors at the bookstore next door. While reading the synopsis of one author, I looked over my shoulder to see the door of the right elevator open.
A moment of decisive action was at hand: if I walked to the elevator immediately, I’d make it. Instead I turned back to the poster and kept reading. Finished with the poster, I hit the elevator button a second time. Only this time, the left elevator opened. Interesting. A quick decision (to continue reading) completely changed the path of my day.
It’s funny to think how many of these choices arise throughout the day. To think of all the different places our lives would end if only we’d taken the right door. My thoughts are this: ultimately, the major shape of our lives continues because we never deviate greatly from our regular choices. I might end up at work 5 minutes later, but I’m still at work, right? But the fact remains: the color of the day, those small experiences, the random conversations, those do change: and therein lies some of the greatest beauty life has to offer.
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by Anton Blewett on October 19, 2007
By Anton Blewett, Cell: (650) 996-2028
Since the mortgage crisis, the lending industry adopted new practices. One new practice worth highlighting is the switch from stated-documentation and full-documentation to primarily full-documentation only. Lenders made the switch because full-documentation borrowers carry significantly less risk than stated-documentation ones.
The Distinction
Stated-documentation loans were an attempt to simplify the documentation process. Instead of verifying bank statements, a borrower simply said, “I make $120,000 annually, I have $80,000 in my savings account, I carry $10,000 in credit card debt.” The lender accepted these statement as fact. Today most loans require full-documentation, meaning a borrower must provide actual documentation.
Is not stated-documentation an oxymoron?
Impact? Less borrowers qualify
Less buyers qualify for two reasons. First, the stated reality versus actual reality are sometimes very different. Now borrowers that qualified by lying are ferreted out. Second, variable-income earners, such as myself, salespeople and consultants, have much difficulty documenting steady past and future income. Consequently variable-income earners who are new (without three or more years of steady income) or had bad years (low income) no longer qualify.
Final Thoughts
Variable-rate earners make up a large portion of the Peninsula buyer pool and therefore, the loss of their presence definitely impacts demand for local homes. On the flipside, lending to risky borrowers fueled the mortgage meltdown. Moves to safer practices, such as requiring full-documentation, are welcomed with open arms.
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by Anton Blewett on October 19, 2007
By Anton Blewett, Cell: (650) 996-2028
In an effort to make loans more secure, the lending industry tightened its rules and requirements for obtaining money. Understanding the changing landscape and taking the necessary steps today puts you in the best purchasing position tomorrow. Here’s a simple list to get started:
Improve your credit score
Because FICO scores determine the risk of a borrower, lenders are offering incentives (lower rates) those with strong scores and penalizing those with weak ones. In some cases, lenders refuse money to borrows under a certain score.
- Get your credit report so you know where you stand
- Take steps to improve it
Eliminate debt
Debt is a major factor lenders consider. Computing your debt-to-income ratio requires both the potential mortgage and all other outstanding debt, such as credit cards and auto loan. Minimize or eliminate these and improve your loans options and receive more incentives.
- Create a debt destroyer to reduce outstanding debt (read Stacy Johnson’s Life or Debt for a how-to)
- Know your Latte factor and control spending (read David Bach’s Finish First series)
Give it a trial run
Start saving today as if you are carrying a mortgage already. Making monthly payments for 6 months to a year shows whether you are consistent enough to pay a monthly mortgage and puts more money towards your down payment.
- Set aside $2,000 per month into a high-interest savings account for 6-12 months ($1,987 doesn’t count – it must be at least $2,000).
Down payment assistance
There are many sources private and public equity to assist you with the down payment. Some possible sources:
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by Anton Blewett on October 19, 2007
By Anton Blewett, Cell: (650) 996-2028
Congressman John Dingell, a democrat from Michigan, is formulating a plan to phase out mortgage interest write-offs for new homes with interior space greater than 3,000 square feet. Although the legislation is not yet introduced, a debate is firing up between environmental groups and the National Association of Home Builders and the National Association of Realtors.
I will keep you posted over the coming weeks and months as the situation unfolds. Kenneth Harney does a good job of framing the debate in his San Francisco Chronicle article:
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by Anton Blewett on October 14, 2007
By Anton Blewett, Cell: (650) 996-2028
The front page of today’s Sunday Edition San Francisco Chronicle reads: “Mortgage Meltdown: Neighborhoods crumble in wave of foreclosures,” “One Street’s Nightmare: People bail out, those who remain suffer,” and “Local Trouble Zones: Epidemic repossessions hit several ZIP codes.” The three articles are largely based on the chart titled “How ZIPs become trouble zones,” which lists the zip codes with the highest rate of foreclosures.
- Is any zip from San Mateo County listed? No.
- Are any San Mateo County cities mentioned in the article? No.
- Will the article affect the value of San Mateo County homes? Big time.
The articles mislead the public, specifically potential buyers, into thinking that a major real estate downturn is occurring in all areas of the Bay Area when in reality, it is occurring in only specific neighborhoods. [click to continue...]
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by Anton Blewett on October 3, 2007
By Anton Blewett, Cell: (650) 996-2028
I hear it all of the time, “Homes are not made like they used to make them.” With all of the advances made in home materials and construction, is this statement true? In my opinion, no.
Maybe profit gets in the way more today than previous decades. There may be more pressure on builders today to sacrifice quality in an effort to meet deadlines and maintain profit margins. However this line of reasoning is pure speculation. We need answers! So I went straight to the source and asked a local builder, Bill, the question. He replied, “Baloney. The problem is people do not maintain homes like they used to maintain them.”
Basic principles are lost on many people today. Consider fiscal responsibility. In my opinion, many people fail at managing money. Why else is the average consumer spiraling into massive debt? I am not surprised that they fail at managing their home as well. When a person charges $100 for an item of clothing, is he aware that it will cost, on average, four times that amount by the time the debt is paid off? (With accruing interest and late fees). Likewise the same person is unaware that an improperly caulked tub may cost thousands of dollars to repair in just a few years. (From fungus damage to sub floor and / or framing).
Bill told me that homes today, with construction and materials, are built to last at least 300 years if the owner maintains them properly. My advice to all: maintain your home on a regular basis. Both your home and pocketbook will appreciate it.
See my next posting detailing common maintenance routines.
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by Anton Blewett on October 3, 2007
By Anton Blewett, Cell: (650) 996-2028
Most of us heed the little sticker in the upper left corner of our windshield that says, “Next oil change: 25,967 miles.” So why do so many of us allow our home to fall into disarray, when we maintain our automobile with total vigilance at the same time? While you change your oil every few months, do you check the caulking of your tub with the same regularity?
A tube of caulk: $2.18. Replacing a bathroom sub floor damaged by fungus: $4,137.24. Which would you prefer: checking the seals on your showers and tubs with regularity or replacing the sub floor in 5 years? As extreme as it might sound, the scenario is quite common. Fungus damaged bathroom and kitchen sub floors are one of the most common fix-it items I see daily.
Most major repairs are the result of “The Slight Edge” principle: a few bad choices made daily compounded over many years cause major problems. Consider the alternative: routine maintenance over many years preserves the lifespan of your home. If you maintain your roof according to the manufacturer’s recommendations, it will last 30 years instead of 20. A home is just like your body. The less you take care of it, the faster it wears out.
See next week’s post: Why do most people fail at home maintenance?
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