Some thoughts on new mortgage situation - Posted by michaela-CA

Posted by michaela-CA on August 10, 2007 at 08:29:43:

Rich,

did you actually read my post? If you did, then you’d know that it was not based on the ‘facts’ of the article, but based on the fact that a lot of lenders are refusing ot do any new Alt-A loans. Are you disagreeing with that fact? Are you saying that that is wrong?

Stop worrying about unimportant details like whether the SF chronicle is losing readers or not, but look at the big picture. Whether the perception of others is right or wrong, there is a fallout whether it’s media induced or fact based.

Michaela

Some thoughts on new mortgage situation - Posted by michaela-CA

Posted by michaela-CA on August 09, 2007 at 09:16:14:

I believe there are always deals to be had and we can find opportunities in an market, if we just look. So, this is not a complaint or vent. Just some thoughts on what kind of short-term effect the new mortgage situation (lenders shutting down low-doc or no-doc loans. I just saw this article, where someone with a high credit score, 500K in the bank, wanting to get an owner-occupied loan with 25% down, no doc - and couldn’t find a lender to do it.

Just some thoughts of potential happenings:

  • Even fewer buyers for existing inventory

  • More inventory, sitting longer

  • home prices falling further

  • Sellers might get more open to creative financing.

  • Even more foreclosure, as distressed sellers can’t sell

  • Fewer rental available as potential buyers stick with
    renting.

  • Good time to buy and keep as rentals

  • If you have a lease/option to ‘sell’, be prepared, that
    people may not be able to close in a year or 2. But either
    count on them turning over or do a long-term lease option.

  • Due to high demand, rents are increasing

  • Harder to find qualified buyers when you sell

  • when multiple offers, sellers may not take the highest
    offer, but the one that comes from an employed person
    instead of the self-employed.

  • Self-employed people may be willing to pay higher prices,
    if seller can offer owner-financing in some way.

  • Harder to sell some notes. Note buyers more picky

  • Those people, that would have bought and have to keep
    renting spend more money on other things.

That was just off the top of my head. ANy comments? Additions? Of course, every market differs

Michaela

local lender opportunity - Posted by lukeNC

Posted by lukeNC on August 10, 2007 at 18:22:29:

I think a local lender could do well in their market.

Start a mortgage lending business, have investors pool money together and lend it out.

I’d do 90% LTV’s at the most. A localized lender would focus on strong underwriting.

If I were to do something like that I’d use common sense. No more stupid 100% “no doc” and the like.

Remember when there were only ARMs @ 15% - Posted by Rich-CA

Posted by Rich-CA on August 09, 2007 at 22:27:03:

I bought my first condo in Walnut Creek in 1985. The financing was 20% down, full doc and only a new product called the ARM was available. Interest rates were in the double digits. Financing is still cheap by comparison and since I always do full doc loans, mainly because of interest rate advantages (I keep a loan file ready and updated every 6 months in case its needed), the only issue is how much the loan interest is taking from my side of the ledger.

Re: Some thoughts on new mortgage situation - Posted by Bill H

Posted by Bill H on August 09, 2007 at 19:51:44:

I’d look at the article again. I just closed on a vacation home with no docs, 20 percent down, no 500K in bank, very high credit score however…Probably largest lender in the business, closed in 14 days…I personally do not believe everything I see in the paper.

Something does not add up.

Good Luck,
Bill H

Re: Some thoughts on new mortgage situation - Posted by Sailor

Posted by Sailor on August 09, 2007 at 18:43:14:

You are correct, Michaela. I would add that to remain in biz, lenders w/still have to make loans. However, my guess is that they w/still remain ignorant & short-sighted. I think there are good loans waiting to be made for folks w/A credit, but many lenders w/avoid making all the potential $$$ because they won’t be making loans for folks w/out W-4s. Having plenty of CA$H doesn’t count; bankers want salaries on their applications.

Tye

Since were speculating… - Posted by David Alexander

Posted by David Alexander on August 09, 2007 at 17:19:56:

couple thoughts… on a few of the points…

Fewer rental available as potential buyers stick with
renting…

The market has been flooded with houses and the houses that were thrown away… as people bought new are out there as rentals… the new builders are the ones that will experience the rest of the fallout… it’s taht cakewalk thing… and the music has stopped… So, my guess is there will be plenty of rentals for years to come.

Good time to buy and keep as rentals…

Exact opposite… you pickup your rentals… just as the market starts inching it’s way back to the good…

That way you poised to do a 1031 fairly quickly with a bigger gain in equity…

If you have a lease/option to ‘sell’, be prepared, that
people may not be able to close in a year or 2. But either count on them turning over or do a long-term lease option.

Actually, I think refi’s will be the proven way to go… In fact my slogan has always been we make it easy to get into a house… you make your payments on time and we can get your refi’ed. That is still working like a charm for me…

Due to high demand, rents are increasing…

Rent’s need to increase… but, I think it’ll be awhile…

Harder to find qualified buyers when you sell…
Sell with your own qualifications…

Harder to sell some notes. Note buyers more picky
Notebuyers in the last few years hired bankers… so, that’s not a way to fund… unless you grow your own…

But, I think the real thing is that all markets are becoming smaller and smaller… Not all of Texas… bad Dallas may be bad… and Austin may be booming…

And I think the way appraisals happen will have to change…

Back to what a person is willing to pay and what someone is willing to lend versus… banks crying fowl… and blaming fraud on everyone else to cover there tails…

One thing i noticed as Well… - Posted by acw

Posted by acw on August 09, 2007 at 11:41:55:

-Rentals might be good play. I understand that you can convert these into future purchases if they are able to get their credit together…

Re: Make lemonade - Posted by matthew

Posted by matthew on August 09, 2007 at 10:44:32:

Michaela-
I have been through 2 other market cycles. I find gold everytimer this happens.Re-read what you wrote and look at all the opportunities.the biggest to me are sellers are more open to being creative.

Re: Some thoughts on new mortgage situation - Posted by Penny

Posted by Penny on August 09, 2007 at 10:35:55:

I completely agree with your thoughts, thanks for a great summary.

On the commercial forum, Ray Alcorn shared an interesting insight resulting from the housing frenzy of the recent few years with too loose lending standards. Basically, this housing boom was moving future buyers to the present. People who might not have been in a reasonable financial position to purchase for a few years were able to buy sooner due to creative financing products, lower interest rates and looser approval standards. So with the buyer pipeline artificially accelerated, housing prices did the same. It stands to reason that a reduction in the number of available buyers would be induced as a result at some point and gets back to basic supply and demand. Hence, housing prices are correcting themselves and the number of buyers will be reduced in the short term until the pipeline goes back to normal.

For folks who are losing their homes, they have to deal with the reality that in the short term, home values can go down as well as up. Fewer buyers means less demand. Also, with interest rates even a little higher than a few years ago, the money doesn’t go as far for the same monthly payment, hence the price needs to be lower to be affordable. And as others have pointed out on this forum, home buyers care about the monthly payments. At some point, lenders will figure out again that not all Alt-A finance product applicants are bad risks and new products will be introduced to tap the market again, probably with different standards. Right now, the market appears to be in a strong reaction mode to the number of foreclosures.

So for the folks who would have gone the Alt-A route for financing, interest rates and available loan products would be expected to have an impact on the number of buyers, as well.

That said, I totally agree - there are always deals to be had if you look hard enough.

Re: local lender opportunity - Posted by michaela-CA

Posted by michaela-CA on August 10, 2007 at 19:32:36:

You’re right! Finding a niche in a market like that can be the best thing since sliced bread. The bank/mortgage company would specialize in a particular market, where they know the properties and values and don’t have to rely on people in anothter state.

Michaela

Re: Some thoughts on new mortgage situation - Posted by michaela-CA

Posted by michaela-CA on August 09, 2007 at 20:04:42:

Bill,

you may be right. Here’s the article. San Francisco Chronicle.

Re: Some thoughts on new mortgage situation - Posted by michaela-CA

Posted by michaela-CA on August 09, 2007 at 19:03:57:

Tye,
you’re right! I would bet though, that down the road, there will be lenders again (maybe with private money backers) that will do other loans again with higher interest. They won’t have much competition and will rather take bigger ‘risk’. Right now everyone is in a panic. Who knows what will happen.

Michaela

Yep… - Posted by acw

Posted by acw on August 09, 2007 at 19:28:06:

Back to Old School practices and common sense.

Lets face it…what we are experiencing is a market that was WAY OVERPRICED. The average Joe has to be able to make a house payment…and afford it.

In my area, the big issue is Insurance and Property Taxes. In S.Fla, property taxes should be easing up in 2009 but until then…its a hugh factor that puts alot of preasure on home prices…as well as insurance.

Qualifying for a mortgage will be tough on the self employed and homeownership will drop back down to 60 percent or lower. Hell…with all the foreclosures, that could easily be achieved.

Re: Make lemonade - Posted by michaela-CA

Posted by michaela-CA on August 09, 2007 at 12:27:11:

matthew,

that’s what I meant with my post. I wasn’t complaining.

Michaela

Re: Some thoughts on new mortgage situation - Posted by Rich-CA

Posted by Rich-CA on August 09, 2007 at 22:32:03:

And some of us became Alt-A, not because of reduced docs but because we passed the magic number of 10 mortgages. I expect that the programs will more finely divide the better risks from the worse just so the lenders have more opportunities for business deals themselves.

Re: Some thoughts on new mortgage situation - Posted by Sailor

Posted by Sailor on August 09, 2007 at 18:30:51:

I think the problems in the post 9/11 stock mkt were an additional factor in the RE boom. I think a lot of folks just didn’t have enough imagination to figure out anything but RE as a place for their $$$. Having lived through several boom & bust mkts, I get nervous whenever I see “water cooler investors” making $$$. That’s why a lot of smart folks liquidated in 2006 in anticipation of what’s happening right now. Prices should get really yummy come the end of Jan, but in the meantime, many of us have invested in MHs & MHPs.

Tye

Re: Detroit deals - Posted by pdq

Posted by pdq on August 09, 2007 at 13:54:08:

the subprime lending in detroit combined with low car sales has created a buyer’s bonanza

i was looking at a 3 bed brick for 30k last week. it sold 3 years ago for 120k!

i have CNBC TV on right now and things are going to get worse b/4 they get better according to the “experts”. now it is even difficult for people with good credit to get loans.

Re: Some thoughts on new mortgage situation - Posted by michaela-CA

Posted by michaela-CA on August 09, 2007 at 10:41:54:

Penny,
that part about future buyers being brought into the present is an excellent point. I hadn’t really thought of it in that way, but that really puts the situation of the past few years into a nutshell.

Michaela

Re: local lender opportunity - Posted by lukeNC

Posted by lukeNC on August 11, 2007 at 04:30:10:

exactly…

And they’d keep their paper too.

We have a local mortgage lender like that here in town. They’ve been in business for over 25 years. They have investor pooled money and loan the money out, maxing at 85% LTV. They don’t sell their loans.

The owner and the co-owner are both licensed appraisers and real estate investors. They know value and have very strong underwriting.
I’m willing to bet they’re still doing well in this market.

They also need some competition, all this talk makes me want to start up something similar.