Mortgage crisis hits even affluent Palo Altans
Local experts [including 3 Oceans Contributor Chris Iverson) weigh in on spinoff effects of national and international subprime-loan implosion
Even affluent, good-credit-risk Palo Altans are feeling spinoff effects of the national and international collapse of the subprime mortgage market.
Local experts said Friday that even the financially fortunate are not immune and that the subprime collapse may even affect the venture-capital market and hence start-up businesses.
"Even if you have great credit and make a lot of money, it's becoming more difficult to qualify for a loan," Chris Iverson, an agent with Keller Williams Realty in Palo Alto, said.
During the earlier real estate boom, the numbers of investors with poor credit financing mortgages with subprime loans, whose interest rates can skyrocket after a year or two, increased dramatically.
As the housing boom decelerated, many defaulted on now-high subprime payments, leaving the American subprime market damaged and European investors shaken.
On Thursday, France's largest bank stopped removal from funds exposed to the U.S. subprime market, while banks throughout Europe pumped money into their systems to prevent crisis.
And while the woes of typically poor-credit investors and Continental banking houses may seem far removed from Palo Alto, Iverson and others say the subprime crisis is having a clear impact.
"Some loans are going to be harder to get," Iverson said.
For example, residents with variable income, such as those who earn from market investments, salespeople who get paid on commission or consultants, typically opt for stated-income loans.
"Stated-income loans allow earners without a W2 tax form to simply say, 'This is how much money I make,' without going through a long, complex documentation process," Iverson said.
Since documentation of variable income is tricky and time-consuming, consultants and investors in Palo Alto have been drawn to such stated-income loans.
But the shattered subprime market has made lenders more cautious, Iverson said.
"People who have really good credit and really high cash flow -- your typical Palo Alto buyer -- are encountering more stringent requirements. Lenders are saying, 'I want to see stuff backing up what you're telling me,'" he said.
But the increasing reluctance of brokers to offer stated-income loans affects not just the affluent.
"If you do away with stated-income loans, you jeopardize an entire industry of people that are maybe getting paid in cash," said Julia Wei, a real estate and mortgage lawyer at the Law Offices of Peter N. Brewer in Palo Alto.
Cash earners in Palo Alto include waiters and waitresses, day laborers, migrant workers or any other undocumented workforce.
Wei also speculated that subprime troubles abroad could affect the local start-up venture-capital economy.
"We have a lot of venture funding here on Sand Hill Road," she said. "We don't really know where partners [backing the venture capital funds] have holdings, but I can’t imagine it’s entirely local. And if there are international investors feeling the squeeze because generally the economy is affected by the subprime news, they might pull out funds,” Wei said.
If investors pull funds out of venture capital, the start-up companies that rely on venture funding may falter. This could have a short-term negative impact on Palo Alto’s economy, which is intricately linked to local start-ups, Wei suggested.
“We all know someone who works for a start-up.”
And although the national default-and-foreclosure trend is less prevalent in communities with fewer subprime loans, Palo Alto is experiencing more foreclosures, Iverson said.
He cautioned against drawing dire conclusions from the rising numbers, however.
“Percentage-wise, you could say, ‘Oh, foreclosures have gone up 200 percent,’ but that’s an increase from a very small number to a slightly larger one,” he said.
Wei also pointed out that the rising number of local foreclosures and more common short sells, which indicate cash-flow problems, are part of a larger market cycle.
“We didn’t get those calls for the last seven or eight years. … I had the novel experience of dealing with a paralegal who didn’t even know what a short sell was,” she said.
“But as far as these problems [of short sells and foreclosure] we’ve seen them a decade ago. And also in the savings and loan crisis of the early ’80s and late ’90s.”
Market Stats
Mini Market Updates (Beta)
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RE: Any thoughts on the feds (in)activity this morning? (via Frie...
?RE: Any thoughts on the feds (in)activity this morning??
August 5 at 9:46 pm
Good news, your equity line and business line of credit rates remain the
same as yesterday, as the Fed held short-term rates steady today. Why?
Because despite unemployment concerns, the economy is doing fine (1.4%
growth year to date-- thank you exports!), core inflation is under
control at this point, gas prices have dropped over 6% recently and it's
more prudent to maintain a steady helm when the economy appears
relatively balanced.
Eric T. Trailer, Principal
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Condi needs a home?
?Condi needs a home??
August 4 at 1:38 pm
As the term of Still President Bush and his administration is drawing to a
close, and Senator Obama has already completed his first victory tour of the
Middle East and Germany, fueled by an excess of coffee one afternoon, we at
3Oceans have started speculating about where former Stanford Provost,
Condolezza Rice will make her new home.
We are now soliciting housing suggestions for Ms. Rice should she return. We
will assume that she can earn enough on the speaking circuit and through
other "jobs" that price isn't really an object. Send in your answers, and
let us know why you think Condi would like your entry. Pictures are worth
double points.
My entry is for Squire House
http://www.zillow.com/HomeDeta...> at 900 University
Avenue in Palo Alto. 6300 square feet of living area on a 40,000 square foot
lot, its columns, large fence and historic status will remind Ms. Rice of
the White House, and it's on sale with a reduced price of only $12,500,000!
What's your entry and why? ---------
With chris iverson at university cafe.
?With chris iverson at university cafe.?
August 1 at 3:09 pm ---------
'amphitheatre' by portola valley library
?'amphitheatre' by portola valley library?
July 28 at 4:08 pm ---------
Gas prices
?Gas prices?
July 26 at 4:44 pm
Gas down by 25 cents per gallon = good for my pocketbook but bad for the environment. ---------
post-Conference vendor schwag wardrobe
?post-Conference vendor schwag wardrobe?
July 26 at 2:23 pm ---------
Sailing festival in san francisco
?Sailing festival in san francisco?
July 25 at 8:20 am ---------
Trundling into hillsdale
?Trundling into hillsdale?
July 23 at 7:19 am
Trundling into Hillsdale station en route to #Inman conference. "Trundling" -- one of my fav words. Also a good one to describe caltrain! ---------
The hills of san carlos sans morning fog
?The hills of san carlos sans morning fog?
July 22 at 8:57 am ---------
Gotta love it
?Gotta love it?
July 22 at 8:54 am
Redwood City's official head-scratching motto: "Climate best by government test." ---------
Train stations
?Train stations?
July 22 at 8:48 am
It's a shame Caltrain no longer stops at the Atherton train station during the week. But thank goodness that at least the parking voucher machine at the Menlo Park station are working. ---------
Schumer and IndyMac
?Schumer and IndyMac?
July 21 at 10:34 pm
There's a lot of talk going around about how Senator Chuck Schumer may
be responsible for IndyMac's recent failure, but the truth is that he
was only responsible for helping to hammer the final nail in Indymac's
coffin. IndyMac failed because they made a series of bad loans across
both their Alt-A and FHA channels. Wanna know which institution is next?
Stay tuned for WaMu's announcement tomorrow, and keep refreshing the
implode-o-meter at http://ml-implode.com/ daily for the latest...
Eric T. Trailer, Principal
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am I reading this right?
?am I reading this right??
July 21 at 2:01 pm
Seen at a chevron gas station in los altos ca. ---------
Sunnyvale Market Bifurcation
?Sunnyvale Market Bifurcation?
July 21 at 10:12 am
94085 and 94086 trending upwards.
94087 and 94089 trending downwards.
Difference? School district. ---------
More fun with inventory numbers
?More fun with inventory numbers?
July 20 at 11:10 pm
Belmont, San Carlos, and East Palo Alto all have roughly the same
population, around 30,000. Notice how closely the inventory numbers for
Belmont and San Carlos track each other; in East Palo Alto, however, the
pain continues, with inventory numbers running out of control. ---------
Stoked about REBarCamp on Tuesday! Sent via BlackBerry from T-Mob...
?Stoked about REBarCamp on Tuesday!
Sent via BlackBerry from T-Mobile?
July 20 at 7:21 pm ---------
East Palo Alto
?East Palo Alto?
July 20 at 6:43 pm
...and inventory in EPA keeps climbing, with no end in sight. ---------
Palo Alto housing inventory currently around 90, just where we wo...
?Palo Alto housing inventory currently around 90, just where we would expect
it for this time of year.?
July 20 at 6:31 pm ---------
$1,285,000 :: 2295 Hanover St, Palo Alto CA
Kevin Boer posted a link
$1,285,000 :: 2295 Hanover St, Palo Alto CA
July 20 at 6:37 pm
Cool new listing... Contributors
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Kevin Boer, Broker/Owner |
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Chris Iverson, Realtor |
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Christine Kani, Mortgage Broker |
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Cindy Lin, Stager |
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Bart Marchioni, Realtor |
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David Roberson, Attorney |
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Eric Trailer, Mortgage Banker |