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Mortgage Mania 19 - The Jumbo Strikes Back

Amid all the celebration and hullabaloo associated with the recent drop in conforming interest rates as a result of the Treasury Department taking over management of GSE’s Fannie May and Freddie Mac, there has been scant analysis of the elephant in the room, namely Jumbo (aka non-conforming) loans that are part and parcel of home purchasing here in Silicon Valley.

The GSEs hold or have securitized nearly half — roughly $5 trillion — of all mortgages in the U.S., and in the current environment with private lender constraints, they account for the vast majority of all new mortgages in California.

 This bailout (oops, did I say bailout?) removes much of the risk to lenders of writing mortgages for under $729,000 locally, decreasing to $649,000 next year, because they can resell these loans to the government backed and now managed GSE’s.

But what about loans over $729,000? Well, Wall Street and the secondary market will still be willing to buy those that are considered low risk (excellent credit score, low loan-to-value ratio, verifiable income), but they will demand a risk premium for those loans, meaning that rates are likely to go up, taking us back to the bifurcated market for rates that we have seen in previous years.

 On his way to the SILVAR Golf Tournament yesterday, co-contributor and local mortgage banking hotshot of Absolute Mortgage Bank in Palo Alto gave this quick analysis of where he sees rates going (paraphrased here):

If you know you can sell off a loan to a government backed agency, you have very low risk, so you demand a low interest rate. However, as risk increases you will demand a greater “risk premium” to hedge against not being able to sell that loan, or the buyer defaulting on that loan. Right now we are seeing investors who are willing to lend the 20% to take a buyer from a 20% down, 80% loan to a 100% loan, but at 15% with 5 or 6 points. That’s expensive money, which is why it is dubbed “hard money”, but it offsets the risk to the lender.

 Eric thinks we could see Jumbo rates heading to the 8 - 9% region, which is still lower than in the 80’s, but the difference between a 6% loan and a 9% loan on $1,000,000 is $2500 a month just in interest.

 Let’s do some math. If you have an 80% mortgage on a median priced home in Palo Alto ($1,921,214, source Altos Research). That is a mortgage of $1,536,971, and payments increasing from $7685 @ 6% to $11,527 @ 9%. That’s a lot of $4.25 a gallon gas!

 So, if you are planning on buying a new home and you need to borrow more than $729,000 you may want to get out there looking sooner rather than later.

 To learn more about the takeover of Fannie Mae and Freddie Mac and what it means to your home purchase, check out a new video featuring California Association of Realtors Executive Vice President Joel Singer at http://www.car.org/newsstand/video-js-gse. In “Fannie and Freddie: Why They Matter to You,” Joel explains the often confusing but critical role Fannie Mae and Freddie Mac play in the housing market in clear and concise terms.

Thanks for reading . . .

Tags: 2008 loan limits, 2009 interest rates, 4---mortgage-mania, bailout, Fannie Mae, Freddie Mac, interest rates, Jumbo Loans, mortgage bailout, treasury

Mortgage Mania 18 - Can You Say Taxpayer Bailout?

What The Government Seizure of Fannie Mae and Freddie Mac Means To You

Unless you have been hiding under a rock the past couple of days, you couldn’t miss the announcement that the U.S. Department of the Treasury has placed government backed mortgage companies Fannie Mae and Freddie Mac into a conservatorship. Under the terms of the deal, the federal government is authorized to take up to an 80 percent stake in the companies, and, as part of its duties under the conservatorship, will review both Fannie’s and Freddie’s financial condition quarterly, as well as inject money into the operations as needed. 
of Stern Mortgage in Palo Alto had this to say about the Treasury Department’s move.

“To promote market stability, the companies will be allowed to buy more mortgages through the end of 2009. However, starting in 2010 the number of mortgages they own will gradually be reduced at a rate of 10% per year, eventually stabilizing at about $250 billion.”

 As part of this weekend’s action, both CEOs were relieved of their duties and Herbert Allison, former Merrill Lynch vice chairman, and David Moffett, former U.S. Bancorp CFO, were selected to lead Fannie Mae and Freddie Mac, respectively.

The markets cheered the move with the NYSE and NASDAQ rallying on the news, and mortgages rates for conforming loans (under $650,000 in 2009) fell almost half a point.

 All great news, mortgage rates fall, and the housing slump is averted, right? Not so fast there partner . . .

In a statement released today by the California Association of Realtors (C.A.R.), concern over the long-term impact of the move was expressed with the following cautionary forecast:

“Without an institutionalized mortgage-backed securities market, mortgage capital eventually will be less predictable and more expensive, and adjustable-rate mortgages could become the standard loan for home buyers, as could higher down payment requirements. The 30-year, fixed-rate mortgage as we know it will no longer be readily available for most home buyers and may effectively disappear. The result could be a dramatic decline in homeownership rates in California and across the nation.”

C.A.R. is concerned that the Treasury, and Fannie Mae’s and Freddie Mac’s new CEOs, will overreact and change the mission and role of the GSEs. Wall Street and investors are understandably reluctant to buy mortgage backed securities (MBS) that are not either originated from or guaranteed by Fannie or Freddie.”

I added the underlining for emphasis because what nobody is talking about is JUMBO loans. Those mortgages above $729,000 (over $650,000 in 2009) that are part and parcel of almost ALL sales of single family homes here in Silicon Valley (the median home price in Palo Alto this week is: $1,921,214, courtesy of Altos Research).

In summary, while this is a good move for conforming loans, and the majority of potential homebuyers across the country, high-cost areas like Silicon Valley may once again be left out in the cold.

Stay tuned for our next edition of Mortgage Mania - The Jumbo Strikes Back

Thanks for reading . . .

 

Tags: bailout, California Association of Realtors, Fannie Mae, Freddie Mac, housing market, housing market turnaround, Mortgage, Palo alto housing market, silicon valley economy, silicon valley real estate

Hate Speling Misstakes And Bad Pictures in the MLS? Support My Campaign For NAR President And Put an End to this Nonsense once and for all

Having a little too much post-Inman fun and excitement…

Tags: Humor, Industry, NAR

Geeks Of The World Rejoice! Behold The First-Ever Twitter-MLS!

I’ve been accused — rightly, I might add — of being a geek. I also happen to be in real estate. You put the two together, plus a keen interest in using new social media tools like Twitter, and what do you get? The Twitter-MLS!

For a long time, MLS searches have been available via email. Recently, some real estate search providers — like our friends at Trulia and at Diverse Solutions — have enabled MLS searches via RSS feeds. (That’s actually the technology I use on the sidebar to provide the link searches.)

As the latest new big online thing, Twitter has attracted a massive cult following, and as a permission-based communication tool, it’s ideal for sending out news snippets such as new listings.

Here’s how it works:

1. Sign up for an account at Twitter if you haven’t done so already.
2. Head thither and “follow” my Twitter “Menlo Park MLS” account. Other towns in the Bay Area will follow shortly.
3. Sit back and enjoy the “tweets” that will come your way by cell phone, email, Twhirl, online (depending on how you configure Twitter). These “tweets” will be little news snippets about new homes to hit the market. Want more details? Click on the link in the tweet and you’ll see pictures, details, and much much more.

If you’re more of a FriendFeed type, I have the same offering available in FriendFeed room format. Find your way yonder, select your favorite city, and click “Join This Room.” And, as our British cousins would say, “Bob’s your uncle!”

FriendFeed room example for Burlingame:

Twitter example for Menlo Park:

Tags: FriendFeed, Real estate, Real-estate-technology, Technology, twitter

Wine Country Agent One-ups Us

About a year ago we did what may have been the world’s first virtual open house.  Alas, we’ve been one-uped by Pam Buda, a Coldwell Banker agent in the wine country north of San Francisco.  In conjunction with Trulia, she’s live-web-casting her open house in Healdsburg today.

As video becomes more mainstream and more accessible via technologies like Qik, Mogolus, and ustream, this sort of event will probably become more common.

Pam Buda gets my vote for this year’s real estate Oscars!

Tags: Healdsburg, Open houses, Trulia

From The “I Missed That Class Where We Talked About ‘Place Value’” Department: Palo Alto Per-sq-ft Prices Drop Precipitously Down From $75,000

In a former life, I was a middle school math teacher. In the Peace Corps. In Botswana. I distinctly remember spending a number of days teaching about the importance of place value in numbers — you know, the concept that decimal points and zeros aren’t just decorations. .32 and 3.2 and 32 and 320 are distinctly different.

As far as I know, none of my former students are Realtors in Palo Alto. Which might explain this juicy little chart from our friends at Altos Research:

Note the drop in per-sq-ft prices a few years ago, from $75,000 per sq ft down to perhaps only a thousand bucks a sq ft. Then, a massive run-up back to over $20,000. Then back down again. Kind of like a scary roller-coaster ride.

Even during the incredible run-up in real estate prices, trust me, we were never at $75,000 per sq ft! The explanation for that chart? Simple: Every now and then a listing makes it onto the MLS with a misplaced decimal or zero. A $2,000,000 home gets listed for $200,000 (these mistakes are typically corrected quite quickly when the listing agent gets 100 phone calls in the first hour from agents wanting to make offers.) Then a $700,000 home gets listed for $7,000,000. (These mistakes take longer to correct. The agent wonders why nobody comes for the open house, then figures it out.)

Then there’s the square foot mistake, where a $1,600,000 home (price entered correctly) gets its floor space shrunk from 2000 sq ft (correct) to 2 sq ft (incorrect.) Voila! This home now costs $800,000 per sq ft! A few of these in the same week, and poof! Up goes that average!

Athol Kay has proved that, as a species, we Realtors aren’t that good at taking pictures. But for the love of God, people, can we please please please remember the importance of correctly-placed decimal points and zeros!

Tags: Altos Research, Palo Alto, realtors

Right Along With the Grunge Look, the Housing Crisis is Over

Yes, for those of you gents who still may be holding on to the rather relaxed “grunge” look from the 1990’s, I’ve got a newsflash for you: grunge, along with the current housing crisis, is over.  

Articles about the housing crisis ending have been few and buried in their respective periodical, my favorite of which was in TIME magazine back in February titled, “Ignore the Headlines“.  But now we have the Wall Street Journal. claiming that the trough was reached in April with an article from May 6, “The Housing Crisis is Over“.

I agreed with Peter Lynch back in February.., and it’s becoming more an more apparent that the longer prospective home-buyers sit on the fence, the more expensive that home purchase will become.  And this is not just because I believe that home prices will rise, it’s also because I believe that both long and short term interest rates will rise.  The 10-year Treasury Note, for example, is up over 1/2% since the middle of March, and the 10-year Treasury Note is a decent barometer to use when you want to know what the trend in long term mortgage rates have been.

That written, if you really want to continue with the grunge look, might I suggest saving it for your next camping trip?

As always, kindly consult with your trusted real estate, tax and mortgage professional before seriously considering any home purchase.

Tags: Consumer, For buyers, For sellers, Industry, Mortgage, Palo Alto, palo-alto-real-estate, Real estate, Real estate blogging, real-estate-market

Public Service Announcement: Nationwide Home Mortgage Loan Company Is Stealing Content

Another despicable splogger is stealing content from various places on the Internet, including this blog.  Sadly, the side gives no contact information, so I’m not able to send my usual polite “cease and desist” notice.

Hopefully this post and picture — which will soon appear on the Nationwide Home Mortgage Loan Corporate blog — will embarrass the owners into stopping this nonsense.

Tags: Industry

Symantec Issues High-Priority Security Patch For Trulia Widgets, Called

Symantec, the Internet security firm, today released what they described as a “code red” security patch for all real estate bloggers currently using the now-infamous “Google Juice Sucking” Trulia widget.

Tipped off by an anonymous Active Rain’er who had come across this discussion thread, which in turn had been prompted by good investigative sniffing [sniff one, sniff two, sniff three] by the pack at Bloodhound, Symantec’s elite Taskforce Realty Internet Permission Experts (TRIPE) worked through the night to come up with a patch. The head of TRIPE, Dr. Francois Viande-Fichu, released the following press statement:

With thanks to the ever-vigilant Active Rain-droppers for tipping us off, we were stunned to find some pretty damning evidence of foul play in Trulia’s widget, which unsuspecting Realtors have been deploying on their web sites in droves. Trojan Horses are one thing, but what they’ve come up with is something far more nefarious: a Peloponnesian Unicorn.

The Trulia widget does the following:

• Sucks out the hosting web site’s Google Juice, especially the Raspberry flavor.
• Decreases the hosting web site’s Google Page Rank to negative 5.
• Installs a little Trulia MarkerMan on the desktop whose eyes follow you around as you surf, and they roll sarcastically whenever you visit Zillow’s site.
• Automatically and instantaneously rises Trulia to the top of the Google rankings for all searches related to the host site.
• Makes the web site owner/blogger start chanting Gregorian hymns in the original Latin.
• Refers all incoming traffic to the hosting site’s owner’s fiercest competitor, in exchange for a 25% referral fee.

When challenged to provide evidence of the above, Dr. Viande-Fichu displayed the following code embedded into each Trulia Widget.

;
While {5>1 DO:
Trulia.PageRank = Site.PageRank*2 / Slurp.Giant.SuckingSound;
Site.PageRank=-5;
Install.Icon = http:/trulia.com/images/trulia_markermen_icon.gif; option bug eyes=”true”;
If Site.Visit=”Zillow” Do {Icon.Roll.Eyes And Sigh.Loudly};
Google.LocalSearchRankings.Site.City = “Truliawful”;
Trulia.LocalSearchRankings.Site.City = “TopOfFirstPage”;
Launch Latin.hymns.InstanceGregorian;
End Do}
?end Php>

Agents who’ve installed this widget are advised to uninstall it immediately, then put the following badge on their web site to protect them in the future:

To install this widget, do the following:

1. Download this file to your computer.
2. Open the file in Notepad or some other text editor.
3. Copy and paste the contents of the file into a sidebar Text widget.
4. Rinse and repeat.

Full disclosure:

1. I did a consulting project for Trulia last year.
2. Trulia out-ranks my site for many Google searches.
3. My site outranks Trulia for many other searches, including, most significantly, peace corps volunteer botswana real estate palo alto.
4. Trulia’s no-follow policy applies, as far as I know, consistently across all broker’s listings, including mine.
5. No animals, Realtors, or SERPS were harmed in the production of this post.
6. Void where prohibited.
7. Do not ingest.
8. This blog is not a toy. Keep out of reach of children.

Tags: Humor, Industry, Trulia

A Perfect Example Of Co-opetition: The Real Estate Industry … Barry Nalebuff Would Be Proud

Maybe it’s the frustrated business school professor in me, or the memories of sitting in Professor Barry Nalebuff’s classes during business school, but what has fascinated me the most about the ongoing debate about Trulia’s no-follow outbound listings links (started here by Galen Ward, then continued here, here, here, and here) is not the arcana of the no-follow tag, not the dissection of SEO intricacies, and not really even the question of what is or is not appropriate to do with listings online.

No, what really fascinates me about this debate is how it accentuates co-opetition in the real estate industry.  Co-opetition is simply the notion that companies compete and co-operate simultaneously.  Arch-rivals Northrup Grumman and Boeing go mano-a-mano to get a lucrative government contract … and the winner often subcontracts part of the project to its rival.  Microsoft and Oracle have competing database platforms but often sell eachother’s products.

In our industry, co-opetition reaches nearly incestuous levels.  For instance:

• Brokers John and Betty compete for the listing at 123 Main Street.  Betty wins and puts the property on the MLS.  The very next week John brings potential buyer clients to the property.  Sure, he would rather have won the listing, but that’s in the past.  Now he’s working with Betty to consummate the transaction.  No hard feelings.
• Realtor Bob hangs his license with ABC Realty.  He puts an ABC Realty sign on the front lawn of all his listings, and the ABC Realty logo is prominent in all his media ads.  He’s co-operating with his real estate brokerage to promote their brand, and he in turn benefits from that brand awareness.  Co-operation.  A phone call from a prospective buyer of one of Bob’s listings, however, may well go through to the agent on “floor duty.”  That agent turns this phone call into a client, who goes on to buy a different listing, not Bob’s.  That’s competition — Bob would have loved to get that phone call and turn it into another client, but his competitor — the other agent, and to some extent his own broker — snagged that client.  Co-operation plus competition = co-opetition.
• A thousand local brokers — each fierce competitors — co-operate to run a local MLS.  They put their competing listings up on the MLS, and they compete to bring buyers to each of the listings.  At the close of each transaction, we again have co-opetition — competing parties co-operating for the sake of the deal.
• Broker Tom snags a listing and puts it on the MLS.  Via the wonders of IDX, that listing spreads its tentacles onto a thousand other sites, including that of arch-rival Broker Sarah.  As long as Broker Sarah indicates that Tom is the broker of record, it’s all good.  Her site is much better than Tom’s, so she gets more traffic and hence more clients online.  The fodder that draws in those visitors?  Listings … not only her own, but also Tom’s.
• Broker Rachel gets the listing at 789 Elm Street and puts it on the MLS.  She also puts it on Trulia, which, like the MLS itself, exposes the listing to a much broader audience than she could reach on her own.  She benefits from the increased exposure, and Trulia gets more inventory to display.  It’s a win-win — co-operation at its finest.  The next day, a prospective homebuyer passes 789 Elm Street and Googles the address to find out more.  Who’s on the top page?  Trulia and Broker Rachel’s listing site.  Now they’re competing — for web traffic.

There really is nothing new under the sun.   This business has always been a co-opetitive one, and we’ve always simultaneously co-operated with and competed against not only every other broker, but many of the third-party advertisers, aggregators, and media companies.

Tags: Industry, MLS, Real estate, Trulia

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