My favorite online news source, The New York Times, ran a story today “Dubious Fees Hit Borrowers in Foreclosures” in which the writers interviewed Katherine M. Porter, associate professor of law at the University of Iowa. In a review of many loans that are now going into foreclosure, Porter found that questionable practices among lenders are leading some experts to contend that lenders are taking advantage of higher-risk borrowers and those facing foreclosure.
“Because there is little oversight of foreclosure practices and the fees that are charged, bankruptcy specialists fear that some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures.
Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question.
“Regulators need to look beyond their current, myopic focus on loan origination and consider how servicers’ calculation and collection practices leave families vulnerable to foreclosure,” said Katherine M. Porter, associate professor of law at the University of Iowa.”
You may be asking what this means to you in Palo Alto, happily making your payments on your $1+ million mortgage on your $2.4 million median priced home (no, that isn’t a typo!). As Mortgage Manics have heard me say before (OK, read), national lenders use a mostly one-size-fits-all approach to lending, meaning that practices and guidelines that are developed and applied to home buyers in Iowa, Tennessee and Colorado are also applied to us here in Silicon Valley. As a result, if you are reading about unscrupulous practices and excessive fees by national lenders that are being exposed in areas with high foreclosure rates, you may want to check the fine print on your mortgage and see what you are paying for in addtion to PITI.
In addtion, Porter found that lenders didn’t provide accurate payoff amounts for their loans to consumers, with one claiming they were owed $1,000,000 when the actual payoff amount was $60,000. That must be that fuzzy math stuff . . .
Countrywide was recently sanctioned by a court in Pittsburgh for losing or destroying over $500,000 in checks between December 2005 and April 2007 for homes in foreclosure. These are the companies holding the title to our homes, so we need to keep an eye on them.
You can read the full text of the article here.
On that happy note, have a great week, and thanks for reading.
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October 31st, 2007 · 1 Comment
Dsiclaimer: The following post is based on a presentation by Christopher Thornberg, an economist at Beacon Economics, that I attended last night, courtesy of my accountant, Tom Wagstaff of Petrinovich, Pugh and Co. This is a departure from my normally upbeat view of the local economy, and fortunately they re-opened the bar following the presentation for all the Realtors in the audience to drown their sorrows.
Economist Chris Thornberg showed some pretty convincing evidence for his expectation that housing prices will fall between 20% and 25% over the next couple of years, primarily because the ratio of home prices to incomes is higher than anytime in history, almost double the peaks in previous economic cycles. Gloom and doom for an hour, ah it brought tears to the eyes of many a Realtor in San Jose. Smugly I said, ” . . .but I live and work in Palo Alto, land of Stanford, Venture Capital, Facebook and Google! Sushi on every table and a BMW in every driveway! We are our own little world here, so we don’t have to worry about the housing market meltdown in Nebraska, or even the East Bay.”
Not so fast. The lastest housing boom has been driven by increasing housing prices, driven in part by cheap credit and loans. More people got these loans, bought more expensive houses, so the demand for these loans went up, and the cycle accelerated.
Now the appreciation is going the other way (flat to negative), and the equity that has driven consumer spending over the last few years (cash out refi = new boat), has gone away (bye, bye boat, and house!). Thornberg forecasts that the subprime meltdown will be followed by Alt - A defaults (already happening) which will pull down the high-end markets from below (that would be Palo Alto, Los Altos, etc.). Even if the Fed were to reduce interest rates to 0%, it wouldn’t fix this mess. Much like last night’s temblor in San Jose, Palo Alto will be on the periphery of this shakeup. We won’t be knocked flat, but we will rock and roll a bit, and not in the fun way. Sigh . . .
To add to the gloom, I have been attending recent forums for candidates for Palo Alto City Council. Whether the topic is Palo Alto’s aging libraries, or green initiatives, the same topics keep coming up: Infrastructure, Schools, Tax revenue.
If you live or work in Palo Alto, I highly recommend you take an interest in the upcoming City Council race and the issues the candidates are raising. You can learn more about the issues and candidates on the Palo Alto Weekly website.
Happy Halloween!!
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Palo Alto high schools refuse to join Newsweek survey of best schools - SJ Mercury News, May 21, 2007
When I saw the above article in yesterday’s Mercury News, I nearly spit a perfectly good latte all over the paper.
The schools in Palo Alto are a major driver of real estate values in the city and are consistently marketed and believed to be the best public schools in the area.
The local real estate community feels so strongly about this that they have an annual drive for donations to Partners in Education, to solicit donations for Palo Alto schools. In return for their generosity, local real estate agents who donate get their picture in the paper as a thank you for being donors and supporting Palo Alto schools. In recent years there has been quite a competition between the various real estate companies in Palo Alto for who donates the most money, which is kind of losing sight of the point of things, but I digress . . .
Interestingly, in Newsweek’s 2006 rankings, we saw a disparity in the rankings between Palo Alto High School and Gunn High School, with Paly coming in below Los Altos High and Cupertino’s Monta Vista.
Article excerpt:
Last year, Gunn High School in Palo Alto ranked 79, and Palo Alto High School ranked 361. But this year, prompted by concern at both high schools, the Palo Alto district refused to send in Newsweek’s required forms.
“We don’t want to be a part of it,” said Gunn Assistant Principal Tom Jacoubowsky.
Said Marilyn Cook, associate superintendent of the district: “It’s a very simplistic premise that the quality of a school can be measured by the number of AP tests students take.”
Gunn neither ranks students nor chooses valedictorians.
“We’re trying to do things to avoid and alleviate student stress,” such as reducing pressure to take advanced placement classes, Jacoubowsky said
Interesting stuff.
This also lends fuel to my personal fire that as increasingly affluent and educated people are moving into cities like Mountain View, they are injecting more money into the schools, while also demanding more of the administration. I prognosticate that we will begin to see increasing parity between Palo Alto public schools and those of the surrounding communities. If this happens, the upward price pressure resulting from a demand for homes in Palo Alto in excess of Supply could be lessened, leading to a stagnation of home prices or even sales.
Heresy! You say.
We will see. In the meantime I welcome your comments and tirades. I don’t pretend to be an expert on education or even to play one on TV.
You can see the rankings for local schools on the SJ Mercury website here.
Thanks for reading.
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Last week I mentioned an article written by friend and colleague, Rachel Van Emon at OPES Advisors on the ripple effects of the sub-prime lending crisis and impending changes in lending guidelines.
Things move quickly in this market and industry, so I wanted to draw your attention to a recent article in the San Jose Mercury News saying that the impact will be minimal in the local market, except for some first - time buyers. The sky isn’t falling.
However, the article goes on to note that lenders have changed their guidelines, and that highly leveraged loans that are the bread and butter of first-time homebuyers are going away.
Quote: “He cited a recent young client with a credit score of just over 660 but a relatively short credit history, who is looking to buy her first condominium using 100 percent financing.
“With the guidelines changing, now some of the lenders who would have taken that three weeks ago … can’t do it today,” he said.”
Assuming this young buyer has good cash flow and a salary-based job, she should be a pretty good credit risk for a mortgage. That is how I bought my first home. Local prices are sky-high already, and this could be another barrier to entry for many.
It’s not only first-time buyers who are short on savings and didn’t pick their parents well who are affected. Bay Area buyers are financially sophisticated, and have used interest-only and other non-traditional loans to allow them to divert cash that would be spent on traditional mortgages into higher return investments. Reducing their ability to do that could dampen some of the enthusiam that is contributing to the currently hot market.
Thank for reading, and I welcome your comments.
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Real estate predictions
August 31st, 2006 · No Comments
Every expert has their views on where real estate prices are headed. The various realtor associations regularly issue market forecasts, each real estate professional has his or her own prediction for a particular area, and of course there are also numerous housing economists who opine regularly on the market. But what does the general public think about housing prices? Our friends at www.inklingmarkets.com have come up with an innovative way of finding out, using “prediction markets” or “knowledge markets.” The notion is that if you create a market where people can buy or sell “shares” in certain future events (such as what median home prices will be in a month), the aggregate buying and selling activities of those people will lead to a general consensus. Think of it as being sort of the real estate equivalent of fantasy football. To test out the idea, I’ve created a sample market at Inklingmarkets.com called “Bay Area Real Estate Market in Sep ‘06.” Trading volumes are still a bit thin, but the current market prediction (as of 9:45pm on 8/31/06) for Palo Alto median home sales prices in Sep ‘06 is $1,280,000. Think that number is too high or too low? Go to www.inklingmarkets.com and voice your opinion by buying or selling “shares” in Palo Alto.
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