Category Archives: News

Mortgage and loan related entries

“Zillow Talk: The New Rules of Real Estate”: Zillow Tries Too Hard, Tips Its Hand; the Future of Real Estate Isn’t Here Yet (But It’s Close)

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Zillow Talk: The New Rules of Real Estate, by Spencer Rascoff and Stan Humphries

Reviewed by Craig Blackmon

This book by Zillow’s CEO and Chief Economist, respectively, is a wonderful advertisement for Zillow. It’s also a good book. It’s easy to read – really easy, clearly written to appeal to the broadest spectrum of readers – and very informative. It does a good job of illustrating the power of data and how it can be harnessed to make the most informed investment decision possible when buying a house.

But the book aims higher. It concludes with some stirring language about the power of data (don’t worry, this doesn’t require a Spoiler Alert): “Numbers don’t lie. And they won’t lead you astray. Indeed, they’ll help you find your way home.” (The same expression dominates the Zillow home page.)

Ah, home. The term is associated with so many wonderful things: family, laughter, love, shelter, protection, and on and on. “Home” is not just a place. It’s a very special place, a destination that is both more common and more unique than any other.

Is this book going to help you find your way to your home? Probably not. In fact, I hope not. Home requires more than a well-researched financial decision. Much more. Besides, any prediction of the future is just that, a prediction, and in the meantime life marches on. A good life needs a good home, regardless of the financial future.

With its focus on the trees and not the forest, the reader is left with a sense that it is much ado about nothing. The book relentlessly promotes the web site, implicitly and explicitly, from start to finish. You’re left wondering: Is that it? Has Zillow really changed real estate? The web site provides useful insight, sure. But it hardly upends real estate, an industry that continues to operate on a 19th Century model. Does Zillow show us the final, evolved real estate industry of the modern, technological, information age?  I mean, nobody uses a travel agent or a stock broker anymore….

The answer is revealed by a closer examination of Zillow and the people behind it. I believe Zillow is an ongoing project that will change dramatically as real estate evolves. And it will be instrumental in that evolution. But Zillow itself cannot lead the change. And in the meantime, it uses a business model that keeps it in business, biding its time until the eventual evolution.

This book is a “must read” for investors and real estate brokers, but not homeowners

In other words, folks who make a business out of real estate will benefit from reading this book. It does an excellent job of demonstrating how data – available via zillow.com, a constant underlying refrain  throughout the book – can be used to calculate a property’s current and future value. So if the primary and essentially sole reason for purchasing a house is to make money (or if you sell houses yourself), this is a great book. It’s loaded with a lot of great insight.

For example, did you know that proximity to Starbucks is a good indicator of better appreciation? (Chapter 4) Or that you should list your home between March Madness and the Masters if you want the best chance at the best price? (Chapter 12) Fascinating stuff and worth considering when you are investing hundreds of thousands of dollars. A slightly better percentage return, thanks to in-depth analysis of the available data, can lead to quite a bit more money.

But if you’re looking to buy a home, don’t bother with this book. It’s myopic focus on dollar values simply doesn’t foster a good decision when looking for a home. Should you take into account financial considerations? Of course. But the primary focus should be on finding the right home for you and your family. So, while good schools may be an indicator of future value (Chapter 6), that shouldn’t be the focus. Rather, look for good schools so that your kids get a good education. This is a home. Not just an investment.

Zillow Is Setting the Stage for the Future of Real Estate

In its current iteration, Zillow doesn’t really do  much in terms of bringing the real estate industry into the 21st Century. As the book makes clear, Zillow simply wants to attract as many visitors to its web site as possible. Why? Because Zillow makes money as a lead generator for today’s real estate brokers.

In other words, Zillow currently complements and feeds off of traditional real estate brokers. The more people who use the Zillow site, the more leads that Zillow generates, and thus the more money it makes. Zillow is built on web traffic, nothing more. And it doesn’t do anything to disrupt a long-standing traditional industry, because that industry is it’s target market.  Even though that same industry is ripe for disruption.

Which is weird. Because the guy who co-founded Zillow previously co-founded Expedia. The web site that put travel agents out of business. Rich Barton is a widely recognized and highly regarded “disrupter.” His motto is “power to the people.” He believes that the internet can empower consumers in new ways that lead to better and more efficient ways of doing things. According to Mr. Barton, his companies Zillow and Expedia have “created new opportunities for new professionals to make new businesses for themselves.”

Except that Zillow hasn’t. Not yet, anyway. It’s merely expanded existing opportunities (lead generation) for a long-standing professional industry that allows it to sustain it’s dominant market position. Nothing new there.

But what if Zillow is a work in progress? What if, in only the highest level strategic planning documents, there is a plan for Zillow 2.0? That would start to make some sense.

What the Future of Real Estate is Going to Look Like

Today, there are two ways to sell your home: FSBO, or using the traditional cooperative real estate broker system. Home sellers can market their properties via many different channels other than the local MLS. Including, of course, Zillow, which shows both “Make Me Move” and true “for sale by owner” listings. So an owner is empowered by the internet and can forego using the real estate broker system, which includes payment of a commission to a cooperating agent.

But what if the home seller wants the professional insight and counsel of a real estate broker? From advice on preparing the home to market, to staging, to keeping the seller informed and educated, a real estate broker provides substantial value. And the broker is a trained marketing professional who will efficiently and effectively utilize the full array of marketing channels available in the 21st Century: yard sign, flyer, and open houses and tours, of course; but also web sites and social media.

Today, that real estate broker can exist, thanks to Zillow. With its brand recognition and size, it is used by a large number of home buyers. A “listing” on Zillow can lead buyers to the home, without paying for other agents to bring them. So a home seller can sell for a fraction of the cost, as they will no longer need to pay the 3% buyer agent commission.

In other words, Zillow has positioned itself to be one of the successors to the multiple listing services maintained by cooperating real estate brokerages all over the country. And by positioning itself there, it provides the platform necessary for meaningful change in real estate. But until that change happens, Zillow will sustain itself (and its shareholders) by working within the existing system.

 

Springtime in Seattle — Its Beautiful! Its Magical! :-)

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I’ve recently become enamored with Realty Times, a rank booster site for the real estate market. I love it because, every once in a while, the enthusiastic cheerleading leads them to pull back the curtain a little more than they intend. The resulting insight can be delicious.

Naturally I assumed that the Seattle Times, while sharing the same moniker, did not share the same approach to “news.” I mean, they’re journalists, right? Devoted to an impartial uncovering of the “truth,” right?

Maybe not. Yesterday’s Seattle Times had some good insight into the local housing market, but the title of the piece was a little, er, disingenuous: “More spring in local home sales, but too soon to call it a trend“. That headline paints a pretty bright picture, all things considered. But the body of the article strongly suggests otherwise.

Here are my cherry-picked excerpts from the article:

Buyers closed on 1,525 houses last month, according to statistics released Wednesday by the Northwest Multiple Listing Service. As expected, that number was lower than in March 2010. But the decline — 4.5 percent — was “less than you might have otherwise expected,” said Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University.

[T]he relatively small year-over-year sales decline is “a little bit surprising, considering we don’t have that deadline hanging over buyers’ heads,” said Tim Ellis, editor of the usually bearish Seattlebubble.com real-estate blog.

But both Ellis and Crellin said a steeper, 11 percent year-over-year drop in pending sales — offers that were accepted by sellers in March, but haven’t yet closed — could bode ill for the market as spring turns into summer. Fewer pending sales now should mean fewer closed sales later, they said.

So the decline was less than expected, and forward-looking data suggests further, steeper declines. I’m no meteorologist, but that doesn’t sound like any sort of “Spring” to me. Moreover, I was pretty adept at the ol’ pogo stick when I was a kid, so I know a “spring” when I see it — and this simply doesn’t qualify.

My “Huh?” moment was only heightened when I pointed my browser to my third favorite blog (until he adds me as a contributor, anyway), Seattle Bubble, the primary vehicle for Mr. Ellis’s insights. Given that he’s quoted in the article — an article noting that “spring” in the market — I assumed his post for the day would have a similar tone. The title of his post? “NWMLS: Sales start to tumble, inventory still sucks.”

That’s when it suddenly all made sense. Sure, its “Spring” in the housing market — just like in Seattle, where its cloudy, drippy, and about 50 degrees. Ah, the joys of Spring…..

The Fed Leaves the Funds Rate Unchanged

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benbIt’s no surprise that the Federal Reserve left the funds rate at the current lows of 0 – 0.25% on the heals of continued weak housing data.   What investors are looking for is “what” is being said in the FOMC Statement that is released in conjunction with their rate decision.

If you have a home equity line of credit that is tied to the prime rate, your rate should be unchanged (for now).   Otherwise, this decision does not have a direct impact on mortgage rates.  It does influence the markets (stocks and bonds) which impacts mortgage rates.

Here’s what I extracted from today’s Statement:

Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit….employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months….subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

Prior to the FOMC Statement, mortgage backed securites are flat (but still at record levels with very low mortgage rates).   Follow me on Twitter to see live rate quotes.   If I have intraday rate changes today, I’ll update this post.

Merkley Amendment Will Transform LO Compensation

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The Senate has passed an amendment to the Wall Street Reform bill that would ban loan originators from accepting compensation based on placing a consumer in a higher interest rate loan or a loan with less favorable terms.  The amendment also requires lenders to underwrite loans to assure a homeowner’s ability to repay the loan.

As you can imagine, loan originators everywhere are outraged.

Imagine not being able to earn extra compensation for selling a higher rate loan! Imagine making sure that homeowners can repay their loans! 

Wait a minute. Isn’t that the world we currently live in right now?

The horror we’re leaving behind if this amendment becomes law was the predatory lending frat parties of 2006.  From what I can tell, most (not all) of that is behind us. What are we really losing with the passage of the Merkley-Klobuchar Amendment?

Mortgage brokers have to disclose all yield spread premium earned as fee income on line 1 of the new Good Faith Estimate.  They will not be losing anything new.  It can be argued that mortgage brokers should have lost the ability to earn yield spread premium because it was horribly misused not by “an unsavory few

The Federal Reserve’s proposed changes to Regulation Z (Truth in Lending)

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benb

If you’ve been following Ben Bernanke’s testimony on the Hill this week, you may have noticed him hinting about significant proposed changes to Reg Z and changes in how mortgage originators are compensated, leaving many of us in the industry wondering “what now”.   Don’t get me wrong, Reg Z could use some tweeking…it’s just that the mortgage industry is in a state of constant change (evolution?) with a deluge of new forms and/or regulations including MDIA, HVCC and the new Good Faith Estimate which goes into effect on January 1, 2010.

From this morning’s Press Release:

“Our goal is to ensure that consumers receive the information they need, whether they are applying for a fixed-rate mortgage with level payments for 30 years, or an adjustable-rate mortgage with low initial payments that can increase sharply,” said Governor Elizabeth A. Duke. “With this in mind, the disclosures would be revised to highlight potentially risky features such as adjustable rates, prepayment penalties, and negative amortization.”

Closed-end mortgage disclosures would be revised to highlight potentially risky features such as adjustable rates, prepayment penalties, and negative amortization. The Board’s proposal would:

  • Improve the disclosure of the annual percentage rate (APR) so it captures most fees and settlement costs paid by consumers;
  • Require lenders to show how the consumer’s APR compares to the average rate offered to borrowers with excellent credit;
  • Require lenders to provide final Truth in Lending Act (TILA) disclosures so that consumers receive them at least three business days before loan closing; and
  • Require lenders to show consumers how much their monthly payments might increase, for adjustable-rate mortgages.

The Board will also work with the Department of Housing and Urban Development to make the disclosures mandated by TILA, and HUD’s disclosures, required by the Real Estate Settlement Procedures Act, complementary; potentially developing a single disclosure form that creditors could use to satisfy both laws.

In developing the proposed amendments, the Board recognized that disclosures alone may not always be sufficient to protect consumers from unfair practices. To prevent mortgage loan originators from “steering” consumers to more expensive loans, the Board’s proposal would:

  • Prohibit payments to a mortgage broker or a loan officer that are based on the loan’s interest rate or other terms; and
  • Prohibit a mortgage broker or loan officer from “steering” consumers to transactions that are not in their interest in order to increase the mortgage broker’s or loan officer’s compensation.

Clarity and transparency for consumers is a must with the mortgage process.   I’m not sure what to make of this line:  “Prohibit payments to a mortgage broker or a loan officer that are based on the loan’s interest rate or other terms“.     Mortgage rates are increased or decreased based off of paying points which includes the mortgage originators compensation.    Perhaps the FOMC would like to see mortgage originators be paid hourly instead of based off of rate…I’m all for that!  🙂

No Big Rate Surprise with the FOMC

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The FOMC wrapped up their two day meeting leaving the Funds Rate unchanged.   The target rate is remaining at 0-0.25%.  Now that this decision has been formally announced, everyone will be reviewing the Fed’s statement for clues on when they will begin to raise the Fed Funds Rate.

From today’s FOMC Statement:

…the Committee expects that inflation will remain subdued for some time.

As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability.  The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

Are Loan Originators at Bank Home Loan Centers in Jeopardy?

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I have been focused on what the big banks are doing to the mortgage broker industry because as someone who works for a correspondent lender, it’s closer to home.  I am convinced that the big players are attempting to wipe out the mortgage broker industry while smearing it with mortgage meltdown blame so they can keep their hands clean.   (If anyone can provide proof of a bank admitting they created mortgage programs and guidelines that were instrumental in creating our current climate, I’d appreciate it).   I believe some major banks see this period in history as a grand opportunity to grab as much mortgage market-share by stepping on the little guy.   And it appears they may be doing it to their own mortgage originators who are employed at home loan centers.

Over the weekend, The Seattle Times covered a local story about how a group of employees from JP Morgan Chase’s home loan center in Bellevue “made some mistakes” when they “jumped ship” for a mortgage company.   What struck me, besides what it’s reported the employees did, was their reason for leaving:

“What prompted the mass migration.  According to written statements from the lending officers, last fall it got increasingly difficult to complete the deals they lined up after Chase moved it’s loan processing from Bellevue to Tempe, Ariz.  And in January they were told their work would be shifted into the bank’s branches….”

JP Morgan Chase has a much larger local presence with the acquisition of WaMU and their network of bank branches.   Will Bank of America do the same with Countrywide’s home loan center loan originators?   I’m assuming that loan originators located inside a bank branch are not compensated the same.   Banks could employ people with less experience and originators who do not have their own client base…they’re counting on consumers to just walk on in and apply for a mortgage….just trust “the bank”.

I know that if I worked for a mortgage bank loan center, I’d bone up on my Teller skills.

Distressed Property Law Changes Pass the Legislature

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Proposed changes to the Distressed Property Law have passed both branches of the Washington State Legislature and the bill is headed to Governor Gregoire’s desk for her signature.  You can read the changes here. Real estate agents and Realtors are now exempt “from the definition of “distressed home consultant” when the broker or salesperson is providing services governed under the real estate brokerage laws and the services do not result in a distressed home conveyance.”

I have mixed feelings about the passage of the exemption. Real estate agents and Realtors were raging mad last summer when their liability increased under the original Distressed Property Law.  All through the summer and fall of 2008, agents swore up and down that they were going to avoid listing or selling short sales in order to limit their liability.  In a way, the Distressed Property Law had some good consequences: Only experienced agents were allowed to take short sale listings at some firms, and it became extremely important to make sure the homeowner was referred to legal counsel.  Short selling homeowners are often better served when their listing agent knows what they’re doing.  The home buyer is also better served when the seller’s listing agent is short sale-competent.  The Distressed Property Law brought this to everyone’s attention.  There were many agents who were very, very worried about increased liability.  So far, I haven’t heard about any lawsuits.

Something interesting started happening toward the end of fall, 2008.  November and December of 08 saw a remarkable increase in the number of real estate agents attending the Short Sale class.  Attendance went from, say, 15-25 agents all summer to 50-70 by December of 2008.  When I asked why they were in class, agents all agreed: “Short sales are becoming more and more of the percentage of available inventory.  We don’t have a choice anymore; we HAVE TO take these listings, even with the added liability. We need to pay our own mortgage and we also like to eat, Jillayne.”

So now real estate agents are exempt from the DPL (provided they’re not going to engage in a distressed home conveyance.)  This means we will see an increase in agents listing short sales left and right, whether or not they are short-sale competent. 

KLK and other agents have said that foreclosures would increase because of the Distressed Property Law.  I argued that it’s not the DPL that will result in more foreclosures but the normal unwinding of mortgage lending gone wild and that higher foreclosure rates will be with us for some time as homeowners who cannot afford their home loans sell or default and return to the housing market as renters.  As time moves forward through the rest of 2009, it will be interesting to see if, in fact, foreclosure rates decline.

FOMC leaves rates unchanged

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There’s really nowhere to go but up with the target Fed Funds rate.   From the Press release:

“To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.”

As of the time of writing this post, I have yet to see lenders issue new rate sheets for the better in spite of significant improvements with mortgage backed securities.    We should be seeing improved rates soon. 

If you are in the market for a mortgage, whether you are buying a home or refinancing, be sure to provide your Mortgage Professional with all the required documentation needed.   We are all ready in the midst of a “refi boom” and this will compound the delays.   

Real Estate Agents: I highly recommend that you make sure the mortgage companies you have transactions with prioritize purchases over refinance business. 

Homeowners who are considering refinancing:  watch out for mortgage originators who are promising quick closings.  Every aspect of the refinance transaction will become clogged.

Everyone needs to be patient.