Category Archives: General

Waiting on the Fed's Decision

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I’m preparing this post so I’ll be ready to publish as soon as I hear what movement, if any, the FOMC will take to rates.  I really can’t guess if they’ll leave the Funds rate unchanged or cut.  This morning, the Fed Funds Futures had a 100% change for a 0.25% cut and a 50% changes for a 0.50%.   Although  reducing the Fed Funds rate is great for home owners with HELOCs, it could mean higher mortgage interest rates for the rest of us.

And the decision is….(to be continued)…

Update September 15, 2008 11:15 am:  NO CHANGE!  In a unanimous decision, the Fed Funds rate remains at 2.0%.  You can read the entire press release by clicking here.

Lehman; Another Investment Bank in Dire Straits

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From the WSJ tonight:

The outlines of plans to determine the fate of Lehman Brothers Holdings Inc. emerged today even as it became increasingly clear that a clean sale of the entire firm to a big bank would be too difficult to execute.  A sense of optimism that a rescue could be arranged today dimmed as a growing sense of gloom descended on Wall Street. Executives from top banks in the U.S. and Europe huddled with federal regulators in an attempt to come up with plans to either buy pieces of Lehman or prepare for an orderly winding down of the firm in a manner that would minimize the collateral damage for the ailing global financial system. After 6 p.m., the formal meeting ended for the day with no resolution

Barclays and Bank of America were named as showing interest in purchasing parts of Lehmnan but neither wants to buy all of Lehman without some form of government help and so far the government has been reluctant to offer any assistance.

There is fear that fire-sale prices of what’s on Lehman’s real estate book could spark a problems for more Wall Street firms as they are forced to admit the street price of their assets.

Here is an actual ad posted on craigslist today, hat tip Dick from the CR comments:

Lehman Brothers (Midtown West)

Reply to: sale-837736866@craigslist.org
Date: 2008-09-12, 10:18AM EDT 

Hey guys — I’m looking to get rid of my investment bank. Nice assets. Slightly beleaguered. Will consider trades. Ask for Richard.

it’s NOT ok to contact this poster with services or other commercial interests

PostingID: 837736866

Sunday and Monday should be interesting. Anyone betting on a emergency rate cut?

In Honor of Sept. 11th.

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God Bless America and all those who serve including those who have sacrificed their lives.

This flag has flown at my house since 9-11.  For me, walking past the flag into my house has been a daily reminder of how lucky I am to live in America and how much sacrifice was laid before me, by prior family members of earlier generations, to enjoy the freedoms I have that we should never take for granted.

King County Median prices fall over 10% YOY. Quite frankly, maybe today's Seattle Times headline will help the market.

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This has been on my mind for a while, so I’ll throw it out there for people to discuss.  Sometimes a non-agent can introduce topics that the real estate community may be uncomfortable in discussing with their clients.  So, here goes…..

The topic:  Is this lousy news for sellers just the spice to get them to realize that the white- hot markets of 2005-2007 are long gone?

Price reductions have been taking place for sometime.  Months and months.   But, many have been token reductions and the conversations I hear and read on blogs is that,  in some instances, resistance has been fairly strong.

What good does it do when a seller who reduces a price by $3K on a $650,000 listing that has been languishing on the market for months?  If today, after weeks of small incremental reductions, the listing is priced at $550,000, there is no agent on earth representing a buyer that will take it seriously.  Especially after seeing the price reductions go on and on for months.   I don’t know who is torturing who:  the homeowner doing this practice or an agent who can’t pull the plug on the listing?  I’ve heard that not taking a listing is not in the DNA of agents (I’m teasing of course.)

I know of some agents who have broken their backs and have spent a lot of money on listings only for the seller to eventually pull the plug on the listing out of frustration.   And then, (drum roll please) have the $500K+ listing end up renting for under $2000.00/mo.  Any sellers out there understand the rent-to-price ratio relationship over the history of residential real estate?  Now, on the other hand, many of today’s agents have little experience in working through a correction and pricing and marketing a home effectively.  If we are honest, there was not a lot to do in a white-hot market to generate the offer: place the listing on the NWMLS and arrange a time with the seller to accept multiple offers.  I hear some were even nice enough to offer coffee and pastries to the agents sitting in cars outside of a property waiting for their turn to submit their offer.  How times have changed.

I have seen a couple of examples of the substandard work ethic and marketing in my neck of the woods in Snohomish Co:  outrageously poor marketing, only to have another professional agent come to the rescue and have a successful sale.  Good for that agent and good for the seller to recognize when a change is needed.

Will agents bring the Seattle Times clipped article to listing presentations?  When is real estate bad news good for moving sellers in the right direction and getting the market moving?  Perhaps today.  Or, maybe we still have a long way to go in understanding how damaging the excesses of next to zero lending standards will turn out to be and the artificial appreciation it fostered.

PS.  Those who are currently in the market to buy should be in conversations with your loan officers regarding the recent drop in interest rates.   Just today, our office is hearing that there are 30 yr fixed rates at 5.5% at par, some even indicating a small rebate at that rate.  Consult with your loan officer.

I Opened Pandora's Box of Spam

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Pandora's Box of Spam Emails
Pandora

Mac clearly has the best commercials on TV these days.  I love most of them and while I don’t like Apple Computers, I can’t help but be enticed by the Mac Commercials.  Those Ad guys should be making a mint, and deservedly so!

How can you not love the commercial for MacBook Air where they slip the laptop into an interoffice envelope?  OMG!  It makes you want one in the worst way.  At least until I remember that I can’t work on the thing because I use almost all Microsoft Software products in real estate and the mls doesn’t function well on a Mac.

I was working in something, when all of a sudden a FREE MacBook Air popup danced across my screen somehow.  And as much as I hate to admit this…I couldn’t help myself.  The commercial from the TV popped into my brain and triggered that “I have to have it” subliminal message along with the fact that is was totally FREE…and I entered into The Land of Continuous Offers, following the never ending “to get your free MacBook Air pick 2 of these offers…then 3 of these…then how but this…then before you leave…then and then” and I got sucked into the black hole of offers with no further mention of my FREE MacBook Air 🙁

Oh, I just remembered how I got sucked in.  I was making sure my spelling of Il Salvatore was correct, and went to one of these free transalation sites where I saw the FREE MacBook Air. 

Well I got through it and ordered two things that I kind of needed that were almost free 🙂 knowing that there was a possibility that I wouldn’t get that FREE MacBook Air (though I still daydream that the mailman is going to be delivering it any second.)

What I forgot to do was use an email address that I never use!  It’s been so long since I’ve had to do this that I just plum forgot.  Now I have to visit my junkmailbox every hour or so because…I opened Pandora’s Box of Neverend Spam Emails!Still…if I do get the FREE MacBook Air…it will have been worth it.  What are the odds?  Why would Mac allow these sites to use their product to drag people into a scam?  I would think a company like Apple would protect their reputation better than that, given the amount of money they spend on their ads.

If anyone out there has gone down the Free MacBook Air rabbit hole and actually received a FREE MacBook Air, can you reach out and ease my pain please?  Thanks!

Seller financing options

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As a bit of a follow up to Ardell’s post below about lease purchase options, another option may be seller financing or a seller carryback.  But, if you choose to go this route how will you handle payments?  One of the best ways to make this less of a burden for the seller is to bring in a third party to handle all of the details associated with servicing the loan terms.

Most traditional transactions with conventional bank financing use an escrow service for handling things such as taxes and insurance.  This is similar but the escrow firm is also handling the servicing of payments, calculating interest and principal payments and such.

An example of a company that provides such a service is Contract Servicing.

Always do your due diligence for any company you will hire, but this might be a good place to learn a bit and find that these services exist for a variety of property contract sales and the myriad ways in which they are negotiated.

Hurricane Fannie Freddie Hits US Taxpayers

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CR covers the FDIC: Federal Banking Agencies React to Takeover of Fannie Mae and Freddie Mac

Yves at Naked Capitalism is pondering the bank fallout:
Bye Bye Banks: Freddie and Fannie Preferred Holders to Take Big Hits?

CR has the Statement by Paulson on Fannie and Freddie

Read what seattlebubble bloggers are saying in the Econ forum

and this from Peter at LA Land
Obama and McCain back Fannie-Freddie bailout; Palin calls them “too big.”

Fact sheets from the US Treasury:
FHFA Director Lockhart Remarks on Housing GSE Actions
Fact Sheet: Treasury Preferred Stock Purchase Agreement
Fact Sheet: Treasury MBS Purchase Program
Fact Sheet: Treasury GSE Credit Facility

Mainstream Media:

Wall Street Journal
US Outlines Fan Fred Takeover

New York Times
US Unveils Takeover of Two Mortgage Giants

Bloomberg
Paulson Engineers US Takeover of Fannie Freddie

Reuters
US Takes Over Fannie Freddie

Conservatorship doesn’t kill preferred stock. Instead, it puts common shareholders first in line to absorb the losses.  Preferred shareholders are second in line to absorb losses.  Under the terms of the agreement, common and preferred shareholders bear losses ahead of the new government senior preferred shares.

From the FDIC website:

The federal banking agencies have been assessing the exposures of banks and thrifts to Fannie Mae and Freddie Mac. The agencies believe that, while many institutions hold common or preferred shares of these two government-sponsored enterprises, a limited number of smaller institutions have holdings that are significant compared to their capital.
The Federal Reserve Board…are prepared to work with these institutions to develop capital-restoration plans pursuant to the capital regulations and the prompt corrective action provisions of the Federal Deposit Insurance Corporation Improvement Act.

All institutions are reminded that investments in preferred stock and common stock with readily determinable fair value should be reported as available-for-sale equity security holdings, and that any net unrealized losses on these securities are deducted from regulatory capital.

They’ve also put together a new secured lending credit facility which is available to Fannie Mae, Freddie Mac, and also the Federal Home Loan Banks. (Wait, what? I didn’t know the FHLBs were in need of this.)

Also, the U.S. Treasury has put together a temporary program to buy GSE MBS.

The taxpayers have now become the lender of last resort and the taxpayers have bailed out Fannie and Freddie. 

I’d like to know more about what both presidential candidates think about all this, and I’d like to see film footage of Paulson. If anyone finds some more great links as Hurricane Fan Fred hits the US taxpayers, please post them in the comment section.  Rhonda what do you think this might do for interest rates?

Might "Lease Purchase" be this market's "il Salvatore"?

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Lease Purchase DONE WELL could be the “Saving Grace” for a portion of what ails the current real estate market. 

If the lowest price range cannot move out, then the owners of them cannot move UP!  That creates a slowdown in all market price segments by domino effect.

Let’s look at an example of how Lease Purchase can work, and potentially help this market.  There will not be one “cure all” answer to what ails us.  Likely a dozen or more answers will equal a total solution.

WARNING:  Lease Purchase NOT “done well” could end up being just Another Brick in the Wall  in the long run, so don’t try this at home without expert guidance including an attorney drafting the governing documents.  Don’t confuse what most other people call “Lease Purchase” today, with the version I am detailing below.  This is the right way.  What most people call Lease Purchase combines “an up front option fee” to buy, and is wrong.

I will be using my condo listing in Klahanie, for the purpose of providing a break down of the sequence of events and estimated numbers.

The buyer/tenant would be purchasing the property via FHA Financing.  For the “Lease” portion of this Lease Purchase, the buyer/tenant will need only what is needed for the lease portion as to monies.  That being:

Fair Market Value Rent: $1,200

First Month, Last Month and Security Deposit: $3,000

That is all that is needed for the Lease portion of the equation.  Now let’s move to the “Purchase” side of the Lease Purchase.

To Purchase the condo the buyer would have an FHA Loan at 6.125% with 1 point.  Loan Amount of $247,350.  Monthly Payment of $1,502.92 Principal and Interest plus $200 a month for real estate taxes plus $285 a month for condo fees to Sundance HOA and Klahanie on a combined basis.  That means before entering into a lease purchase, the buyer/tenant should qualify for a total payment of $1,990 a month.  $1990 a month times 12 months divided by 30% is $80,000. 

To enter into the Lease Purchase the Tenant Buyer should be making $80,000 or so.  Of course other debt is also a consideration, but I am simplifying for purposes of this example post.

Here comes the tricky part.  Let’s say the buyer has NO MONEY as in ZERO DOWN. You can use a Lease Purchase to effect an eventual purchase if the buyer qualifies EXCEPT for the cash part.  So let’s say they have a credit score of 660, which I think is enough for FHA and makes $80,000 a year and not too much “other debt”.  If they qualify for an FHA loan except for the cash issues, then they can buy it via Lease Purchase by doing the following.

1) They pay the owner $3,000 up front for first, last and security deposit on the $1,200 a month lease. (normal lease stuff)

2) They pay the owner $1,990 a month, which is what they will be paying to the lender and HOA after the property closes.

3) The owner keeps $1,200 (the fair market rent portion) and puts the difference of $770 into a “savings account” for the buyer/tentant to accumlate the cash needed to close.

That’s it…that simple. Easy as renting.  When the $770 per month fund equals the cash needed to close, then it can close.  Let’s call that 3% of $255,000 or $7,650.  Then you would do a lease purchase to close in 10 months as $770 times 10 equals $7,650.  The Closing Costs were built into the price, and the downpayment was accumulated without the buyer paying any more than if they had bought it on day one.  The owner covered the bulk of his costs for 10 months by being able to keep the fair market rent portion.  If the buyer doesn’t close, then the $7,650 gets treated in whole on in part as Earnest Money forfeited to the seller based on the original agreement.  The $3,000 paid up front on the lease can also be used, in part, to close in less than 10 months.

That my friends IS a Lease Purchase…DONE WELL, (not the flim-flam version taught in $8,000 seminars in Vegas).  Using that method can likely solve at least 10% of the problem with today’s real estate market, and in Domino Effect create a move up benefit to the market as a whole.

WSJ Reporting Deal Near to put Fannie and Freddie into Conservatorship

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The Wall Street Journal is reporting tonight that the time is almost up for Fannie and Freddie. That didn’t take long. No wonder the bill was rushed to President Bush to be signed at the end of July.

The plan is expected to involve putting the two companies into the conservatorship of their regulator, the Federal Housing Finance Agency, said several people familiar with the matter. That would mean the government would take the reins of the companies, at least temporarily.

Plans include the government gradually injecting capital into the two companies and a “top level management shakeup.”

Freddie and Fannie own or guarantee more than $5 trillion of mortgages. They have suffered combined losses of about $14 billion over the past four quarters as they make provisions for a wave of defaults. Investors worried that a government bailout would wipe out the value of existing stock, and those fears have sent the shares down about 90% from a year ago. Many U.S. banks as well as foreign governments own stock or debt in the two giants, meaning their financial woes could cause broad problems beyond the housing market.

Emphasis mine.

This breaking story has already been updated. Read more here at the Washington Post and NYTimes.

Fannie Mae and Freddie Mac to be put under control, sources say

U.S. rescue seen at hand for mortgage giants

Update:

Here’s Bloomberg; Paulson plans to bring Fannie, Freddie under government control

Reuters: Fannie Freddie shares fall after report of bailout

I’m sure there will be more stories posted all throughout the weekend.  This Fannie and Freddie takeover is something I could have never imagined when I started my career in mortgage lending 25 years ago.  When they raised the conforming loan limit several months ago and allowed F&F take on Jumbos, there were many who said F&F wouldn’t be able to survive if loan defaults continued to rise.  Firstam Core Logic says defaults will to continue to rise for at least the next 18 months.  We should now begin thinking about the FHA mortgage insurance program and their 3.5% down requirement.  That equity goes away fast during a down market.

I am heading out to the Edmonds Woodway High School Football game. I will post a link to that CoreLogic report and any updates when I return.  Link to CoreLogic PDF posted above. 

Update 2: Sunday morning press release from Paulson:

Statement by Secretary Henry M. Paulson, Jr. on Treasury and Federal Housing Finance Agency Action to Protect Financial Markets and Taxpayers

Washington, DC–

Good morning. I’m joined here by Jim Lockhart, Director of the new independent regulator, the Federal Housing Finance Agency, FHFA. In July, Congress granted the Treasury, the Federal Reserve and FHFA new authorities with respect to the GSEs, Fannie Mae and Freddie Mac. Since that time, we have closely monitored financial market and business conditions and have analyzed in great detail the current financial condition of the GSEs – including the ability of the GSEs to weather a variety of market conditions going forward. As a result of this work, we have determined that it is necessary to take action.
Continue reading here.

 

Readers, what effect do you believe a F&F conservatorship will have on the local and national real estate market?

Flip This House of A&E is looking for…

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Flip This House on A&E

Flip This House on A&E

Once again the Producers of Flip This House have asked us to announce that they are looking for people in the Seattle Area who have flipped 10-12 houses.  I expect that can be over any period of time.  I don’t know all of the selection criteria, but if you want to be on the show, email your contact info to flipthishouse.casting@gmail.com and they will send you an application.

DEADLINE for applications for this season is October 1, 2008.

I thought it was fun that the casting company is using “gmail” 🙂  From what I am seeing, gmail is as acceptable in business applications as a private domain email address.  Why is this “free” email more accepted than all the free hotmails and yahoos before it?  Even more acceptable than most paid for email addresses like AOL.  Why is gmail so acceptable and accepted?