Category Archives: General

What's the Point?

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Brian Brady recently suggested that I explain how mortgage interest rates can be priced with or without a discount point since I’m now posting mortgage interest rates on Fridays here at RCG.  

One point is one percent of the loan amount.   Typically, but not always, one point equals 0.25% in interest rate.   You may hear lenders refer to discount points or origination fees…for me, they’re one in the same.   I’m paid eitiher way.  If you’re a buyer shopping rates, look on the Good Faith Estimate for the origination fee and discount points and add them together.   That’s how many points you’re paying to buy that interest rate for a certain period of time.
For example, if a 30 year fixed rate has a rate of 5.75% with paying 1 point, zero points would probably be 6.00%.   Whether or not someone pays for a point should be decided by how soon they will break even on the point as it is a significant cost.   A simple formula to determine when you break even is to divide the difference in payment between the 1 point and the 0 point scenario into the cost of the point paid.   The scenario below is based on a loan amount of $400,000.

Rate:  5.75% based on 1 point = $4,000
Principle and interest payment:   $2,334.29
Monthly savings over the 6% payment at zero points = $63.91
How long to break even on the $4000 = 63 months

Rate:  6.000% based on 0 points = $0
Principle and interest payment:  $2,398.20

If a borrower is planning on living in their home more than 5 years and not refinance during that time, then paying the point may be the right choice.  
A borrower can also have their loan priced to pay their closing costs. 

Rate:  6.125% = 0 points and approx. $2000 in rebate to cover closing costs (a.k.a. the “no cost mortgage

Zero Down Loan? You Better Have a 620 Credit Score or Higher

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Update 11/11/2008:  This is post is more of a reflection of the times.  Zero down loans are not available with convetional financing at this time.  Private or hard money may have zero down loans available.   FHA with a loan from family members is the closest to 100% financing that I’m aware of.   As with any posts about mortgage guidelines, be mindful of when they were written as guidelines have (and will continue to) change.

I’ve been working on a zero down rate quote for Jillayne, since she requested that two weeks ago when I did my posted my first Friday rate’s on RCG.   She was curious how 100% loan to value mortgages compare based on different credit scores.   At the company I work for, we have around 80 (woops…make that 78 now) lenders we work with.   A majority of our business is handled in our credit line (Mortgage Master is a Correspondent Lender) and some business is “brokered”.  Typically this is subprime or unique loans with added risk.   As a Loan Originator, you wind up selecting 3-5 of your favorite “a money” sources, a few “alt a” lenders and of course, and I like to have around 3-5 sub-prime lenders.   These are the lenders and representatives you rely on, get to know their products and trust their underwriting.   

Back to Jillayne’s request, last night I called my three preferred subprime resources for my rate quotes…what’s the lowest credit score they will lend to at 100% ltv and is the rate and program?  Thanks to RCG’s Tim, I’ve just learned that one of those resources I’ve relied on, New Century…and the only one that I work with who did quote yesterday an 80/20 with a 600 mid-score is facing troubling times to say the least.

“New Century Financial Corp. said it’s the subject of a criminal probe and Fremont General Corp. agreed to a cease-and-desist order with bank regulators in the biggest regulatory actions to emerge from the subprime mortgage meltdown.”   To read the entire article on Bloomberg, click here.

Every day I’m receiving memos from various subprime lenders with details of (much needed) tightening guidelines.  If you currently have clients shopping for a new home and they are using subprime financing (you might know this if they’ve told you their credit is not great, if the mortgage is a 80/20 with a prepayment penalty, etc.) you just might want to contact the Loan Originator to make sure the preapproval is still valid.  If that client has a credit score below 620, they may (1) not be approved any longer or (2) be approved for an entirely different rate (much higher). 

Subprime lenders are either eliminating their zero down products all together or are raising the credit score requirements.  Previously, a 580 – 600 mid-credit score was no problem for 100% financing.   They were beating down our doors to do these loans!  Now, the new standards for mid-score (with the lenders I work with) seems to be 620.  This is a significant jump that will delay some rentsers from buying homes until they improve their credit.   Which again, I think this is good.

I’ve mentioned this before, but this is so important.  If you have clients who have used subprime financing who have purchased homes in the past 1-2 years, this could be a good reason to pick up the phone and call them.   Hopefully they received good counseling from their Mortgage Planner AND they took the advice to heart…working on cleaning up their credit usage, managing their spending, etc.  With the subprime market tightening, if those subprime borrowers have credit scores below 620 when their prepayement penalty is up and their fixed payment is adjusting towards the sky, they may be are in a very tough situation.

Jillayne, this post is all ready a bit long… I promise I’ll have your zero down rates posted soon!

2007 Still looking like a Seller's Market

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I ran my stats this morning to track where the market is heading for 2007, based on properties For Sale, In Escrow and Closed so far since the first of the year. I use the stats for Bellevue, Redmond and Kirkland as the basis for my market research, as this area has a huge component of housing in almost every market segment,and represents are high expectations for market conditions. When this area turns weak, we need to take notice.

So far, it appears that my prediction that 2007 will meet or exceed that of 2006, appears to be on target.

The full data is on my site, with more graphs, but here are the quotes of particular relevance.

“…75% of the market will still be a SELLER”S MARKET in 2007, based on how the year is opening up so far. We do not begin to see inventory tipping over into a balanced or buyer’s market until we get over $800,000 in price, which only represents about 25% of the housing market, in the area I have chosen to examine.”

“The dominant portion of this market is between $200,000 and $600,000…which is by and large “the safer zone” representing 63.6% of all home buyers and sellers in the Bellevue, Kirkland and Redmond markets and the area most likely to rise at 15% to 25% or greater in value by the end of this year.”

 

“Statistics not compiled or published by NWMLS.” NWMLS is the data source I used to compile the data and I created and published the graph.  MLS rule to post this.

Low flow toilets and old houses

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A relative of mine just replaced the old high-flow toilets in all 5 units of his building with low flow toilets. The result: a water bill that is $100 a month lower – the replacements should pay for themselves in six months. The toilet of choice: Toto Drake. It’s approximately $200 and it gets rave reviews on the internet.

I live in an old house (1908) with the requisite sloping floors and rusty iron pipes that come along with it. We already have low flow toilets (usually excellent Sloan Flushmates) which were purchased on Consumer Reports rave reviews. See the second rave review above – the only toilet they liked better than the Toto has a flushmate system. HOWEVER! Consumer Reports clearly does not have an old house that has charmingly rust-flecked, low pressure water. See, the Flushmate system works by storing up pressure from the pipes in a sealed tank and uses that pressure to forcefully push water out when you flush. There is no need to rely on gravity to move water through Flushmate toilets, although there are no mentions of them being used in space on the internet. When you put one of these suckers in a house with rusty pipes, little bits of rust get into the workings of the tank and the flushes get progressively worse over time until you’re left with a toilet that pushes the tank water down about a half inch on the flush and then gurgles at you. When this happened, I found myself cussing (a lot) at an inanimate object.

So last Thursday I found myself doing a midnight toilet installation of a Toto Drake. It comes with excellent instructions which should be supplemented by these instructions. And now that it’s done, I very highly recommend it. In fact it’s amazing. For decency’s sake, I will not go into further details.

The moral of the story:

  • New house? Get a Flushmate
  • Old house? Get a Toto Drake
  • Hate money? Keep your high flow toilet

The condo public offering statement/resale certificate

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As always, this post is not legal advice.  For a specific legal question, consult an attorney.

Buying a condo can make a lot of sense, particularly if you can purchase a unit close to work (e.g. downtown) and if your “lifestyle” is conducive to apartment-style living (e.g. no kids, no pets).  If you’ve decided to take the plunge, make sure you do your homework.  The Seattle Times had a good piece on the topic a couple of years ago.  That article notes several sources of information that you should review prior to purchasing, including the public offering statement (for new construction) or the resale certificate (for a previously owned unit).  In reality, your homework can begin and end with the public offering statement or resale certificate, as by law each of these must contain the information necessary to make an informed decision.

That said, don’t revert to your younger self and “forget” to do your homework.  The statement or certificate can be quite intimidating, often including hundreds of pages of information.  Nonetheless, you need to sit down and dedicate some time to reviewing it in detail.  Reading it in bed, before drifting off to sleep, is NOT sufficient (although you may find a cure for your insomnia).  The disclosures contain information about the financial and physical health of the devlopment, as well as the rules that will govern how you can use the unit (such as renting it out).  Ignore this information at your peril — you may find years later that you made a very poor decision, all because you did not take the time to review the provided information.

Finally, given that the disclosure contains hundreds of pages, many of them written in dense “legalese,” you may wonder whether an attorney should also review it on your behalf.  An attorney can explain the disclosure and answer any questions you may have.  Moreover, the attorney may be able to identify issues of concern that you did not appreciate.  On the other hand, the attorney does not and can not know everything that is important to you.  Therefore, while you may benefit from an attorney’s review, the key is that YOU must take the time to review the disclosure carefully.  If, after doing so, you decide that the condo is not for you, both disclosures create a right of rescission (7 days for a public offering statement, 5 days for a resale certificate) so you can cancel your purchase and sale agreement and avoid the mistake entirely.

Seattle Area Appreciation

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Brian Brady asked: “Off topic but I wanted to ask you a question, Ardell. Has Seattle been a rising market from Feb, 2005 through today?”

It would have been a lot easier to answer if you hadn’t said February 2005 🙂 I could have just said yes. But I remember the day. It was June 15, 2005. I could feel it. I could taste it. I could smell it. The ground was swelling. You could put your ear on the ground and hear it coming! LOL I happened to be in a complex called Sixty-01, which has its own idiosyncrases that I won’t go into since you are out of State, Brian. But here’s some stats to prove my blood boiling was on target. Hindsight is easy. Feeling it coming is an artform. I’m using Sixty-01 because I was there that day and also because it has a lot of “same product”/apples to apples for straight appreciation comparisons. They are all practically identical 2 bedroom – 1.5 bath townhomes in the stats below.
07/09/03 – $100,000

11/24/03 – $ 95,000

08/12/04 – $128,950

08/24/04 – $129,500

02/18/05 – $128,950

05/03/05 – $123,000

06/20/05 – $131,450

07/07/05 – $127,000

All of those were in contract before June 15. On June 15th one came on market with an asking price of $137,950. I practically begged a poor woman to get an offer in within an hour of it hitting the market, to grab it at full price. I could feel it in my bones! The prices were going to move right now! She could get it at full price today! But she couldn’t get her brain around it. She wanted to make an offer based on the average of the comps at $127,000. I was beside myself. I knew getting that townhome at $137,950 on that first day was going to be the best move she ever made. But I couldn’t convince her. Five days later it bid out and sold at $148,000. And here’s what happened after that.

07/19/05 – $148,000

07/22/05 – $167,950

07/29/05 – $166,000

11/29/05 – $178,950

03/30/06 – $177,000

06/07/06 – $205,450 (list at $199,900)

07/11/06 – $205,000

08/25/06 – $227,500

09/13/06 – $235,000

11/01/06 – $245,000

01/17/07 – $252,500

New on Market $269,900

So Brian, rephrase the question and ask me if it has been going up since 6/15/05, and I can answer yes. February 05 through June 05, not as much. I’ll have to do a new townhome comparison in Ballard to confirm Eastside vs. Seattle proper. Hard to find “like kind” in Seattle as there are very few “like kind” comparisons except splits and townhomes. Many of the homes were built in the early 1900s through 1930, and are all unique structures with massive modifications since 1905. But I’m pretty sure the stats will be about the same. Kirkland Condos…same story but harder to find “like kind” these days as newer equals higher ceilings, so “like kind” harder to track.

Hope that answers your question.

Inman has Gone Blog Wild

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and it is a good thing!

Looks like they just published the first of a 4-part series on real estate blogging (only by subscription after today!). Lots of good stuff from some of today’s heavy hitters!

It was great to see Todd of Lenderama get some exposure for his (very cool) REMBEX search tool.

Also want to say thanks to Greg… I think he’s running one of the best real estate sites on the web, so it means a lot to me when he gives credit to RCG for some of his inspiration.

While I’m talking about Inman, I thought I’d mention that, like many other real estate bloggers, I’ve been invited to participate in their Blogger’s Connect at the very end of July. I’m definitely looking forward to it as I had a lot of fun last year in San Francisco… From the overview:

The content, speakers and workshops are being designed in the blogosphere. We have invited 20 leading real estate bloggers to use their blogs to reach out to their readers to invent the program.
Imagine the first “user-generated program” including panels, topics and sessions. Could be silly, could be interesting — certain to be fun.

Bloggers Connect will begin on Tuesday, July 31 with a party and then all-day sessions on August 1. Fun and crazy events are being built into the program including the Dive Bar Tour, the Haight Asbury experience and the blogging romp.

Death by a thousand paper cuts

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[photopress:papercut.jpg,thumb,alignright]Every once in a while a realtor or broker from out of state will ask me to develop an IDX web site for them. Unfortunately, supporting a new MLS is very similar to supporting a foreign language. It is a large software engineering task that takes a lot of time, and since I don’t already have the code written and don’t already have access to their MLS’s feed, I inform them that time is money and the conversation usually ends there. Someday, that may not be the case, but I’d rather be small & profitable than large & broke.

The problem is made worse by the fact that many Realtors don’t know what format or protocol their MLS uses for data downloads or even who to contact in their MLS to get a feed for an IDX vendor. If you ever want to change IDX vendors, hire a software engineer or are crazy enough to do it yourself, you should know this. Knowing how your MLS distributes your listing data is like knowing how to change the oil in your car or how to defragment your hard drive. You don’t have to know, but it’s good to know. It may seem like I’m ranting about some MLS techie mumbo jumbo thing again, but it is preventing the industry from taking advantage of the low cost IT innovations that could be. I don’t think folks fully appreciate the challenges that an IDX vendor faces and how those challenges are retarding the industry’s growth and health.

For example, the NWMLS (Northwest Multiple Listing Service – serves mainly Seattle, WA and western Washington) uses software from Rapattoni. It provides listing data via a proprietary SOAP interface and all the photos are accessible via an FTP server. Listing data is updated constantly (a new listing usually appears in our feeds about 15-20 minutes after it’s been entered into NWMLS by a member as I understand it).

By contrast, EBRD (East Bay Regional Data – serves mainly Oakland, CA and the east bay area) uses Paragon by Fidelity MLS Systems provides it’s listing data via nightly updated CSV text files, down-loadable by FTP. The new and updated listings images are accessible via ZIPed files via FTP. The photos for active listings which haven’t been recently added or changed are not available (unless you bug the IT dept).

The only way they could make their systems more different is if the EBRD encoded their listings in EBCDIC! In order to support both, I need to develop 2 very different programs for downloading the listing data onto my server, importing the listing data in my database, dealing with differences in the listing schema (for example, the EBRD doesn’t contain a “Number of Photos” field or a “Community Name” field), dealing with differences in the photo location downloading (the NWMLS stores all photos in an uncompressed format in one of a thousand sub directories while the EBRD just stores the fresh photos in one big zip file). So I can spend my limited time improving my software for new markets (that have no customers) or improving my software for my home market (which has paying customers). Unfortunately, given the current market realities I can only afford to support my home market at this time since MLS IDX programs can be very different and there is no place like home (so far as I know anyway).

I keep waiting for RETS to save me from this madness, but until it happens in Seattle or the East Bay, I’m not holding my breath. After all, if two of the larger MLSes in the country in the two most tech savy areas of the nation don’t support it yet, I interpret it to be a vote of no confidence. I suppose, RETS could be going great guns in the rest of the country, but if it was, I’d expect the NWMLS & EBRD to be all over it, like the establishment on Redfin.

The Center for REALTOR® Technology Web Log, paints a rosy a picture regarding RETS deployment in the industry. Unfortunately, according to Clareity Consulting, an IT consulting firm that serves MLSes and other parts of the real estate eco-system, RETS is the NAR’s unfunded mandate. Although, everybody wants the benefits of RETS, nobody is willing to pay for it. Furthermore, it appears back in days before I got sucked into real estate technology, there was an effort to promote the DxM standard and that went nowhere (which is a bad omen). What’s worse is that they keep moving the goal posts. We don’t even have widespead RETS 1.0 support, and they’ve already depreciated that standard going full bore on RETS Lite and RETS 2.0. It seems the biggest problem is one of vision and scope. They keeping adding more features to cover more scenarios, when we don’t even have wide deployment of the existing standard (assuming that we had standards to begin with at all). It reminds of the recent software industry debacle that is known as “Longhorn reset“. The problem is that RETS is just too complicated, in an environment with too many legacy systems in place, too few resources to support it, and excessive aspirations. The idea of RETS is great, it’s the implementation and deployment that’s disappointing and at least Microsoft pulled Vista out if it’s death spiral…

[photopress:pappercutter.jpg,thumb,alignleft]The sad thing is that computer industry already has great tools for moving data around over the Internet in efficient and well supported (if sometimes proprietary ways). They allow you to query, slice, and dice your data in a near infinite number of ways. They’re called database servers. They are made by multiple software vendors and there are even some excellent open source ones out there. They let you set permissions on what accounts can see what tables or views (gee, sounds like something an MLS would want). The better ones, even have this level of security to the field level. Even better, most of these so called database servers have the ability of exporting data into spreadsheets, reporting tools, and even GIS systems. All of them provide a well defined and often times well implemented API that software developers can use and exploit to implement what hasn’t been invented yet!

Why doesn’t the NAR & the MLSes save us all the trouble, standardize on a few good database platforms (I’m a fan of MS SQL Server and MySQL, but I’d settle for anything that has ODBC, .net & Java support at this point), and provide everybody RDBMS accounts? It’d lower the cost for us IDX vendors (less code to write, since everything is just SQL), it’d lower the costs for MLS vendors (since data access, security, programmability, and scalability is now the RDBMS vendor’s problem), provide more choices for agents and brokers (since getting Excel talking to MS SQL Server is a cakewalk compared to RETS) and it will lower IT costs for the MLS (because the MLS vendors don’t need to invent an industry specific solution to a problem that’s been largely solved already and I’m betting that the MLS vendors already use somebody else’s RDBMS to implement their solutions anyway). Granted, a SQL Server won’t enable all the scenarios that RETS wants to enable (if RETS was ever well implemented and widely deployed enough for that happen). However, I’m of the belief that it’s not going to happen until after Trulia or Google Base becomes the de facto nationwide MLS by providing a single schema with a simple REST like web services interface.

So, what does your MLS do to support IDX vendors? Do they provide all the data all the time, or just daily updates? Have they deployed RETS yet? Are they going to? Who is their MLS software vendor or do they have a home gown solution? What do you want to do, that you can’t do today because the data is in a format that you can’t use easily? Would you be willing to pay more in membership dues for better software or better service from your MLS? Are we at the dawning of the RETS revolution, or is it too little, too late?

PS – Anybody, know anybody from an MLS / IDX dept or MLS vendor that blogs? I’d love to know what things are really like on their side of the listing data fence.