Category Archives: General

Questions for a Panel of Bankers

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I’ll be moderating a panel of bankers on Dec 1, 2008 in Denver at the National Auctioneers Association’s convention.  I present at 11:00 AM (Title: There Always Was a Subprime Market. View my slides here) and the panel starts after lunch.  I’m preparing some questions for the panelists. Here’s what I have so far. Your suggestions are welcome.

1. When will you begin to lend again to borrowers who are other than prime?

2. What will happen if/when the FDIC runs out of money?

3. How are local, state-chartered banks preparing for the coming loan losses in the commercial and development sector?

4. How are loan modifications performing at your institution?

5. What do FHA delinquencies look like at your institution?

Sunday Night Stats – Buying at 2005 Prices

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Before posting my thoughts of the week regarding where home prices are going, I have been doing a lot of thinking about “Rethinking the American Dream”.  I found this post that I thought was worth sharing.

Now for proofs that people are buying at 2005 levels, even though sellers are not thinking about selling at those levels, to the same degree.

Let me explain what you are looking at in the graph above.  In 2001, 83% of buyers were paying under $500,000.  Economic models must hold something at a constant, in order to provide meaningful results.  What I have held as a constant are the properties themselves.  As we move through the years, only properties (condo and single family) built as of the end of 2001 are included, so we can see what people are paying for those same homes. Also, you have to look at a sample small enough to evaluate, in this case I used Bellevue which I feel is a large enough sample with somewhat cohesive property types in the sampling.

By 2005, only half of buyers could pay under $500,000 to buy those same properties vs 83% in 2001.  The most dramatic change YOY was in 2006 vs. 2005 when the % dropped from 68% to 51%.  Now look at the last two columns.  We’re back to 2005 with 67% of people being willing and able to buy these same homes for $500,000 or less.  In fact the % may end up being more than that, given pendings are based on asking prices vs. sold prices.

The last column shows that only 44% of people who have not sold their homes, and are still trying to sell them, are pricing at the levels that people are willing to pay.

It’s quite possible that by year end the statistics will show 2004 levels, but I expect that to correct back to 2005 through the 3rd quarter of 2009.  Last quarter of 2009 is anyone’s guess at this point.  Not enough data to predict that far out.  Many of the current pending sales are bank owned and short sale properties.  While some may consider that to be a relevant factor, it is not one I expect to change over the next 12 months.  There will be at least as many, if not more, opportunities to buy at the lowest price levels over the next 12 months.

Two Flaws with the new Good Faith Estimate

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Let me begin by saying I think that uniform Good Faith Estimates are a huge step in the right direction. However, I’m quickly reviewing the newly revised Good Faith Estimate and HUD-1 Settlement Statement (beginning on page 46; link below) to see if any changes were made since they were unveiled. The two biggest issues that I see are:

  1. No clearly marked monthly mortgage payment.
  2. No funds due for closing.

HUD boasts that consumers will save an average of $700 by using these new forms, yet consumers won’t have the tools to compare without these two factors. It seems like HUD was so focused on YSP (which seems less clear to me on the new form) and controlling closing costs, they skipped a few important details.

Am I missing something right under my nose? Click here to read the final rule. I’ll go through this again and perhaps dig into the entire document over the weekend…I’m just wondering if any of you have more insight into this.

Nana needs a booster seat by tomorrow night

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I just got a call from my daughter that I need a booster seat to pick them up at the airport tomorrow night.  They are flying in for Thanksgiving.  In previous years she was smaller and the baby carrier doubled as a car seat.  But she just turned 4 years old and apparently needs a booster seat.

I’ll have to Google what it is.  Apparently it is too big for them to bring one with them, or that would be a lot of trouble.  I wonder if I can rent one?

If anyone knows anything about 4 year olds and booster seats 🙂  I’d appreciate the info.  Maybe I can buy one and then donate it to…someplace.  I spent 4hours today shopping for their arrival.  Had I known earlier…oh well.  Kids!

Windermere’s Web Site Strikes Back

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I’ve been way too busy at my current day job during the past year to play real estate mash up games at the level Galen has been playing at. However, it appears Windermere has decided to up their game and yesterday they released an improved & simplified property search feature on their web site.

On the plus side, I like the improved site’s ability to see multiple photos of listings alongside the Virtual Earth map-based interface. It addresses one my persistent complaints that most map-based real estate search sites tend to share. I also like how they embraced what appears to be a trend of starting a property search with a textbox of a city name (ala Redfin & Estately) instead of a byzantine array of list boxes & check boxes.

On the minus side, the site only showed me properties when my search returns between 1 and 100 matches. I hate limits, especially small ones. I have a big monitor and a pretty fast net connection. My hardware could handle a thousand pushpins on the map if you let it. To channel Jerry Maguire – Show me the listings! I have Windermere’s competitors on the other browser tabs – John L Scott’s limit is 300 (good), Redfin’s limit is 500 (better), and Estately shows me a 100 at time, but w/ no upper limit (I like the no upper limit part). I also missed the wide array of features & data that I’ve come to expect from Redfin or Estately. However, given Windermere’s design priorities for this release were simplicity, rather than power & flexibility; I can’t fault them too much for accomplishing their goals.

In any event, if you write real estate web apps for fun and/or profit, you owe it to yourself to read the Windermere Tech Blog. If you merely use real estate web apps, you should check out the new Windermere.com.

Did the recent market shift affect Hitler too?

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This recently discovered (by me) video on YouTube hits a nerve when it comes to how many are affected by the current market dynamics around the country.  I found this a bit funny, if not unnerving, considering how many people I’ve been talking to lately that are in short sale position.  The discussions are because I’m not just acting as an agent but because of my involvement in a real estate investment group that is buying these kinds of properties. 

What I’ve noticed while doing research is that an oddly large number of agents have been hit by the issue of needing to short sell – you’d think that these would be the people prone to seeing the fallacies of some of these loan products and how they’d impact them in a market downturn, but I’m not going to point fingers since I know as independent contractors and small business owners we are tied to these loan products that got misused during the market hey-day.  Even with my own great credit score, I know that today I probably couldn’t qualify for a loan in today’s market because as a business owner, I must go stated income.  I’m thankful that I was able to change my situation before things went nuts in the industry.

If you decide to watch the video, know that my linking to it here is only to provide a bit of levity to a not so fun situation for everyone right now.  I feel blessed that my business is doing so well right now and that many of my choices to downsize last year seemed to be a lucky break ahead of the curve of what is happening to many right now.

Question for Attorneys: Federal Tax Liens & Foreclosures

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tax lienCould someone with Foreclosure sale experience answer the question below?  Or, at least discuss the possible outcome?

Scenario:

A homeowner has a Federal Tax lien against the property.  The homeowner is delinquent on their mortgage and it goes to Foreclosure.  At the Foreclosure sale, the property then goes back to the lender because there were no bidders for the home.

1)   Is the Lender required to pay off the Federal Tax lien at Foreclosure or resale of the home?

2)  If the Lender pays off the Federal Tax lien, what recourse does the Lender have against the borrower?

3)  If the Lender pays off the Federal Tax lien,  has the delinquent borrower just handed off their tax burden to the Lender and walked away with no liability?

Thanks!

Sunday Night Stats – 5 Year Hold

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Many people are asking, “What do you think will happen if I buy now and hold for five years?” 

You may be surprised to see that this “bubble” is not nearly as big as the 3 five year periods from 1973 to 1988.  1973 to 1978 is the highest appreciation period. The lowest appreciation period is the five years that followed those dramatic increases for 15 years, and still not showing a loss for any five year period going back from third quarter 2008.

Five Year Price Changes based on U.S. 3rd Quarter average prices of homes sold.

Sold in 2008 at $283,400; bought in 2003 for $248,100 – UP 14.2%

Sold in 2003 at $248,199; bought in 1998 for $184,300 – UP  34.6%

Sold in 1998 at $184,300; bought in 1993 for $148,000 – UP  24.5%

Sold in 1993 at $148,000; bought in 1988 for $141,500 – UP  4.6%

Sold in 1988 at $141,500; bought in 1983 for $ 92,500 – UP  52.9%

Sold in 1983 at $ 92,500; bought in 1978 for $ 63,500 – UP  45.6%

Sold in 1978 at $ 63,500; bought in 1973 for $ 35,900 – UP  76.8%

Sold in 1973 at $ 35,900; bought in 1968 for $ 26,600 – UP  34.9%

Sold in 1968 at $ 26,600; bought in 1963 for $ 19,200 – UP  38.5%

Note: U.S. Peak Price to date 1st Quarter of 2007

Sold 1Q 2007 at $322,100; bought 1Q 2002 for $227,600 – UP 41.5%

Data Source

Credit Scores for the Ages

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It’s funny how sometimes a post will take on a life of it’s own within the comments…such is the case with my recent interview of Jillayne Schlicke.  My intentions were to call out to Washington State LOs to make sure they’re up to speed with the new year approaching…the comments have turned into a discussion of credit scores.  Most likely because of Jillayne’s prediction:

“I expect that underwriting guidelines will continue to go up as banks and conforming paper sold to Fannie and Freddie will raise minimum credit score requirements to 800 and require 20% down.  Everyone else will be pushed to FHA.”

Ardell offered stats from 2005 on credit scores and age so I thought I’d share credit score information from credit reports I’ve provided since the start of 2008.  Not all of the subjects obtained a mortgage loan.

  • Age 18 – 29: average credit score = 697.   Don’t let age fool ya, this group had a high score of 807 and a low of 513.  (This group = 12% of the demographic).
  • Age 30 – 39: average credit score = 735.  High score of 811 and the low at 614. (36% of demographic).
  • Age 40 – 49: average credit score = 739.  High score of 819 and a low of 592. (31% of demographic).
  • Age 50 – 59: average credit score = 759.  High score of 820 and the low at 680. (15% of the demographic).
  • Age 60 – 69: average credit score = 714.  High score of 813 and a low at 589.  (4% of the demographic).
  • Age 70 plus: average credit score = 805. High and low score: 805. (1% of the demographic).

The average mid scores, year to date credit reports I’ve ran is 732 for the borrower and 720 for the co-borrower.  This means that if they are considering locking, the rate would be based on the lower of the two mid scores.  I’m also pleased to see that the credit score criteria that I use (credit scores from 720-739) seems to be appropriate for when I’m post.

From the same interview with Jillayne post, Ardell asks:

“What good is it to say interest rates are at 5.875%, if only people 70 plus can get that rate? False advertising…no? If the average person buying a home can only get a rate of 6.5%, then we have to stop encouraging people to think their rate is going to be something that is unlikely”

Using the credit score data above, it’s very likely that the younger group would be FHA candidates.  Not just because of having an average credit score of 697, most are still working on building their savings and do not have 20% down payment.  Combine a 697 mid score with a 90% loan to value and (now costly) private mortgage insurance and FHA may be the better option.  The key is to investigate all available options if someone decides they should buy a home at this stage of their life.  

The next two groups, 30-49 year olds, would fit the rates that I quote at RCG since the credit score criteria I use is based on 720-739.  Based on Friday’s rates, their rate would be 5.875% at 1 point (total shown in lines 801, 802 and 808 of the Good Faith Estimate or HUD).   This combined group is 67% of the applications with credit reports that I have worked with year to date.

Credit scores 740 and above qualify for a slightly better rate.  Based on Friday’s scenario, they would have 0.25% improvement to fee–so 5.875% would be at 0.75% points (using the above example).  Or depending on how rates were, they could possibly obtain an 0.125% better rate.

The slight dip in average credit score to 714 for ages 60-69 I think just reflects that “life happens”.  Maybe something medical has taken place or you were on vacation and thought you paid that credit card or you’re helping your kids with college or you have an unknown parking ticket or an overdue library book turned into a collection.   I’ve seen many surprised people over the years where they had no idea their credit score dropped.   This is in no way a reflection on this age group, it’s just how the stats came in for this report based on my data.

FHA credit scores (where the credit report was ran and FHA was the identified loan program, the loan may be closed or just prequalified) averaged 680.  FHA is not as credit score sensitive as Fannie/Freddie.  FHA is looking for clean credit (no lates) in the past 12 months.

This data is hardly scientific and is really just a reflection of the people I work with which is really pretty diverse.  I don’t advertise or do cold calling or try to “specialize” in a niche market…so I’d like to think that this group is a good “norm”.