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Ted Spradlin's Blog

By Ted Spradlin | Mortgage Broker
or Lender in Walnut Creek, CA
  • One Of The Most Comprehensive Articles About Current State Of The Housing Market

    Posted Under: Market Conditions in Alameda County, Financing in Alameda County  |  March 1, 2013 2:11 PM  |  177 views  |  No comments

    Counterpunch's Mike Whitney wrote one of the most succinct, cynical, and comprehensive analysis about the key drivers in today's the housing market in an article titled, "There's Still A Foreclosure Crisis." This is a must-read for anyone who works in the industry and doesn't want to be caught flat-footed when the market eventually turns south.

    Whitney's article is not for housing cheerleaders or people who believe in unicorns or those who want to believe supply and demand is working it's magic.

    1.  Whitney cites AOL Real Estate Blog and Core Logic data that shows up to 90% offoreclosures are being held out of the market.

    2.  The foreclosed properties are being packaged and bundled into rental property securities, winding up in the hands of Wall Street investors like private equity funds, REITs, or pension funds with a goal of holding for the next 3-4 years. The idea is that a concerted, or possibly collusive, suppression of housing supply by the Too Big To Fail banks and suppression of mortgage rates by the Federal Reserve will put significant upward pressure on home prices, which will give these investors a 20-30% profit when they liquidate their position in 3-4 years.

    3.  Accounting shenanigans from FASB, which played a key role in helping the banks gloss over their insolvency back in 2009, are being loosened even more to allow banks more leniency in valuing their dodgy assets, therefore giving a false appearance of solvency and strength.

    Whitney lays everything out there for the reader to understand what is happening in the market. Supply and demand curves and free market ideology have been thrown out the window by the biggest propagandists of free markets, the TBTF banks and The Fed. The housing market of today is a massive experiment in bailout economics that is using homes and investor funds to help the banks earn their way out of the mess they created.

    It wouldn't be surprising if in 3-4 years, after prices have increased 20-30%, and mortgage rates start holding above 4.50%, an REO investor fund will be the first to run for the exits and dump their portfolio of homes onto retail buyers (John Q. Public), which will lead to even more panic selling by the other REO investor groups looking to take their gains and get out, which, will wipe out all the gains made from 2012-2015.

    History has a funny way of repeating itself. It should be interesting to see how this thing plays out.

    Make sure to read Mike Whitney's great article in this link here.

  • Toothless GOP Housing Policy Will Lead To Much Of the Same Gridlock

    Posted Under: Market Conditions in Portland, Financing in Portland, Foreclosure in Portland  |  August 29, 2012 9:58 AM  |  117 views  |  No comments

    The Republican Party came out of its convention in Tampa, FL with a platform on housing, stating that they would get government out of housing once and for all and put an end to bailing out banks and homeowners with taxpayer dollars.

    "Taxpayer dollars should not be used to bail out borrowers and lenders by funding principal write-downs. While the federal government must prosecute mortgage fraud and other financial crimes, any settlements received thereby should be directed to individuals harmed by the misconduct, not diverted to pay for unrelated programs."

    Translation: "We're adopting President Obama's housing policy that barely lifts a finger when it comes to homeowners, who we consider "deadbeats." Furthermore, we will not force banks to write down principal balances, which would render them insolvent, especially on their nearly $400 billion in second mortgages. Alas, we'll allow the federal five year statute of limitations to expire (just like Obama and Holder) on major mortgage and securities fraud by the Too Big To Fail banks. Instead, we'll leave investigations to the states, with their 10 year statute, who don't have the expertise or funding to even bother to pursue crimes that led to the Great Recession, and wiped out the savings and home equity of the middle class."They also stated the greatest myth about the housing crisis, also known as the Peter Wallison dissent:

    "Fannie Mae and Freddie Mac were a primary cause of the housing crisis because their implicit government guarantee allowed them to avoid market discipline and make risky investments."

    Not really. Good try GOP.

    Wall Street took The Fed's easy money policies and went wild, creating and exporting debt across the globe, using the American middle class homeowner as easy prey for their great boondoggle. Fannie and Freddie have always invested in "A-paper loans" that conform to their guidelines of 700+ FICO scores (they did relax guidelines during the bubble when they started losing market share and invested in the highest grade subprime loans, that were nearly identical to Fannie/Freddie quality loans). They didn't offer 100% financing to borrowers with 540 FICOs or borrowers one day out of bankruptcy. That was a Wall Street creation. Trust me, I have Rain Man knowledge of the lending programs that every lender was offering.

    The housing bubble and housing crisis, in due time, will be considered a massive failure caused by The Fed, Wall Street, and their bi-partisan Washington enablers who caved into the banker's demands to deregulate financial markets, especially derivatives like Credit Default Swaps that sunk AIG, and would have led to other banks going down had the US Taxpayer not been called in to bail out the Wall Street banks.

    And it's the US Taxpayer, or Uncle Sam, through Fannie Mae, Freddie Mac, and FHA, who picked up the slack in the mortgage market, issuing 92% of all mortgages since 2008. If it weren't for the full faith and credit of the United States, the housing market would have sunk to even greater lows, and instead of having a 10 year distressed inventory on our hands, we'd be faced with 20 year inventory.

    The GOP housing plan is pretty much the status quo, in that it's full of nice ideology and rhetoric, but in reality, it won't ever come to fruition. Kind of like hearing candidate Obama of 2008 make promises he couldn't keep. You hear it and think, "People are stupid enough to believe this guy?" And, yes, millions of American's fell for his false hope.

    At this point, the government cannot get out of the mortgage business because it would collapse the housing market, which would in turn collapse the banks, who hold trillions of mortgage debt on their books. Plus, the banks are currently realizing big profits selling loans to government, enjoying another back-door bank bailout of sorts The GOP is not serious about returning the housing market back into the hands of the private sector any time soon. There's still 10-15 million underwater mortgages that need to be worked through the system, and the only entity large enough to handle the catastrophic losses that will accompany these loans, is the federal government.

  • Mortgage Rates Hit Another Record Low For a Sixth Straight Week

    Posted Under: Market Conditions in Portland, Financing in Portland  |  June 7, 2012 11:37 AM  |  174 views  |  No comments

    Housing Wire reported this morning that mortgage rates hit another record low, dropping on the weak jobs report and continued economic chaos in Europe.   

    "The Freddie Mac survey showed the 30-year FRM averaged 3.67% for the week ending Thursday — a new low — ticking down from the prior week's record average of 3.75%. Last year at this time, the 30-year FRM averaged 4.49%.

    The 15-year FRM, a popular refinancing choice, averaged 2.94% — also a new low — down from last week‘s record average of 2.97%. A year ago, the average rate for a 15-year FRM was 3.68%." 

    Falling mortgage rates couldn't be happening at a more opportunistic time for homeowners.

    The FHA Refi boom has just about to begin on June 11th (
    see this article), where current FHA borrowers can take their existing 5.00%+ FHA loan and refinance down to a 3.875%, saving $100-$400/mo, even if they are severly underwater in their home.  

    Plus, Fannie Mae and Freddie Mac borrowers can refinance, using various programs including the
    HARP 2.0 program for underwater borrowers.  

    Enjoy these low mortgage rates while they last.   The more chaos in Europe and abroad, the better the interest rates get for American homeowners.  

  • How to Sell the Heck Out of a Single Housing Data Point

    Posted Under: Market Conditions in Portland, Home Buying in Portland, Financing in Portland  |  May 24, 2012 10:34 AM  |  119 views  |  No comments

    Each month for the last four years I've looked forward to reading Barry Ritholtz's un-spinning of the National Association of Realtors monthly housing "data" in his blog, "The Big Picture."  Without fail, the NAR comes out with a very rosy headline based upon a single data point and PR the hell out of it, doing a full court blitz and getting picked up by nearly every local and national media outlet. 

    The flavor of the month is a 10.1% increase in median price year-over-year.  

    Sounds really encouraging right?  Not so fast speedo!

    Here's Ritholtz:

    "Don’t be misled by this data point. The key driver of it price difference is the result of the voluntary foreclosure abatement while the robo-signing settlement was progressing. When we compare year-over-year distressed sales (foreclosures and short sales) we see they were down to 28% for April 2012 (17% foreclosures, 11% short sales), a whopping 9% lower than the 37% in April 2011.Thus, the increase in price can be accounted for by lack of distressed sales in the mix — the price dispersion — and not by any actual increase in home prices.

    Now that those legal issues are behind the banks, we should expect mortgage loan servicers to begin once again the foreclosure process — and that means more distressed sales to come ."

    The legal issues Ritholtz mentions is the $25 billion, 49 state Attorney General and federal settlement that absolved the top five servicers of foreclosure fraud and other legal violations related to their foreclosure practices.  

    Thanks to astute market observers like Ritholtz and the crew over at Calculated Risk who look at the data behind the headline and explain it to their readers, we have a more clear picture of the market today and where it's heading in the coming years.  But, hey, you gotta give credit to the NAR for spinning the data each month, without fail, into a favorable headline promoting the interests of the home selling industry. 

  • Ten Reasons Why the Portland Housing Market Is Now A Sellers Market

    Posted Under: Market Conditions in Portland, Home Buying in Portland, Financing in Portland  |  May 22, 2012 9:43 AM  |  148 views  |  No comments

    The Portland RMLS released its May Market Action Report last week and showed inventory in the Portland area has fallen to a new low of 4.7 months, down from 6.5 months inventory in February.  

    Here are ten reasons for the low housing inventory:   

    1.       4.7 months inventory – lack of sellers and lack of shadow inventory being released onto the market.      

    2.       Potential sellers may not have enough equity to absorb closing costs (7-8% in normal market) and down payment on new home (5-7%) for a total of 12-15% equity needed to sell existing home and purchase a new home.

    3.       HARP and Streamline (FHA/VA/USDA) refinance programs making it easier for people to stay in their existing home rather than selling (and absorbing closing costs).4.       Potential sellers hope that prices will start rising and they can sell in a few years at a higher price and with a lower mortgage balance. 

    5.       Those who are underwater, may be taking the HARP/Streamline refinance options if they have a Government backed loan (Fannie, Freddie, FHA, VA, USDA) rather than bruising their credit with a short sale.

    6.       Homeowners who are beyond hope of keeping their home - underwater, delinquent, distressed, and facing foreclosure - are riding out the foreclosure/short sale process before moving out.  And so is their mortgage servicer, who often drags out the distressed mortgage and real estate process much longer than necessary in order to extract more fees from the mortgage investor (Fannie, Freddie, Pension Fund, etc), which pads their revenue and keeps additional housing inventory off the market. 

    7.       Access to credit is still tight but is getting easier (FHA allowing 600 FICOs and high debt ratios), allowing more buyers to qualify. 

    8.       The economy is slowly improving and more buyers are out house hunting, pre-approved and ready to buy. 

    9.       Artificially low interest rates allowing buyers to pay higher prices for homes (remember, most buyers are payment buyers).  Thus, the bidding wars.  Bidding wars require increased down payment to overcome appraisal hurdles if there's not enough comps to support the new sale price.  Most bidding war participants have the liquidity to play the bidding war games.   

    10.   Government intervention and propaganda goes a long way.  Remember, the US Government has trillions of dollars invested in the bailed out banks who still have massive impaired mortgage holdings on their books that they are marking at fictional levels rather than mark-to-market values.   The government is doing whatever it can to ensure these banks won’t fail (before they’re broken up?).  Therefore, record low interest rates and oligopoly powers almost guarantee the banks will earn massive profits to dig their way out of the massive losses they created for themselves. 

  • 1100 Days On Market To Get An Offer On An "Equity Sale" Transaction

    Posted Under: Market Conditions in Portland, Home Buying in Portland, Home Selling in Portland  |  April 25, 2012 11:21 AM  |  171 views  |  1 comment

    Mean Reversion wiping out the bubble years
















    I received word last night that my sister’s house is finally under contract after 1100 days of being on and off the market and should close escrow within the next 45 days. 

    Hooray! 

    The sales price is less than they paid for it back in 2004, but that’s where the market is in this Portland suburb.   

    Way back in February 2009, when I was working six days a week for a distressed mortgage investment firm in Orange County, CA, knee deep in value due diligence, my sister called me on a Saturday afternoon while I was still at the office, wanting my input on what her house was worth. 

    “$335,000 max,” I said after building a Comparative Market Analysis in five minutes. 

    “What?  No way!  That’s not enough.  We paid more for it back in 2004,” she replied.

    “Sorry, but that’s where the market’s at.  The housing bubble years will be wiped out and then some.  It's called mean reversion.  I know you want and need more for a down payment on a new house and to pay off some bills, but that market you're dreaming about died eight months ago.”

    "Well, we're goinng to start out at $425,000."

    “Good luck with that.  You won’t get any showings until you lower it to $365,000.  Even then, you’re still too high.  $335,000 is the price.  It will probably bottom out at $315,000 by the time this thing is over.”

    She wasn’t very happy with my estimate of value, but at the time, I was damn good at pinning value of a property to within a few thousand dollars in any market.  I took a lot of pride in digging in deep, contacting multiple agents, trying to find out from prior listing agents anything I could about the condition of the home I was researching.  I didn't want any surprises when we took possession of the home.  (Sorry to digress, but I really loved investigating). 

    Value is value and time on market means the same thing in every market.  Homes sitting on the market for 250 days are obviously there for a reason.  Homes sitting on the market for the better part of 1100 days like hers are overpriced, either by a lot or a little.  There’s a reason they call it the Law of Supply and Demand.  It's a law because it works 100% of the time, every time.  (Not just 60% of the time). 

    It probably isn't a coincidence that her house sold now that Portland market inventory is down to 5 months whereas it was over 13 months back in early 2009 when she first listed it.  

    Real estate priced at the right price can move pretty fast as we’re seeing in the frantic Portland market here in April 2012.

  • Jumbo Mortgage Market

    Posted Under: Market Conditions in San Diego, Home Buying in San Diego, Financing in San Diego  |  April 20, 2012 11:51 AM  |  219 views  |  1 comment

    The Institutional Risk Analyst recently commented on the state of the intertwined luxury home and jumbo mortgage markets, sharing this observation from a very successful New York City Realtor: 

    "The lack of credit availability is the chief reason that housing will not recover in the near term. This troubling reality was confirmed this week when The IRA sat down with one of the most successful realtors in the New York area, who told us that "there is no home finance market for properties above $1 million in New York." The same realtor confirms that the top four banks are only writing loans for the conforming market and that prices for luxury homes in the New York metro area are compressing viciously -- far more than in the early 1990s and 2000s. "This market is all about price competition now," she told The IRA, "not valuation."

    What this means in English is that the four largest banks (Chase, Citi, Bank of America, and Wells Fargo) are focused on originating mortgages less than $417,000 (or $625,500 in high cost areas like California and New York City) that they can sell off to Fannie Mae, Freddie Mac, and FHA.  They are almost completely avoiding the million dollar and up mortgage space.  Luxury home purchases in New York City are being driven by cash buyers.

    Despite the large banks near avoidance of the jumbo market, jumbo mortgages still exist and are being issued.  GMAC, Blackrock, Penny Mac, US Bank, and Union Bank of California offer jumbo mortgages through a combination of retail, broker, or correspondent channels. 

    Other banks like
    Bank of the Internet, an FDIC-backed portfolio lender based in San Diego, offer Pledged Asset Mortgages or Asset Based Loans, where high net worth individuals can use liquid assets partially in lieu of a down payment.  

    For example - a person with $1,000,000 in company stock could buy a $2,000,000 home, putting 10% down and pledging the other 20% from their stock portfolio.  As the loan is paid down or if the home appreciates in value, the amount of assets pledged decreases.  This allows the homeowner to keep their liquid assets growing, avoid paying capital gains, and buy more home.  Believe it or not, jumbo mortgages are out there and they are available to qualified borrowers with enough income and assets to fully repay the loan.  

    There's also the 
    Professionals Mortgage Program (doctors, attorneys, dentists, and CPAs) offering financing up to $1,000,000 at 95% LTV on purchases and 90% LTV on refinances.  Regional and community banks are willing to roll out the red carpet to add these professionals as clients becuase they typically have large, consistent deposits and ever expanding investment needs.  

    The jumbo market is still operating and financing is available on high-end luxury properties, even though some markets like New York City may be leaning more toward a "cash is king" environment.  Borrowers taking out a jumbo are  required to have a 20-30% cash down payment or equivalent home equity, or significant liquid assets to pledge in order to obtain a jumbo mortgage.  
 
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