WatchingandWaiting

last Friday, the Securities Industry and Financial Markets Association sent out a press release indicating that the “new” loans would not be allowed to be included in existing “conforming” loan pools. They are apparently going to be securitized “under unique pool codes for trading on a “specified pool” basis or inclusion in Real Estate Mortgage Investment Conduit (REMIC) transactions.”

So what does that mean to you and me and our home loans?

An excellent source, Craig Strent of Apex Home Loans, says, “That seems to indicate they will not get the best conforming rates, but more likely some kind of middle ground rate between conforming loans at $417k and below and jumbo loans that are still above the temporary increase.”

So much for my new refi. Strent adds, “This certainly would detract from the benefits the temporary increase was supposed to have in the housing market.” - Wed Feb 20 2008, 23:43

When it comes to documenting the income, it does show up on my 1040 and the tax that I pay, so there are regular distribution checks and the 1040 to document that income. Does that change the financing outlook? - Thu Jan 17 2008, 10:26

Apparently more people are getting the idea that this is a good idea. The ratings service FItch has placed 139 Billion or sub prime related securities on credit watch.

Their statement states that "the apparent willingness of borrowers to ‘walk away’ from mortgage debt has contributed to extraordinarily high levels of early default, which is particularly noticeable in the 2007 vintage mortgages."

I can only imagine that these kind of things will only further tighten lending standards. - Mon Feb 4 2008, 10:00

looks like they had a follow-up post about this.
http://globaleconomicanalysis.blogspot.com/2008/01/business-… - Tue Jan 29 2008, 11:28

There was a piece on 60 minutes related(partially) to this subject. I found the link from a macro economics blog.
http://globaleconomicanalysis.blogspot.com/2008/01/60-minute… - Tue Jan 29 2008, 11:25

I just found a post on the same subject on a great blog - Sun Jan 27 2008, 23:50

Just about every contract will have a Time is of the essence clause. Your agent should have extended the contingency. - Fri Jan 25 2008, 15:27

Did you check the area for prior homes that was done by the builder? You should ask people that live there how the builder has taken care of the problems that WILL come up with the house. Are there homes in the area by that builder that others are trying to unload via short sale or foreclosure? Is the builder financially sound enough to be there to provide the 10 year warranty?

I know that I looked at a development where the builders largest home was going for $599,000 in 2005/6/7 and you can now find people trying to unload the same model home they bought in 2006 for under $400,000.

The builder incentive isn't always the best best, especially when it is tied to using their lender. Push them for the same incentive regardless of who's lender you use and get their lender to compare against other lenders. You can use offerangel.com to get an apples to apples comparison of the offers. Get a good faith estimate and check to see if their fees chew away at that 6% pretty fast. A lot of builders will specify in their contract that you have to use their title company, even though technically they cannot force you to use a specific title company.

Above all else have a real estate attorney review the contract if you do not understand it. Builder contracts are written to protect their interests and many will not budge on changing them. Remember if a particular housing feature or incentive isn't listed in your contract and/or addendum's, then you will not get them. - Fri Jan 25 2008, 12:05

Try my link:
http://beacheconomist.com/Newsletter0108.pdf - Fri Jan 18 2008, 16:33

Jordan and Tiffany you both have good points and there are plenty of professionals in your field that most certainly are not the "car salesman" that was referred to by RecessionTime. This has become quite the discussion.

I believe part of that attitude comes from the always upbeat "its a great time to buy" attitude. Everyone knows that homes have run up to levels that are out of line with historic trends. So while the pricing has dropped, it doesn't mean that it is in line with the normal trend line. Lets not forget Lawrence Yun and the continuous revisions related to sales and what seems to be his expectations that "this month" is the month it all turns around in. He hasn't done any great service to the public perception as it relates to Realtors. He's been singing that tune since August 2006.

The only item that I would take exception with was when Tiffany stated "People will always need to sell, and always need to buy no matter what the market looks like, and no matter where the majority of people sit in terms of their opinions on the market."

The first part is correct that people will always need to sell; people will not always need to buy. When rent in many areas is far less than what a mortgage would cost, it would be better for many people to rent instead of buying. Inflation adjusted, housing traditionally has less than a 1% return on it. I doubt that many people that get comission off of real estate espose renting over buying.

What many people would save by renting instead of purchasing a home that is currently overvalued could easily be invested in a low risk fund and still outperform the historical return rate that you get on a home. A years interest on a 417k mortgage is ~$24,880. Take away your standard deduction of $9,500 and you have ~$15,380 that can be written off. Depending upon your specific situation that could be beneficial. Of course, if your retirement still needs funding, that 15k could be a really nice 401k/IRA contribution that you would get tax benefits also.

Every persons situation is going to be different. In many ways renting will always make more sense; except it doesn't fulfill that "American Dream" that many, myself included, have. We want a space to call our own. From a strictly financial standpoint, I know that I should probably keep renting until homes come down quite a bit and take that extra money to fund my retirement more. I would say the sweet spot would be when a 30-year mortgage + tax + insurance + maintenance is less than 30% of your gross pay and the loss from interest, tax, insurance, and maintenance is less than rent on an equivalent place and you plan on staying put for 10 years or more. - Thu Jan 17 2008, 15:43

Let me start by saying that I'm not trying to be argumentative, but trying to explain the psychology that keeps me on the side lines.

Its not just the loss in equity. A 5% drop on the median 470k LA home represents $23,500. For me that is 3.5 months of money that I am putting aside for home purchase. Thats represents a lot of work.

Carrying a 30 year with that added $23,500 adds $27,221.98 of interest payments. With interest rates at historical lows, the odds are that you will not refinance to a lower rate in the future. Buying before my theoretical 5% drop also represents higher taxes on the property and insurance.

A concern is that if it does drop another 5% and I miss the "bottom", if I catch a raise from that bottom within a few percent I am still saving on a lower overall mortgage payment, tax, and interest. The big unknown, of course is the interest rate. With the economy how it is, it is almost guaranteed that the Federal Reserve lowers 50bps on Jan 30th with another 25bps on March 18th.

I know from my perspective that I want to buy, but my wife and I have very particular things that we like and dislike in homes. We've seen so many homes that we are past the "wow" and "falling in love" with a house. Every month we wait represents a larger down payment and has (so far) represented further falling in home pricing. - Thu Jan 17 2008, 10:17

I think one of the biggest concerns is that people, including myself don't want to be upside down on our home in a short time; of if having put 20% down we don't want to see that equity reduced to 15% in a short time.

This concern is increased when you look at the large amount of foreclosures that make up the current listings as well as what the Option-ARM reset horizon looks like. If you haven't read the web site Calculated Risk, I would recommend it as well as their analysis found at:
http://beacheconomist.com/Newsletter0108.pdf - Thu Jan 17 2008, 09:33

I put an offer in on a house in March that was 5% below the asking and it was countered witha proce that was about .5% off the asking. The seller wasn't being realistic about the market that was on them in the IE. Fast forward to now and the home is still unsold and the asking price is now down12%; the problem is that their "reduced" price is about 100k above comps.
There are several homes that I am tracking on ZipRealty and I continue to see no activity except price drops. I haven't even seen a dead cat bounce in the market that the NAR will claim is the bottom.
Look at the percent of listings that are forclosures. There is a ton of inventory and more coming with the ARM resets. Why would I buy if I didn't have to? - Wed Jan 16 2008, 20:35