The Fixx (not the band)

An idea came to me yesterday while reading and listening to various opinions and objections regarding the stimulus package. It seems there is a consensus of concern about how to use the money to make the most immediate positive impact on the economy. How do we get it into the system WITHOUT the banks snagging it and sitting on it? What, if anything, will motivate banks to make loans, and get over the “failure” paranoia?

Answer: government backed loans i.e., FHA backed mortagages for refinance or purchase, with a loan limit raised to $2,000,000.

The benefits of such a program, my best guess, are as follows:

1. There is no immediate government outlay of cash, except in the cases where banks need it for solvency;
2. Home buying and refinancing would ensue immediately. Strict lending “standards” regarding borrowers’ ability to repay such loans are already in place. In fact, they are too strict. I imagine we would be shocked at the number of current non-defaulting homeowners that would be unable to qualify for loans equal to the mortgages they currently have. That is not acceptable. The fact that many are able to meet their home loan obligations doesn’t mean they aren’t hurting. Between job instability and a huge wave of the so-called “Alt-A” loans ready to reset to higher rates, there exists a potential tsunami of defaults. Why wait for the wave? Get these people some relief now.
3. The majority of home loans that banks are making now now are FHA loans. Banks like these loans. The profit is good, and they are government backed. The problem is that the limit is far too low to help stave off the aforementioned tsunami of defaults which will arrive courtesy of loans that substantially exceed current FHA limits.
4. Yes, there will be defaults for which the government will be stuck picking up the tab. However, the cost thereto will be far lower than the cost of the proposed stimulus package.
5. As I understand it, housing has led the way out of most recessions. Why should the current conditions dictate a different approach? There is too much on the line to be shooting in the dark, which is exactly what I believe this package represents. Home loans are a known. They are desperately needed, and I don’t see anything in the proposed package that offers direct help in this regard. Nothing will provide growth in employment faster, and at less cost in government funds, than providing a  substantial, if not unprecedented, boost to home lending.
6. I’ve never seen anything as weird as 5% mortgage money that no one can get. I’ve never seen the Fed discount rate at 0%. Doesn’t that mean anything? It means that we, the government, and the banks have to get over the paranoia that the NINJA loans (No income, no job or assets) will recur. Of course they won’t recur as long as no one can get a loan. The pendulum has swung too far, and it is strangling this country for no better reason than, “we won’t let that happen again”. COME ON FOLKS! How long are we going to wring our hands about what has already occurred? No one can do anything about that. It is as if it has been mandated that by making loans impossible to obtain today, we are reaching back in time to punish those that already screwed up. The only ones being punished are those that are here now, working their respective tails off to make ends meet.

If you know why this would not work, I seriously encourage you to express your opinion with a comment on this post. We are smarter than the government, the banks, and certainly Wall Street, will give us credit for.

Damn Banks or…..Why Is it Taking So Long To Recover?

How do banks make money? They make loans.

What if they don’t make loans? They sit on the money they have.

What if they don’t have money to sit on? They threaten to fail and the Federal Government gives them money to sit on OR they “arrange” a managed failure with the help of the Federal Government, in the course of which they are taken over by another big bank that curries favor with said Federal Government.

The Federal Government, via the media, has made it clear that the recovery is not happening because consumers are not spending. Consumers? That’s the problem? How about the thousands of small businesses that continue to go out of business and cast thousands of “consumers into the unemployment lines because BANKS WON”T MAKE LOANS?

A $600 rebate is going to help me help the economy? Are you kidding? How about putting that $10+Billion sitting at B of A to work? Do you have any idea how much a billion dollars is? I’ve been told that one billion dollars, laid end to end, would stretch around the circumference of planet Earth 8.5 times. Think of the mileage we could get out of one billion dollars if it were put to work in the form of loans to the businesses that need them for payroll, inventory, expansion, etc.

I currently have several accounts at Bank of Arrogance, one of the kings of the BBB’s ["Banks sitting on Bailout Billions"]. I am considering moving my accounts to a credit union. I doubt B of A will miss me, but it is my small way of saying that I am appalled at the arrogance of these institutions. We have trusted our legislators to help the banks so that the banks will help us. New flash: IT”S NOT HAPPENING!

So the problem is us silly consumers. Chrysler is failing, so I should go out and buy one? I might consider it if my tax dollars hadn’t already been contributed to saving this failing company. Spend more money? Why should we spend to help the economy while the BBB’s sit on billions of tax dollars? I think there is failure on the part of The Feds to understand that we aren’t as stupid as they would like to believe. So let me be clear: WE’LL START SPENDING WHEN THE BANKS START LENDING.

I ask that you consider moving your accounts to a credit union, or to a BSCA ["Banks 2 Small 2 Care About", i.e., they don't make mega political contributions to The Feds]. You will find the service friendlier and the fees lower. All you will miss is that you won’t find a branch on every corner. The Boeing Employee Credit Union office is located right inside Safeway at the Bear Creek Shopping Center. It’s a lot easier to access than risking your life getting to the B of A on Redmond Way.

Happy New Year 2009

 So arrives another new year. Live your life!

As 2008 closed out amidst concern, if not angst, over the economic turmoil that has consumed our collective national consciousness, I am perplexed. Is it the power of the media that has us running for cover….because it tells us to? Granted, major financial institutions and auto manufacturers failing is going to grab headlines. But how many of us does that directly affect?

It would seem that it affects all of us if we are to believe what we are told. But seriously, unless you were laid off, how did Washington Mutual’s failure affect you? Probably not at all. If there are no new Chevrolets, will you stop buying groceries? Not likely. These events are not going to affect your day to day activities, unless you decide to allow it.

Suggestion: Turn off the tube. It’s an aberration of what is already loosely termed “news”. Read the newspaper instead. I like  page three when I want to learn something. TV news broadcasts are entertainment, pure and simple, garnering advertising dollars based on viewership.

Are you old enough to recall the debut of “60 Minutes” many years ago? Initially panned as doomed to fail, much like “Monday Night Football”, it broke all the rules and soared to higher ratings than the producers could have ever imagined. Today we have not only dedicated “news” programs ad nauseum, we have a host of “news channels”.

Other than the weather channels, I think it is all a bunch of poorly reported, inadequately researched, largely unverified, crap. Conservatives accuse “the media” of being too liberal. Liberals accuse the media of being too conservative. I think they’re both right. Truth be told, the media is simply sloppy, thus the accusations. It is the inaccuracies inherent in reporting too fast, too carelessly, that gets the talking heads rolling.

Tv and radio talk show hosts live on the edge of truth for the sake of ratings. If it’s not controversial, who’s going to  watch or listen? OK, so how to make boring news controversial? Spin it. Make a story out of a non-story. Take the Governor of Illinois….please!! The guy’s a loser. We get it. Do we need to get beat over the head with it? The newspapers were largely done with this guy after a week. The electronic media has beat this story to death for a month. Why? His stupid hair? His goofy accent? Oh no, the interest is sagging. Spruce it up with highly dubious (read untrue) Obama tie-ins. More pics of the dumb guy with the dumber hair.

Why does this formula work for the electronic media? Maybe it’s because they know what we are not willing to admit: the TV is on in too many homes ALL THE TIME.

I walk by my family room and the TV is on, and no one is in the room. I go work in my office for a little while, come out to go to the kitchen to get a cup of coffee. Walking past the family room, the TV is on again, and there’s no one in the room. This can happen several times a day. It doesn’t matter what I say to the household, it’s just the way it is. I think my room mates
are fearful of silence. Heaven forbid it is quiet enough to contemplate ones own thoughts. Horrors! It is something that I have accepted as a cost of working at home. I think it will be my New Year’s resolution to limit the number of hours that the TV is on. I am also swearing off talk radio. They’re not all bad, but the worst are on during the hours that I am most likely
on the road.

I didn’t mean to lose my way here, but I had to get that out. My point is that I fear that we are sliding down a precipitous slope for no better reason than we are being told that we sliding down a precipitous slope. Most of us have the same job, car, house, family, etc., that we had 12 months ago. I don’t doubt that people in finance, real estate, and car sales are having a tough time. Heck, I ought to know. But I’ve been through downturns before, and survived. Each time we have been told, “we’ve never seen anything like this”, “there’s no end in sight”, “this could be the beginning of a depression”, etc. The World was transfixed by the news stream from the Mideast during Desert Shield in 1991. The World seemed to stop as all air traffic was grounded following 9/11. Out of the mayhem emerged strong economic runs. It will happen again. It’s not a matter of if, but rather when, a turnaround will occur. Just as when many over-speculated on the premise that the recent run up in real estate would never end, it is a mistake to believe the current downturn won’t end.

While it is always good to be prudent, I am focusing on being well positioned for the rebound when it comes. So I urge all to turn off the so-called news channels, turn away from self-fulfilling prophecy conversations, enjoy what you have now, and have faith that things will get better if we simply think for ourselves.

Diana Moves Her License to Prudential NW Real Estate

 

Diana moved to Prudential a few months ago. Why? Well, as many of you know, Diana’s specialty par excellence is relocation. It is a strength at Prudential, a national company. Not quite so at Windermere, a regional company. But as Diana has been indoctrinated into the Prudential system, we’ve been introduced to some surprisingly refreshing ideas pertaining to residential real estate marketing and technology. In short, Prudential on-line systems make Windermere’s look like two tin cans and a piece of string. Don’t get me wrong. I’m still at Windermere and have no intention of leaving Big Blue. But Prudential’s systems are 2 or 3 years in front of the local pack of Windermere, John L Scott and Coldwell-Banker-Bain.

One by one, Diana is cranking out “Property Investment Profiles” ["PIP"] for our past clients. You can view a sample PIP HERE. This is a snapshot market analysis that is generated automatically on a predetermined schedule, then sent via email. There is a great deal of information in these reports. The best part is being able to readily see, without logging on to anything, what is taking place with properties located in your market area. If you are interested in receiving a PIP report send me an email and I’ll move you to the front of the list.

2012: Welcome to Al-Qaidastan

One of our greatest concerns regarding Al-Quaida is that they find a way to obtain a nuclear weapon. I submit that perhaps our concerns have been misdirected, as I believe that our gravest threat is that within a few short years, waaay before Iran develops a nuclear weapon, Al-Quaida will obtain a nuclear country i.e., Pakistan. While we have dithered about chasing Al-Qaida, and their lackey Taliban brethren, around the various dirt farms of Afghanistan, they have been surgically eliminating, tribal head by tribal head (literally), all resistance to their presence in Northwestern Pakistan tribal areas. With advent of the removal of President Musharraf from office, and the murder of Benazir Bhutto, Pakistan is ripe for a fundamentalist Muslim revolution. If the US thinks Iranian President Imanutjob is a threat, just wait until Al-Quaida gets control of a state with a real nuclear arsenal backed by an actual Western style economy. Too bad about Musharraf. He seems like a decent guy, but we hung him out to dry for far too long, allowing extremists to infiltrate the political core of his country.

As Robin Williams has asked, “How come we can’t find a guy that is 6′7″ and has to be hooked up to a dialysis machine?” Forget Iran and find Bin-Laden. Soon it will be too late. It still appears that this is the only way the spread of this cancer will slowed, if not stopped.

Federal Way Sign Ordinance: Not Rocket Science

I’ll be brief: Real estate open house signs are a time honored tradition. The regulation thereof should be simple and straightforward. Her is how I would propose that any municipal and/or county sign ordinance should read.

1. Open house signs shall be no larger than 24″ by 24″;
2. Said signs shall bear the name of the licensed real estate brokerage that owns and places said signs;
3. Signs shall not be placed in a manner that impedes foot traffic, or that causes undue distraction to motorists;
4. Hours of placement of said signs shall be limited to 9:00AM to 6:00PM. Signs that are left outside of the the prescribed hours will be confiscated. Confiscated signs may be recovered from the jurisdictional authority by payment of a penalty per sign in the amount of $10.00.

It is unconscionable that Federal Way authorities would arbitrarily target open house signs at a time when this relatively new municipality is losing over 1,000 jobs at Weyerhauser, its largest nearby employer. This, coupled with an unusually slow market has many home sellers hamstrung with virtually no way to promote their properties for sale in the traditional manner. Agents are facing tougher times than they have in years, and open houses are the one way that they can keep working, networking, and promoting their listings in a professional manner.

It is understandable that Federal Way is concerned about signs. Many retail businesses have resorted to A-board type signs to enhance visibility while Pacific Hwy South (99) has been under construction for many months. Excavation, heavy equipment, blocked lanes, dust, barricades, paving machinery have all combined to make 99 a bit of a war zone, uninviting to those that would visit the many small businesses along this corridor.

The problem is the haphazard design, size, placement, and hours that these businesse are using A-board type signs in an effort to keep from going broke. If the business owners were properly educated and adhered to the regulatory points above, all should be able to co-exist.

Another common offender the marketing of new construction. New construction sites are often held open several days a week. Prooblems arise when agents/site representatives get complacent and rather than remove their signs, they will sinply fold them and lean them up against the nearest telephone pole, street sign or retaining wall. This is unacceptable, not to mention unprofessional, and a poor reflection on the many agents that dispatch and recover their signs in a proper manner. Such signs should be susceptible to confiscation.

How To Replace Interior Doors

Interior door replacement can be done in many ways. Concerns vary, but the overarching issue is generally whether your doors should be stained or painted, in accordance with the existing millwork in your home. In my humble opinion, painted doors with stained millwork looks odd, even if they are nicely painted 6-panel doors. Until recently, stain grade doors were very expensive, oftentimes North of $250 each for pre-hung units. Now there are door stores that will take your old hollow core flush doors and mortise new stain grade doors of your liking to match your existing hinges and door frame. You take them home and finish them to match your existing millwork, attach the hinges, and hang them. Simple.

Then again, if your plan is to convert a tired stained millwork package and doors to a formal painted look, pre-hung doors are the way to do it right. Attempting to paint old stained millwork is more labor intensive than it is worth, and usually the results are disappointing.

Here is an excellent article on the advantages of pre-hung doors that you will find helpful.

Skin In The Game

It makes sense. If we are to believe that there is a simple preventative measure which will reduce the chances of another mortgage market meltdown, “skin in the game” is a good place to start. Getting rid of 100% financing is a foregone conclusion. But what about the 97%, 95%, and 90% loans? It requires little change in the market for a homeowner to claim, “I’ve lost all my equity” when it was only 5% to begin with.

One of the many dynamics causing increased foreclosures is the very perception on the part of first time homeowners that because their home may be worth less than they owe, they should lay down the keys and walk away. Nothing could be further from the truth. Bear in mind that I am not speaking of those that have toxic loans with payments that have escalated beyond a homeowner’s means. I am referring to people that are getting along OK with a fixed rate loan and payment, but are throwing in the towel prematurely, thanks in part to the media that is telling them they were losers to start with because they bought with low, or no, down payment mortgages.

Right now, the Democratic House of Representives is considering lowering the FHA down payment requirement from 3% to 0%. The Seante is working on a 1.5% requirement. John McCain is touting the need to increase the downpayment to 5%. (See Ken Harney’s Sunday Seattle Times article) I think they’re both wrong.

FHA loans have been a special resource for first time buyers for many years. They are not part of the problem, thus I believe that they should not be tapped, or modified, in order to be the cure. It is a staple of the home loan industry that isn’t broken, so why fix it. A buyer needs to come up with about $19,500 (3% down + closing costs) to buy a $300,000 home. Here is a breakdown:

1. $9,000 down payment
2. $4,500 One Time Mortgage Insurance Fee [1.5% of loan amount]
3. $3,000 Loan Origination Fee [1% paid to who put the loan together]
4. $2,000 for Title Insurance and Escrow Fee
5. About $1,000 for “Pre-Paids” i.e., monthly mtg insurance and interest

A couple of wrinkles that are new:

1. The 1.5% One Time Mortgage Insurance Premium MAY be added to the base loan amount of $291,000, thus making the total loan amount $295,500
2. The borrow will pay Monthly Mortgage Insurance in an amount equal to 0.5% of “base” loan amount: 0.5% of $291,000=$1,455, divided by 12=$121.25
3. Lenders MAY charge a “discount fee” of 0.5% or more, of the base loan amount. This will vary from lender to lender and is something that borrowers need to look out for.

$19,500 buys a decent car. It shouldn’t be too much for someone that is serious about buying a home. Yet the buyer has enough “skin in the game” that will compel them to improve and maintain their property and not throw back the keys at the first sign of negative market changes. With the down payment increased to 5%+closing costs, the same buyer would need over $25,000 to buy the same $300,000 property. It is my opinion that crossing the $20,000 line is both a financial and psychological barrier for many would-be home buyers.

On the other hand, reducing the down payment to 1.5%, if combined with the option of adding the 1.5% Mortgage Insurance Premium to the loan amount, makes it too easy for buyers to get themselves into trouble, which in turn also makes it too easy for them to walk away. It would effectively be a return to 100% financing.

California Dreamin’/Burnin’

We set out for the Los Angeles area last week to get a little first hand knowledge from local real estate agents on the state of their market. I was fortunate enough to meet Denine Kerns, CRS of Prudential California located at Corona del Mar, a toney oceanside community about 40 minutes South of L.A. Denine specializes in estate properties and is a member of the Prudential President’s Circle. When asked the difference in  volume over the last year Denine said they were down about 40%. (Not bad considering their average listing is about $1.5M) Her location and quality of clientele have somewhat insulated her business from the woes that afflict newer, outlying communities, but it is still much slower than usual. As we talked it was apparent that there are more similarities than differences between our markets. The greatest challenge is the unpredictable mortgage market. As in King County, Denine has seen deals flip due to financing more than any other cause.

When you hear of sales failing due to financing on highere priced properties, it is rarely because of anything that the buyer did, or did not do. It is rarely the fault of the mortage broker or loan officer either. Deals are getting kicked out by underlying lenders, the companies that actually supply the money, then sell the loan to the secondary market. It is hard to know where the sticking points are, but mortgage brokers tell me of loan programs that are presented to them on-line in the morning, and are gone by the same afternoon. Borrowers may get approved for a certain loan and terms, but have no guarantee that the loan they are approved for will stick around. Even with a “lock” on the interest rate I’ve heard of lenders pulling the program to the dismay of brokers and borrowers alike. Denine concurs that basic jumbo loans are the staple of her business and will be a bumpy ride until some uniformity for large loans emerges.

Just as the increased “conforming” loan limit in King County is a bit of a laugher at $529,000, the $729,000 loan limit for Denine’s market is not much help either.

This is a NASA photo dated October 25, 2007. Ironically, this is about the time recent home buyers near the burn areas realized their mortgages were also catching fire and burning up their cash flow beyond their means. This is toxic loan central. During 2004 through 2006 home builders armed their respective sites with agressive sales agents, and even more agressive loan representatives. Homes priced from $450,000 to $750,000 were snatched up by buyers with little or no credit, or down payment. Any wonder there is a problem? These are the walk-away buyers that never had enough skin in the game to begin with. They knew little about what they were buying, or why they were able to pull it off. If it sounds too good to be true………

Who knew something so good could go so bad, so fast? In their hearts, the buyers knew it. The people that put together the loans never doubted it would go bad. Their mission was to do as many deals as humanly possible before it tipped over. Appraisers and underwriters were caught up in the flow i.e., the quality of the deals took a back seat to the quantity. Big lenders like WaMu had been delusional for too long to rein in the frenzy. They feared being left out.

There are some ideas being discussed right now in Congress. Jack Guttentag, aka The Mortgage Professor wrote an insightful article in Sunday’s Seattle Times. He is concerned that government intervention at this point in the game will further gum up the works and further delay the healing process.

Mortgage Mess: Light at the End of The Tunnel?

Jack Guttentag, aka “The Mortgage Professor”, provides some interesting insights into the mortgage market meltdown in his Sunday Seattle Times article “It’s Time To Expand Role of Mortgage Insurance”. Parts of his article are characteristically dry and difficult to read, but the essence of the message is there. If there is a bright spot in this deluge of not-so-good-news, it is that the mortgage insurance companies, those that impose an insurance policy on mortgage amounts in excess of 80% of property values, are doing OK. Why? Because they are insurance companies. As insurance companies, they have been required to “hold in reserve” i.e., save, a portion of the premiums that they collect in order to weather, without going broke, a housing downturn event. This means that they actually have the money to absorb the losses they are suffering through foreclosures and deflated property values. At least, so far.

Have you wondered how so many managed to get that zero down 100% no doc, no equity, no job loan with having to pay mortgage insurance premiums ["MIP"]? As an alternative, the mortgage bundling geniuses of Wall Street cooked up a risk assessment system that charged loan fees, interest rates and loan types based on risk factors.

“Oh, you don’t want to pay MIP with your loan every month? No problem. We have this little thing called an ARM with an artificially low start rate that is guaranteed to completely blow up your financial life in 2 or 3 years. But don’t worry, we’ll refinance you out of that in a year or so into a 30 year fixed rate loan you can live with. How do we do that? Simple! Your property simply has to appreciate to where it will appraise for 20% more than the inflated value that we are using today. Oh, did I say inflated? I meant enhanced. That’s what we say when we pack all of the exorbitant loan fees onto your loan amount. That way, you’re not just getting 100% financing, but about 103% financing. But don’t worry. The important thing is that you are in the market, and surely your property will continue to appreciate at 10-15% per year.”

The Mortgage Professor thinks that MIP is the way out of this mess. Once considered a nuisance to borrowers, it may now be a blessing as a means to refinance loans that exceed 80% of appraised property values and allow owners to keep their homes.