Arn Cenedella

Archive for the 'Sub-Prime Mortgage Issue' Category

Fannie Mae Freddie Mac loan limits have been increased !

Matt Carter of Inman News reports that both houses of Congress have passed an economic stimulus package which includes raising the conforming loan limit substantially. It is believed the new limit in California will be $729,750.

I think we will need a few weeks to let the “dust settle” before it becomes clear exactly how the Fannie Mae, Freddie Mac and the actual real estate lenders will handle this increase in the conforming loan limit.

It is clear that this increase will lower interest rates on mortgages up to the new limit which will benefit both home buyers and existing home owners who wish to refinance to obtain a lower interest rate or perhaps to get out of a loan that will adjust upward.

Bottom line this is good news for both buyers and sellers.

2008 will bring change to FICO score calculations

The Wall Street Journal reports that Fair Issac will change the way their credit scores are calculated. The new system will be more forgiving on an occasional late payment but will be harder on repeat offenders. The FICO score developed by Fair Issac is used overwhelmingly my most real estate lenders.

Bay Area Foreclosures

The San Francisco Chronicle ran an informative and illiminating article Sunday on Bay Area Homes in Foreclosure.

6,557 Bay Area homes and condos were foreclosed on my lenders in the first 9 months of the year.

Of these, nearly 1 and 6 (a little under 1,000) were owned by individuals who lost more than 1 property to foreclosure during this time period. Additional almost another 350 were lost by owners who did not live in the property – i.e they were investment (speculative????) purchases. Based on my experience, I would say many of these other properties lost in foreclosures were in fact investment/speculative purchases. Often times buyers will tell lenders they intend to live in the property as thier primary residence in order to get a more attractive interest rate and terms when in truth they have no intention of living in the property as their residence.

Almost 7 out of 10 properties lost in foreclosure were purchased with no money down. This means all of these owners (about 4,500) lost no money because of the foreclosure. Another 325 owners made a downpayment of less than 5% of the purchase price.

It is interesting to note the geographic distribution of these foreclosures.

There have been few foreclosures in established Peninsula neighborhoods.

Most foreclosures have and are occuring in areas with significant new construction.

It’s very rare – a balanced newspaper article about real estate

This unusual event took place in this Sunday’s September 9 New York Times.

The headline in the article was “It’s Time to Take a Deep Breath“.

How true !

The following points were made by Ben Stein:

1. The sub-prime mortgage industry helped many individuals to buy a home – without the sub-prime mortgage industry many of these individuals would not have been able to buy a home. Owning a home is the bedrock of the American Dream.

2. There is plenty of blame to go around – the sub-prime issuers and the bundlers of sub-prime mortgages – certainly share some of the blame. But many borrowers also faslified their loan applications and failed to do their own due diligence of their terms of their loans.

3. The time to buy real estate is when it it is down.

4. The Federal Reserve Board is on the case and they have stepped in to prevent further panic in the financial markets.

5. The US economy is very very large and it can not be derailed by anything we have seen right now.

I believe all of this is true. It is an issue – it is a problem – but it isn’t the end of the world. Our housing market and economy will get through this and hopefully we will have learned some lessons while we do.

The Sky isn’t falling !

I just got back from Hawaii this weekend – just in time to miss Hurricane Flossie !

But while I was away I missed the fact that some believe the sky is falling and the real esate market is about to collapse.

As I headed to the gym on Saturday morning, I put all the SF Chronicles that had accumulated in my driveway from August 3 through August 10 in my backpack so I could read them while doing my cardio.

I couldn’t believe my eyes – day after day there were headlines about the sub-prime mortgage crisis and the imminent collapse not only of our local real estate market but the US and world economy to boot.

The media needs to get a grip ! The media is blowing this issue way out of proportion and is not presenting a balanced picture of the reality.

The National Review Online recently published a great article which takes a statisical look at the sub-prime mortgage “crisis”.

To summarize the findings:

Currently there are about 44 million mortgages in the U.S., and less than 14 percent of them are sub-prime. And only about 13 percent of those are late on payments, with the majority of late payers working through their problems with the banks.So, all in all, when you work through the details and get down to the number that really matters, only about 0.6 percent of U.S. mortgages are currently in foreclosure. That’s up a hair from roughly 0.5 percent last year. That’s it.

If only 0.6 percent of the businesses in the Bay Area were losing money, would the media say the economy is falling apart? I don’t think so! If only 0.6 percent of California high school students failed to pass the exit exam, would the media say the school system is bankrupt? I don’t think so! In fact, if 99.4% of California high school students passed the exit, the media would write about the phenomenal job our school systems are doing.

I have been a real estate broker for 29 years on the San Francisco Peninsula and I can tell you the market is strong. I recently helped a young married couple purchase their first home in Suunyvale. I presented offers on SIX different properties for these clients before they finally received an acceptance. All of the offers I presented were no contingency “as is” offers $50,000 to $100,000 over the list price. On the 6th offer, their offer was finally the accepted offer. Does this sound like a market on the verge of collapse? It is true loans have been made to buyers who could not afford to pay them – TRUE!It is true some of these buyers now have lost or will lose their homes – TRUE!

It is also true most of these buyers purchased homes with NO money down – so what have they really lost?

I do not mean to discount the emotional upset that comes with losing a home but most of these buyers will be in no worse a financial situation now than if they hadn’t purchased a home in the first place.

And think about how many buyers (87% of the sub-prime total) are in their homes and are making their payments on time. Think about how these buyers would not have been able to buy a home without these sub-prime loans.

The facts are that only 1 out of 7 home loans are sub-prime and that the VAST MAJORITY (6 out of 7) of buyers who purchased homes with sub-prime mortgages are doing just fine. These sub-prime loan programs have enabled these folks the opportunity to own a piece of the American Dream.

So let’s relax – yes, some of the Wall Street investment firms are facing monetary losses due to their speculation in mortgages – I feel very sorry for those Walls Strret investment bankers – I don’t think they are losing their houses or missing any meals!

But let’s keep in mind 99.4% of American homeowners ARE NOT IN FORECLSOURE!The real estate market will survive – the lending business will adjust and in a few months – all will be back to normal and the media will need to find another reason to blast real estate ownership. Cheers !