Save My Real Estate Deal

In the most recent several weeks, lending has been hammered by Wall Street over creative financing tools. For Example-100% Financing with credit scores under 600. Many of these products were originated by sub-prime lenders to borrowers who could just barely swim. Once they got into a home, the realization of upkeep, maintenance and other expenses set in.

To make matters worse, the Federal Reserve embarked upon a credit tightening policy (17 rate hikes in a row) after they extolled the benefits of creative financing, low teaser rates and more.

Now that rates have risen, many of these homeowners (2005-2006 over 14 million) are now in mortgages that they can not refinance. This places all of these homeowners on the edge of foreclosure.

Since 2004, many experts had been claiming about the 'bubble' in real estate. It is my opinion - that when the 'bubble' didn't burst when predicted, somewhere behind the scenes the market and credit was being tweeked to make the 'bubble' pop. Case in point is Congress and State Legislatures enacting new laws under the heading "anti-preditory lending acts" for the purpose of protecting the poor uneducated consumer from the big bad broker. Hey, Wall Street made the products and greedily bought the closed loans--it's not the broker's sole responsibilty to take the hit

So, what else is Congress and state legislatures doing to help? NOTHING. In fact they are making it harder to get credit and in some cases, making creative financing illegal!

Creative financing will still be offered, no matter how many regulations and laws are passed. It is just the easy credit types will most certainly vanish. Today we are looking at having to make down payments and have stronger credit and assets in reserves--this is nothing new. We still have Stated documentation and even No Documentation loans available. Along with fund sources that have not dried up and closed.

I'd like to see your posts and comments.  Gregg (8/8/07 1:42PM PST)

Well were coming up to the 2-yr mark, tomorrow Aug. 29, 2005, Hurricane Katrina plowed into the Gulf Coast wasting over 90,000 square mile with storm surge, wind damage and the infamous levee breaches in the great New Orleans area.

I was there just after the storm and when Rita was coming ashore. I was utterly amazed at the power and the furry of nature. The impact, even today is hard to put into words and comprehend--it is something I will carry with me for the remainder of my life.

I was called to duty by the Coast Guard as member of the Auxiliary after Katrina and put to work with FEMA to assist the displaced with hundreds of small and large details designed to help those get back to their lives and homes--however, after seeing the damage, I intuitively realized this could take decades not merely months as the local politicians touted.

In March/April 2007 I was back in New Orleans (Harahan) after several tornados had ripped through the area. Progress very slow--over 50% of the area is still needed attention.  Vacant mold infest homes. Rats on the streets in day light. Restaurants and business running on life support due lack of employees and the ability to purchase enough goods to serve the locals. Levees still with temporary fixes. The water was gone--the scars are plainly evident.

Like I thought, this will take decades. The high on my duty there was a Saturday Morning along the Bid Muddy at Pain Du Monde--begnets, hot cocao and people watching!

You think rates are bad? Guess again!...below is a 'Money Report' presented by Bill Cochran to the Saddleback Valley Board of Realtors on 8/20/1987--20yrs ago to this date.

Since we launched the web site, we have had dozens of calls from buyers, sellers and realtors trying to salvage their deals. In all of these calls there have been a couple of key themes as to why deals are not closing.

1. The current lender has closed.

2. The current lender has approved the loan, however cant fund the loan because they don't have any money.

3. The current lender has withdrawn the approval citing guideline changes, even after the loan has been locked!

4. Many are under the impression that anything still goes and haven't come to grips that credit policies have radically changed.

5. Relying on false information, half-truths from loan officers/realtors and still thinking that there is a better deal than the one they have, thereby not locking and not meeting underwriting conditions in a timely manner. This means that what was offered today is gone before the day is over.

6. Increased interest rates and credit standards nullify the ability to get a loan approval.

Is the fall out over? 11 more lenders closed shop and filed for BK this week. I'd say the damage has been already done to those lenders whose troubles began Dec. 2006 and have finally run out of options and any chance of holding on.  This is much like a patient being told that they have a terminal disease--they are not going to die at that moment, but more so will continue live for months and some years while being treated. But at some point the inevitable will occur. This is what we are still seeing happening in the mortgage industry.

There still is plenty of money out in the market place to lend and for consumers to obtain loans from--the difference is the cost of acquiring the money is a lot higher than we have seen in the past 15yrs.

Although the current jump in rates may be shock---this is nothing new.

I remember that the norm in this industry was 15%-20% for A paper conforming loans and you needed at minimum 10-15% down payment to buy or equity to refinance.  Even back then the doom sayers were predicting a global meltdown and homes prices (averaging in California around $100,000 couldn't go any higher and the values would plummet to half that amount). Well, it didn't happen.

Now 20yrs later--the same thing is being said--home values of $600,000 on average can not be sustained and values will plummet to half the current average value. If history is still a teacher--again, I don't think it will happen.

Before 9am EST, the The Board of Governors at The Federal Reserve lowered the The Federal Fund Rate by .500% in light of the continuance of the house and stock market turmoils. This is a move that only illustrates the nature of seriousness of the current situation. The Fed's move, in addition to the pumping of cash into the banking system is an attempt to sooth rattled nerves and investors world wide. Only time will tell if these moves will achieve the desired effects. For those who have equity mortgages, credit cards and other types of variable adjusting rate loans tied to the Prime Rate, this is excellent news. This means that your interest rate on these products will drop by .500% easing some of the credit crunch.

In other news, oversea banks yesterday INCREASED their base interest rates. These moves will affect all loans tied to the LIBOR (London Interbank Offered Rate) Indexed products.

Finally, something that is remenisant of the Great Dression: A run by depositors on the Countrywide Banks in California was reported because the depositors feared that they would loose their money. Countrywide Bank accounts are federal insured--so as with federal insured deposits, all deposits greater than $100,000 are at risk. According to press reports, none of the depositors who demanded their money had accounts in excess of the $100,000 limit.

Calm down folks--we are acting like someone yelled 'Fire' in a crowded movie theater.

Song lyric from the Mama's and Papa's...sure can seem fitting to whatever you want to make if fit...in the news today, the following was posted on bloomberg.com.

Aug. 13 (Bloomberg) -- Credit markets are telling central banks what to do, and it isn't what Ben S. Bernanke or Jean- Claude Trichet had in mind.

Days after reaffirming their interest-rate stance against inflation, central bankers may be forced to do an about-face. Traders are paring bets on imminent rate increases in Europe and Japan, and some even speculate the Federal Reserve may execute an emergency cut.

Other news items quote market experts as stating the market is fundementally strong and the recent events shouldn't indicate a collapse. Today has had a mixed bag of news good, moderate and of course bad.

"Monday Monday, I just can't trust that day...any other day of the week is fine"

In recent months and weeks, it has been eluded that there is little money left to lend. It is true that many lenders have especially limited or even ended lending on loans above the Agency Conforming loan limits (anything over $417,000 for a single family residence).

The truth is that the lenders who have curtailed or ended funding (most likely on a temporary basis) have do so out of fear. They may have funding billions in loans over the past 2 to 3 yrs that may come back to haunt them. This means that they are looking at repurchasing a closed loan. This also means that they have closed loans (funded) that are sitting on their warehouse lines of credit, awaiting to be purchased by a buyer on the secondary market. The secondary market is not buying these loans, therefore a lender may be cash strapped or even over extended.

There still is large amount of money available to lend. Many lenders who have the money have been categorized into the 'failed' or 'failing' lender by association with the industry. Not only is this incorrect, but it adds to the fears of a "melt down".

Bottom line: This is a correction. The market is repricing (higher) to offset risk or percieved risk to make buying mortgages more attractive for investors. In otherwords--get the price to make more money on loans that have been cheap. The amount of money in the market to lend will keep rates from raising too fast.

Over the past 50 yrs, mortgage rates for the 30-yr fixed had been in the 8.5% to 10.0% range. Today, we have affordable rates in the 6.50-8.00% range. Well below history averages. (1990 the average 30-yr fixed rate was at 8.25%).

For more on money, you can click on my Site Map link at the bottom of the page, go to INMAN NEWS and look up Jack Guttentag's recent article "Where has all the money gone?" [Los Angeles Times, Sunday 8/12/07, Real Estate www.latimes.com/realestate  or click this link http://www.inman.com/]

The Federal Reserve added $19 Billion (that's B for Billion) into the banking and credit markets today as a reassurance to investors that the US Economy is not going down the tubes.

For more on this story, use the link to get all the details.

http://www.newsmax.com/money/archives/articles/2007/8/10/105826.cfm

Just for your information--adding cash is in effect lowering interest rates. How is that so?

The basic principal is this: Less cash in the banking system, the higher the rate of interest will be for those borrowing money (short supply = higher costs). By adding money to the banking system, scarcity of the asset is solved. (More supply = low costs).

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