Friday, October 5, 2007

Mortgages Still Available!

Mortgage money plentiful for those with good credit
By Kenneth R. Harney
Syndicated Columnist
WASHINGTON — The term "mortgage meltdown" has become so commonplace — on TV, in headlines and even casual conversations — that you might assume that this is a tough time to get a mortgage.
But the reality is starkly different: Mortgage money is plentiful, most mortgage products remain relatively unaffected by troubles in the subprime segment and interest rates for 30-year fixed-rate loans remain in the low 6 percent range for people with reasonably good — not necessarily perfect — credit backgrounds.
Even interest rates on jumbo loans — those over $417,000 — have fallen after spiking this summer.
The main change over the past several months, in the words of Ted Grose, president of Los Angeles-based 1st Mortgage Advisors, is that "the products and underwriting that allowed people to buy houses they couldn't afford have disappeared."
Nonetheless, say lenders and brokers, there is a widespread and persistent belief by consumers that the entire mortgage market is in crisis.
Kit Crowne, a loan officer with Right Trac Financial Group in Manchester, Conn., says even sophisticated homeowners with high incomes are under this impression.
He recently handled a relocation financing for a professional couple moving from New Jersey to Connecticut.
During the initial discussion, according to Crowne, one spouse said, "I'm really not sure that we're going to be able to even qualify for a mortgage. We've got a lot of graduate- and dental-school loan debt — and I hear it's a terrible time in the mortgage market."
Crowne checked the couple's credit, verified assets and put them into a cream-puff fixed-rate first mortgage at 6 ¼ percent for 30 years.
"You'd be amazed," he said, "at how often we run into this" pessimistic attitude, despite the fact that rates are lower than they were midsummer.
Jumbo mortgages, which always have carried higher rates than "conforming" loans eligible for purchase by Fannie Mae and Freddie Mac, have recently been in the low 7 percent range, according to Crowne, down from the 8 percent and higher levels of a couple of months ago.
In Everett, Jim Brown, CEO of Veteran Mortgage, agrees that "the 'mortgage meltdown' idea is way overstated."
Even in the Seattle area, where home prices have still been rising, "a lot of people think that the mortgage market is in much worse shape" than it actually is, he says.
"Other than subprime and high LTV [loan-to-value] stated-income" programs, Brown says, "we've got pretty much everything now that we did before. We've got a lot of outlets."
For example, Brown's company offers buyers with limited resources five loan programs that allow zero down payments and fixed rates around 6 percent to 6 ¼ percent.
Most lenders and investors are quick to note that while mortgage money is plentiful, underwriting standards are stricter than they were a year ago. Jumbo loans, for example, often require two appraisals — one by an appraiser selected by the lender and the other by the investor.
"And they better line up," says Crowne, or they won't do the deal.
Similarly, FICO score standards generally are higher than a year ago, stated-income mortgages with no verifications are hard to find and major investors are on the prowl for anything hinting at fraud.
Lenders and investors are especially wary of excessive "layering of risk" — combining low down payments with marginal FICO scores and high debt-to-income ratios — in markets where prices are trending lower.
A major legislative development under way on Capitol Hill could expand consumers' range of good mortgage choices even further.
Congress appears to be on the verge of transforming the once-stodgy Federal Housing Administration (FHA) program into a competitive home-loan option nationwide, with lower minimum down payments and maximum mortgage amounts generous enough to fund loans in pricey California.
Under a bill the House passed Sept. 18, FHA loans could go as high as 125 percent of an area's median home price or 175 percent of the limit for loans purchased by Fannie Mae and Freddie Mac. In California, where the statewide median home price is in the mid-$500,000 range, that could mean FHA-insured mortgages well above $600,000.
A companion bill approved by the Senate Banking Committee would cap FHA loans at the Fannie Mae-Freddie Mac limit, currently $417,000.
A key strength of the FHA that many borrowers may not know is that its funding base is virtually bulletproof: Its mortgages are pooled into federally guaranteed bonds issued by the Government National Mortgage Association (Ginnie Mae) and are considered nearly as safe as Treasury securities.
Better yet, FHA loans are consumer-friendly: no prepayment penalties, flexible and generous for consumers with past credit challenges, but old-fashioned strict about documenting income and assets.

Thursday, October 4, 2007

Don't you just love talking pets?

Norris had a friend whose dog would say "howareyouuuuuuuuuuuuuuuu?"

So I got to thinking about other talking pets and of course YouTube didn't disappoint.

I'm working on teaching Boomer to say Mama. It's what I do with no children left at home ;-)

Have a fun day!

Tuesday, October 2, 2007

New York Times Article regarding Overpricing

A Reality Check for Home Sellers

ECONOMISTS and other humans don’t always see eye to eye. “Economists tend to think people are crazy because they won’t sell their houses for less than they paid for them — and people think economists are crazy for thinking things exactly like that,” said Professor Christopher Mayer, director of the Paul Milstein Center for Real Estate at Columbia Business School and an authority on real estate economics.

With house prices falling in many markets around the nation, this particular quirk of the human psyche might end up costing the economy a great deal, Professor Mayer says.

Classical economics can’t explain this behavior. That’s because people who refuse to sell their houses for less than they paid for them are violating a cardinal rule of the market: stuff is worth what it’s worth. It doesn’t matter what you paid for it. But when Professor Mayer and his co-author, David Genesove, a professor of economics at the Hebrew University in Jerusalem, studied the Boston condominium market in the 1990s — scene of one of the biggest real estate busts in recent American memory — the actual patterns of human behavior did not seem to follow the standard rules at all.

From 1989 to 1992, prices in Boston fell sharply, with condominium prices dropping as much as 40 percent. For a great many of those who bought condominiums during that period, selling could be done only at a significant loss. And, basically, many people refused to sell.

Their study, “Loss Aversion and Seller Behavior: Evidence From the Housing Market,” appeared in The Quarterly Journal of Economics in November 2001. The professors gathered data on almost 6,000 Boston condominium listings from 1991 to 1997 and showed that for essentially identical condominiums, people who had bought at the peak and were facing a loss generally listed their properties for significantly more than those who had bought at a time when prices were lower.

Properties listed above the market price just sat there. In the Boston market over all, sellers listed their properties for an average of 35 percent above the expected sale price, and less than 30 percent of the properties sold in fewer than 180 days. In other words, much of the market went into a deep freeze as many people held out for market prices that no one would reasonably pay.

In classical economics, that’s not supposed to happen, but the episode did comport with the behavioral economics theory of loss aversion: people have a visceral — some might say “irrational” — hatred of losing money. They try to avoid doing so, even when it goes against their own best interests.

Move ahead to September 2007. Many regions may be starting down a path like that of Boston’s market freeze of the 1990s. Wherever prices decline, look for lots of sellers holding out for unrealistic prices in a vain attempt to recoup their losses. It’s a hang-up that people have, and it can cause big problems. A number of houses with high prices just sit on the market while everyone waits.

One source of difficulty arises from a basic fact of real estate economics: about half of home purchases are by people moving within a metropolitan area. If sellers can’t sell their houses because they want too much for them, they also can’t become buyers of new homes.

“The buyers and the sellers are the same people in this market,” Professor Mayer said. “So if the sellers price so high that they, effectively, put themselves out of the market, it shows up on the buying side, too.”

He notes that economists at the Federal Reserve and elsewhere keep close tabs on this kind of behavior because the purchases of durable goods like furniture, appliances and televisions tend to run hand in hand with home purchases — and durables have a disproportionate influence on the business cycle. Further, because the freezing of the housing market makes it harder for people to move, it reduces the likelihood that they can quickly relocate for higher-paying jobs. Dysfunction in the housing market can spill over into the job market, too.

So by being hung up about whether your condominium will sell for what you paid for it, you aren’t just driving yourself crazy trying to get a buyer. You may be threatening the very performance of the economy and driving up the unemployment rate — provided that many others behave in a similar way.

What is to be done? Well, if you are holding out for an above-market price to recoup your losses, perhaps you would do well to hear the advice that Professor Mayer gives his own family members.

“If you want to sell your house then you list it at the market price and you sell it,” he said. “If you don’t really want to sell then don’t put it on the market. But don’t say you want to sell and then set the price so high that you spend the year cleaning up every morning, having people walk through your living room and look in your medicine cabinets and reject you. That’s just painful — and expensive.”
His research offers a simple lesson for everyone out there waiting for a high price to push them back into the black: Get real.