Mortgages…Will They Ever Be The Same Again?
March 15th, 2008 Categories: Mortgage News
Out here in San Diego we are approximately 30 months into the housing correction and 6 months into the “credit crunch.” We have seen housing prices correct downward in some areas as much as 20% to 25%. With all the doom and gloom out there in the real estate world, I thought I would interject my two cents into this
whole mortgage crisis.
We all heard the stories of landscapers to grocery clerks buying $800,000 homes! Buyers with 580 credit scores buying a home with no money down.!We all did it… mostly because we were allowed to. Credit became so easy to get it was ridiculous! Gone were the days of “common sense” lending. We were living Greenspan’s famous words… “Irrational exuberance“, but this time it was housing. Housing here in Southern California climbed so high at such a rapid pace, there was a time when we all thought it would never end. And then it did! First the condos, then the new construction, at last we see the foreclosures.
This is a healthy correction, one that is needed if we are to survive as an industry and if we want continued healthy growth in housing. As we shift into a familiar but different approach to lending, we are sure to experience some shrinkage in our industry. No more of these 100% option arm loans, 95% financing without a job, or any of these other silly financing packages.
Sure the jumbo market is a little tight right now, but it will eventually ease. 100% financing will come back, but this time it will really have to make sense. We will all be better off from this necessary but unpleasant cleansing of bad loans. With the raising of the FHA and conforming loan limits this year, it’s a step in the right direction. The modernization of the FHA loan program is sure to prevent something like this from happening again anytime soon.
Sub prime loans as we have known it before is rapidly changing and they themselves are experiencing radical changes in their segment of the industry. This is a business model that was under heavy scrutiny and much to blame for the high default rates. If this segment of our industry is to survive, the sub prime lenders will need to lengthen the introductory rate from 2 years to possibly 5 years, raise credit score minimums, remove or at least lighten up on the prepayment penalties, and exercise better judgment in the underwriting process when approving buyers into these type of loans.
It is natural for us to have selective memories but we have learned a few lessons along the way. What we have again learned is that real estate does not always go up in a straight line without risk and that 5 years is NOT that long of a time away.
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Feds Cut Interest Rates by 75 Basis Points Amid Fears Of Recession
January 24th, 2008 Categories: Mortgage News
Tuesday was an important day for the markets. Bernanke and company lowered the Fed Funds rate 75 basis points to 3.50%. The largest move since 1984! There are growing concerns that the weakening US economy may spread to the international markets. Watching CNBC, there is talk about the small and large “R word.” The small being a national recession and large representing a possible global slowdown.
After five consecutive sessions of negative trading, the Dow fell more than 300 points in early trading only to recover and close up 299.98 points! A gain of 2.50% for the day! 
As I search for some guidance amid all this volatility , I find Douglas Bodenwieser with Comprehensive Financial Group. He offers this thought… “As for the recent decline in the stock market, consider this a great buying opportunity, whether you have money in you 401(k) money market account, or have been put off by high stock prices. Think about a systematic investment strategy. Contribute as much as you are able every month, no matter the market condition, and let the “time value of money” be your friend.”
Currently, conforming interest rates (loans $417,000 and less) are quietly falling to record lows that we have not seen since 2003! This means 30 year fixed rates in the low fives! Another refinance boom just around the corner? Many say yes.
This will undoubtedly help some folks facing ARM resets this year to help fight off default. Home value is the bigger picture here and without equity, homeowners may not have any viable options to take advantage of these low interest rates.
Rich Johnson at Windermere Exclusive Properties and HotonSanDiego.com real estate blog contributing editor states… “The Fed’s rate cuts have helped to spur consumer interest and activity in our local Real Estate markets. It’s not so much that it’s been reflected in lower mortgage rates, but more so that these cuts have helped to bolster the perception that now really is a great time to buy. With inventory levels declining slightly, home prices down significantly in some areas, combined with still historically low interest rates, we’re finally seeing people getting off the fence and buying again.”
The good news? With inventory levels slowly returning to normal, low interest rates, and a healthy job market we could be seeing a bottom in housing this year.
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The Fed Cut Interest Rates But Mortgage Rates Rise Anyway
December 20th, 2007 Categories: Mortgage News, Real Estate News
Despite the Federal Reserve’s 1/4 point interest rate cut last week, mortgage rates were driven upward. The Fed announced that it will be injecting additional cash into the market and will be providing additional access to US dollars for a number of foreign central banks. many bond traders unloaded holdings, which pushed mortgage rates sharply upward.
Retail sales came in much stronger than expected and both the CPI and the PPI revealed that inflationary pressures may be on the rise. While this, combined with the previous week’s good employment report, often would indicate a growing economy, there is no clear consensus on the economy’s health.
Some experts are declaring that housing has bottomed, and we’re on the road to a healthy 2008, while others are predicting that the housing downturn and credit market challenges will persist and will drag us into a recession.
Financial news courtesy of Douglas Fujikawa, Sales Manager. Countywide Mortgage, Inc.
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