Behind the Veil..........

Index(s)

ARMs are simply short-term fixed rate mortgages. The longer the fixed rate period, the higher the interest rate you'll pay for that period. For example, a one-year ARM generally has a higher interest rate than does a six-month ARM. A true 3-year ARM, where the rate adjusts every three years, has a higher rate than does the one-year variety, and so on.
The starting rate for ARMs is usually priced at a discount from the "index + margin" formula; this "introductory rate" (sometimes called a "teaser rate") is an incentive for you to take the loan. Real "teaser" ARMs, by definition, have a starting interest rate below that of the value of the index which governs the ARM, and are increasingly rare in today's very low rate environment.

CMT, COFI, and LIBOR indexes are the most frequently used. Approximately 80 percent of all the ARMs today are based on one of these indexes.

Constant Maturity Treasury (CMT) Indexes: These indexes are the weekly or monthly average yields on U.S. Treasury securities adjusted to constant maturities.
Constant Maturity Treasuries is a set of "theoretical" securities based on the most recently auctioned "real" securities: 1-, 3-, 6-month bills, 2-, 3-, 5-, 10-, 30-year notes, and also the 'off-the-runs' in the 7- to 20-year maturity range. The Constant Maturity Treasury rates are also known as "Treasury Yield Curve Rates". Yields on Treasury securities at "constant maturity" are interpolated by the U.S. Treasury from the daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market.
The CMT indexes are volatile and move with the market. They reflect the state of the economy, and respond quickly to economic changes. These indexes react more slowly than the CD index, but more quickly than the COF index or the MTA index

11th District Cost of Funds Index (COFI):
11th District Cost of Funds Index FAQ + National Monthly Median Cost of Funds Index + Federal Cost of Funds Index
This index reflects the weighted-average interest rate paid by 11th Federal Home Loan Bank District savings institutions for savings and checking accounts, advances from the FHLB, and other sources of funds. The 11th District represents the savings institutions (savings & loan associations and savings banks) headquartered in Arizona, California and Nevada.
Since the largest part of the Cost Of Funds index is interest paid on savings accounts, this index lags market interest rates in both uptrend and downtrend movements. As a result, ARMs tied to this index rise (and fall) more slowly than rates in general, which is good for you if rates are rising but not good for you if rates are falling.

London Inter Bank Offering Rates (LIBOR):
London Inter Bank Offering Rate (LIBOR) is an average of the interest rate on dollar-denominated deposits, also known as Eurodollars, traded between banks in London. The Eurodollar market is a major component of the International financial market. London is the center of the Euromarket in terms of volume.
The LIBOR is an international index which follows the world economic condition. It allows international investors to match their cost of lending to their cost of funds. The LIBOR compares most closely to the 1-Year CMT index and is more open to quick and wide fluctuations than the COFI rate, as shown on our graph.
There are several different LIBOR rates widely used as ARM indexes: 1-, 3-, 6-Month, and 1-Year LIBOR. The 6-Month LIBOR is the most common.

There are also several other varieties of indexes, including those generated using a so-called 'moving average' of a number of weekly or monthly values, and those contrived by (and available from) only specific lenders.
When the ARM rate is adjusted, the lender (or servicer) finds the value of the Index, and adds a markup, known as a Margin. Generally, the total of your index plus margin equals the interest rate you'll be charged for the next fixed period, however long that may be.

Makes You Wonder Who Really Was In Charge...

Merrill Lynch CEO Stan O’Neal appears to be on the way out after subprime bets soured when rising mortgage defaults brought the secondary market to its knees. It is believed that his severance package could be as high as $200 million, not bad for delivering the worst news in the firm’s 93-year history. Countrywide Chief Angelo Mozilo told a panel in Beverly Hills that there would likely be more trouble ahead in the housing market. Mozilo said he didn’t think the worst is over, noting that falling home prices will likely make matters worse for many subprime borrowers who have no equity in their homes and few options to refinance. He urged lawmakers to make credit more accessible to homeowners. UBS warned that it is at risk of “further deterioration in the U.S. housing and mortgage markets as well as rating downgrades” on its portfolio of mortgage-backed securities. The warning could mean more writedowns for bad loans in the fourth quarter, though the Zurich-based bank still expects a third-quarter loss between $515.8 million and $687.7 million. According to the Council of Mortgage Lenders (CML), home prices in the UK will edge up by just 1% in 2008 while property sales are expected to fall by 15%. The group also expects the number of repossessions to rise by 50% during the year, from 30,000 this year to 45,000 in 2008, the highest level since the 1990s housing crash. Bank of England data showed mortgage approvals fell to 102,000 in September, the lowest since July 2005. The Blackstone Group’s chance of abandoning its $1.8 billion purchase of the mortgage and fleet lease business of PHH Corp. is growing, according to people familiar with the deal. Recently I was told that PHH Mortgage laid off 140 employees in Providence and another 300 from offices in New Jersey and Florida. Chase Home Finance announced that it would be closing its 430-employee mortgage service center in Lexington, Kentucky, though the company will create 270 jobs at its Monroe mortgage service center during the next 10 months, according to a Chase Bank spokesman. The move is a “reflection of a decline in the home equity origination market” as home equity loan originations were down 16 percent during the third quarter. Bear Stearns announced further job cuts as part of its year-end planning process. After being battered by subprime losses which saw two of its hedge funds collapse this past summer, the firm will cut 300 more jobs, or 1.9% of its workforce in business units at all levels of the organization. RealtyTrac said the number of foreclosures in Connecticut cities increased at least 400 percent in the first half of 2007 compared with the same period a year ago. Foreclosures skyrocketed 547 percent in the New Haven-Milford area, 522 percent in the Bridgeport-Norwalk-Stamford region, and 446 percent in the Hartford area. State Attorney General Richard Blumenthal said his office has been inundated with calls from homeowners seeking assistance. Citi continues to make its mortgage push as the banking giant recently launched the new look Mortgage.com which it acquired when it bought the mortgage arm of Dutch Bank ABN Amro back in January. Citi Residential Lending a wholesale non-prime mortgage unit, was also launched in mid-September. Lastly, I’ve been told that more than 100 employees were terminated last week at First Franklin Financial, the wholesale lending unit of Merrill Lynch. And by terminated, I don’t mean laid off.

Buyers Market - Don't Subscribe To M.O.B Mentality

According to DataQuick Information Systems, mortgage companies sent a record 72,571 “notices of default” to California borrowers during the third quarter, easily smashing the previous record of 61,541 set in 1996.
The number of default notices in the third quarter beat all previous quarters, and climbed 166% higher than levels just 15 months ago.
“We know now, in emerging detail, that a lot of these loans shouldn’t have been made. The issue is whether the real estate market and the economy will digest these over the next year or two, or if housing market distress will bring the economy to its knees,” DataQuick president Marshall Prentice said in a statement.
“Right now, most California neighborhoods do not have much of a foreclosure problem. But where there is a problem, it’s getting nasty.”
Defaults were up in every county in California, but roughly half occurred in just 293 zip codes, most which lie primarily in the Central Valley or the Inland Empire east of Los Angeles.
Perris, Lathrop, and Sacramento were identified as the areas with the biggest default problems.
There were 9,250 default notices in Riverside County in the quarter, more than three times the amount recorded in the same quarter of 2006, while San Bernardino County residents saw 7,038 default notices, up from 2,548 in the third quarter of 2006.
The majority of the loans that went into default were originated between July 2005 and September 2006, just as property values were peaking.
Home prices have subsequently fallen in these hard-hit areas while lenders have tightened underwriting standards, leaving borrowers with resetting adjustable-rate mortgages and zero equity in their homes few practical solutions.
DataQuick said roughly 46% of homeowners who receive defaults notices avoid foreclosure, down sharply from a solid 80% a year ago.
“You have to try to work with some kind of counseling center or get some government-sponsored or industry-sponsored help,” DataQuick analyst Andrew LePage said in an interview. “And you increase your chance of pulling out of it if your contact your lender early. You don’t want to wait.”
On Friday, the U.S. Census Bureau reported that a record 17.9 million American homes were vacant in the third quarter, a troubling 7.8% higher than the period a year earlier.

Money to burn? Must be nice...

Michael Jackson has defaulted on a $23 million loan and the holder has put him on notice. Jackson has 90 days to pay the full amount — $23 million plus $212,963.83 in interest — or he will lose his Neverland Ranch.
The papers were filed in Santa Barbara County on Oct. 22, but apparently Jackson’s loan with Fortress Music Trust, doing business as DBCG LLC, a Delaware corporation, expired on Oct. 12. I told you in this space last week Fortress was trying to sell Jackson’s loans and that a desperate refinancing negotiation was taking place. From the looks of this filing, Fortress decided not to wait any longer. The $20 million loan was secured against the deed of trust for Neverland and is separate from the $300 million loan secured by Jackson’s stake in Sony/ATV Music Publishing.
The papers filed are titled “Notice of Default and Election to Sell.” No amount of wishing by Jackson fans or spin from his much-diminished team can change what they mean. Jackson’s financial house of cards is finally falling in.

The default comes at a time when Jackson is being sued in London for $7 million by his former patron, Prince Abdullah of Bahrain. Jackson’s lawyers recently settled several other lawsuits but have not paid them off. That amount comes in the millions as well. There is some speculation that cash-strapped Jackson could file for bankruptcy in the next 90 days to guard against further disasters. The beleaguered pop star — who I told you on Thursday recently admitted in sworn testimony to impairment due to prescription drug abuse — is living in Washington, D.C., where he’s renting an expensive home. Meanwhile, his Neverland Ranch stands vacant. The ranch’s value was assessed in 2006 at $17,042,560. The land value was $6,898,858. Overall, the ranch has an improvement value of $11,034,702. But the ranch is not Jackson’s only piece of highly leveraged property. According to records, the Jackson family home in Encino — which Michael owns — carries a $4 million mortgage. That house, known as Hayvenhurst, has an assessed value of $2.66 million and an improvement value of $2.3 million.
Jackson’s parents are the official tenants of that house, although several of his brothers and sisters and their children have lived there over the years. In 2006, the state of California threatened to shut down both homes to employees when it turned out Jackson had fallen behind in insurance payments and salaries. On paper, Jackson still is quite wealthy. His 50 percent interest in Sony/ATV Music Publishing continues to sustain him. That interest may be worth $600 million, as some have calculated. But once the $323 million in loans is subtracted, not to mention all the other settlements, Jackson’s huge tax and legal bills, the situation doesn’t look quite so rosy. The singer does have an out clause from his last refinancing with Sony and Fortress for a liquidation sale come May 31, 2008.
Will he actually lose Neverland? That’s possible. There’s another lien on the property, thanks to former partner Marc Schaffel. But Jackson’s lawyers at Venable LLC in Washington may convince Fortress to back off or they may find a new white knight in the next three months. Either way, Jackson is in the worst financial situation he’s ever faced

The Truth Behind Option ARMS

Have you recently come across advertisements for mortgage products that have 1-2% interest rates? The refinance boom is long since over, so it is time to try and get people to refinance needlessly anyway. I frequently come across the same advertisements, so I know how tempting it looks. I think how nice it would be to actually get a 1% mortgage on my own home. This is exactly what the banks want you to believe. The truth is you do not get 1%, except for the first month or three. The bank has absolutely no intention of letting you pay your mortgage at 1%, right from the beginning. I guess that is my biggest problem with the whole thing. The advertising is purposely deceitful and misleading. So I thought it would be worth explaining the Actual Rate you pay on these loans. All Adjustable Rate Mortgages (ARMs) have an Index and Margin they track monthly, annually or semi-annually. This index and margin are added together at the beginning of each period. To simplify things, let’s call that you’re Actual Rate. In addition, all ARMs have Cap or ceilings as regards to how high the interest is allowed to adjust each period or at least over the life of the loan. Many popular ARMs also have an initial period up front, where the rate is locked-in and can’t be adjusted until that initial period has expired.
Once an ARM loan starts adjusting, the bank calculates the Actual Rate. As long as the Actual Rate does not exceed any limit set by the Caps, your mortgage rate will adjust (up or down) to the Actual Rate for the next period in question. In essence, there is a reasonable plan set forth, whereby both the bank and consumer can agree to share the risk of rate movements in the future. The disclosures are fairly easy to understand, and the balance of the loan is paid down over time. Many consumers have benefited from using ARMs in general.
Moving on to the Option ARM. The option ARM is constructed so that the borrower has three available “options” to make the mortgage payment. With the 1st option, the payments are calculated based upon a 1% principal and interest payment. The 2nd option allows you to pay interest-only at the Actual Rate (index + margin) and a 3rd option to pay (the real) principal and interest at the Actual Rate. It sounds harmless enough. Consumers will hear the 1st payment option is calculated at 1% principal and interest, and think that means they are actually paying down their loan at the 1%. The payment based on the 1% rate won’t even cover the interest-only amount of the Actual Rate (option #2). The difference between the teaser payment and the Actual payment (option #2) is added back to your principle balance. This is referred to as negative amortization or deferred interest. The rate adjusts monthly with a lifetime cap at 12%. Therefore, you end up paying interest on top of interest. This can be done until the original balance equal 115% of the value of the original loan. Once this occurs, payment option #1 is not available anymore. Right now the Actual Rate on all those loans is in excess of 7.5%. Meanwhile you could get an 30 Year Fixed for less than that, with or without the interest-only payment feature added. Additionally, the loan officer selling this product will make 3 to 4 times the commission compared to a conventional loan program. Therefore, it is in the loan officer’s best interest to sell you this type of loan.

CW OPTION ARM(s) come home to roost

Lack of education results in poor decision making by consumers. Lack of education keeps consumers out of a great BUY market - MOB mentality keeps everyone limited in their intellectual, educational, and financial improvement. When the MOB was jumping all over each other to pay excessive amounts and denying the 30 year fix for,"...that company[my friend] down the street can get me a lower monthly rate, in fact I will not allow you to refinance me becasue the payment will go up by a 100 dollars or so - I am going to ride the ARM until it adjust to a point I can't afford and wonder why I am in the situation I am in." Come on MOB - its not about the lowest payment, its not about buying a Ferrari on a YUGO budget. Its about buying what you can afford.


Option arm loans, the ones that allow borrowers to choose from four payment options, will likely come back to haunt Countrywide and the investors who bought securities containing the loans for years to come. According to an analysis prepared for The Wall Street Journal by UBS AG, a whopping 3.55% of the loans originated by Countrywide in 2006 are now at least 60 days past due. It’s the highest delinquency rate of the six companies analyzed by UBS, and well above the industry average option-arm delinquency rate of 2.56%. UBS analyst Shumin Li said, “they were giving these loans to riskier and riskier borrowers.” According to UBS, Countrywide held $27.8 billion in option arm loans as of June 30th, with 5.7% at least 30 days past due, up from 1.6% a year earlier. Another $122 billion have been packaged and sold as mortgage-backed securities on the secondary market, likely as prime mortgages despite the fact that many are now seemingly considered “subprime”. Of all the option arms issued last year, 91% were limited documentation, and almost 29% had a combined loan-to-value of 90% or greater thanks to a piggyback second. A year ago, CEO Angelo Mozilo said he was shocked that so many borrowers chose to make the minimum, or negative amortization payment, leading to a sampling of homeowners to find out why. The sampling revealed that borrowers chose the minimum payment option because they felt their home was appreciating faster than the negative amortization, though the revelation looks dubious. Either way, it’s clear that appreciating home prices won’t save borrowers trapped in these loans anymore, with many finding that their mortgage balance now outweighs the value of their home. Countrywide claims that it sent brochures to homeowners who chose option-arm loans, though it’s unclear how many read them, and if those who did understood them. From my experience, the only payment borrowers were interested in was the minimum payment, allowing loan originators to push the margin and subsequent yield spread premium up as high as the maximum allowed.
In fact, according to a former employee at a Countrywide branch in California, employees could win prizes such as a trip to Hawaii for selling the most option arm loans. But no, there was clearly no incentive for selling certain types of loans to borrowers. Oh yeah, and between 2009 and 2011, $229 billion in option arms will readjust, forcing borrowers to pay the substantially higher interest-only payment. The result will likely be more loan defaults, foreclosures, and trouble for Countrywide and investors who hold those mortgage-backed securities.
Countrywide is set to announce its third-quarter earnings on Friday, clearly the headliner of a busy month for financial earnings calls. The top U.S. mortgage lender is expected to announce a huge loss, with analysts predicting losses between $600 million to more than $2 billion.

Buyers Market Big Time..

Low rates + massive inventory+good incentives+good credit=buyers market

According to the Mortgage Bankers Association’s weekly survey, mortgage applications were flat despite interest rates dipping to their lowest level since May.
The MBA said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans rose by a mere 0.03 percent to 656.5 in the week ended Oct. 19, while the four-week moving average was up 0.1 percent to 650.4.
Refinances made up 47% of the loan application volume, up from 45.3% last week, offsetting a drop in home purchase activity.
The benchmark 30-year fixed mortgage averaged 6.21%, down a hefty 0.19% from the previous week, its lowest level since May 11th, and the largest single-week rate decrease for over a year, according to MBA data.
Interest rates on 15-year fixed mortgages dipped to 5.86% from 6.09%, while one year adjustable-rate mortgages fell from to 6.10% from 6.17%.
Adjustable-rate mortgage activity rose to 14.2% of the overall loan application share, up from 13.5% last week.
Unfortunately, low interest rates don’t do much good if homeowners can’t obtain the financing they need because of loan-to-value and loan amount restrictions.
And though loan applications were up 11.5% from a year-ago, the rise is likely a reflection of skewed market conditions, largely consisting of duplicate applications with retail banks.
The MBA’s survey only covers roughly 50 percent of all U.S. retail residential loans, including mortgage banks, commercial banks and thrifts.
Meanwhile, the National Association of Realtors announced total existing-home sales fell 9.0% to a seasonally adjusted annual rate of 5.0 million in September from a 5.5 million pace in August.
The decline was worse than expected and the largest drop on record since 1999.

Country Wide is helping...........

Early Tuesday morning Countrywide Financial Corp., the largest U.S. mortgage lender, offered to refinance or restructure up to $16 billion of adjustable-rate mortgages through the end of 2008. The lending giant said it plans to modify $4 billion in loans for 20,000 prime and subprime borrowers who are unable to refinance, and another $2.2 billion in loans for subprime borrowers who are currently delinquent. Delinquent borrowers will receive letters from Countrywide offering pre-determined, pre-approved interest rate reductions.
Countrywide also plans to offer new mortgages to 52,000 subprime borrowers worth an estimated $10 billion. “Countrywide believes that none of our subprime borrowers that have demonstrated the ability to make payments should lose their home to foreclosure solely as a result of a rate reset,” Countrywide President David Sambol said in a statement.
Countrywide said it has already helped 31,000 subprime borrowers with ARMs refinance into greater than $5 billion of prime, fixed-rate mortgages. Of course the word “helped” should be used loosely, as many of these borrowers may have been better off with a fixed-rate loan to begin with had they been steered towards those programs originally. Countrywide cut subprime lending out of its regime about a month ago, and adjustable-rate mortgagevolume plummeted 76 percent in September as the industry continued to move away from high-risk loans. The announcement comes just one day after FDIC Chairman Sheila Bair again said lenders should do more to assist borrowers at risk of losing their homes. “Unprecedented times call for unprecedented remedies,” Sambol said. “We are determined to assist borrowers who have the willingness and wherewithal to remain in their homes, but need a little help.”
Adjustable-rate mortgages worth a record $50 billion are scheduled to reset to higher payments this month, while roughly 1.3 million subprime ARMs are due to reset between now and the end of 2008.

$13,500,000 as a FSBO (for sale by owner)

SELLER: Tanya Tucker

This home has been sold.

....according to analysts at Goldman Sachs

Californian homes are overvalued by as much as 40 percent and stricter lending standards will probably contribute to ``material'' price declines, according to analysts at Goldman Sachs.
Prices in the state ``have proven surprisingly resilient, given the severe curtailment of credit availability and rising unemployment,'' the analysts said in a note to investors. ``However, we believe that a downturn is imminent.'' In August, the median price for houses in California was $589,000, though economic conditions only support prices of $350,000 to $380,000, the analysts said. The average U.S. home is 13 percent to 14 percent overvalued, the report estimated. Home sales in California, as in the rest of the U.S., are being hurt by the collapse of the subprime-mortgage industry. Lenders are requiring higher credit ratings from borrowers seeking mortgages and are demanding larger down payments. Standards are particularly strict for jumbo loans, mortgages higher than $417,000, which are common in California.
The median price for houses and condominiums in California will probably drop 4 percent to $553,000 in 2008, the California Association of Realtors said Oct. 10. That would be the biggest decline in 15 years.

A light at the end of this tunnel - this time...

First things first: Sacramento's economy won't rebound to greatness next year. It should grow a little, economic forecasters say, but it will take until 2009 for the housing market to revive and fuel other sectors such as retail and construction. In the meantime, they say, there's no reason to panic...."The main thing that will determine how fast Sacramento recovers is how fast the housing sales recover," said Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. "I don't see any reason that the volume of housing activity needs to go down any further. It's already well below the equilibrium levels for long-term demand," he said. But while sales volume might have bottomed out, prices most likely haven't....Sacramento was hit particularly hard this year, with the median price of a resale home falling 15.7 percent in the two years from its August 2005 peak to August 2007. That's the second-biggest drop of 15 regions across the state, and it was driven in part by rapid new-home construction that caused a supply glut when demand softened, the association said.Sacramento had a steeper fall because it had a steeper climb. Even though the market remained cheaper than the Bay Area, the gap got too narrow, said Levy, and Sacramento doesn't pay the wages needed to sustain the prices Sacramento houses were fetching. His forecast calls for prices bottoming out in 2008, which should make sales volume pick up by the end of that year....A lot depends on the public's perceptions next year. "The only danger to the overall economy is if consumers get spooked by what they see in housing prices and start cutting back on consumption," said Levy. "If people agree with me that the volume activity levels are about at the bottom, we've taken that hit."

Scott Anderson [vice president and senior economist, Wells Fargo]: The housing market declines have been a little more severe than we expected, given generally neutral mortgage rates. All this has been driven by overvalued housing and tighter lending restrictions. It's a significant adjustment for no real increase in mortgage rates....People think of Sacramento as being a fairly affordable place to live, at least by California standards. I'm not sure that's anymore the case. From a national viewpoint, it's no longer a low-cost place of doing business.Stephen Levy: The Sacramento region needs to provide for housing that's affordable to a broad range of people. That's an economic issue, not just a housing issue. The threat to the Sacramento economy right now is in unaffordable housing.From the Sacramento Business Journal:
The Sacramento region remained mired in ninth place -- unchanged from a year ago -- in a comparison with its chief economic competitors in the West. The six-county region ranked low in a matchup with 10 communities plus the United States as a whole, according to the latest Prosperity Index report released today by the Sacramento Regional Research Institute..."In fact, the region received the lowest score among competitive regions in both the job growth and unemployment rate indicators," the report said.From the Sacramento Bee:
The [Sacramento] region added 1,700 jobs in September, following two straight months of job losses. The region's unemployment rate was 5.4 percent, the same as the month before. But it was well above the 4.3 percent of a year ago because of job losses in construction and other housing-related industries. The region's construction and finance sectors lost 1,300 jobs in September....[A]nalysts agree that retailing is a key industry to watch for signs of where the economy is heading. California retailers did minimal hiring in September; there were no net gains in retail jobs in Sacramento. September is usually a month when retailers expand their payrolls, to handle back-to-school sales and get a jump on the December holidays. "Retail is kind of flat," Lyons said. "Retailers are holding back."From the Sacramento Bee:
Growing consumer debt, the subprime credit crunch and the housing market's steep slowdown have spurred real concerns that shoppers may curtail holiday spending this year. The housing slowdown and credit worries have whittled away at local retail leasing, a pillar of commercial real estate during the housing boom. According to broker CB Richard Ellis, retail vacancies jumped to 7.1 percent for the third quarter, up from 5.9 percent a year ago.From the Sacramento Business Journal:
Bank deposits grew in the Sacramento area less than 1 percent in the past year, a far cry from the double-digit growth in deposits common earlier this decade...For the first five years of this decade, the region's fast deposit growth prompted banks from all over the country to open offices here. Now that the branches are here, the deposit growth is slowing overall....The decline in growth could mean people have less money, that they are saving less or that they are shifting money from insured accounts to other investments such as stocks, bonds, real estate, or Treasury bills or municipal bonds. It could also point to more money going into credit union accounts.From the Stockton Record:
Months have passed since the days when dozens of homes at a time were going up in any given subdivision in San Joaquin County. But these days, the typical new-home development looks as if it's nearly in hibernation as the housing market steps into the third straight year of decline....Greg Paquin, president of the Gregory Group, said builders have responded to a very slow market not only by cutting prices further but also by either delaying or stopping projects or in a few cases by selling standing homes at auction. "They're getting body-slammed right now, frankly," he said...."Valley new-home construction sites are ghost towns," said Shane Hart, vice president in charge of acquisitions, development planning and marketing for Stockton-based Grupe Co...Grupe has offered as much as $150,000 in incentives per home, yet sales have become so slow that construction was halted at three developments in Stockton, Waterford and Tulare....Paquin said there's more bad news on the horizon for new-home builders, who in recent months offered such low prices and incentives that they even drew buyers from the existing-home market. The flood of foreclosures is attracting the attention of bargain hunters and forcing existing-home prices down so much that those homes are getting more attention from potential buyers, he said.From the Sun Post:
Complaints from two developers that rising foreclosures and a large housing inventory have crippled sales led the [Manteca] City Council this week to postpone the fees developers owe for homebuilding reservations under the city’s growth cap. The council’s 3-2 vote to postpone millions of dollars in fee payments for two years was opposed by councilmen Jack Snyder and Steve DeBrum, who worried that it could damage the city’s budget....Stockton attorney Mike Hakeem — lobbying on behalf of developers Raymus Homes and FCB Homes — countered that no one else would be willing to pay for the reservations this year because the housing market was so bad....During their discussion, councilmen both for and against the extension focused on the need to keep home prices up. “These are significant factors when it comes to how we need to proceed as a local city government to protect the values of our homes,” said councilman Vince Hernandez, after alluding to an auction of 34 new homes at highly discounted prices last weekend.From the Modesto Bee:
Unemployment rates in Stanislaus, San Joaquin and Merced counties swelled above last year's averages, the result of a shaky economy and deepening housing crisis. The three counties each gained at least a percentage point from the previous year, with Stanislaus County recording the biggest jump. The county went from an unemployment rate of 6.6 percent in September 2006 to 8 percent last month, according to state Employment Development figures released Friday....The housing slowdown has taken an even larger toll on San Joaquin County. Its unemployment rate was 7.8 percent last month, up from 6.5 percent the previous year. The county saw huge declines in manufacturing, construction, professional business services and financial activities. Combined, those industries lost about 2,100 jobs. "All are definitely related to the housing crisis and mortgage credit issues," Baker said.

Most Affordable U.S. Real Estate Markets

1. Indianapolis, Ind. ..............................Great deals
Median home price: $112,500
Median household income: $60,383


2. Cleveland, Ohio ...................................................Ohio is loaded with great cost/sq ft
Median home price: $122,900
Median household income: $57,472


3. Detroit, Mich. .................................................great real estate bargins
Median home price: $154,600
Median household income: $63,052


4. Pittsburgh, Pa. ...............................................refrain from comment
Median home price: $109,000
Median household income: $54,872


5. Cincinnati, Ohio .............................................................tough winters
Median home price: $136,800
Median household income: $60,146


6. St. Louis, Mo.
Median home price: $134,400
Median household income: $59,798

7. Atlanta, Ga. .........................................................To much traffic
Median home price: $170,400
Median household income: $63,484


8. Greensboro, N.C. ..........................................................................I like this place
Median home price: $145,100
Median household income: $50,447


9. Dallas, Texas ........................................................Very High Property Tax
Median home price: $145,500
Median household income: $58,736


10. Austin, Texas ...............................................Texas property tax is too high.....
Median home price: $176,200
Median household income: $65,739

Bay Area

Bay Area home sales plummet amid mortgage woes
October 18, 2007
La Jolla, CA.----Bay Area home sales sank to their lowest level in more than two decades in September, the result of a continuing market slowdown and borrowers' increased difficulties in obtaining "jumbo" mortgages, a real estate information service reported.
A total of 5,014 new and resale houses and condos were sold in the nine-county Bay Area in September. That was down 31.3 percent from 7,299 in August, and down 40.1 percent from 8,374 for September a year ago, DataQuick Information Systems reported.
Sales have decreased on a year-over-year basis the last 32 months. Last month was the slowest September in DataQuick's statistics, which go back to 1988. Until last month, the slowest September was in 1991 when 5,735 homes were sold. The strongest September was in 2004 when sales totaled 12,868. The average for the month is 8,961. "A lot of escrows just didn't close in September because the buyers couldn't get financing. Some of those sales might close this month or next, but many of the deals are going to be put on hold or die on the vine. Jumbo financing has become more available the last few weeks, but lenders are being more cautious than before, and the loans cost more," said Marshall Prentice, DataQuick president. The number of Bay Area homes purchased with jumbo mortgages dropped from 3,762 in August to 1,935 in September, a decline of 48.6 percent. A jumbo mortgage is a home loan for $417,000 or more. For loans below that threshold, the sales decline was 14.0 percent, from 2,675 in August to 2,301 in September. Historically, sales drop by about 10 percent from August to September. The median price paid for a Bay Area home was $625,000 last month, down 4.6 percent from $655,000 in August, and up 0.8 percent from $620,000 for September last year. If the jumbo-financed portion of the market had remained stable, last month's median would have been $654,000. DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts. Due to late data availability, the September statistics for Alameda are extrapolated from the first three weeks of the month. The typical monthly mortgage payment that Bay Area buyers committed themselves to paying was $2,973 last month, down from $3,171 the previous month, and up from $2,958 a year ago. Adjusted for inflation, current payments are 14.6 percent above typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 9.6 percent below the current cycle's peak in June last year. Indicators of market distress continue to move in different directions. Foreclosure activity is at record levels. Financing with adjustable-rate mortgages is down, financing with multiple mortgages has declined significantly. Down payment sizes are stable, flipping rates are flat while non-owner occupied buying activity has increased, DataQuick reported

Why I like the current market

MOB psyche drives me bonkers. A few years ago we had hoards of people playing dog pile to buy high price real estate and today with the inventory vast and the rates low and prices very very low I hear the these phrases all the time

1) Its a bad market to buy
2) I think I'll wait til the market gets better
3) Buy - are you crazy.
4) Nothing good for what I can spend

I tell people the golden rule - Don't what you can't afford - that will get you in trouble everytime. Read up a bit on the differant mortage products and educate yourself on what they are about so you can make better decisons. Odds are if you can barley make a Option Arm payment or a teaser rate payment you'll be toast come adujtment day.

What is also killing me is people letting the banks do what they will - fight for your home. The banks don't want it back - the banks accrue cost taking your home back - pick up the phone and call the bank and you may find yourself able to reduce the original (yes the original price) purchase price - or set new terms. If the only reason your credit is shot is due to ARMs adjusting you have a lot on your side.


Guess what market is booming currently - the rental markets - guess who is renting - those that think this is a bad market to buy. I wonder if this "Bad Market To Buy" mentality is really a good excuse to stay dormat in ones activity to pursue some financial security for ones family?


Its so easy to do nothing - not fighting to keep your house - I mean really fighting not just a call to the switch board operator - Its easy to lay blame about the current market conditons on one group or the other and then stand back and take no action.


This MOB mentality inspired me to write the wall street journal -



It is a great time to buy if you can afford to buy isn’t? Most of the public thinks it’s a bad time to buy – perhaps we don’t see enough – IT’S A GOOD TIME TO BUY - signs. I can’t get over how here in greater Sacramento people piled on each other to pay for over valued homes but today’s consensus is it’s a bad market and thus a bad time to buy. What are your thoughts? This is a good opportunity in most price ranges – get into something you can afford very comfortably and in 10 to 15 years you’ll be on your way to a dream home.


I noticed your article made no mention of Auctions as an alternative (rather quick way) to sell in a down market. Roughly 4 weeks ago I was in Bakersfield, CA. amd this lady paid 335K for a home that was listed for months @ 280K then on the other hand I’ve seen the reverse happen.


What do you make of the home buyer psyche? Why do you think the public view is everything is bad vs. it’s a great time to buy?




Michael



Response:

Thanks Michael. I will share your question with June Fletcher, who answers such questions for her weekly column, House Talk. I think your question would make an excellent topic for one of her columns.

Thank you for your interest in RealEstateJournal.com.


Sincerely,
Lauren Baier Kim_____________________
Senior Editor
The Wall Street Journal Online Network
609.520.7277
lauren.kim@wsj.com
P.O. Box 300
Princeton, NJ 08543-0300

Funny

For Sale By Owner Purchase Contracts

Deciding to sell your home will save you thousands of dollars in realtor commissions. In exchange, you need to understand subjects such as a purchase contract.
For Sale By Owner Purchase Contracts
Once you have decided to sell your home without going through a real estate agent, you need to take some time to develop an understanding of the process and necessary documents. First, you are not alone in making this decision. A recent survey found over 30 percent of homebuyers intend to sell their homes without an agent. Given this demand, there are now a bevy of forms available to the owner seller and all include a purchase contract.
A owner seller purchase contract is really no different than any real estate purchase contract. It contains all of the same terms and is usually called a real estate purchase agreement. A real estate transaction is the same regardless of whether you use an agent or not, so there really isn’t any need for a specific owner seller sales contract.
In general, all of the required contracts and forms for a real estate transaction are purchased in a group. Typically, these documents are offered as a for sale by owner kit. There are different ways of obtaining them, however the internet has provided one of the easiest methods. For nearly no cost, anyone can download all of the documents need to get through the transactions. In fact, these are the same pre-printed forms used by most realtors.
As you have probably read, owner sellers are missing out on a huge opportunity if they do not take advantage of the help offered by mortgage brokers. Mortgage brokers are independent loan writers and want to do business with you. Their goal is to write the loan for the buyer of your property, so they are motivated to help you sell the home. They will provide you with all the forms you need for free and will help you with open houses and so on. This is a free resource you should definitely take advantage of. If you sell the home and they get a loan, it is a win-win situation.
When making the decision on whether to sell without an agent, many homeowners are concerned about purchase contracts and other forms. Purchase a pre-written version, use the free services of a mortgage broker and you will be fine.

The Donner Party

According to a survey released by the California Reinvestment Coalition on Wednesday, very few lenders are willing to execute loan modifications for borrowers at risk of foreclosure.
The San Francisco based coalition surveyed 33 of California’s 80 mortgage counseling agencies who collectively had worked with about 9,800 consumers in August. They found that the most common outcome for agency clients overall was foreclosure, followed by a short sale, which results when a home is sold for less than the existing mortgage balance. Only one agency actually reported loan modifications as a common outcome for homeowners seeking assistance. Contrary to what many banks and lenders are preaching, the study found that loan modifications seem to be much less common than previously thought.
“Lenders are all saying the right things: ‘It makes no sense for us to foreclose, we don’t want to foreclose, we lose money when we foreclose, we want to keep borrowers in their homes, we know we have to do workouts and loan modifications,’ ” said Kevin Stein, associate director of the coalition. “The most striking thing that came out of this (study) is that there is a huge chasm between what the lenders are stating, which very well may be their policies, and what’s happening on the ground. That clearly works to the detriment of homeowners and their communities.” The coalition is urging banks and lenders to do more to prevent foreclosures and help more borrowers stay in their homes.
They need to be “more aggressive, creative and flexible in dealing with borrowers to keep them in their homes,” Stein said. The group has offered a variety of recommendations to improve conditions, including offering loan modifications across the board, freezing interest rates, requiring lenders to report how many loans result in modifications and foreclosures, increasing funding for counseling agencies, and creating a program to sell foreclosed homes to nonprofit groups for affordable housing. Unfortunately, many homeowners don’t receive help until their loan is already in default, which makes it difficult to modify the loan as the borrower’s credit score takes a hit. A recent study from Moody’s Investors Service released in September looked at 16 loan servicers that handle $950 billion of subprime mortgages, or roughly 80 percent of the market. Moody’s found that only 1 percent of borrowers with interest rates that reset higher in January, April and July received assistance from their bank or lender to make their payments more affordable. Last week, FDIC Chairman Sheila Bair proposed a sweeping solution to freeze teaser rates so borrowers wouldn’t be struck by payment shock when rates reset.
Adjustable-rate mortgages worth a record $50 billion are scheduled to reset to higher payments this month, while roughly 1.3 million subprime ARMs are due to reset between now and the end of 2008.

Benefits to Building Owners and Occupants

Increased property value. As a superior product, a green building can yield increased value to the owner. For example, Green Value: Green Buildings, Growing Assets, a study of 11 green buildings in the U.S. and Canada, found that--in addition to the payback efficiency measures provide over time--a "green" designation can also increase a building's market value as assessed by appraisers and investors.
Increased return on investment. Up-front investments in green designs and technology can yield financial paybacks over the life of the building in the form of lower utility bills and reduced operating and maintenance costs. For example, a 2003 report, The Costs and Financial Benefits of Green Buildings, prepared for California’s Sustainable Building Taskforce, analyzed both first costs and 20 year operational costs and savings of 30 completed LEED projects. On average the additional first cost was 2%, or $3.00-$5.00/square foot. However, the total 20 year net present value of improvements attributed to energy, emissions, water, waste and commissioning is $11.98.
Enhanced occupant health and well-being. Access to daylight and fresh air and creating an environment free of toxins and irritants helps protect building occupant health and enhances well-being. This too can result in a financial benefit: the same study referenced above reports a benefit to health and productivity that dwarfs even the reduced resource use savings. Adding the value of improved tenant health and productivity, the 20 year net present value for LEED Certified and Silver buildings is $48.87 and for Gold and Platinum $67.31.
Boost occupant productivity. Numerous studies show the productivity benefits of fresh air and natural light in buildings, and conversely, the negative impact of poor indoor environmental quality. The Heschong-Mahone Group found that the quality of light and air in a workspace can affect worker productivity by up to 20% either positively or negatively.
Increased sales and leasing potential: Green building features can help close the deal. For example, the Brewery Blocks in Portland, OR leased out more quickly and at an enhanced rate per square foot than comparable space in the Portland market, even as a depressed economy was resulting in a net loss of leased space across the city. (See the Brewery Blocks case study for more.)

What Is Green Building?

It Started with Sustainable DevelopmentIn 1987 the United Nation's World Commission on Environment and Development, known as the Brundtland Commission, met to create a vision called "Our Common Future" that was based upon sustainability. From this effort, the definition of sustainable development emerged as:
"meeting the needs of the presentwithout compromising the ability of future generationsto meet their own needs."
Sustainable development measures success in terms of economic, environmental, and social benefits. The building industry expanded on this concept, and applied it to "the built environment," creating the term sustainable building. The term sustainable building is used interchangeably with green building. Its purpose is to reduce the adverse human impacts on the natural environment, while improving our quality of life and economic well-being.
The Impact of the Building Industry Buildings and development affect water quality, air quality, and ecosystems, impacting human healthy and our quality of life. In addition to environmental impacts, buildings have a large economic footprint. Buildings represent more than 50 percent of the nation's wealth, and the U.S. construction market comprises 13% of U.S. GDP, and building-related fields employ 10 million people (2003 U.S. DOE Buildings Energy Databook). The U.S. construction market is also responsible for:
39% of total energy use
39% of municipal solid waste
35% of greenhouse gas emissions
40% of all raw materials, including
25% of timber harvests
12% of potable water withdrawal
To remain competitive and continue to expand and produce profits in the future, building industry professionals are learning to address the environmental, social and economic consequences of their industry. Through careful planning, we can substantially reduce the adverse impacts of the built environment. Some strategies can actually improve degraded environments and increase the comfort and productivity of building occupants. Sustainable building is an integrated approach that promotes environmental quality, economic vitality, and social benefit through the design, construction and operation of the built environment.
Green Building TodayGreen building applies principles of resource and energy efficiency, healthy buildings and materials, and ecologically and socially sensitive land-use to achieve "an aesthetic sensitivity that inspires, affirms, and ennobles." (International Union of Architects "Declaration of Interdependence for a Sustainable Future)
Green building requires an integrated, multi-disciplinary design process and a "whole-building" systems approach that considers the building's entire life-cycle (from planning, design, and construction to operation and maintenance, renovation, and demolition or building reuse). Together, these provide the means to create solutions that optimize building cost and performance.



It Adds Value to Your Project

Green building can save money on utility bills, decrease maintenance costs, and help protect the value of your real estate investment. It also enhances the health and well-being of your family or office staff by creating indoor environments with better air quality and daylighting.
Not only that, but green building is good for the environment, too! It can help minimize waste, preserve natural resources, protect forests, wildlife, air and water quality. And it can help create better neighborhoods, a thriving local economy, and a better quality of life for all.

Are You Ready for the Boom?
In today’s competitive market going green is an essential business strategy. It will help your business grow and improve your bottom line. Everyone’s a winner with green building, and going green now will position you for what’s ahead—a green building boom.
While Seattle’s construction and real estate industry continue to grow, demand for green construction and remodeling continues to exceed supply. Seattle is expected to experience even more growth in the green building industry in the near to mid-future, according to a recent economic development study.
Seattle’s Comprehensive Plan predicts annual construction growth through 2009 will include over 13 million square feet of residential (single and multifamily) construction, and over 5 million square feet of commercial and industrial construction.
With Seattle’s position as one of the nation’s leaders in green building, opportunities to go green abound.

Developers and design and construction professionals benefit from employing green building practices in many ways:
Market advantage. As demand increases for green buildings and the firms that build them, those that demonstrate expertise in green building will be natural candidates for prospective projects.
Goodwill. Becoming known as a "green firm" can enhance your business’ reputation in the community and help you recruit and retain a superior workforce.
Proactive regulatory stance. Employing design and construction practices that routinely exceed code means your firm is primed for future increases in code stringency, reducing ramp-up and retooling costs.
Benefits to Building Owners and Occupants Contrary to popular belief, green building may not always cost more. If it does, a price premium of 1-3% can also pay back over time, and provide the following benefits:
Increased property value. As a superior product, a green building can yield increased value to the owner. For example, Green Value: Green Buildings, Growing Assets, a study of 11 green buildings in the U.S. and Canada, found that--in addition to the payback efficiency measures provide over time--a "green" designation can also increase a building's market value as assessed by appraisers and investors.
Increased return on investment. Up-front investments in green designs and technology can yield financial paybacks over the life of the building in the form of lower utility bills and reduced operating and maintenance costs. For example, a 2003 report, The Costs and Financial Benefits of Green Buildings prepared for California’s Sustainable Building Taskforce, analyzed both first costs and 20 year operational costs and savings of 30 completed LEED projects. On average the additional first cost was 2%, or $3.00-$5.00/square foot. However, the total 20 year net present value of improvements attributed to energy, emissions, water, waste and commissioning is $11.98.
Enhanced occupant health and well-being. Access to daylight and fresh air and creating an environment free of toxins and irritants helps protect building occupant health and enhances well-being. This too can result in a financial benefit: the same study referenced above reports a benefit to health and productivity that dwarfs even the reduced resource use savings. Adding the value of improved tenant health and productivity, the 20 year net present value for LEED Certified and Silver buildings is $48.87 and for Gold and Platinum $67.31.
Boost occupant productivity. Numerous studies show the productivity benefits of fresh air and natural light in buildings, and conversely, the negative impact of poor indoor environmental quality. The Heschong-Mahone Group found that the quality of light and air in a workspace can affect worker productivity by up to 20% either positively or negatively.
Increased sales and leasing potential: Green building features can help close the deal. For example, the Brewery Blocks in Portland, OR leased out more quickly and at an enhanced rate per square foot than comparable space in the Portland market, even as a depressed economy was resulting in a net loss of leased space across the city. (See the Brewery Blocks case study for more.)
Benefits to Seattle’s Communities and the Environment Many benefits of green building don’t register on the bottom line of the developer, design or construction professional or building owner or occupant. But the benefits are still tangible and valuable:
Enhancement of community and local economy
Public health benefits
Protection of threatened and endangered species
Supporting sustainable resource use

Mr. Lee pays 100K over asking in down market...

Public records have cleared on the purchase price paid recently by Motley Crue’s Tommy Lee for a 8,841-square-foot house in Calabasas, Calif., and they reveal that the aging rocker paid $5,850,000 for the house, or $100,000 above its asking price – a clearly unusual thing in this slowing residential real-estate market.

We initially had speculated that the purchase price might have been $5,350,000, since we initially had known that he had taken out a $4,280,000 mortgage, and a mortgage of 80 percent of a purchase price – common in celebrity real estate – would have implied a $5,350,000 purchase price. Now, we know that that wasn’t the case; the $5,850,000 actual amount indicates that Lee’s down payment represented about 27 percent of the house’s purchase price.
Built in 1987, Lee’s new six-bedroom house was remodeled in 2005 and has a 3,000-square-foot underground garage with space for 12 cars, seven and a half baths, a three-story atrium, an indoor koi pond, walnut and travertine floors, granite slabs, copper doors, etched glass, wrought iron accents, and beamed ceilings, according to listing information. The house sits on a 0.67-acre lot.

And the band played on....

Moody’s Investors Service downgraded $33.4 billion of securities backed by subprime mortgages, saying losses on delinquent home loans will continue to rise, while noting that mortgage servicers likely won’t modify loans to help borrowers avoid default.
Freddie Mac said average rates on 30-year fixed mortgages rose last week, from 6.37% to 6.40%, while the 5-year ARM edged up slightly, from 6.11% to 6.12%.
Countrywide is believed to have shut down 28 Full Spectrum Lending offices on October 10th, bringing the total number of closures to 66 since July.
Today at 12:00 p.m (10/11/07). the Neighborhood Assistance Corporation of America launched a national boycott of Countrywide, alleging predatory lending and failure to help homeowners in need.

Meanwhile, at Beazer Homes, an internal investigation found evidence that employees of the Company’s Beazer Mortgage Corporation subsidiary violated certain U.S. Department of Housing and Urban Development (”HUD”) regulations, dating back to at least 2000.
Regional bank M&T Bank Corp. said Thursday its third-quarter earnings dipped 5 percent from a year-ago due to an increase in its loan loss provisions and for losses related to its investment in Bayview Lending Group LLC.
Lloyds TSB claimed that demand for its Islamic mortgage product has gone “through the roof”, with a recent Datamonitor report predicting the Islamic mortgage market will grow by 47 percent a year, reaching £1.4 billion by 2009.
The HUD is proposing a change to their down payment requirement on FHA loans, which may block homebuyers from accepting gifts of down-payment funds from nonprofit organizations.
Countrywide chief Angelo Mozilo is being investigated by the SEC for possible insider trading, focused on changes he made to his stock-selling program that accelerated the dumping of shares before the lender began to fall.