All Pacific Mortgage

The One Year Anniversary of the "Credit Crisis"

2008-08-11T16:51:00.000-07:00

In August of 2007 we knew that changes were occurring in the mortgage industry. What we didn't know was that while the owners of our company were on vacation, various investors and lenders would simply stop funding approved, ready to go loans. Leaving us here to desperately try to explain to people why suddenly they actually weren't buying or refinancing a home after all.

Like any good employee would do, we called the owners and whined, "Everyone is mad at us, what should we do?"

And like anyone with thirty years of experience in the field, on vacation with their family, would respond they said, "Everything will be fine."

The combination of perspective and Disneyland has an unbeatably calming effect, evidently.

And alas, they were right, as one year later we're all here to tell the tale, though it's still unclear if the worst is over.

Here is an interesting article about the beginning of the end of the mortgage world as we'd known it for several years.

And here is a terrific analysis of the various financial sectors that have been affected and the invasive steps the government has made (and is poised to make) in order to stave off a recession.

New Tax Incentive for First-Time Home Buyers

2008-08-05T11:00:00.000-07:00

The Housing and Economic Recovery Act of 2008 authorizes a $7,500 tax credit for qualified first-time home buyers. To qualify for the credit, a home must be purchased between April 9, 2008 and before July 1, 2009, and buyers must meet income restrictions. This tax credit combined with still relatively-low interest rates and house prices at a 5-year low make now a great time to enter the real estate market for the first time!

Tightened Restrictions and Rising Interest Rates

2008-07-25T15:57:00.000-07:00

In light of all of the problems being had by Fannie Mae and Freddie Mac, interest rates have risen rapidly in a relatively short period of time. Just last winter 5.375% was the going rate for a 30 year fixed loan and this week -- 6.75%. In the past interest rates have been in the double digits, so there isn't a lot to complain about yet, but I suspect a lot of people are wondering why they didn't refinance when they had the chance.

In other industry news Fannie Mae has changed its guidelines in order to prevent intentional foreclosures. You've probably already heard that guidelines have tightened so that anyone who has had a foreclosure in the previous five years will not be eligible for conventional financing. So some people have been tricking the lender.

What they do is they purchase a new home stating they will live in the new home and rent out the current home. This helps people qualify because it's more difficult to purchase a rental property, but it used to be relatively easy to convert an existing home into a rental. You could use the proposed rent on your current home to offset the mortgage payment and thereby more easily qualify for the new loan.

So what people were doing is buying the new cheaper, more affordable home under those guidelines and then once the new loan closed, simply walking away from the other house. As a result, you can forget about converting an existing house into a rental with ease (which used to be a great way to slowly build up a real estate portfolio - because you could buy each new house with a mimimal down payment and owner-occupied interest rate), because now everyone will have to both provide a rental agreement (meaning you'll have to rent your house out before you own the new house you'll be moving into) and also you'll have to be able to qualify with both payments.

I'm not as pessimistic as some of the news about FNMA/FHLMC -- they're government agencies and as you know the government takes care of its own (and big corporations), so most likely it's only a matter of time and this will change again.

Home Improvement Goes Green

2008-07-16T08:18:00.000-07:00

Portland, Oregon is regarded as one of the greenest cities in America. As a Portland real estate professional, new home buyers often ask, “What’s available for environmentally friendly homes?” To my surprise, green architecture doesn’t seem to be catching on very quickly with Oregon homes. Yes, there are a few projects popping up here and there, but the majority of newly built homes for sale are following many of the same old environmentally unfriendly guidelines.

My response to Portland, Oregon residents and new home buyers is this, “Get into the house you like and make environmentally friendly improvements on your own.” When your financial situation is right, pull some equity out of your home to make some green improvements. Why wait a decade for Portland real estate builders to go green, when you can get started with your current home? The following are some easy tips for making your home and lifestyle green:

Have insulated windows installed to conserve heat.
Buy energy efficient appliances and replace your desktop computers with laptops.
Have your yard landscaped in a way that conserves water and requires less maintenance.
Have an advanced climate control system installed.
Have skylights installed.
Go to home depot to get water saving showerheads and fluorescent light bulbs.
Call PGE to get on their renewable energy program.

There are a couple hundred more tricks for making your house green. These are some of the more feasible ideas that generate the greatest results. Some of these tips are less extreme, whereas many of these tips can be made affordable by refinancing your home and using some equity. As a bonus, green improvements aren't just good for the environment, they save you money too!

Analysts See a Housing Market Rebound

2008-07-07T13:09:00.001-07:00

According to this article, due to the combination of fewer new houses being built with an increase in the number of buyers who can afford to buy one (lower prices = greater affordability), within three years we should see a bounce back of the housing market. Lower prices create greater demand which creates higher prices. Good ol' supply & demand - never fails.

On the other hand interest rates are steadily increasing (up to about 6.25% for a 30 year fixed today) and if that continues, this forecast might be a bit optimistic. (So as to not lose perspective, rates were 6.125% a couple of years ago - we just had a nice dip this past winter.) As federal attention shifts to bringing down the price of oil, the bond market could continue to suffer and who knows how high rates will go. The increase in rates could offset the attractiveness of home ownership for buyers in certain areas so we'll see how things go.

In the meantime, here is an interesting analysis of what has been happening in Portland's market. We haven't suffered as badly as some, with any luck we'll snap out of it sooner too!

Better to Rent or Buy

2008-06-24T09:42:00.000-07:00

The New York Times published a user-friendly graph that measures if/when it's better to buy rather than rent.

The "Walk Away" Myth

2008-06-09T13:08:00.000-07:00

Maybe you’ve heard about the disturbing new “trend” of people who can afford to pay their mortgages just walking away from their homes that have declined in value. As it turns out, it’s a whole lot of nothing.

The vast majority of people who are giving homes back to the bank were investors and/or speculators to begin with, and often they had been involved in fraudulent transactions. The others are the homeowners who are losing their houses because they can no longer afford the payments due to ARM adjustments (in some cases they had been involved in fraudulent transactions as well).

As this article points out, historically (as well as currently, according to actual facts) people will do just about anything to keep their homes – certainly they don’t destroy their credit and become renters (or homeless) just because of an unfortunate blip in market values.

PMI Revises Distressed Housing Market List

2008-06-02T10:41:00.000-07:00

Effective June 1st PMI, a major mortgage insurance company, has added to its list of distressed housing market areas. They have also divided them into "Level 1" and "Level 2" segments. Given that the options for obtaining combination first/second mortgages to avoid large down payments have all but disappeared, how much mortgage insurance companies are willing to insure is becoming increasingly important for those seeking to purchase or refinance with minimal down payment/equity.

Areas listed under Level 1 are eligible for mortgage insurance up to a 95% loan-to-value ratio.

"Level 1 is for those... areas where we anticipate the downturn to be less severe based on underlying fundamentals, including unemployment trends, home price volatility, etc."

Areas listed under Level 2 are eligible for mortgage insurance once the loan-to-value has been REDUCED by 5% of the maximum allowable for the particular loan program being used. And in any event, the loan-to-value cannot exceed 90%.

"Level 2 is for those... areas that are projected to continue to experience more significant economic and/or housing downturns and are expected to take longer to improve."

Oregon and Washington state are not largely affected by this yet, with one exception. Bend, Oregon is on the Level 2 list. So however bleak it looks to the average person driving around Portland seeing "For Sale" signs on seemingly every third house, PMI doesn't think we have it so bad -- we'll see how it goes over the next several months.

New-Home Sales Rose in April

2008-05-27T08:55:00.000-07:00

A surprising market statistic was released for April: New-home sales rose 3.3%

For the short-term, this isn't necessarilly good news. The housing market is still in a slump and perhaps we haven't seen the worst of it yet, but there are some glimmers of hope:

One bright spot is that inventories decreased. The supply of homes at the current sales rate dropped to 10.6 months' worth from 11.1 months in March. The number of homes completed and waiting to be sold decreased to 181,000, the fewest since July.

Purchases rose in three of four regions, led by a 42 percent jump in the Northeast. They increased 8.3 percent in the West and 5.8 percent in the Midwest. Purchases dropped 2.4 percent in the South.

Sales of previously owned homes, which account for about 85 percent of the market, fell 1 percent in April, and the supply of unsold properties reached a record, the National Association of Realtors said last week.

New-home purchases, which make up the remaining 15 percent of the market, are considered a timelier indicator because they are based on contract signings. Resales are calculated when a contract closes, usually a month or two later.

The Positive Fallout of the SubPrime Mortgage Crisis

2008-05-20T09:08:00.000-07:00

The mortgage industry has been much maligned lately - partly deserved due to predatory and fraudulent loan practices committed by some. At the same time, the mortgage industry is a cornerstone of democracy, as without it, only wealthy people would be able to purchase property and build personal wealth from little to nothing.

The Federal Reserve has been criticized for not properly regulating in time to prevent such a widespread crisis as we find ourselves in today -- the result of unscrupulous lending practices. Therefore, Ben Bernanke and others initiated a proposal for some hefty regulations of the credit card industry. The credit card industry, like the SubPrime Mortgage industry, often preys upon the poor -- the one difference being, of course, that during "regular" economic times, mortgages help people increase their net worth and credit cards help them DECREASE it.

So while I wouldn't morally equate the two, if the mortgage crisis leads to increased responsibility on the part of credit card lenders, then that's one good thing about all of this.

Some of the things being considered are requiring a grace period before the payment is considered late, prohibiting the application of payments to the lowest-interest balance first and raising interest rates on existing balances.

Another Take on "Location Location Location"

2008-05-12T13:04:00.000-07:00

Richard Florida's newest book offers an analysis of housing markets and suggests that (perhaps not today, but in the near future) Portland's real estate forecast is sound.

A local Real Estate Agent wrote an interesting review of it. I especially enjoyed his take on the book because he included one of my favorite sayings -- "the only two things that people don't like to buy on sale are real estate and stocks." Particularly relevant in this market given that the population of Portland is expected to increase by about a million people over the next decade.

Mortgage Loan Calculator

2008-05-05T12:22:00.000-07:00

With the majority of economists now speculating that rates will either go up or perhaps stay the same for the foreseeable future, anyone who has been thinking about refinancing will probably want to look into it now. We're not expert economists here, but rates have increased a little bit every day since Bernanke lowered the discount rate last week. Below is a calculator to help you determine if a refinance is a good idea for you.

Also, for potential homebuyers, this will give you an idea of what you can afford. Be sure to use the "mortgage" function rather than "loan" function so you'll have the most accurate total payment including property taxes and homeowners' insurance.