The BEST EXPLANATION of our current economic status

Bill Clinton was on Letterman on the 22nd. He gives a concise and insightful view of the instability in the financial markets.

Here's the youtube replay:

Why Realtors love an erratic stock market

The last year has brought a lot of uncertainty in the real estate market. Where's the bottom? Where's it going?

When faced with uncertainty seasoned investors watch and buy when it makes sense. Novice investors wait until the market rebounds then try to get in with the rest of the herd.

While the investors wait for the real estate rebound they tend to put their money in the stock market to get a decent return.

These headlines:


Market Overview - Yahoo! Finance - The basics of investing.

The major indices were pummeled on Monday due to uncertainty over the details regarding the U.S. government’s $700 billion plan to fix the financial market turmoil and news that the two remaining major Wall Street investment banks converted to a traditional banking structure.


...typically are strong enough, and cause enough pain, to scare investors back out of the stock market and into real estate. That coupled with multiple offers on the low end of the market all work together for the real estate rebound.


So, stock market pain = realtor gain.

That's why realtors love an erratic market.

NOD Filings Plummet!

Did the market suddenly move from 50+ Notices of Default filed per day to 3? Is the market miraculously fixed overnight?

I was at a meeting this week where we were discussing the market, foreclosures and Notices of Default.

Up until September 6th, NODs were being filed at a rate above 50 per day and sometimes hovering around the 100 per day mark. September 9th there were 3 NODs filed.

We were trying to figure out this huge drop off in NOD filings. We came up with all sorts of ideas ranging from the fannie/freddie take over, changing market, etc. but it all boils down to recent legislation that makes it harder to foreclose on a borrower in default.

SB1137 is legislation that requires lenders to give the consumer an extra 30-day notification prior to filing the NOD. The lender is now required to meet with the defaulter in person or via the phone to "explore options" to avoid foreclosure. Loans originated 2002 and earlier do not have the 30-day requirement and could proceed with their NOD filing. Using the 3 filings vs the 50/day prior minimum, 94% of the loans in trouble were originated post 2002.

I have mixed emotions about SB1137. On one hand, I like to see lenders working with borrowers in default. On the other hand, lenders have [mostly] realized that foreclosing on a borrower is MUCH more costly than working something out. Even Fannie and Freddie recently issued a press release basically saying that they were actively working on loan modifications wherever possible. Lastly, the crisis that we are having is one of liquidity. Loans are more and more difficult to get, even with big downs and good credit. If California makes it more difficult for the lender to get their money back, no one will be lending here. Not a good idea given the current climate.

I have heard of properties selling 3-4 times because of problems with loans. Have you heard of or experienced this? Do tell!

Three statistics that suggest a rosy market

I keep saying the market "feels" better, faster, stronger. It's just so California.

Being surrounded by engineers in this silicon valley, I know you've been frustrated with all my "feelings" - too reminiscent of a Barbara Streisand song - so here are a few numbers to sink your teeth into.

1) Sales - up 16.8% from July and 32% from the same time last year. August is our normal cyclical dip - everyone running off for the last bit of summer - and even with "the dip" it was up 16.8%.

2) Median Sales Price - 648,500 vs 864,000 same month last year. That's a 33.2% drop from last year. The homes that are priced right are now getting multiple offers. One I just heard of was 95132 - a zip code that's been killed this last year. Ask price of $625K, it got 7 offers and went 17,500 over ask price! That from an area that was doing NOTHING a year ago!

3) Days of Unsold Inventory - Last year we had 210 days of inventory - that's 7 months of inventory, today that number is 125 or just over 4 months of inventory - which is a good balanced market. It's starting to shift out of a buyers market and into that grey in between world. It's not a seller's market yet - and it may not reach "seller's market" for a while. The argument being that there are still properties in default that will add to the supply for the next few years. All I know is when multiple offers start, a strong buyers market is coming to an end.

These numbers are for houses in Santa Clara County. There are plenty of submarkets that don't fall within these confines but, great news for sellers and no so great news for buyers.

This is what the market looks like just before the prices start to rise. There are still bargains to be had. Find yourself a good Realtor and get in while you still can.

New Regulations Chase ALL Mortgage Loans Out of NY State

For the last few years - perhaps as many as eight or ten - there have been increasing reports of abuses in subprime lending. Folks that could have/should have qualified for a "better" loan, didn't. Credit worthy borrowers were charged multiple points and high interest rates. The consumer wasn't saavy, didn't speak the language, or didn't shop around. Sometimes there was even elder abuse.


Instead of holding fraudulent individuals and/or companies liable, various states have attempted to label "high cost loans" as fraudulent, usurious and have attempted to regulate them into extinction. The latest iteration is in the state of New York. New York's new regulations deem the investor [the ultimate purchaser of the note] liable for any irregularities in the loan.

Let's recap the flow of money; the loan is "originated" by one company, sold to the initial investor/bank/mortgage company who then re-sells it in huge blocks to the "investor". This final investor is often made up of retirement funds, investment pools and mortgage backed securities that are sold on the stock market.

Let's say you had your choice between two stocks with a similar return; Google stock or a mortgage back security - that may be able to sue you for sub prime loans buried in the portfolio - which stock would you execute?



I totally get that these states are trying to "protect" their voter base. The problem is that high cost loans have a place and making the investor liable just means that the investor won't spend their money there - any money. In our internet world, the liquidity market is not limited to geographic regions like the old community banks. Putting the investor at risk just makes the grass so much greener anywhere else.






New York Versus Freddie Mac: Round One

New York Versus Freddie Mac: Round One
By Peter G. Miller

It’s fight time in New York. On one side is newly-passed state legislation which sets tough standards for subprime and “high cost” loans and on the other is Freddie Mac, which says it won’t buy such loans in the state after September 1st, the day the new law goes into effect.

This is a big deal because if New York lenders can’t sell mortgages to buyers such as Freddie Mac, they simply won’t make such loans. You can guess what happens next: No subprime loans, no high cost loans, no buyers, no sales. A big chunk of the real estate market will close down.

Technorati Tags: subprime lending, lending meltdown, law of unintended consequences

Fed Takes Over Fannie and Freddie

Got this news alert today:

The federal government has taken control of ailing mortgage giants Fannie Mae and Freddie Mac. Bush administration officials announced Sunday that the executives of both institutions had been replaced.

This seems like de javu of the S&L crisis in the 90s only no resolution trust corporation to sell off foreclosed assets. Instead we agents are scrambling to handle the tidal wave of short sales and REOs that are coming on the market.

What do you think the Fed's next move will be?