Archive for the ‘mortgage’ Category

Need More Buyers?

By Rick Soukoulis | September 6th, 2011 0 Comments

It always surprises me that 40% of all homeowners in America own their home free and clear. I’ll be the first to admit that I saw that stat years ago; the number is probably lower today.

Still, a mortgage banking consultant I know up in Berkeley just bought a home all cash, and we all know that lots of older people also own their home free and clear. I’ll guess he and the vast majority of “free and clear” owners have no interest in getting a new mortgage, but here’s an idea for all my Realtor friends.

Maybe this mortgage-free person would be better served to take out a mortgage and buy rental property. (1) Mortgage rates are insanely low (did you ever in your wildest dreams think you’d see rates in the low 4’s?) and (2) buying a rental all cash can generate very attractive returns.

I heard of one couple whose neighbor walked away from their mortgage, leaving a boarded up eyesore next door. Although he had never been a landlord, he contacted the bank and bought the house at a bargain price. I should add that he bought it all cash.

He fixed it up, rented it out to some nice people, and not only did he eliminate the vacant eyesore, he now is making almost 10% cash on his cash. In another case, my father just did this very same thing. Turned $34.00 a year in interest he was earning at the bank into $1,100.00 a month in rent. He thought for $22,000 a year it was worth the hassle of finding a new renter every couple of years and receiving the occasional call about the garbage disposal.

For those who own their home without a mortgage but who don’t want to be landlords, there are other opportunities. Someone in this situation could buy California General Obligation bonds yielding 5%, and being tax free, this is the equivalent of getting about 8% on your money.

If this person needed to take out a mortgage to do this, the math is simple. He’d pay around 3.75% for the mortgage and receive 5% from the bonds. That’s a 1.25% spread, and because it’s tax free income, the real yield is closer to 3% and I don’t think bond rates will be going down in a few years when it’s time to renew the bonds.

I’m not a tax expert, but (1) the income on the bonds is tax free and (2) the homeowner could write-off his mortgage interest, so let’s just say that the true yield is closer to 3%.

It might be worth exploring this with people who are mortgage free.

Good luck, and let us know how this works out if you do try it out on some people. Any of our mortgage bankers would be happy to help you put together a plan.


A U.S. Debt Crisis?

By Rick Soukoulis | July 25th, 2011 0 Comments

Just about everyone has at least seen the headlines about the problems in Greece. The government ran massive deficits for years, and like someone who maxes out on all his credit cards and can’t use them anymore, Greece has come to the point where they’re struggling to borrow more money to go even further into debt.

International lenders such as the World Bank have told them “No more credit till you cut spending”, and people who’d be affected by spending cuts, or who think they will, are seen regularly rioting in the streets.

I was in Greece very recently, and I saw something very interesting about the riots.  Things would be pretty calm until the news cameras and TV stations would show up, and suddenly, rioters appeared out of nowhere and started, well, rioting.  When the newsmen had enough footage and packed up and left, so would the rioters.

I’m not certain what to make of this, but it left me a bit cynical.

Still, the question remains, could this happen here in the United States?

There’s no question that our spending is out of control. The deficit is the equivalent of a family which earns $50,000 and spends $88,000.  That is sustainable only as long as someone lends us the money, and I think you know who lends us the most.

It’s the Chinese!  They now own well over $1 trillion in U.S. Treasuries, and if they one day come to believe that our debt load is too high, that will be ugly.

Interest rates on Treasuries would climb to a level reflective of our high debt and lowered credit rating.

Could mortgages move from 4.5% to 5.5%?  The reality is that they’d probably go a heck of a lot higher, maybe even to 8-9%.  And I don’t need to tell you what that would do to an already fragile housing market.

A crisis is a terrible thing to waste, and our President has a wonderful opportunity to use this crisis as a rationale for a dramatic re-ordering of our spending. Whether he’s playing chicken with the Republicans in Congress or not, it may be 20 years from now when people try to find the one, true point in time when we started a slide into economic decline. And when they do they will point to the government’s collective unwillingness to do what needed to be done.

Saving entitlements, fighting for increased revenues, standing up for the middle class will all be irrelevant if we become another Greece. History is filled with empires that decline because of over-reaching and trying to do things they could no longer afford.


Top 10 Silicon Valley Real Estate Trends for 2009

By Dawn Thomas | December 16th, 2009 0 Comments

As 2009 draws to a close – you’ll soon be reading lots of  top 10 lists for the movers, shakers, and trends of the year and the decade!   In the spirit of being just a little ahead of the crowd, here’s our list of the top Silicon Valley Real Estate trends of 2009:

1. Low Interest Rates – with More Strings –  Interest rates have been low this year, with periodic dips into historic record  ”low” territory.   These great rates, though, come with seemingly ever-changing requirements and conditions.  Selecting a great financing source who can get you great rates AND help you navigate through the process has never been more important.

2. We’ve Got to Keep It Together For Longer – With the changing lending guidelines, it’s been taking longer for properties to close escrow and having a signed purchase contract did not automatically mean a closed escrow in 2009.   Having a black belt negotiator on your real estate team has been critical this year.

3. “Turn Key” is Hotter than Ever – A few years ago – buyers could purchase a property & count on some quick appreciation to pay for a remodel in just a little time.  Now – buyers can’t count on home appreciation to finance a remodel in the near term & are looking for great condition, move-in ready homes to buy  (as if location and condition ever go out of style in the world of real estate!).  On the other hand – for buyers seeking to purchase a property in a high-demand area like Palo Alto or Cupertino – it may pay to look for properties needing some work.  If you can see the potential in a fixer – you may have fewer competing bids from other potential buyers.

4. Buying a Silicon Valley Foreclosure is not as Easy As It Sounds - Some of the busiest agents in any real estate office are the ones listing “Real Estate Owned” or REO properties for the banks.    Buying one of these properties means navigating a maze of bank-specific requirements for making the offer, competing against multiple offers (some properties are getting 20, 30 or even 50 offers), and positioning your offer against “all cash” investors.  Finding a deal & making sure it stays a “good deal” through the process is not for the faint-of-heart!

5. No Shortage of Short Sales – over the course of 2009 – we continued to see properties listed for less than what is owed to the lender(s) – resulting in a short sale requiring lender(s) approval to go through.   We’re starting to see short sale listings where the lender has approved a short listing price – allowing the whole process to go smoother and quicker.

6. The Year of the First-Time Buyer – with more affordable home prices, the First Time Home Buyer Tax Credit, and sweet interest rates – many of the homes sold in 2009 went to first time home buyers.   In the final months of the year – we are starting to see more and more “move up” buyers rousing the mid and higher-end price points.  Welcome!  Please bring friends!   This is a trend we want to see continue & grow in 2010!

7. Deal Hunting in Palo Alto – Where’s the deal on a single family home in Palo Alto for less than $300,000?  The media in 2009 did a fantastic job of painting the picture of real estate in free fall, and we went through a period in the spring where every day brought Internet inquiries looking for the extraordinary deal in Palo Alto.  According to the MLS – the least expensive Palo Alto single family home sold so far in 2009 went for $703,000 for a 67 year old, 703 square foot cottage with foundation issues.

8. Your Home May Have a Bigger Electronic Footprint than You Do - Social media sites like Facebook and Twitter are 2009 Trendsetters above and beyond the world of buying and selling dirt.  In real estate, though,  the savvy home seller now ensures that their Real Estate agent is marketing  their property through multiple Internet channels.    Wouldn’t  you want 30 million visitors at your open house – especially the ones who can’t leave foot prints on your new carpet?

9. Welcome to California! – We are working with an increasing number of clients who are relocating to Silicon Valley for a new job.  It looks like both our job market and our real estate market are picking up!   Welcome!

10. Less to Pick From, More Competition – And finally, in many areas of Silicon Valley – we are seeing fewer homes on the market.    In fact, for Silicon Valley overall – more homes are “pending sale” than are actively for sale.  For buyers – this means that there are fewer homes to consider and more competition to get  your offer accepted. For sellers – it means that there are fewer competing properties.  This sets the stage for an even brighter 2010!

We wish you the best holiday season & look forward to serving you and your referrals in 2010!

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What the heck is the Fed up to?

By Rick Soukoulis | November 13th, 2009 0 Comments

The Federal Reserve Board may be the least understood institution in America and about which people know the least.  But in these trying times, their role has not only been big.  It’s been critical.  The Fed has probably done more to get the economy moving again than all the government spending and bailout programs combined.

 About 85% of all mortgages made today are being put into mortgage backed securities. These securities are being created primary by Fannie Mae and Freddie Mac. Both of which are now 80% owned by the government.  In past, these securities were bought by banks, mutual funds, insurance companies and pension funds.  These same investors are still buying, but in general, they are buying a whole lot less than they did before the credit crunch of 2008-09.

In order to drive rates lower, the Fed has stepped in and been buying massive amounts of mortgage securities.  As a matter of simple supply and demand, massive buying will drive bond prices up, and as bonds prices rise, rates drop.  Thus, the Fed made a conscious decision to buy mortgage securities to drive mortgages rates downward, largely to keep pressure off the American homebuyers and to stimulate housing markets in general.

 The Fed has stepped in as the buyer of last resort, and they are now authorized to buy up to $1.2 trillion in these MBS’s.  They’ve already bought $975 billion, with $225 billion more to be bought.

 They have been buying at a rate of $25 billion a week; just enough to keep rates relatively low, allowing people to refinance at lower rates and for homebuyers to afford new homes.

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Who moved my cheese?

By Rick Soukoulis | April 29th, 2009 0 Comments

posted by Rick Soukoulis, Chairman & CEO of The Loan Source

Who moved my cheese is the title of a great little book that deals with change. If you have you haven’t read it, I highly recommend you get your hands on a copy. It’s a simple story about surviving change and in this market, change is the one constant in the universe.

This article is about a relatively minor issue that seems to have too many people unnecessarily worried.  It’s the issue of new appraisal rules. Yes it is a big change but it is being applied evenly to all.

You may have heard all the scare talk about HVCC and how it’s going to change everything on May 1st.

First, let’s define it. HVCC stands for Home Value Code of Conduct.  It does not, as I heard one person say, have anything to do with Heating, Ventilation, and Air Conditioning. That’s HVAC, something totally different.

At its heart, it addresses the issue of loan originators, both at banks and brokerages pressuring appraisers to increase the value of a given home.  And I think we all know that there have been abuses in this area.

Certain loan originators would select appraisers they knew they could pressure, and sometimes even threaten appraisers that they’d never give them business again unless they came up with a higher value.

The solution is that loan officers will no longer be able to select the appraisers they want to work with.  There will be a pool of appraisers at an AMC (Appraisal Management Company), and when they place an order, the AMC will randomly assign them an appraiser. This holds true for ALL banks, mortgage banks and mortgage brokers. In essence the collateral for the loan will be evaluated independently of the borrower ability to repay, sounds logical.

How will Realtors be affected?  The answer is, virtually not at all.

Realtors are not barred at all from talking to appraisers.  In fact, Realtors always have been and always will be very critical to the appraisal process.

Many Realtors know a neighborhood better than most appraisers, and they will continue to provide appraisers with different comps to consider, information on neighborhood changes, listings, and other types of information that are so important in helping an appraiser do his job.

How loan officers select appraisers has changed, but Realtors will still be able to work with these appraisers.

In fact, Realtors will not only be able to, but will still be needed, to help produce the best possible appraisal and maintain the integrity and accuracy of appraisals.

This is not to say that over the next few months while the industry digest this change there won’t be problem, there will… but in the end it will be business as usual.

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The Return of the Mortgage Banker

By Rick Soukoulis | April 9th, 2009 0 Comments

posted by Rick Soukoulis, Chairman & CEO of The LoanSource

After several decades in the mortgage industry, there is very little that gets me excited. I’ve learned that staying calm can often be the most effective way to handle things.

Having said that, there is one thing that does have me excited. What is it? It’s the return of the mortgage banker as the best source of good loans for borrowers. Note that I didn’t say banks. And I didn’t say mortgage brokers. I said it was the mortgage bankers who are staged to make a big difference for the American homeowner.

First, let’s define our terms – A mortgage broker cannot fund loans. He is dependent on so-called mortgage wholesalers, and hardly a day goes by where another wholesaler reduces the number of brokers they will do business with. These decisions to reduce suppliers (which are what a broker is) are being made based on the quality and volume of the loans produced by that brokerage firm.

Over the past 10 years brokers maintained a long list of lenders that the broker could leverage off each other without much regard. If a broker was approved with 100 lenders but only did 10 loans a month you can see that the relationship was good for the broker (lots of suppliers) but not so good for the lenders (fighting over limited volume from each small broker).

Long gone are the days when a broker could legitimately say he was approved by dozens and dozens of lenders and that he could shop the loan among them. Not so any more. This is making it very difficult for the Mom and Pop brokerage to compete. Most small mortgage brokers firms are down to a handful of wholesalers they can do business with. As for the banks, they are just not lending much outside of FNMA/FHLMC conforming limits. We read about that almost every day.

So where does the mortgage banker come in? What exactly is a mortgage banker? First, a mortgage banking company is one that funds its own loans. More importantly, it has historically been the link between institutional investors and mortgage borrowers.

Historically, mortgage bankers would line up relationships with out-of-state banks, S&Ls, insurance companies, and larger pension funds. They would find out what yield requirements these investors wanted. Then, they would try to come up with mortgage programs that would deliver that yield while still being attractive to borrowers.

Quite often, these investors were in areas where there was little growth and even less demand for mortgages. They had money to invest, but not enough borrowers. The California mortgage banker was able to help them meet their needs.

It might be yield, but it could also be other loan attributes such as loan size (some investors like jumbo loans) or maturities (some investors like loans that start adjusting after three years). The mortgage banker would enter into a formal, legal agreement called a “Forward Commitment”. It would spell out the types if loans he would sell to the institutional investor and would commit the investor to buying a set amount of these loans over a one year period. These commitments could be for $50 million or $150 million. The main thing is that they guaranteed that these programs would be available.

The mortgage banker was typically very smart about identifying these institutions and very sophisticated about formulating programs that met the institutions needs while still being attractive to borrowers. He had to be smart about all this because he was using his own balance sheet to fund the loans. He was, in fact, assuming true liability.

What excites me is that this model, which had been quiescent the past several years, is going to come back. I’m certain of this. Mortgage bankers will return to their roots, grow bigger retail divisions, and probably push out the smaller and now less agile mortgage broker. This will leave us with big brokerage shops, mortgage bankers, and banks, all competing for the same customer but all with very different loan product and service offerings. Gone are the days where a company can say that they have all the products in the market. For those of you that were in the business in the 80’s and 90’s this may sound like a return to the past. Well it is.

We’re going back to a time when the mortgage banker has exclusive relationships with large out-of-the area institutions.

  • He’ll meet the needs of his investors.
  • He’ll meet the needs of his community.
  • He’ll have programs no one else will have.
  • He’ll be providing more alternatives for his borrowers than they currently have.

It’s hard work, but this is what mortgage bankers have traditionally done. And it thrills me that we’re headed back in that direction.

Our company has recently entered into on such agreement and now is Funding it’s own jumbo Arm’s and Fixed rate products. This product can only be obtained directly from the LoanSource and will not be offered on a wholesale basis. We are provided for a product for the high end where the liquidity crisis is still impacting real estate sale. This new product provides for loan amounts as high as 2 million and loan to values as high as 80. Talk to one of our loan officers for details.

These are exciting times!

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    Your one-stop Loan Source – with so many loan options and programs, as well as commitment to excellence in customer satisfaction, we can help you achieve your financial goals.
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NAR: Home sales may increase over next few months

By Intero Real Estate | June 12th, 2008 0 Comments

Improvement expected for second part of year

The National Association of Realtors® says the next few months could bring a modest gain in home sales. The group also says that an improvement is forecast for the second part of the year, as more consumers are able to tap into affordable mortgages.

NAR reports that the Pending Home Sales Index, based on contracts signed in April, increased 6.3 percent to 88.2 percent, compared to 83 in March.

Pending sales contracts are increasing in places where prices are dropping significantly, said Lawrence Yun, chief economist at NAR.

"Bargain hunters have entered the market en masse, especially in areas that have experienced double-digit price declines, but it’s unclear if they are investors or owner-occupants," Yun said. "Sharp price reductions are leading to a quicker discovery of price equilibrium points. The West is already seeing year-over-year gains in pending contracts."

Yun said mortgage interest rates will increase steadily, but still remain historically favorable, NAR reports. Mortgage company Freddie Mac said that 30-year fixed-rate mortgages this week averaged 6.32 percent, the Associated Press reports.

Find the full NAR article here.


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