Real
estate news continues to dominate our headlines- both locally and
nationally. Many of you have expressed your enjoyment of my market
update and "feel smarter after reading it". On that note, let's take a
look at some of the recent events in real estate...
1) Fannie Mae and Freddie Mac- are
government sponsored enterprises (GSEs) and they have recently been
taken control of by the US government. Who is Fannie Mae? Only
America's second largest corporation in term of assets- sorry but no
funny story behind the Mae and Mac- they are just creative
pronunciations of the company’s acronyms. Fannie and Freddie serve a
vital role in the lending industry through buying or insuring home
loans that meet their requirements/standards. Without getting too
complex about the internal workings of the secondary mortgage market,
let's just say that without Fannie and Freddie getting a home loan at a
reasonable interest rate would be nothing like the process it is today.
This government takeover is not only rare, given the size of Fannie and
Freddie, but also points to how bad the situation really was. Lehman
Brothers Holding Company collapsed last week but they weren't "bailed
out" because the federal government felt the markets were ready for
this news. However, a collapse of Fannie and Freddie would have had
unimaginable consequences, so the government stepped in. What does this
mean for you? Two things: first, as an American, you now own a piece of
Fannie and Freddie (it was your tax dollars that were used as bail out
money) and secondly, a nice reduction in mortgage interest rates as
investor confidence has been temporarily restored.
2) American International Group Inc-
America’s largest insurer of assets was also bailed out by the
government with an 85 billion dollar loan. Their stock was trading at
$70/share in Oct of 2007...it opened below $2 last Tuesday. Starting to
get the picture here? The government has had to do a lot of saving
lately- IndyMac bank, Fannie and Freddie, and AIG. It begs the
question, how much involvement should the government have when
privately held companies fail? Are you okay with your tax dollars being
used to save companies that might have brought some of this distress
upon themselves?
3) Foreclosures-
California led the nation with 72,285 foreclosure filings in July, a 5
percent increase from June and an 85 percent increase from July 2007.
And our first piece of good news in this newsletter comes with default
notices- the first phase in foreclosure proceedings, which have
declined 4 percent from June. Hopefully this means less people are
getting in trouble with their payments or better yet, those who had
trouble have already cycled through the market.
4) Lending-
For the first time in a long time, I have had some issues getting my
clients approved for home loans. The lending industry has really
tightened their guidelines and, in my opinion, over corrected. I am not
alone; the California Association of Mortgage Brokers (CAMB) is calling
for more lenient guidelines to allow borrowers with good credit and
sizeable down payments to qualify for a home loan, regardless of proof
of income. Now I don't think a return to the days of "blind lending" is
necessary but the strict lending standards has resulted in some quality
buyers not qualifying due to their inability to prove their income.
Often, these borrowers are self-employed, public-sector employees, such
as firefighters or teachers, or have a large portion of their income
paid by way of bonuses. Hopefully rates stay low and this may give the
mortgage industry some time to work out a fair set of guidelines for
all borrowers.
5) Short sales-
ask any active buyer about short sales and watch their face fill with
frustration. It is not a fun process but I have started to see more and
more banks willing to go this route with trouble homeowners and avoid a
full blown foreclosure. In fact, my last 3 escrows have all been short
sales. It is still an excellent opportunity to get a great deal on a
home but you need more patience than you can imagine.
