Archive for the 'Down to Business' Category
Whats Wrong With Mortgage Interest Rates and The Market?
April 18th, 2008 Columbus Buyer Info, Columbus Seller Info, Down to Business Jason No Comments
Whats Going On?? Thats a question a lot of people are asking. and Why Are Interest Rates So Volatile right now?
Heres a Looooong answer coming from The FNMA Capital Markets Sales Desk that actually presents a good picture of whats going on. If youre really interested, sit back, read up, and learn..
The Capital Markets Sales Desk has fielded a large number of calls from customers simply asking, whats going on? Why is the mortgage market trading lower every day? The following are reasons that could help explain why mortgages are struggling and why current market conditions are so volatile.
The question is, why are mortgages widening or losing value vs other benchmarks like treasuries? Mortgages are widening for a number of reasons. First, there are no buyers. The dealer community is quite full and has no more balance sheet to hold mortgages. In addition, with the market so volatile, dealers dont want to own mortgages at this time. Another reason why dealers do not have an appetite for risk is quarter end. Most dealers are experiencing a quarter end in March and have become even more conservative.
Banks are not buying either. They are more concerned with retaining capital to cover potential losses in other sectors. Banks and other securities firms have written down an astonishing amount of losses since the subprime mortgage market fell apart last summer. According to Bloomberg, as of February 8th, write-downs by banks and securities firms around the world had reached $120 billion. Therefore, banks remain defensive and prefer to either retain capital or put it to work in other AAA rated sectors.
Asia has been noticeably absent as well. Asian banks generally buy on strength and its obvious there hasnt been any strength exhibited in the mortgage market recently. Also, Asia is generally more active at the end of the month so their absence this week is not a complete surprise.
Money managers and hedge funds arent buying for the long term either. What they are doing is called momentum trading. They are buying at the wides (cheap) and selling at the tights (less cheap). Since they are buying and selling, they are not taking any production out of the market leaving the market to trade in a volatile fashion. The market is also trading very thin so exaggerated price movements occur when larger blocks are brought to market.
Okay, we know that dealers, domestic banks, Asia, money managers and hedge funds are not buying. But, who is selling? Well, we know servicers have been selling. When the market sells off, the current coupon increases and servicers attempt to keep their hedges in the current coupon. Therefore, servicers need to sell lower coupons (longer duration coupons) and purchase higher coupons (shorter duration coupons). This is called moving up in coupon and is a form of shedding duration. However, in large market moves, servicers may need to sell without the corresponding purchase of the higher coupon. This is called outright selling. The outright selling and duration shedding from servicers has put extra downward pressure on mortgages.
Originators are also selling. Although, with higher mortgage rates, originators arent selling as much as they were a month ago, the amount they are selling remains significant.
Okay, servicers and originators were the two expected suspects, but are there any other sellers? Unfortunately there are, and this group of sellers is what brings fears to the market. Thornburg Mortgage, a mortgage REIT that specializes in Jumbo and Super Jumbo mortgages received a margin call from JP Morgan in late February. A margin call is a demand for cash on an under-collateralized loan. Thornburg was unable to meet a $28 million margin call and may be forced to liquidate its holdings. We are hearing talk of a $4.4 bln list of Non-Agency ARMs and pass-throughs out for the bid from Thornburg today.
Another seller may be Carlyle Capital Corp, which is an investment bond fund located in Guernsey, UK. CCC missed four of seven margin calls totaling $37mln and another margin call notice is expected. According to Bloomberg, the fund raised $300mln in July and levered the money to purchase approximately $22bln in various forms of MBS. A portion of this $22bln is expected to be sold, and some market participants venture that a portion is being marketed today.
Although this is only two of the many accounts that participate in the MBS markets, their forced sales could have major repercussions. For example, lets say the bonds that are sold are sold at very low dollar prices. That may cause other market participants to mark their own portfolio down to current market levels. This may cause further write downs. The fear of further write-downs has banks on the defensive to a point where they want to preserve capital. If banks are preserving capital, then they are obviously not investing in MBS.
The few investors who do have available capital are putting their money to work in more profitable sectors. Municipal Bonds and certain classes of CMBS are yielding more than Agency MBS and have a AAA rating. Despite the inherent €œcheapness€ in the mortgage market, there are still other safe investment options that are more preferable at the moment.
In summation, we have more sellers than buyers. The selling bias puts pressure on mortgages, forcing mortgage prices lower and wider. The usual buyers of mortgages arent buying or are buying other investments at cheaper prices.
Another trend weve noticed is a flight to quality within the mortgage market. Generally, when the market experiences a flight to quality, money is moving into US Treasuries. However, with treasury yields so low, market participants are buying the next best thing, GNMA MBS. GNMA MBS has the explicit guarantee of the US Government. Purchasing GNMAs allows an investor to enjoy the explicit guarantee while yielding considerably more than US Treasuries. In times like these, banks prefer to own GNMA MBS vs conventional MBS for a reason other than the explicit government guarantee. The reason is capital. Banks have to hold a certain amount of capital against their investments. However, they are required to hold significantly less capital against their GNMA holdings vs. their conventional MBS holdings. With the flight to quality within the mortgage market, and a preference by banks for GNMA MBS, it is no wonder why the GN/FN swap spreads have gapped out to astonishing levels. The current GN/FN 5.5% swap has gapped out from 18/32s from January 22nd, to its current level of 59/32s.
Another thing to keep an eye on is ARM issuance. The yield curve has steepened in recent weeks (current difference in yield between the 2yr treasury and 10yr treasury is 208 bps). Generally, when the curve steepens, the difference in ARM rates and 30yr mortgage rates increases. Therefore, one may assume ARM issuance is likely to increase now that the curve has steepened. However, due to the lack of liquidity in the market, ARM MBS is trading extremely cheap. In other words, the correlation between a steep yield curve and lower ARM rates has decreased. Because lenders cant sell their current ARM production in the secondary market at respectable levels, they cant lower their offered rates. When liquidity improves, look for ARM issuance to increase.
Home Search STEP ONE - TALK To A Lender
May 15th, 2007 Cartoons, Columbus Buyer Info, Down to Business, The Good 2 Comments
A common question I hear from first-time home buyers is “What do I do to get started on buying a home?”
Actually, your FIRST step is one most home buyers don’t think of– Get Thee to a Lender! You’re excited about the idea of owning a home… and you’re thinking what area of town you like, what style of home, the makeup of a home that fits your needs…. oh yeah, and the price range you think you can afford. You want to go see houses (lots of houses)– on the Internet, at open houses, and in person– and when you find the ‘perfect’ one, then it seems the idea of visiting a lender is a good one.
Sitting down with a lender (or several lenders for those of you looking for the perfect combination of lowest interest rates and closing costs) is critical– it will save you hours of time, reduce frustration, and allow you to present an offer that a home seller will like.
By getting pre-approved, you will know:
1. exactly what you can afford (this means how much money the bank is able to lend you)
2. if you have enough money for any down payment and closing costs
3. if you don’t have enough money, what your Realtor is going to have to ask the seller to help out with (this is part of the contract, folks, and it needs to be addressed at the very beginning)
4. if you have any ‘credit issues’ and what you might need to do about them in order to get a loan
5. the paperwork the bank is going to need to approve a loan
6. the time frame it will take to get a loan approved
Once you have this knowledge, you can then get a good idea of the area of town that has the type of home in the price range you are qualified for….and then the fun begins!
Realtor MLS Sales Awards
April 23rd, 2007 Down to Business 7 Comments
this article has been removed by the author per request……
The Challenges of Buying (and Selling) A Short Sale Home
February 28th, 2007 Bank-Owned/Short Sale Homes, Columbus Buyer Info, Columbus Seller Info, Down to Business, Investment Property, The Bad 3 Comments
As buyers look for the ‘best bargain’ in a home, most are curious about three types of bargain-basement properties: the Short Sale, the Bank-Owned, and the HUD Sale.
The Short Sale home is basically a pre-foreclosure sale. The owners have financial issues, have missed or been late on mortgage payments, and are looking at a possible future home foreclosure and/or bankruptcy. Their credit rating will then be seriously impaired and there will be a period of time where they won’t be able to own a home. They may have already tried to sell their home, but the price at which they need to sell is higher than the market value, and there have been no offers.
At this stage, a realtor often becomes involved who has experience in proposing a short sale to the lender. The owners present a hardship letter along with a packet of information for the bank to consider, asking for time to get the property sold.
The lender has said it will consider a price that is lower than the payoff amount of the loan. The advantage to the lender is that this loss will be less than the losses the lender will incur with a foreclosure.
In a perfect world, the sale happens, the lender takes a small loss, and the owners have minimal damage to their credit so they can move on and even buy another home if they wish.
Here’s where things get tricky. First of all, the bank has said they will think about it- there are no guarantees they will decide to accept an offer. Banks are also notoriously slow and can take weeks to come to a decision. It’s the bank making the final decision, not the homeowners. There are also ‘addendums and qualifications’- the home is sold ‘as-is’, the buyer needs to be pre-approved, there is lots of bank paperwork (that their lawyers have created) absolving them from everything. Last of all, many of these properties have two mortgages- the primary mortgage and the equity mortgage (an equity loan is the same thing). There are frequently two lenders involved in these mortages, so you have two sets of people deciding if things will fly. (If you’re a betting person, figure the odds on this scenario moving along smoothly and quickly.)
So…. the seller is hoping and praying things will work out, and the buyer is often waiting for weeks for answers and hitting one brick wall after another.
SELLERS- Two things- first, your credit score will be affected in a negative way, and second, the amount of debt the lender forgives is still considered taxable income- and Uncle Sam is going to want his share. For example, if your mortage is $100,000 and the bank agrees to settle for $90,000, you are going to have to pay taxes on the $10,000 that was forgiven.
BUYERS- If you’re an impatient buyer and in a hurry, a short sale is not for you. If you want a perfect house that doesn’t need maintenance and possible repairs (remember, you’re buying the home as-is, and there’s a good chance the previous owners did not have the money to keep things up to high standards), a short sale is not for you. If you detest paperwork and bureaucracy, a short sale is not for you.
If you’re a handy fix-em-up person, patient with the world and its craziness, and looking for an opportunity to gain some ground on equity…… a short sale home could be your ticket to paradise.
(Note: for MORE issues to face on Short Sales, click on this later post….)
Don’t Have Real Estate Commission-Breath
February 21st, 2007 Columbus Buyer Info, Columbus Seller Info, Down to Business, It's My Opinion, The Ugly No Comments
A couple of years ago a potential seller contacted me for a market analysis. While reviewing similar sold properties, it became obvious that she had purchased well above the fair market rate when she had moved into the area from out-of-state three years before, and she would have a tough time recouping her costs with the sale.
She sighed when I told her the news. Her buyer’s agent at the time had not given her comparable sales, and had kept pushing her that this home ‘was a great buy.’ Although she accepted her current situation, her comment about the previous real estate agent stuck in my mind. “I just felt like I was only a paycheck to him- I don’t think he really cared about my needs.”
Her feelings are a great example of commission-breath. I love that term, and would love to take credit for it, but the credit goes to Ken Blanchard, the author of The One Minute Manager who used this term in a recent presentation to realtors at the Keller Williams Family Reunion.
We’ve all experienced commission-breath…. from car salesmen, appliance salesmen, and all those other sorts of ’salesmen’ that look at us with a gleam in their eye and see dollar signs. They push hard for a ’sale’ and use a myriad of techniques to ‘make the close.’
Yuck. I feel used and discarded after these attempts have happened to me. I also feel pretty lousy when I hear about realtors with bad commission-breath.
We’ve got a Realtor Code of Ethics that we have agreed to live and work by and state laws that compel us to honor and represent our client’s best interests. The minute a realtor gets commission-breath he’s violating those interests, and in most cases, that client can sense it.
Yes, realtors earn a living helping people buy and sell homes. Those events are life-changing in our client’s lives. If we haven’t done our best to make that life-changing event a good experience, we’re violating our fiduciary responsibility to our client, and we probably have a case of commission-breath
How I Got From There To Here
February 18th, 2007 Down to Business, From Professional to Personal 3 Comments
About me…. I’m Sondra Johnson, and I’m a realtor in the Columbus, Ohio area, now in my 6th year of being in the business.
I worked for 3 years as an independent agent with ReMax, and then joined a team of realtors (The Columbus Team) with Keller Williams.
I was aggressive with marketing from the beginning- and was in the first group of realtors who saw the need to create a custom web site (in 2002, most realtors who had a web site used the template version that Realtor.com provided).
Some people thought I was crazy starting out with ReMax, being brand new, with their high monthly fees. One realtor flat out told me, “what are you, nuts? Go to one of the ‘traditional’ companies, get their training, and when you’ve got the experience, THEN go to ReMax.”
I didn’t because I was focused on building a business from the get-go, and didn’t want a company that gave me a list of ‘do’s and dont’s’. I had several specific ideas that were a bit out of the box, and I wanted the freedom to sink or swim on my own merits.
My goal was to be a HUGE success… probably most everyone’s goal, I’d imagine.
The odds were stacked against me- I had no ‘sphere of influence’ (by the way, I hate that term), I had a bill of at least $1200.00 a month coming from ReMax, and there was little official training.
I dug out the information I needed, made lots of mistakes, made some good moves, made some good friends (alarmed a few others with my ‘strange’ ideas), and set out on the path of making it.
Years 2 and 3 at ReMax looked good on paper…. I made the “100% Club” (which signified I’d earned $100,000.00 or more). Looking at my bottom line, however, was a different story. By the time I’d paid all the expenses (internet costs, advertising, signs, etc. etc. etc) my NET income was not very exciting. Yes, I got 100% of the commission, but I also had to pay 100% of the expenses.
And I was tired. As a single agent, I had to wear all the hats- working with buyers, sellers, placing advertising, putting signs in the yard, negotiating contracts, arranging all the closing details, and so on. I tapped into using a virtual assistant early in the game, and that helped. BUT- the bottom line was…. when I compared my net income to the number of hours that I worked, I felt pretty bleak.
I decided that I either had to build a team, or join a really good one. Option B was a better choice for me.
I approached the best team that came to mind, and told the owner Sue I wanted onboard.
So, I know all about both the single agent and their issues, as well as the team agent and what that entails.
A big question that was unanswered was: would my net income be any better? With the team arrangement, I only received 1/2 of the commission- the team got the other half, but also paid the many expenses needed to run a business.
The answer was interesting…. at the end of the first year with the Columbus Team, my net income in commissions had doubled.
On the Team, I work as a Buyer Specialist…. I only work with buyers. My time is more focused. There are support staff that handles the myriad details once a client is in contract, and keeps things running smoothly.
I have to say- my main motivation was to join a great team, and the company choice was secondary. However, Keller Williams is truly unique, and I’m glad I’m there. (Of course, it goes to reason that a good team MIGHT have an inside track on a good company…).
In a nutshell, KW is an ‘out of the box’ thinker that offers unparallelled training and education for realtors (and as a person who had to go out and dig for training starting out, I can tell you how unusual that is), has a system for beginning agents to get up and running, has a culture of support and training, and even has this profit share program option where agents can get a passive income…… for forever (yes, that’s right. Even your heirs keep on reaping the rewards).
Here’s a key question for vibrant, busy agents…. where are you going to get your money when you don’t want to sell anymore? Keller Williams has a couple of good answers…….
Yes, That was a sales pitch. But it’s not done lightly, and it’s not because we’ve got “a cult, a crazy pyramid scheme.” A great statement I heard was, “It’s not a cult, it’s a culture. It’s not ‘kool aid’, it’s REAL aid.” Keller Williams offers people the tools to build their OWN business, and has vivid, visual ways to do it. I sincerely feel privileged to be a part of it.
(And trust me, if you knew me, you’d know I’m the LAST person to be a raving cheerleader just to make a ‘sale’.)
There ya go….. my story in a nutshell.
Oh….. as to “why?” I’m a writer at heart, and by golly, I’ve got a few things to say. As do others about the reality and the craziness of this business. I CAN’T STAND the smarmy ‘smoke and mirrors’ phoniness reflected in some of the “do this, and you’ll make a million dollars” ideas out there, the realtors who are not professional, the perception that ALL realtors are rolling in the dough and do nothing to earn it, and a few other topics that will come to mind.
So get a dose of Reality, learn a couple things of interest, learn what a GOOD realtor will do for you… and go buy a home!
Columbus Real Estate Update- Winter 2007
February 10th, 2007 Columbus Buyer Info, Columbus Seller Info, Columbus and Central Ohio Home Sales Stats, Columbus and Central Ohio Real Estate Tid Bits, Down to Business No Comments
In 2006 the Central Ohio housing boom that had moved steadily upward slid to a halt, and a Buyer’s Market began. Home inventory increased, and homes ranged from 11 to 31 percent higher (depending on the month) from the same time the year before. At the end of December 2006, housing inventory was 11.6% higher than December 2005. This amounted to 15,613 homes, which represented at 9.4 month supply (compared to a December 2005 7.65 month supply).
Home sales in 2006 were ahead of 2005 sales numbers (which was the ALL-TIME record breaking year) until June. From that point, sales totals gradually decreased each month through the end of the year.
Sounds pretty gloomy, doesn’t it?
It’s the old ‘glass half-empty or half-full’ situation. We sold 26,251 homes in 2006. That makes 2006 our third highest sales year in the Columbus/central Ohio area (with 2004 being our second highest year).
The average sales price of a home in the Columbus and surrounding areas for 2006 was $174,688.00 (compared to $177,978.00 in 2005). Average days on market (DOM) for 2006 was 97.2 days (11 days longer than 2005).
Looking Ahead…
Industry predictions for the Columbus area are for a modest year in 2007, with slight gains in appreciation and home sales. People are still saying “Buyer’s Market” for the next year, but the market should balance out a bit better between buyers and sellers. Interest rates may slowly rise throughout the year to a projected high of 6.7% by the fourth quarter of 2007.
(On a personal note, I have to stress that good homes are selling. I’ve faced several multiple offer situations and clients have ‘lost’ several homes when the homes quickly went in contract. Stage your home properly, do the right updates, price it right– and you are going to sell.)
Working With MORE Than One Real Estate Agent….
January 30th, 2007 Down to Business, The Good 4 Comments
You’re under no legal obligation to use only one real estate agent (unless you’ve signed an Exclusive Buyer Listing Agreement).
Some people like to do this because:
1. They want to look at a number of areas.
2. They haven’t found the “right” real estate agent .
3. They want to keep their options open.
Tips if you’re going to do this:
1. Tell the realtor that you’re working with other agents as well.
2. Also tell them if they want to show you a property that you’ve already seen it with another real estate agent . It saves you- and them- time and effort.
The Real Deal: Most realtors hate this. They want to work with you exclusively, and they may either choose not to work with you, or put your needs on a lower priority scale.
Why? Because:
a.) their time available is usually limited
b.) their chances of completing a transaction with you (in other words, getting paid) is much lower than with a client who is faithfully working with them.
Other Must READ Info:
What is an Exclusive Buyer Listing Agreement?
January 30th, 2007 Columbus Buyer Info, Down to Business, The Good 4 Comments
This is a legal document in real estate (a contract) between you and your real estate agent, for a specified period of time, that commits you to your real estate agent, and your real estate agent to you.
Basically, it says that if you buy a house, your real estate agent will get paid.
• What’s the advantage to me to sign this Exclusive Buyer Listing Agreement?
• Well, for starters, you’ll be at the top of your realtor’s list of people to work with. Top of the list and top priority.
• Your real estate agent will be ready and anxious to get things done for you.
• Your agent knows you’re committed, you’re going to be loyal to him/her, and you’re ready to buy.
That means your agent will get paid, who can then pay the electric bill and buy groceries- wonderful incentives to work harder. (Remember, folks, we real estate agents do this to make a living!)
Other MUST Read Info:
Do I HAVE to sign an Exclusive Buyer Listing Agreement?
January 30th, 2007 Down to Business, The Good 2 Comments
No. You are under NO obligation to sign any documents you’re not sure about.
Some real estate agents choose this approach. They want to be sure they “own” you before they put in work and effort.
You also have a choice. You can choose to say “No, thank you” and look for a realtor who will work with you.
The only time you should choose to sign an Exclusive Buyer Listing Agreement is when you think “Yippee! This is the real estate agent for me!” and you want to be that agent’s top priority.
Other MUST Read Links: