Wednesday, December 26, 2007

So I'm Super Dorky

I am seriously into financial data.
You have seen that the Case Shiller index recently published the October index results.

The Case Shiller Index is a Wall Street invention to try to track home prices. An index is kind of an artificial scorekeeping method to track things that are a little bit difficult to track. You may all know about the inflation index -- when the cost of a few goods that everyone buys goes up (milk, gas, etc.) the cost of living goes up a few points. Now, no one is taking any "points" out of your wallet for a gallon of milk, but you get the idea. They have made a similar points system for house prices -- the Case Shiller index.

To my delight, Case Shiller tracks not only national data, but metro-area data, including Minneapolis. So after shoveling out again today, I settled in with some Minneapolis area Case Shiller data. Whoo-hoo!

What I was wondering about was kind of twofold-- first off, when was the high point, and how far have we fallen from there?

Well, the high point was in mid-2006.
Prices have fallen now to about the same level as they were in early 2005.

Really, it's not as bad as I thought it would be. We've lost a few years of growth -- but the prices at the peak were SO inflated.

Wednesday, December 12, 2007

Realtors and Mortgage Originators Working Harder than Ever

I know, realtors and mortgage people don't have a very good reputation right now.

But the good news is that this mortgage mess and housing slowdown are doing good things to the industry.

Last year the State of MN implemented a licensing program for mortgage originators. Believe it or not, in the past, there was no requirement to have a license. Now all mortgage people need to get training, hold a license, and even have a net worth of $250k in their business. This is good news.

Already the number of people working as mortgage originators has fallen. And it has fallen a lot. So hopefully the bad eggs and the part timers are getting out of the business, leaving the work to be done by the pros.

Same thing is happening to Realtors. We are losing Realtors. There are lots of Realtors that do one or two transactions per year -- which isn't enough to cover the costs of the required continuing ed and the annual dues to the local Realtor's Association (which is required to do the job -- it gives access to the MLS).

Doing one or two transactions per year just does not allow a Realtor to stay up to date on all of the latest laws and trends in real estate.

So when the annual Realtor's Association board dues came around in November -- $398 -- about 400 Realtors decided not to renew their license.

It's just going to be harder. Harder for mortgage people and Realtors that used to make lots of "easy money" in the boom years. Clients are taking more time, and spending less, than they used to. Realtors and mortgage people will feel this in the pocketbook. And many of them will quit. Or sell their homes and Lexuses.

There are also rumors of entire real estate offices closing. I don't have good information on this yet, but you will hear it here when I know for sure.

(For the record I am still going gangbusters and am currently shirking a thousand responsibilites by writing this post.)

Fixing the Unfixable

Earlier this week the Bush "adminstration" gathered all of the nation's largest morgage providers to try to get this mess worked out. What they have come up with is to freeze SOME of the adjustable rates for SOME of the borrowers. I've read a lot of articles on this, but there is no sincle source that is showing what "the rules" of this program will be. The mortgage guy in our office read Well's Fargo's policy on it and it had some verbiage about "case to case basis."

Here's what I can gather about the program:
- You must have an ARM loan (Our Wells Fargo statement said it would only affect 3/27 and 2/23(?) loans. Most people with ARMS have the 3/1, 5/1, 7/1, etc. So you need to not just have the ARM, you need the unusual kind of ARM. The 3/27 is fixed for 3 years and then adjusts for 27 months...? I missed the exact definition at the meeting yesterday, sorry.)

- You must be able to prove you CANNOT afford the loan if it adjusts. (Sorry to all those out there that can pretty much afford the giant adjusted price! They're only giving breaks to those that are headed for Foreclosure City!!)

- You must always make your payments on time. (Even if you can barely afford the loan, if you have missed a payment, you won't get this program. You, again, are going straight to Foreclosure City!)

So, how many people will this program provide help to?
Not so many. The loan type that Wells Fargo is offering help on was sold to, I think, 1% or less of all of their loans. (I really need to take notes in our meetings. Then I would have these stats down cold!)
On top of that, of this 1% of homeowners, they must NOT have missed a payment. And, they must basically re-apply for the mortgage to prove they cannot afford the new payment. If the mortgage banker/broker was doing a good job, all of the holders of these loans should be able to afford the new adjusted payment because the mortgage broker should have checked for that. And the only people that would actually qualify are those that have much lower incomes now than they did when they applied for the loans.

So, tell me again, who does this program help?
Uh, the bank.
And, indirectly, the average consumer.

Keep in mind that the bank is only offering this re-adjustment to homeowners that are on the fast train to foreclosure. The bank is trying to avoid going through the foreclosure process with consumers that do pay their bills but are likely to default if the payment goes up.

You may think --well, jeez, wouldn't the bank rather take the property than lose all that interest money?
I would argue that they aren't losing any interest money. If the person gets foreclosed on, the bank sure as shit isn't getting a dime from the homeowner.

And-- the costs of foreclosure are high for the banks, very high. I've been showing lots of foreclosures lately and I estimate the bank loses $50k-$70k on every foreclosure....
They loaned out $200k, they spent $10k in legal fees, and sold the property for $150.

So I think this fixing the rate stuff is CYA BS.

I do sincerely hope that someone in one of these loans is helped. But it's not going to be many.