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BofA Analyst: Mortgage correction just ‘tip of the iceberg’

Robert Lacoursiere, an analyst with Bank of America, is not drinking any corporate Kool Aid. In a recent report, he said losses on home loans will peak in the second half of 2008.

He starts with this:

• Mortgage borrowers are in a weaker position than in the last cycle with less equity cushion, higher levels of income devoted to debt servicing and facing higher rates in the upcoming waves of rate resets.
• Meanwhile softening housing market makes repayment by sales an unlikely option, setting the stage for loss severities last seen in the early ‘90s.

DataQuick analyst John Karevoll interpreted the prices and sales as a sign that San Diego real estate may be nearing the bottom of the post-boom period.

“Most of the declines in San Diego have happened,” Karevoll said. “Now it appears to be re-establishing a balance that we have yet to see for the (Southern California) region.”

http://www.signonsandiego.com/news/business/20070814-9999-1n14prices.html

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Thursday, August 16, 2007

Inman News

It has been a busy letter-writing week for the National Association of Realtors.

The trade group for about 1.3 million Realtors announced Wednesday that it sent a letter urging the Federal Reserve System Board of Governors “to adopt regulations that combat unfair, deceptive and abuse mortgage lending acts and practices” in light of “the collapse of several investment funds and the failure of more than 100 subprime lenders.”

Pat V. Combs, the association’s president, said in a statement, “The Fed must act responsibly to protect consumers, and NAR pledges its support. We champion the principle that all mortgage originators should act in ‘good faith and with fair dealings’ in all transactions.”

Earlier in the week, the Realtor group joined with the Mortgage Bankers Association and the National Association of Home Builders trade groups in a letter to the U.S. Office of Federal Housing Enterprise Oversight that urges that agency “to temporarily increase the caps on the investment portfolios of Fannie Mae and Freddie Mac, with appropriate conditions, to help inject needed liquidity and stability into the mortgage market.”

The groups also stated in that letter, “The nation’s mortgage markets are facing a liquidity crisis of a force and magnitude not seen in decades. The chill will have far-reaching effects throughout the housing market if stability is not restored.”

NAR’s letter to the Fed, meanwhile, seeks a range of restrictions on lending practices, such as a ban or severe restrictions on the use of prepayment penalties for subprime mortgages. Such penalties can “haunt” homeowners when they try to refinance, Combs stated, and can have the impact of trapping homeowners into an undesirable mortgage.

The letter also urged the Fed to require that subprime lenders provide an escrow reserve for taxes and insurance, which “will protect borrowers from large payments they can’t afford and help insure they understand the total cost of their monthly mortgage,” Combs stated.

The group, which adopted a set of goals for responsible lending practices earlier this year, also is pushing the Fed board to mandate underwriting standards that require all mortgage originators to verify a borrower’s ability to repay a loan, and to ensure that “stated-income” and “low-doc” loans are used only sparingly.

Also among NAR’s Fed wish list:

• Adopt anti-mortgage-flipping regulations that require lenders to verify that the new loan provides a significant benefit to the borrower;

• Encourage lenders to use alternative credit histories for borrowers with little or no credit histories;

• Require all institutional lenders to periodically report borrowers’ payment histories to at least three national credit bureaus;

• Require lenders to offer borrowers mortgage choices with interest rates and fees that reflect the borrower’s credit risk;

• Working with the U.S. Department of Housing and Urban Development, improve consumer mortgage disclosure under the Real Estate Settlement Procedures Act (RESPA).

“NAR believes that existing guidelines are not enough to protect consumers, and is pleased that the Board has made the first step toward this rulemaking. However, we still believe that each state should retain the authority to adopt its own high standards,” Combs stated.

There is nothing wrong with your web browser. Northern San Diego County is still well covered by “Jim the Realtor.” The best way to do that is by making sure he and his family get a chance to get away for a few days. While sure to “peek” in over the next few days “Jim the Realtor” has wisely decided that the mundane be delegated. Let me introduce myself; Rob Dawg aka Robert Coté of EN. Okay, take a breath. I’m here to empty the trash and water the lawn not sell the furniture. I’ll use this occasion to discuss NorSD and any similarities/differences with my VenCo location. Contact me at techscan@yahoo.com if you have anything nasty to say. If you have anything nice, well… post here.
Next up: Demographics as desitiny.

How’s the rest of North County doing? I’ve suggested that a good way to gauge the health of the market is to compare the number of active listings to the number of pendings, because over the last few years they have had an inverse relationship. When there were hardly any active listings, the sales were brisk, and when the inventory started to grow, sales slacked off.

Comparing over time gives us a sense of market direction. In the 2000-2004 time frame, the ratio of actives-to-pendings was around 2:1, with the hottest times as low as 1:1.

Scoring Guide

The last time these were noted was June 30th – here is how that compares to today:

Carmel Valley is looking good so far, can it continue to beat the odds? Can you say the Ranch is in freefall, or is it different because of the ultra-wealthy being able to hold out?

The next six months will be interesting!

A reader left this comment:

"We’re looking for our first home and are being hammered by realtors telling us to BUY, BUY, BUY while prices are "down" but it’s obvious they will continue to be "down". most of the homes we like are about 20-30% higher then we want to pay. 2 kids …. … not paying $4,000 a month for a mortgage….. I’ll continue to rent thank you! Rather then take the advice of a greedy sales tactic I feel like waiting a bit may give us the 20-30% drop we need. Am I on the right track?"

If you want to pay 20% to 30% less, you have two choices:

1. Wait.

2. Find the sellers who need to sell bad enough (and have the equity) that they’ll make that kind of deal with you.

There are buyers who will buy today at 20% to 30% less, it’s just hard to find the sellers at that level - almost all of them, and their agents, think by listing high and waiting will produce a lucky sale someday.

Have a good agent help you. 

Here’s what I do with buyers these days:

1.  Both the buyers and I keep looking for possiblities.

2.  When we find one, I check to see how much equity they have.

3.  We review comparable sales around it.

4.  We use aerial photography to judge location and lot size.

Based on those, we decide if it’s worth pursuing. 

If it is, then….

1.  I call listing agent and suggest a possible sale price to hear reaction.

2.  If it isn’t an absolute no, I go look at the property.

3.  I report back to buyers to see if it is worth a trip for them.

4.  If they like it, we review the best strategy to obtain it at the right price, and make an offer accordingly.

This approach helps minimize the inconvenience of searching for the real contenders.  There is probably only 1 out of 100 sellers who are willing, and able, to price their home aggressively.  The rest live in the fantasy of that dreamy ‘lucky-sale’ falling in their lap.  But some of those really need to move, and a good agent should be able to help find those motivated sellers, keeping your inconvenience to a minimum. 

We pronounce it with a silent ‘e’.

"kling", like the klingons, although they are a little better-looking