New York Magazine had a New York City real estate round table. Some of the participants are realistic while others seem to be living in their own world. Read the article and judge for yourself....
http://nymag.com/realestate/features/52423/
I feel like the cow has all ready left the barn....perhaps banks should have been doing this all along, and we would not be nearly as bad off as we currently are.....
Suddenly, Stricter Appraisals
By LISA PREVOST
NYTimes
Published: November 21, 2008
IT used to be a market mantra: a house is worth only as much as a buyer is willing to pay. But given today’s bank failures, foreclosures and tightened credit, real estate experts have had to modify the aphorism to reflect harsher realities.
And there is little room for arguing with banks about a valuation.
“The banks are much less willing to make any exceptions at all,” said Bob Grace, a broker with Anchor Mortgage, in Westport. “They are looking for ways to squash a deal, as opposed to finding a way to make it work.”
Mr. Hastings recalled one lender who walked away from a deal involving a “really strange contemporary” because the company wasn’t convinced there were any properties that compared with it for valuation purposes.
Lower-than-expected bank appraisals are indeed sending some buyers and sellers back to the bargaining table for another go-round, said Rosamond A. Koether, a lawyer with Cohen & Wolf, in Westport. But in her experience, the tougher appraisal standards are more often an obstacle for homeowners hoping to restructure debt by refinancing.
“I’m seeing people trying to refinance having a very hard time because their houses aren’t appraising out at enough,” Ms. Koether said. “That’s become a huge problem.”
Lower-income buyers aren’t the only ones in over their heads, she said. In pricey Fairfield County, many owners bought their dream homes with 100 percent financing or interest-only loans, often along with equity lines of credit. “Everybody was doing it,” Ms. Koether said.
Now, because of declining values, those houses may be worth less than their owners owe the bank. According to the Warren Group, a provider of real estate data in Boston, the median sale price for a single-family home in Connecticut fell by 8.3 percent during the first nine months of this year, to $275,000. In Fairfield County, the year-to-date median slid 10.4 percent, to $540,150.
Thus, said Mr. Grace, the Westport mortgage broker, when it comes to refinancing, anyone who bought a home in the last three years and put less than 10 percent down “is having a tough time doing anything.”
Appraisers say lenders’ stricter standards are long overdue. But the demands can be onerous in a static market.
“You have banks that know what’s going on and accept it,” said Chris Downey, managing partner at Redding Appraisal Group, “and you have banks that are a little ridiculous.”
Many lenders are requiring “comps” — sales of comparable properties used to help determine a home’s value — no more than 60 to 90 days old, and within a mile of the property being appraised.
That’s a tall order, given that the pace of sales has slowed substantially. Year-to-date home sales in Connecticut are down almost 25 percent from this time last year. So in addition to searching multiple listing services, appraisers search out comparable sales by talking to real estate agents and scouring town hall records for private sales.
“In an ideal situation we can get two or three perfect comps,” said Richard P. Piazza, the president of the Premier Appraisal Group, in Norwalk. “In this market, we’re fortunate to get one or two.”
Worse, sometimes the only available comps include a foreclosure or a short sale. Because such properties typically sell below market rates, they can drag down a neighboring house’s perceived value.
Increasingly, in addition to the comps, lenders want appraisers to round out the valuation picture — to provide data that reflects where the market is now, and where it may be headed.
“There is more of an emphasis on active and competing sales,” said Taylor Beerbower, the owner of Mulberry Street Appraisals, in Fairfield. “They are looking at things that are competitively priced. The theory of substitution says that the buyer is going to buy the equal property for the least amount of money.”
Appraisers are also interested in a neighborhood’s “absorption rate,” or how many months it will take, at the current sales pace, to sell that market’s entire housing inventory. Absorption rates of six months or more suggest an oversupply, which results in declining values, Mr. Beerbower said.
Trying to predict future values is a guessing game in this climate, of course. And local appraisers and mortgage brokers complain that mega-banks may be compounding the uncertainties in the process by bringing in out-of-state appraisers, some of them relatively inexperienced, as a way of cutting costs.
Every market has different dynamics, they say, and values can vary from neighborhood to neighborhood, or even street to street. Appraisers unfamiliar with an area miss those nuances. “They’re coming in very very low because they don’t know the market,” Mr. Hastings said.
That’s exactly the opposite of what the banks should be doing right now, said Mr. Piazza, the appraiser.
“It used to be banks would call and the first question they would ask was, ‘How familiar are you with a particular area?’ ” he said. “Now, that conversation starts with, ‘What’s the lowest fee you can offer and what’s your fastest turnaround time?’
Pretty good piece from the NYTimes.
How Rates Are Set
The New York Times
By BOB TEDESCHI
Published: November 14, 2008
INTEREST rates are often a mystery for many people applying for home loans. How is it possible, for instance, for mortgage rates to rise after the Federal Reserve cut its benchmark interest rate, which was what happened in late October? Then, in the week that followed, mortgage rates fell after a report was released showing that the unemployment rate had soared.
Borrowers can make smarter financial choices, industry executives maintain, by better understanding the economic forces that propel rates, and by keeping a watchful eye on the economic news. What is good for the Fed’s banking customers, they say, is not necessarily good for mortgage borrowers.
But that misunderstanding is common, said Alan Rosenbaum, the chief executive of the GuardHill Financial Corporation, a mortgage broker based in Manhattan. “We get that from clients all the time,” he said, “but the mortgage market isn’t tied to the Fed’s rate at all.”
Rather, Mr. Rosenbaum and other mortgage industry executives said, home-loan rates are influenced by longer-term economic indicators. The Federal Reserve Board’s benchmark rate, the federal funds rate, is the interest that banks charge one another for overnight loans. And that, in turn, is closely tied to the prime lending rate that the banks charge preferred customers.
Some variable-rate short-term loans are based on the prime, including home-equity lines of credit. But for the most commonly held mortgage — a 30-year fixed-rate loan — lenders take a longer view when determining rates. That is why the performance of the 10-year United States Treasury note is a better indicator of where mortgage rates are headed.
Earlier this month, the yield on the 10-year Treasury dropped to about 3.78 percent, compared with nearly 4 percent in late October. Rates on 30-year-fixed mortgages, meanwhile, dropped to 6.2 percent from nearly 6.5 percent in late October. (Last week, Freddie Mac said, the rate was 6.14 percent.) In New York, New Jersey and other Northeastern states, the average rate was 6.17 percent.
Mortgage rates and 10-year Treasury yields tend to drop in times of bad economic news, Mr. Rosenbaum said, in part because investors flock to safer investments like Treasuries. And that was indeed the case early this month.
In announcing a drop in mortgage rates in early November, Freddie Mac’s chief economist, Frank Nothaft, cited “new indications of a pullback in consumer spending and a weaker jobs market.” That week, for instance, the government announced a sharp increase in the unemployment rate, to 6.5 percent in October from 6.1 percent the previous month, and a shrinking of the overall economy.
The relationship between the 10-year Treasury note and long-term mortgage rates changed during the mortgage crisis, however. In past years, Mr. Rosenbaum said, 30-year fixed-rate mortgage borrowers could generally find an interest rate about 1.25 percentage points higher than the prevailing 10-year Treasury yield. But in recent months, the difference has been as much as 2.75 percentage points.
Lenders have been building a higher profit margin into their mortgage deals to recoup losses from the last year, and to hedge against a still-declining real estate market, which threatens a bank’s mortgage assets. Once the fiscal crisis eases, mortgage executives said, the difference between the 10-year Treasury note and long-term mortgage rates should return to normal.
JPMorgan (the company that employs my wife) is stepping up to help home owners that are in distress. Jaime Dimon and co are planning to systematically offer homeowners a way to save their homes. Finally a large organization understands that it will cost them less to modify than it would to foreclose. Read the story from the WSJ below for more info. Glad to see that some of our $700 billion is actually going back to the little guy.
http://online.wsj.com/article/SB122549543952589677.html?mod=rss_whats_news_us
