Mortgage Market Disruptions Short-Lived According To NAR

Optimistic or realistic: That is the question.


The National Association of Realtors (NAR) issued its monthly forecast for the housing industry on September 11, offering hope that the current problems in the market will merely postpone an expected recovery in existing home sales until some point in 2008.

Lawrence Yun, senior economist for NAR said that unusual disruptions are dampening the outlook for home sales, notably for August and September. "There's been an unusual hit to home sales, starting in March when subprime problems emerged and more recently when problems spread to jumbo loans, with many potential buyers on the sidelines.
"However, the jumbo loan market is now beginning to settle, and FHA insured loans are helping to fill the subprime vacuum. The volume of existing home sales this year will be better than 2002, which was the second year of the housing boom."

The report forecast that existing home sales will bottom out at 5.92 million this year and then recover to a level of 6.27 million in 2008. Both of these projections are lower than the 6.48 million in existing home sales achieved in 2006. New home sales are expected to total 801,000 this year and 741,000 in 2008, much lower than the 1.05 million sales achieved last year.
Yun said that "A sharp production pullback by homebuilders deep into 2008 is a healthy trend that will help trim down housing inventory." Housing starts of all sizes including multi-family projects are expected to total 1.37 million units this year and 1.26 million next year. The total in 2006 was 1.80 million units.

When it comes to prices, Yun said that the median price of existing homes will probably lose 1.7 percent to $218,200 in 2007 and then rise 2.2 percent next year to $223,000 while new home prices will drop 2.2 percent to $241,000 in 2007 and then increase to a median of $245,100 in 2008.

According to Yun, "The mortgage markets will calm further in the months ahead, but it's important to underscore the fact that conventional loans - the vast majority of available financing - are available to creditworthy borrowers. Patient buyers in most areas who do their homework will recognize that housing remains a good long-term investment."
It is notable that, while Yun went on to discuss other economic indicators such as employment and the Gross Domestic Product, his forecast did not mention the number of projected foreclosures on the market. With some estimates of homes in foreclosure rising as high as 2 million homes over the next year or so, one would expect that NAR would take note and account for the potential impact of this in its forecast.

More Press..CMG mentioned in NYSun Article

Though City Borrowers Feel Pinch, Manhattan Seen as Insulated

By BRADLEY HOPEStaff Reporter of the SunAugust 16, 2007

When a young lawyer and his fiancée came into a mortgage broker's office looking for a way to finance the purchase of an uptown apartment, the broker, Richard Bouchner, said the deal looked like a "slam dunk."
The lawyer made more than $200,000 a year with his bonus and had good credit. He had little savings, but he fit the profile of a loan applicant that banks had been supporting, albeit with a higher interest rate.
Six weeks later, Mr. Bouchner isn't sure he can find the lawyer and a dozen or so other clients the financing they need, he said.

"Banks used to like these people," Mr. Bouchner, a co-owner of Commodore Mortgage, based in Jersey City, N.J., said. In the last few weeks, "there has been a real contagion effect," he said. "One lender after another is turning off the flow."

The lawyer's case is not yet part of a widespread trend, according to brokers, but analysts and others in the real estate industry said cases such as his could become more common in coming weeks, and possibly months, until the market corrects itself.

"We're in a new world," a professor of economics at New York University's Stern School of Business, Lawrence White, said. "My guess is that things will stabilize. Lending against real estate is a good business, but we're not going to be seeing the halcyon days of the past couple of years."

The consequences of young buyers with little savings or less-than-stellar credit having difficulty affording loans is uncertain and will be a subject of scrutiny over the next several months, analysts said.
Mr. Bouchner said new developments catering to young professionals could have more difficulty filling spaces, especially in neighborhoods such as the Lower East Side, Harlem, and Williamsburg.

New York City's wider real estate market will not be intensely affected by those buyers because people with strong financial backgrounds Â-- not first-time buyers Â-- are driving sales, the chief executive and owner of Manhattan Mortgage Company, Melissa Cohn, said.

Helping insulate Manhattan is also the fact that many of its buildings are co-ops, whose buyers have long had to meet standards well above those of mortgage companies and banks.

"People are still getting loans and they are still buying in New York City," Ms. Cohn said. "We're definitely more protected than most regions in the country." Still, she added that the tightening credit market is leading to more demands from banks and higher interest rates.

A real estate lawyer for Belkin, Burden, Wenig & Goldman, Aaron Shmulewitz, said buildings in other city boroughs would likely absorb the impact of the credit market woes. "There are more subprime borrowers out there," he said.
So far, the credit crunch is primarily hurting people with credit scores below 700, an owner of 14 Apollo Associates in Brooklyn, Basil Capetenakis, said. New York buyers typically have better credit.

He said the banks had been "going overboard" with risky loans to people with bad credit before the trouble started. Now, banks are scrutinizing his applicants more closely and shutting out certain riskier groups, such as people who are self-employed.

Lender goes out of business

Well it finally happened to us...one of our lenders went under before they funded a loan a closed deal. A re-fi that closed yesterday will not fund because the lender, First Mangus, stopped funding deals. Pretty crappy if you ask me....FM should have alerted us so that there was a possibility that this could have happened. I spoke to our rep on Tues, and he never mentioned any issues....
Now we have a borrower that is a float, and we, as a firm, our out our commissions on the deal. Boy, ain't life grand....

Check this out. Gene and I are quoted at the end of the article. Let me know what you think!

Who can't get a mortgage now?
Buyers with good credit and a down payment will make out well - all others, prepare to pay.

By Steve Hargreaves, CNNMoney.com staff writer
August 10 2007: 4:05 PM EDT
NEW YORK (CNNMoney.com) -- The stock market is going crazy. Hedge funds are going under. But for the average American looking for a home loan, the crisis in the subprime mortgage market may actually be good news.
"Not only is it nothing to worry about, it's an absolute positive," said Loni Graiver, president of the Maine-based Cumberland County Mortgage. "Not only have [home] valuations come down, but [interest rates] are still historically low."

Rates on 30-year fixed loans dipped last week, to 6.41 percent, according to the Mortgage Banker's Association.

In addition, tightening lending standards stemming from the subprime crisis likely mean fewer buyers, pushing down home prices.

The one catch is this: You've got to be a buyer with good credit, a low debt to income ratio, a healthy down payment, verifiable income, and looking to finance less than $417,000 (the cutoff for so-called jumbo loans).

Those characteristics basically define someone who qualifies for a loan through a government program like Fannie Mae, which make up about 50 percent of all outstanding mortgages, according to Guy Cecala, publisher of the industry newsletter Inside Mortgage Finance.

Mortgage meltdown contagion

Graiver said to expect to pay a down payment of at least 10 percent, and have a FICO credit score of 620 or higher in order to get a rate between 6.2 and 7.5 percent. Perhaps 90 percent of home buyers qualify for that prime rate, although if you want a rate below 7 percent you probably need a FICO score above 660.

To get the best deal, "plan on coming to my office with your tax returns and a down payment," said Bob Mouton, President of the Long Island-based American Mortgage Group.
If you're among the 10 percent of the people with credit scores below 620 who need a subprime mortgage, things could get tricky.

"To a large extent, they are going to find that no one wants to lend to them," said Steve Habetz, president of Threshold Mortgage in Westport, Conn. "Those loans are being eliminated from the marketplace."

Someone with a credit score of 600 might have to pay as much as 9.5 percent, according to FICO, which provides lenders with borrowers' credit ratings.

You could also run into trouble if you're loan is for more than $417,00, the maximum amount that can be channeled through a government lender. Loans over $417,000 are considered "jumbo" mortgages, which have recently seen rates jump due to a perceived increase in risk.
Mouton said money for subprime loans is still there, but be prepared to pay interest rates of 8 or 9 percent on them, compared to just over 7 up until recently.

Eugene Choi and Rich Bouchner, owners of Commodore Mortgage Group, say they've had to scramble to get loans for clients in the New York area that didn't meet the traditional criteria.
One was a waitress who made decent money at a high end restaurant, but couldn't prove it because so much of her pay was in cash tips.

Another was a young lawyer, making nearly $200,000 in the city but who didn't have the money saved for the down payment on a $800,000 Manhattan condo.
"A lot of people who should have qualified for credit are getting squeezed out of the market," said Bouchner. "Our lenders are turning off the spigot so quickly, these loans might not be here tomorrow."

BNP Paribas - This could be a problem

French Bank BNP Paribas - the largest bank in France and second largest bank in Europe - announced it has temporarily halted withdrawals in three of its mutual funds that have exposure to US subprime credit. The problem the rapid reevaluation of what these securities are worth. And since the value has been declining so quickly in recent days, the French bank wants to see the markets settle before determining the net asset value per share of their funds prior to redemption. It is no coincidence that they are doing this on the heels of the Bear Stearns debacle, in which a similar situation occurred without any suspension of withdrawals, causing those funds to disintegrate.

What is additionally concerning about this story is that just last week BNP Paribas CEO said the bank's exposure to US subprime was "absolutely negligible''. This underscores the rapid and dramatic amount of the credit repricing, which has taken so many US mortgage companies by surprise. There may be more damage ahead where existing pipelines have exposure over the next 30 days - and it is not certain whether the credit markets themselves have stabilized.

BNP Paribas has about $400 Billion Dollars in holdings, with only $2B of that having exposure to subprime - so even this small exposure has sent shock waves through the market. In response to the BNP Paribas situation, the European Central Bank (ECB) has opened up the spigot and made $94B Euros (or $130B Dollars) available for banks to borrow, in an effort to calm fears about liquidity. As you can imagine, investors like you and I who are told that their own funds are not available for withdrawal would be quite worried - and even if they hadn't intended on withdrawing their money, the loss of confidence might prompt individuals to make a run on the bank and pull other funds out. This is why the ECB has made plenty of funds available, to keep investors confident that their investments will be liquid. And even here in the US, the Fed has just made an extra $9B Dollars available for borrowing, for similar reasons. As a follow through to our Fed injecting liquidity, it is now reasonable to assume that the Fed will indeed cut the Fed Funds Rate at the next meeting in September.

In the day’s only economic news, Initial Jobless Claims edged higher by 7,000 claims to 316,000, the highest weekly total since June 30. This is the second consecutive week with rising jobless claims and with the financial and housing sectors having issues, this could lead towards a trend for higher unemployment – a positive factor for the Bond market.
Mortgage Bonds are receiving a boost on the uncertainty and fear in the financial markets - but since this story is still developing, the picture may change quickly.

For now, we advise cautiously floating any conforming loans, but on non-conforming transactions, you should continue to lock upon application, and remind shoppers that the landscape in the non-conforming market has dramatically changed. They need to get into application and lock quickly, as guidelines and lending standards are being changed and tightened daily.

The end of the 2/28

Looks like the old sub-prime favorite, the 2 yr adjustable is going away. Because of the public outcry and the resulting Senate involvement, it is now impossible for lenders to offer a 2yr ARM. The upside for the consumer is that they will now have the opportunity to stay in their sub prime loans longer. The downside is that they will have slightly higher start rates on their loans. I think what we are now seeing is a natural selection taking place in the residential lending space. Many homeowners who are losing their homes probably never should have been homeowners in the first place. Where does this all leave us? Most likely with a softening housing market as there are now fewer qualified borrowers on the market...so prices will drop, meaning that in a couple of years, if people can actually save 10% for a down payment and have a decent FICO score, they can buy a house and maybe actually make the payments (remember, no more nasty 2 yr adjustables, and prices will be lower), which means that the nations housing market should then continue along its merry little way....See, like Mom always said...just open your wideand take your medicine...

It Still Makes Sense to Buy vs Rent

Nearly a full third of households are still renting...but if you are one of them, you could be paying a hefty price. Additionally, the children of the baby boomer generation are close to or at the home buying age, but these "echo boomers" could mistakenly decide to put off the purchase of a home because of all the noise about a "bubble" in home prices.

Is there a "bubble"? The simple answer is "no". Even if interest rates move a bit higher, it won't be enough to cause a nationwide slide in home prices. The key to a healthy housing market is the job market. If the payment on a new home might be slightly higher due to increased interest rates, it generally won't stop someone from purchasing the home of their dreams...but if they feel their job is in jeopardy, it might be enough to stop them from making a move. So with the currently low levels of unemployment and the beefy gains in job creations, it looks like the housing market will remain vibrant. Although it will be difficult to sustain the double-digit gains that much of the country has seen, price declines are highly unlikely. Expect a more moderate rate of appreciation, perhaps closer to the historical 6-7% range, which is still very good.
It is important to note that housing tends to be localized. So if the job market in your area is weak, housing prices could under perform the rest of the country.

But this talk of a housing bubble has been going on for a few years now, and those who were unfortunately victimized by continuing to rent instead of purchasing a home are painfully mulling over their missed opportunity. But is it too late? Even with the more moderate levels of appreciation expected…procrastinating on that home purchase could cost you a bundle.
Let's look at an example. If you are paying rent at $1,500 per month and your landlord increases your payment by a modest 5% each year, you would wind up paying just about $100,000 over a 5-year period! Worse yet, after forking over $100,000, you still would have nothing to show for it.

And speaking of having nothing to show for it - how about any improvements you might make to a rental property? It's not uncommon for renters to freshen up the paint, install new light fixtures or plant some nice flowers outside. But guess what…all your efforts, labor and the benefit of that improvement belong to the landlord, not to you.

With the extensive variety of programs to help buyers obtain a mortgage with little to even zero down payment, the very same money could have been used towards home ownership. Even using a standard 30-year fixed program, a mortgage of $300,000 could be obtained with a total monthly mortgage payment - including property taxes and insurance - of around $2,200. Assuming a 25% tax bracket, this would be equivalent to the average amount spent on rent during the same period after your tax benefit.

And the benefits of home ownership are quite considerable. Because the mortgage is being paid down each month, equity is being built. After 5-years, the $300,000 mortgage would be reduced to $279,000, adding $21,000 to your net worth. Home appreciation can add an even bigger chunk. If your home appreciates at a modest 5% per year, the value of a $300,000 home would increase to $383,000 after 5-years. Subtract the remaining mortgage of $279,000 and you have a whopping $104,000 of additional net worth! Even if the appreciation level were at 3.5% or half the historical norm, the result would be $77,000 of additional net worth.
But if laying out the initial increase in monthly payment and having to wait for your tax benefit to show up next April is a tough nut to crack, the IRS wants to help. Instead of waiting to file for the tax benefits derived from your new home purchase, you can simply adjust the amount of your withholding. This allows you to have less tax withheld from each paycheck so you can handle the new mortgage payment more comfortably throughout the year. In essence, you are taking your tax refund as you go instead of letting Uncle Sam hold it all year, interest free.
Visit www.irs.gov and use the IRS withholding calculator. This very handy tool can quickly show you the effect a change in withholding will do to your net paycheck. Remember to balance this with the expected refund and it is always a good idea to check with your tax advisor.
Don't be victimized by the bubble hype. Buying a home is a big step, but it is almost always one in the right direction. Please feel free to contact Commodore Mortgage Group at 201.830.1801 to learn more.