As always, I enjoy helping you make the best decisions with your real estate investments. Please call me for all of your real estate needs today.
Deniece Watkins Smith
Realtor, ePro, SRES
650-483-2055 Direct
www.dsoldit.com
Thursday, January 7, 2010
DSoldOurHome blog has moved to DSoldIt blog
Thank you for any readers who followed this blog through 2008. I am excited to continue to bring great real estate news for the Silicon Valley area to you at dsoldit.blogspot.com.
Friday, September 12, 2008
U.S. home foreclosures hit record level, boosted by California
A sharp drop in prices is cited, along with the resetting of ARM loans in California and Florida.
The decline of housing markets in California and Florida has led to record numbers of foreclosures and is causing even good borrowers to pay more for loans, according to analysis and statistics released Friday.
To add to the bleak picture, the government Friday reported the eighth straight month of declining employment, increasing pressure on borrowers burdened by tumbling home prices and loans with rising interest rates. The U.S. jobless rate jumped in August to a nearly five-year high of 6.1%, with nonfarm payrolls down 84,000.
To add to the bleak picture, the government Friday reported the eighth straight month of declining employment, increasing pressure on borrowers burdened by tumbling home prices and loans with rising interest rates. The U.S. jobless rate jumped in August to a nearly five-year high of 6.1%, with nonfarm payrolls down 84,000.
"It's really the very last thing the housing market needs right now -- unemployment going up and we're heading into a recession," said Richard K. Green, director of the USC Lusk Center for Real Estate.
Job losses in construction and lending in the hard-hit Inland Empire are spreading to manufacturing. "And that causes a spillover effect," Green said. "If manufacturers are laying off people this month, retailers are likely to be laying off people next month."
The Mortgage Bankers Assn. said Friday that the one-two punch of declining home prices and resetting adjustable-rate loans in California and Florida is largely responsible for unprecedented national foreclosure numbers.
Job losses in construction and lending in the hard-hit Inland Empire are spreading to manufacturing. "And that causes a spillover effect," Green said. "If manufacturers are laying off people this month, retailers are likely to be laying off people next month."
The Mortgage Bankers Assn. said Friday that the one-two punch of declining home prices and resetting adjustable-rate loans in California and Florida is largely responsible for unprecedented national foreclosure numbers.
"The worst states are continuing to get much worse," the MBA's chief economist, Jay Brinkmann, said during a conference call discussing the group's second-quarter report on mortgage delinquencies.
With a combined 18% of the population, "California and Florida accounted for 39% of all the foreclosures started in the country," Brinkmann said.
The national average for foreclosure starts -- a lender's turning over of a delinquent loan to lawyers -- was 1.09% during the quarter, up from 0.99% for the first quarter and 0.65% a year earlier, the MBA said. The latest figure was 1.82% in California, which has 12% of the nation's population, and 2.21% in Florida, which has 6% of the population.
Nationally, the percentage of loans at some stage in the foreclosure process was 2.75%, up from 2.47% in the first quarter and 1.4% in the second quarter of 2007. The California number was 3.86% and Florida was at an even 6%.
The figures are the highest since the MBA began publishing its survey 29 years ago, Brinkmann said.
Tricky pay-option adjustable-rate mortgages, which allow borrowers to pay so little that their loan balances rise, were more common in California and Florida, the MBA said. These "option ARMs" show up in MBA data as prime mortgages because they were made to borrowers with decent credit scores.
When these loans "recast" and require full payments, three to five years after they were made, borrowers are finding themselves with sharply higher payments on higher loan balances than they started with, at a time when their home values are sharply lower.
Seriously delinquent loans -- those with payments at least 90 days in arrears -- totaled 7.73% of all adjustable-rate prime loans in California in the second quarter. The Oregon percentage was 3.04% and in Washington state it was 2.41%, the MBA said.
Such figures have spooked lenders and investors in loans, driving rates higher for even the best California borrowers. Mortgage broker rate sheets show Californians are paying half a percentage point more than borrowers in Washington and Oregon for all prime loans except those eligible for purchase by Fannie Mae and Freddie Mac, the government-sponsored loan buyers, Green said.
Subprime adjustable-rate mortgages, those made to the highest-risk borrowers, were also at higher levels in California. The serious delinquency rate hit 32.33% on California subprime ARMs, compared with 14.26% in Oregon and 13.65% in Washington, the MBA reported.
scott.reckard@latimes.com
With a combined 18% of the population, "California and Florida accounted for 39% of all the foreclosures started in the country," Brinkmann said.
The national average for foreclosure starts -- a lender's turning over of a delinquent loan to lawyers -- was 1.09% during the quarter, up from 0.99% for the first quarter and 0.65% a year earlier, the MBA said. The latest figure was 1.82% in California, which has 12% of the nation's population, and 2.21% in Florida, which has 6% of the population.
Nationally, the percentage of loans at some stage in the foreclosure process was 2.75%, up from 2.47% in the first quarter and 1.4% in the second quarter of 2007. The California number was 3.86% and Florida was at an even 6%.
The figures are the highest since the MBA began publishing its survey 29 years ago, Brinkmann said.
Tricky pay-option adjustable-rate mortgages, which allow borrowers to pay so little that their loan balances rise, were more common in California and Florida, the MBA said. These "option ARMs" show up in MBA data as prime mortgages because they were made to borrowers with decent credit scores.
When these loans "recast" and require full payments, three to five years after they were made, borrowers are finding themselves with sharply higher payments on higher loan balances than they started with, at a time when their home values are sharply lower.
Seriously delinquent loans -- those with payments at least 90 days in arrears -- totaled 7.73% of all adjustable-rate prime loans in California in the second quarter. The Oregon percentage was 3.04% and in Washington state it was 2.41%, the MBA said.
Such figures have spooked lenders and investors in loans, driving rates higher for even the best California borrowers. Mortgage broker rate sheets show Californians are paying half a percentage point more than borrowers in Washington and Oregon for all prime loans except those eligible for purchase by Fannie Mae and Freddie Mac, the government-sponsored loan buyers, Green said.
Subprime adjustable-rate mortgages, those made to the highest-risk borrowers, were also at higher levels in California. The serious delinquency rate hit 32.33% on California subprime ARMs, compared with 14.26% in Oregon and 13.65% in Washington, the MBA reported.
scott.reckard@latimes.com
Loan woes sting more borrowers
Loan woes sting more borrowers
MORTGAGES: Homeowners who took exotic packages feel pinch as late payments and foreclosures rise to a record.09:04 PM PDT on Friday, September 5, 2008
WASHINGTON - The source of trouble in the mortgage market has shifted from subprime loans made to borrowers with bad credit to homeowners who had solid credit but took out exotic loans with ballooning monthly payments.
The Mortgage Bankers Association said Friday that more than 4 million American homeowners with a mortgage -- a record 9 percent -- were either behind on their payments or in foreclosure at the end of June.
Second Wave
Story continues below
"The problem that policymakers and Wall Street once assured us was 'contained' to subprime mortgages has proven to be anything but," Mike Larson, a real estate analyst with Weiss Research, said in a research note.
As the economy falters and home prices keep falling, concern is building about a second wave of mortgage defaults flooding the market through 2010.
On Friday, the Labor Department said the nation's unemployment rate rose to a five-year high of 6.1 percent in August.
A drop in income -- whether through a lost job, divorce, death of a spouse, or health problems -- is the No. 1 reason people fall behind on their mortgages and lose their homes.
In California, 3.86 percent of home loans were in the foreclosure process at the end of the second quarter. Also in the second quarter, 1.82 percent of the state's outstanding mortgages entered the first stage of foreclosure, with lenders issuing notices of default. Comparable figures for the second quarter and a year ago were not available.
Lending Practices
But mortgage defaults and foreclosures in many areas, especially California and Florida, can also be blamed on egregious lending practices and rampant speculation by homebuilders and small investors alike.
"We are unlikely to see a national turnaround until we see a turnaround in the two largest states," with the most outstanding home loans, said Jay Brinkmann, the Mortgage Bankers Association's chief economist.
The latest quarterly figures broke records for late payments, homes entering the foreclosure process and for the inventory of loans in foreclosure. The trade group's records go back to 1979.
The percentage of loans at least one month past due or in foreclosure was up from 8.1 percent in the January-March quarter, and up from 6.5 percent a year ago, using figures that were not adjusted for seasonal factors.
New foreclosures rose from the first quarter in 35 states and Washington, D.C. The biggest increases were in Nevada, Florida, California, Arizona, Michigan, Rhode Island, Indiana and Ohio.
New foreclosures actually declined in Texas, Massachusetts and Maryland. Both Maryland and Massachusetts recently passed laws to slow the foreclosure process and give borrowers more time to catch up on their payments.
Almost 500,000 homeowners, or about 1 percent, entered the foreclosure process in the second quarter.
Subprime Delinquencies
But for the first time since the mortgage crisis started, delinquencies on subprime adjustable-rate loans declined. While more than one out of every five homeowners with a subprime ARM is still in default, that portion dipped 1 percentage point from the first quarter to 21 percent.
What's driving up the delinquency rate now is the number of homeowners with risky, adjustable-rate prime loans made with little or no proof of the borrowers' income or assets.
More than one out of 10 borrowers with a prime ARM is now delinquent or in foreclosure. That portion, 11.3 percent, was up from 9.7 percent in the first quarter, and is expected to rise as more homeowners see their monthly payments spike.
Many of these loans allowed the borrower to pay only the interest on the loan for a fixed period. Others gave the borrower the option to "pick-a-payment," adding any unpaid interest to the principal balance.
'Liar Loans'
Defaults on these mortgages, which earned the nickname "liar loans" because borrowers often did not document their incomes, are costing Fannie Mae and Freddie Mac billions of dollars.
With home prices plummeting, particularly in California, Nevada, Arizona and Florida, many borrowers with these exotic loans now owe more on their homes than they are worth.
Worse still, these loans reset to higher monthly payments when borrowers reach maximum debt limits -- typically around 10 to 25 percent more than the original loan.
Those resets can increase the borrower's monthly payment by more than $1,000 a month on average, Fitch Ratings said in a report this week.
And almost half of these pay-option loans are expected to reset to higher monthly payments by the end of 2010, Fitch said.
Staff writer Leslie Berkman contributed to this report.
House hunting with a mobile phone
Ny Sue McAllister
Article Launched: 09/08/2008 01:19:05 AM PDT
If you ride around in the car on weekends trying to find open houses while balancing a newspaper and map on your lap, it may be time to use your mobile phone instead. A display of properties for sale — and even open houses — may be as close as the screen on your wireless device.
Despite the housing market slowdown, many Americans are still house hunting, and they helped send sales of smart phones and wireless devices to nearly 21 million units in North America last year, according to research firm Canalys. Big companies and start-ups alike are scrambling to provide what could be described as the ultimate tech novelty for home shoppers and looky-loos: searching for homes from a phone.
New mobile services allow users to search for homes for sale, see pictures and details about the properties, get driving directions and call or e-mail the real estate agents handling the sales.
Here are a few of the companies delivering real estate listings to mobile devices:
Trulia: The San Francisco company, a self-described listings "search engine," two weeks ago announced its new downloadable Trulia Mobile, an application for iPhones and other smart phones, including some BlackBerry, Ericsson, Motorola and Samsung models. Because the devices can pinpoint your location, you can search for open houses and listings nearby without typing in a city or street address.
You can see one picture and a few details about the listing, phone or e-mail the agent, and get driving directions. Listings come from Trulia's database, which is extensive but not as complete as most local multiple listing services' (MLS) data.
Terabitz: The Palo Alto company that builds Web sites an customer management systems for realty brokerages has also developed mobile listings search for some of its clients, including Intero Real Estate Services and Frontdoor.com, the listings site operated by Home and Garden Television (HGTV). So far available for iPhones only, the technology features listings straight from MLSs, including multiple photos and plentiful details about each property. An "explore neighborhood" feature lets you see recent sales as well as school and restaurant information.
Realtor.com: Released last year, the downloadable products for iPhones and some other smart phones let users search listings, and includes a "Homes Near By" feature that will search in a 10-mile radius based on where the user is at that moment. As the official Web site of the National Association of Realtors,Realtor.com features nearly 4 million listings nationwide.
Home Finder: This iPhone application from Alexander Mobile draws listings from the Google Base database, which incorporates some but not all of the nation's MLSs.
Experts say the above sites are only a beginning and that mobile phone real estate services are certain to develop and improve because customers are eager to use them.
Pete Flint, chief executive of Trulia, said more than 10,000 people downloaded versions of Trulia Mobile in the first few days after it was released Aug. 25.
"We've been genuinely staggered by the demand," he said.
One thing that prompted the development of the application was that analysis of traffic to Trulia showed that among visitors coming to the Web site via iPhones, the peak time was on Sunday afternoons — prime house-hunting hours. Flint said the company plans to improve Trulia Mobile by adding more photos and information about recent home sales.
Ash Munshi, president of Terabitz, also said his company will be adding new capabilities to its mobile search, and will expand to serve devices other than iPhones as phone manufacturers increase the size of video screens.
Surfing for listings on a small screen is not everyone's idea of fun. "Although I can do it, I don't find it enjoyable," said Mary Pope-Handy, an agent with Keller Williams who lives in Los Gatos. She's used a mobile listings-search product for Realtors called Pocket MLS on her Palm Treo 700, but only occasionally. "It's just too annoyingly small," she said.
But Robert Whitelaw of Whitelaw & Sons, a real estate broker in Morgan Hill, said he likes the Trulia mobile application. He described it as "prettier" than other such products, but thought some consumers would be frustrated by it because Trulia does not incorporate as many listings as MLS-based services do.
The iPhone-toting broker said home buyers he works with are gaining both the tech savvy and the proper devices to complete more of their real estate searches and from mobile devices. "We're in the infant stages" of the trend, he said.
Contact Sue McAllister at smcallister@mercurynews.com or (408) 920-5833.
Negotiating skills vital to home purchase
With the high inventory of homes on the market, and an average time on the market of about 50 days for an existing single-family home in California, buyers have more room to negotiate. Although sale price is a large factor during the negotiation process, many REALTORS® are advising their clients that the motto of "it doesn’t hurt to ask" can be used to negotiate other contingencies, such as inspection reports, closing costs, and the like.
MAKING SENSE OF THE STORY FOR THE CONSUMER
· While there are many homes to choose from, buyers should understand that homes in many affluent neighborhoods are still selling quickly, and in some cases also are garnering multiple offers. Experts advise that a buyer work with their REALTOR® when negotiating the sale price, and also to ensure the offer is realistic when serious about purchasing a home in one of these communities.
· Buyers who are looking for the best-deal possible should consider homes that have been on the market for longer than is typical for their area and whose listing price has remained unchanged. Buyers also should consider making second offers on homes that the seller may have initally rejected. Due to seasonality and the length of time the home has been on the market, some sellers may accept a lower offer than they originally planned.
· In addition to the sale price, some REALTORS® are advising sellers to negotiate on inspection reports. In today’s market, some sellers may be more willing to pay to repair, or negotiate credit for repairs that arise during the home inspection.
To read the full story, please post this link into your address bar:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/09/07/RE8812NL7U.DTL&hw=Marni+Kottle&sn=001&sc=1000
MAKING SENSE OF THE STORY FOR THE CONSUMER
· While there are many homes to choose from, buyers should understand that homes in many affluent neighborhoods are still selling quickly, and in some cases also are garnering multiple offers. Experts advise that a buyer work with their REALTOR® when negotiating the sale price, and also to ensure the offer is realistic when serious about purchasing a home in one of these communities.
· Buyers who are looking for the best-deal possible should consider homes that have been on the market for longer than is typical for their area and whose listing price has remained unchanged. Buyers also should consider making second offers on homes that the seller may have initally rejected. Due to seasonality and the length of time the home has been on the market, some sellers may accept a lower offer than they originally planned.
· In addition to the sale price, some REALTORS® are advising sellers to negotiate on inspection reports. In today’s market, some sellers may be more willing to pay to repair, or negotiate credit for repairs that arise during the home inspection.
To read the full story, please post this link into your address bar:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/09/07/RE8812NL7U.DTL&hw=Marni+Kottle&sn=001&sc=1000
Thursday, September 11, 2008
Entrepreneurs pay business debts before their mortgages
From the Small Business section of Business Week Online
http://www.businessweek.com/smallbiz/running_small_business/archives/2008/09/entrepreneurs_p.html
Posted by: John Tozzi on September 08
Small business owners are more willing to default on their home mortgages than on their business debts, according to research out today from credit bureau Experian. Some 312,000 business owners were at least 90 days late on a mortgage payment at some point between April 2007 and April 2008. That’s 2 percent of all business owners with mortgages, a lower rate than the broader population of homeowners (almost 4 percent).
Business owners protect their companies even at the expense of their homes to keep their source of income intact, according to Experian. “Particularly for those who have had a severe mortgage delinquency, these people are seeing absolutely punishing equity reductions, they’re seeing refinancing options dry up, and they’re looking at their business as being a stable source of cash flow,” says Torsten Gerwien, Experian’s vp of decision sciences.
I also imagine many people in this situation may be non-employers or micro-business (fewer than 10 employees) owners whose personal finances are pretty much intertwined with their businesses. Their business debts may be smaller and easier to pay than their mortgages.
Some other surprises after the jump.
1) The rate of mortgage delinquency was about the same regardless of how old the homeowner's business was or how many employees it had.
2) Even after falling behind on mortgages, small business owners were able to access business credit, particularly trade credit from suppliers.
Experian is in the business of selling data to people trying to determine whether a potential borrower will pay them back. Their big-picture takeaway is that even small business owners severely behind on their personal mortgages may be good credit risks for business-related lending. But because small businesses are often evaluated based on the owner's consumer credit score, they may appear to be riskier borrowers than they actually are.
Says Gerwien: "For the business owner that’s got mortgage trouble, there’s still commercial funding available as long as you’re making your [business] payments properly." After a delinquency, the personal credit available to business owners declines, so they turn more to commercial financing, especially trade credit from suppliers, Gerwien says.
Experian also found that there was no peak in delinquencies in the April '07 to April '08 period -- the trendline just goes up. The problem disproportionately hit states like Nevada, Florida, and California where the housing bust was most severe.
Some caveats about the data: These numbers are culled from an Experian database that links consumer credit profiles with business credit profiles. The delinquencies include all types of mortgages, including primary, home equity loans, loans for second homes or investment properties, etc.
http://www.businessweek.com/smallbiz/running_small_business/archives/2008/09/entrepreneurs_p.html
Posted by: John Tozzi on September 08
Small business owners are more willing to default on their home mortgages than on their business debts, according to research out today from credit bureau Experian. Some 312,000 business owners were at least 90 days late on a mortgage payment at some point between April 2007 and April 2008. That’s 2 percent of all business owners with mortgages, a lower rate than the broader population of homeowners (almost 4 percent).
Business owners protect their companies even at the expense of their homes to keep their source of income intact, according to Experian. “Particularly for those who have had a severe mortgage delinquency, these people are seeing absolutely punishing equity reductions, they’re seeing refinancing options dry up, and they’re looking at their business as being a stable source of cash flow,” says Torsten Gerwien, Experian’s vp of decision sciences.
I also imagine many people in this situation may be non-employers or micro-business (fewer than 10 employees) owners whose personal finances are pretty much intertwined with their businesses. Their business debts may be smaller and easier to pay than their mortgages.
Some other surprises after the jump.
1) The rate of mortgage delinquency was about the same regardless of how old the homeowner's business was or how many employees it had.
2) Even after falling behind on mortgages, small business owners were able to access business credit, particularly trade credit from suppliers.
Experian is in the business of selling data to people trying to determine whether a potential borrower will pay them back. Their big-picture takeaway is that even small business owners severely behind on their personal mortgages may be good credit risks for business-related lending. But because small businesses are often evaluated based on the owner's consumer credit score, they may appear to be riskier borrowers than they actually are.
Says Gerwien: "For the business owner that’s got mortgage trouble, there’s still commercial funding available as long as you’re making your [business] payments properly." After a delinquency, the personal credit available to business owners declines, so they turn more to commercial financing, especially trade credit from suppliers, Gerwien says.
Experian also found that there was no peak in delinquencies in the April '07 to April '08 period -- the trendline just goes up. The problem disproportionately hit states like Nevada, Florida, and California where the housing bust was most severe.
Some caveats about the data: These numbers are culled from an Experian database that links consumer credit profiles with business credit profiles. The delinquencies include all types of mortgages, including primary, home equity loans, loans for second homes or investment properties, etc.
C.A.R. President gives opinion of Freddie Mac and Fannie Mae Changes, Sept. 8, 2008
This weekend, the U.S. Dept. of the Treasury placed Fannie Mae and Freddie Mac, government sponsored enterprises (GSEs), into a conservatorship. The federal government is authorized to take up to an 80 percent stake in the companies, and, as part of its duties under the conservatorship, will review both Fannie’s and Freddie’s financial condition quarterly, as well as inject money into the operations as needed.
Under the conservatorship, both GSEs will be allowed to increase their mortgage funding over the next year and a half, then, beginning in 2010, the plan calls for a reduction in their portfolios of 10 per cent a year until they have been reduced to $250 billion. As part of this weekend’s action, both CEOs were relieved of their duties and Herbert Allison, former Merrill Lynch vice chairman, and David Moffett, former U.S. Bancorp CFO, were selected to lead Fannie Mae and Freddie Mac, respectively.
In light of the U.S. Dept. of the Treasury’s action, C.A.R. today reaffirmed its support for Fannie Mae and Freddie Mac and their countercyclical roles.
While the short-term impact of the Treasury’s actions over the weekend served to calm the markets and restore confidence, in the longer term these entities need to be able to fulfill their historic mission. A privatized Fannie and Freddie will short-circuit the countercyclical role the GSEs have played during precarious times in real estate markets.
Without an institutionalized mortgage-backed securities market, mortgage capital eventually will be less predictable and more expensive, and adjustable-rate mortgages could become the standard loan for home buyers, as could higher down payment requirements. The 30-year, fixed-rate mortgage as we know it will no longer be readily available for most home buyers and may effectively disappear. The result could be a dramatic decline in homeownership rates in California and across the nation.
C.A.R. is concerned that the Treasury, and Fannie Mae’s and Freddie Mac’s new CEOs, will overreact and change the mission and role of the GSEs. Wall Street and investors are understandably reluctant to buy mortgage backed securities (MBS) that are not either originated from or guaranteed by Fannie or Freddie.
The GSEs hold or have securitized nearly half -- roughly $5 trillion -- of all mortgages in the U.S., and in the current environment with private lender constraints, they account for the vast majority of all new mortgages in California.
We have just recently begun to see an increase in home sales, currently at nearly 490,000 units on an annualized basis, up from 284,000 in the fourth quarter of last year. The most significant, reliable source of home loans in California today are financed by either Fannie Mae or Freddie Mac. California’s and the nation’s housing markets simply cannot withstand the financial rug being pulled out from beneath them. Additionally, the repercussions this could have on the already weak economy could be devastating.
C.A.R. is urging lawmakers to support continued government involvement in supporting the institutional secondary market and its role in creating homeownership opportunities. While we applaud the U.S. Dept. of the Treasury for increasing the GSEs portfolio limits, we will be asking Congress to enact legislation to ensure the two companies continue to fulfill their mission.
To help your clients understand the role of the GSEs, please take a look at a new video featuring C.A.R. Executive Vice President Joel Singer at http://www.car.org/newsstand/video-js-gse. In “Fannie and Freddie: Why They Matter to You,” Joel explains the often confusing but critical role Fannie Mae and Freddie Mac play in the housing market in clear and concise terms. I’m also featured in a new video developed especially for our members about the GSEs. You can find "Understanding Fannie and Freddie” on the car.org home page at www.car.org. I hope you find them useful. We’ll also be tracking the story for you as it develops in Wednesday’s “C.A.R. Newsline,” and will have additional information to help you make sense of the story for consumers in this Thursday’s edition of “Market Matters.”
Sincerely,
William E. Brown
2008 President
CALIFORNIA ASSOCIATION OF REALTORS®
Under the conservatorship, both GSEs will be allowed to increase their mortgage funding over the next year and a half, then, beginning in 2010, the plan calls for a reduction in their portfolios of 10 per cent a year until they have been reduced to $250 billion. As part of this weekend’s action, both CEOs were relieved of their duties and Herbert Allison, former Merrill Lynch vice chairman, and David Moffett, former U.S. Bancorp CFO, were selected to lead Fannie Mae and Freddie Mac, respectively.
In light of the U.S. Dept. of the Treasury’s action, C.A.R. today reaffirmed its support for Fannie Mae and Freddie Mac and their countercyclical roles.
While the short-term impact of the Treasury’s actions over the weekend served to calm the markets and restore confidence, in the longer term these entities need to be able to fulfill their historic mission. A privatized Fannie and Freddie will short-circuit the countercyclical role the GSEs have played during precarious times in real estate markets.
Without an institutionalized mortgage-backed securities market, mortgage capital eventually will be less predictable and more expensive, and adjustable-rate mortgages could become the standard loan for home buyers, as could higher down payment requirements. The 30-year, fixed-rate mortgage as we know it will no longer be readily available for most home buyers and may effectively disappear. The result could be a dramatic decline in homeownership rates in California and across the nation.
C.A.R. is concerned that the Treasury, and Fannie Mae’s and Freddie Mac’s new CEOs, will overreact and change the mission and role of the GSEs. Wall Street and investors are understandably reluctant to buy mortgage backed securities (MBS) that are not either originated from or guaranteed by Fannie or Freddie.
The GSEs hold or have securitized nearly half -- roughly $5 trillion -- of all mortgages in the U.S., and in the current environment with private lender constraints, they account for the vast majority of all new mortgages in California.
We have just recently begun to see an increase in home sales, currently at nearly 490,000 units on an annualized basis, up from 284,000 in the fourth quarter of last year. The most significant, reliable source of home loans in California today are financed by either Fannie Mae or Freddie Mac. California’s and the nation’s housing markets simply cannot withstand the financial rug being pulled out from beneath them. Additionally, the repercussions this could have on the already weak economy could be devastating.
C.A.R. is urging lawmakers to support continued government involvement in supporting the institutional secondary market and its role in creating homeownership opportunities. While we applaud the U.S. Dept. of the Treasury for increasing the GSEs portfolio limits, we will be asking Congress to enact legislation to ensure the two companies continue to fulfill their mission.
To help your clients understand the role of the GSEs, please take a look at a new video featuring C.A.R. Executive Vice President Joel Singer at http://www.car.org/newsstand/video-js-gse. In “Fannie and Freddie: Why They Matter to You,” Joel explains the often confusing but critical role Fannie Mae and Freddie Mac play in the housing market in clear and concise terms. I’m also featured in a new video developed especially for our members about the GSEs. You can find "Understanding Fannie and Freddie” on the car.org home page at www.car.org. I hope you find them useful. We’ll also be tracking the story for you as it develops in Wednesday’s “C.A.R. Newsline,” and will have additional information to help you make sense of the story for consumers in this Thursday’s edition of “Market Matters.”
Sincerely,
William E. Brown
2008 President
CALIFORNIA ASSOCIATION OF REALTORS®
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