When will this crisis end...seriously?

When Will This Crisis End...Seriously: A Debate Pt. I
By Hassan Nicholás

Incomes still catching up
Those who bought at the peak of the cycle pinning their hopes on incomes rising and "catching up" instead to home prices may be better off finding ways to increase their income themselves. But they had better be patient. Average incomes simply aren't rising in tune with home prices. The sooner you understand that, the better you understand prices and easier you will recognize a true bargain. Even if house prices stayed exactly where they are, it would take about 10 years for rising incomes to bring the ratios back into any sort of alignment. Which means the so-called savings that you would realize buying property in this market is superficial.

Japan, California
California has a lot of land. But home prices in built out markets, like Los Angeles proper, will not decline as much because there really is no more land (or desire in those surrounding areas). People are starting to realize the real costs of commute and are now starting to put prices on amenities, convenience, environment and so on. The migration is inward. And it is this movement that helps sustain the prices. And if what we're seeing is indeed a trend, then we can expect prices to even rise.

Correct yourself, before you wreck yourself

As long as home prices remain far above California income levels prices will have to drop. Fact. Obviously, we cannot expect home prices to fall 37% in the short term, but we can anticipate in perhaps a year or two home prices falling considerably. What we are seeing is the market correcting itself before our eyes.

Spraaaaaawlin'
Despite popular belief, the "no more land" theory example does not work too well in L.A. county. Established built-out neighborhoods like those found in Pasadena found a way to increase density by tearing down single family homes and small businesses and replacing them with multi-use developments (such as retail, condos, underground parking, etc.) Any quick glance at recent development happening in and around Los Angeles plus those waiting in pipeline and one will see the future is "up". Constant pressure to change zoning to allow more second-units behind single family homes, skyscrapers were only low-rise was permitted, lofts originally zoned for power plants, etc. are all real clues that L.A. is sprawling-- not nearly as dense as other places.

Los Angeles Flight
California’s population growth rate has slipped as many residents left for other states. Even though new arrivals from other countries and babies born in California more than offset the departure of residents for other states, foreign immigration to California is slipping – as immigrants find that other states offer plentiful jobs and cheaper housing. These changes could leave California without the educated workforce it needs, in part because of the widening achievement gap among California students. The Public Policy Institute of California projects by 2020, the state’s supply of college-educated workers won’t meet the state’s needs. So then what?

Photo Tour: Hancock Park

Califotography: A Stroll Through Hancock Park

Take a stroll through one of LA's most well-kept, exclusive neighborhoods. An island unto itself, Hancock Park is home to stately mansions and plush greenery throughout - providing its residents a serene oasis in the middle of the urban jungle that is Los Angeles. Mayor Villaraigosa's house was here as well as other notable mentions. Wedged in between Korea Town and the Miracle Mile, bordered by Larchmont and Wilshire, HP offers a Beverly Hills appeal in the midst of an urban landscape. Enjoy.

Some preview pics:

News Wire: Changes to State Down Payment Assistance Programs

I'll make this short...

Last Friday the state's homeownership department (CalHFA) announced some significant changes to some of their down payment assistance programs. Here are the changes and what they mean:

• The maximum loan amount for CHAP has been decreased from three percent (3%) to two percent (2%) of the lesser of the sales price or appraised value.

• CHAP now can only be used in CHAP designated areas

• CHAP cannot be combined with a HiCAP second loan

• CHAP can be used with CalHFA conventional loans; including, interest only, 30-year fixed and 40-year fixed)

• CLTV cannot exceed 102% for CHAP and CHDAP

• Maximum HiCAP loan amount has been changed from $7,500 to four percent (4%) of the lesser of the sales price or appraised value

• HiCAP cannot be combined with CHAP

• HiCAP cannot be used in conjuction with an FHA-insured first mortgage loan

Source

Higher Rates, Good or Bad?

by Hassan Nicholás

High Rates, Good or Bad?

When one gets wind that interest rates are rising this could produce a myriad of emotions, some more pleasant than others. For the credit-strapped borrowers looking to take advantage of falling home prices a hike in interest rates could be a deterrent, or rather, the determining factor that could break the camel's back. Hopefully, by now we all know (or should know) that our mortgage payment is PITI..Principal, Interest, Taxes, & Insurance. Accordingly, interest rates affect the size of our monthly mortgage. So, should we be alarmed then when the Fed has risen rates? Would it then be safe to say that any savings we would have realized from a discounted purchase price would be negated? To be fair, let's make sure we understand that when the Fed talks about lowering the "rate" it is referring to the Federal funds rate, which is not the same as the mortgage rate. Now, let's look at how a rise in interest rates will affect certain groups of people.

Investors - High interest rates means you can invest your money at a higher rate of return, right? OK, but the interest rate you get paid on investments is tied to the Federal funds rate, which will be lowered March 18th. So, even if rates for 30 year mortgages are rising, currently, you will still be earning less on your investments.

ARMs/IO/Open Option ARMs - If you happen to have an ARM, Interest Only or Open Option ARM that's due to reset in a few years you could very well count on a jump (sometimes very substantial) in how much you'll shell out a month for your mortgage. You've been warned.

Buyers - It's best to buy when rates are higher and prices are lower. You'll have more interest to write off for tax time (plus, additional tax credit using a Mortgage Credit Certificate, if you qualify), greater chance to refinance later for a lower rate, and then the added incentive for sellers to lower purchases prices.

It really all depends on which side of the fence you want to be on.

Many mortgage experts believe rates will be at a standstill at least for the short-term (next 45 days). However, there are those that believe rates will drop and another minority that believes interest rates will rise. Catch the discussion on BankRate.com to see what the experts and analysts are saying.

News Wire: Confessions of a Subprime Broker

Confessions of a Subprime Lender
A former broker on the fraud and greed that plagued his industry.
Mar 12, 2008 Updated: 1:09 p.m. ET Mar 12, 2008
http://www.newsweek.com/id/121512/page/1

Author and former broker Richard Bitner (left)

Over the last six months the public has learned much about the business of subprime lending, the practice that put millions of Americans with low credit scores into homes—which many may soon lose to foreclosure.
Richard Bitner, in contrast, received his subprime education earlier than the rest of us. In 2000 he and some friends founded a Dallas-based subprime mortgage company. For a few years he profited handsomely from this sector's boom, earning a paycheck in the high six figures. In the early days Bitner felt a bit like a modern-day George Bailey, as he helped marginal but deserving buyers achieve homeownership. But as lending standards slipped and mortgage brokers began gaming the system, he began to see more borrowers signing on to mortgages he suspected they couldn't afford.
Disillusioned and realizing the subprime business was becoming less and less profitable, Bitner cashed out of the industry in 2005. And when the subprime market collapsed last year, he decided to tell his story in a new self-published book, "Greed, Fraud & Ignorance: A Subprime Lender's Look at the Mortgage Collapse," which is for sale on his Web site and at Amazon. Today he's promoting the book full-time. "I could afford to take a year off and do this," he says in an interview. "I want some positive change to come from this."


While newspapers and magazines have been chronicling the rampant fraud that filled this industry, Bitner's book conveys the authority of someone who was in the trenches where this dirty work was going on. "Being a subprime lender means living in a world of gray," he writes, as he and his colleagues struggled to guesstimate whether a credit-challenged borrower would really be able to repay the mortgage they were writing.
As Bitner portrays it, a complicated mixture of factors led to the subprime boom and bust. Some of his colleagues credited the Federal Reserve's easy money policy. One friend boasts that Alan Greenspan’s rate cuts during the early 2000s helped him earn more in four years than he had in his entire career. Ratings agencies like Fitch, Moody's and Standard and Poors also played a part by giving investors confidence to buy repackaged securitized mortgages, which gave big mortgage companies seemingly limitless capital to lend out.
His biggest criticisms, though, are reserved for mortgage brokers and appraisers. As Bitner describes it, lenders like his company, which underwrote loans offered up by brokers and resold them to giants like Countrywide, spent much of their workdays trying to spot the stupid tricks brokers routinely used to get unqualified borrowers approved for loans. They'd say a buyer intended to live in a house when it was really an investment property. They'd falsify the buyer's income by having a relative pose as his employer, or use scanners and software to forge W-2 forms. They'd find ways to hide debts (like a car payment) by looking for a credit report that omitted key data. They also routinely gamed the appraisal system, encouraging appraisers to look for "comparables" that were far nicer homes in better neighborhoods—all in an effort to drive up the appraised value of the home they were mortgaging.

"The rate of property appreciation experienced on a national basis over the last seven years was not only a function of market demand, but was due, in part, to the subprime industry's acceptance of overvalued appraisals, coupled with a high percentage of credit-challenged borrowers who financed with no money down," Bitner writes.
Bitner says his company did its best to figure out whether borrowers really would be able to repay their loans. But mostly it deferred to the standards set by industry behemoths to whom it resold mortgages. "They're watching the performance of billions of dollars of loans, so we had to use their judgment for what's acceptable," he says. By the time these giants began seeing massive defaults in early 2007 it was too late, and last year Bitner's former company, which his onetime partners continued to run, was one of dozens of mortgage firms that went belly up.
In Washington, Congress has been holding " target=_blank>hearings to explore what went wrong in the subprime industry—and how to fix it for the future. Bitner has his own ideas. He believes mortgage brokers should have to pass national licensing exams, and he's a fan of the growing concept of "up-front" mortgage brokers, who charge a set and transparent fee for their services. He thinks the appraisal process should be overhauled to give appraisers more independence, and he believes subprime borrowers should attend mandatory debt counseling before their loan closes.

But he doesn't believe subprime lending should vanish entirely. Before they became infamous as "liar's loans," so-called "no documentation" loans worked just fine when they were offered only to self-employed people with good credit scores and hefty down payments. Someday, after this crisis ebbs, perhaps subprime lending will re-emerge as a business that works well by targeting a small subset of borrowers—and not the millions of homeowners who are now straining to stay in homes they really can't afford.

Response to Housing Department's Proposal (repost)

repost from an email received March 10th, 2008 in response to LAHD's decision to cancel it's low and moderate income down payment assistance programs.

Dear Fellow Lenders:

The Los Angeles Housing Department announced today that it is suspending its home ownership program in favor of a new initiative that will create a city-sponsored interface between distressed properties, lenders and home buyers. Please see the attached report submitted to the City Council.

This plan, while well-intentioned, is premised on the idea that City's intervention in the normal home buying market can create efficiencies and save money. My view is that the City's role should be limited to making it down payment assistance money available to qualified home buyers who put together viable deals working with lenders and real estate agents. These three parties (home buyers, lenders and real estate agents) are best poised to take advantage of current market opportunities, over come obstacles and close deals in the most efficient manner possible.

The Housing Department correctly touts the success of their home ownership program over the last few years. And I believe it is true that they have designed and implemented a great program, but at the end of the day it is the efforts of participating lenders and real estate agents that actually make deals happen.

If you agree, I recommend you make this argument, in writing, to the Housing Department, to Mayor Villaralgosa, Councilman Herb Wesson (Chair of the Housing Committee) and to Merceds Mercado, the Housing Department's General Manager. Their addresses are listed below. Please reference City Council File # 08-0274 in your letter. Here are some points you may want to make in your letter:

• The proposal is unnecessary, normal market forces and business practices are bringing distressed properties back on the market efficiently
• Access to mortgage credit is still readily available for first-time buyers
• The City's proposed intervention will add extra costs and delay disposing of distressed properties
• Home buyers, lenders and real estate agents are in the best position to put together good deals efficiently.
• Given the past success of LAHD's home ownership program and the tremendous market opportunties the exist (decreased home prices and low interest rates) the Mayor and City Council should take every possible step to increase funding to LAHD's home ownership programs in the current year.

Of course, the tone of the letter should be positive and polite. If you can't write the letter on your company letter head, perhaps you can write a personal letter. It would help to include brief antitodal stories about clients you've helped with LAHD's home ownership programs.

Thank you!

Matthew Callahan
Civic Center Home Loans & Realty, Inc.
www.GoHomeLA.com
(562) 846-7483 - Office
(562) 724-6080 - Office Fax
(562) 547-9372 - Mobile Phone
6528 Greenleaf Avenue, Suite 204
Whittier, CA 90601

CONTACT ADDRESS:

Maro Anotonio Villaraigosa

City of Los Angeles

200 North Spring Street, # 303

Los Angeles, CA 90012

Honorable Herb Wesson

Chair, Housing, Community and

Economic Development Committee

200 North Spring Street, Room 360

Los Angeles, CA 90012

Mercedes Mercado

General Manager

Los Angeles Housing Department

1200 West 7th Street, 9th Floor

Los Angeles, CA 90017

News Wire: City of LA Programs Takes A Hit

The mortgage crisis is steadily running its course through the economy and arguably has left not one sector or industry unscathed or at least threatened. And from where there is weakness, there is opportunity. Potential home buyers across the nation have realized a true "buyer's market" - defined by lowering interest rates, falling home prices, and motivated sellers. Finally, it seemed, that there was hope for the low and moderate income families to get a taste of good ol' American pie. Government-backed subsidy programs aimed at first-timers increased in popularity. We've even seen their funds being depleted due to a rise in loan reservation requests. For some time I have questioned the mortality of these types of assistance programs and recently posed the question on Zillow.com. Are these government-backed programs (as good as they are) going to be around forever? My guess was, quite possibly not. And now my fears have been affirmed. Yesterday I was alerted that the City of LA Down payment assistance programs (except for one) have been canceled. That's right folks, the most generous program of them all is calling it quits and shifting their focus away from first-time home-buyers and towards existing homeowners caught up in the mortgage mess.

Here's an excerpt of the letter they sent out:

Dear Los Angeles Housing Department (LAHD) Homeownership Program Partner:

Re: Important Announcement Regarding LAHD 2008 - 2009 Homeownership Budget and Programs

The City of Los Angeles has approved its Consolidated Plan Budget for the 2008-2009 Program Year (April 1, 2008-March 31, 2009). The Low-Income Purchase Assistance Program budget has been significantly reduced from the current year's allocation. Additionally, decreased funding is anticipated for LAHD’s Moderate-Income Purchase Assistance Program.

As a result of the reduction of LAHD’s Homeownership Program budgets and the current foreclosure crisis (approximately 5,235 foreclosures occurred in the City in 2007), LAHD will redesign its Homeownership Programs to utilize its limited resources in a post-foreclosure/neighborhood stabilization strategy to mitigate the negative effects of foreclosures on the City’s neighborhoods.

Consequently, LAHD is canceling the Reservations Waiting Lists for both the Low and Moderate Income Purchase Assistance Programs and will no longer accept reservation requests. Please notify your borrowers and real estate partners of the unavailability of LAHD Low and Moderate Income Homeownership Program funds.

Despite the unavailability of funds and cancelation of the waiting lists for the Low and Moderate Income Purchase Assistance Programs, LAHD has two other Homeownership Programs currently available for eligible first-time homebuyers: Mortgage Credit Certificate Program (MCC) and the American Dream Downpayment Initiative (ADDI) Program.

...Just as I was alerting colleagues and friends the feasibility of buying right now with the help of these programs. If this is any sign to what will happen to these types of programs in general, then we are in for a true series of unfortunate events.

So, what's going to happen? It looks like we still have seen the worse of the housing bubble burst. Experts still forecast prices to continue to drop. Though this will buy homebuyers more time and save them more money, there may not be as much assistance available. With any luck, next time around LAHD will have re-allocated their budget in favor first-time homebuyers...while prices are still favorable. Let us cross our fingers.

In the mean time, I will be researching for other types of programs.