[contraman]

PS,

There are no lending guidelines unless they are enforced and banks are made to adhere to them. This is another part of the cycle right now. Here is what is happening:

Alot of smaller lenders are trying to pad their portfolio's so that they can get bought out by the bigger banks…Bear Stearns, Deutsche Bank, i.e. Every subprime lender is positioning right now for acquisition.

In the interim since originations are down they are getting even more aggressive in hopes to have good numbers on the books to raise their valuation. In turn, getting a higher premium for shareholders.

After this phase of the cycle and when the private investors start to really look at the quality of these loans and the NOD's start to rapidly increase, they will stop buying the mortgages and will demand a safer investment or lower LTV note to factor in falling prices.

This is when the banks due to demand will be forced by the private investor to tighten guidelines. Our government is a joke when it comes to this. Hell, it was Allen Greenspan who pushed the ARM to the American public to begin with…..you think he doesn't know about Option ARM's?

The question we should all be asking ourselves is who will be the scape goat when the proverbial stuff hits the fan and people can't afford their new reset payment next year. 

Then they can't refinance because they bought with 100% financing in San Elijo Hills, and now the place, due to short sales and developer's fire sales on the final phases to get rid of the inventory appraises at 125% LTV. Anyone, want to invest in these loans?

The scapegoat will be us, the taxpayers….

It's all one big cycle and system. If you can figure it out you can make alot of money in life.

 

Sincerely, Contraman

[contraman]

zk,

If a home is valued at 600,000 today and someone has a first mortgage of 400,000, we take a second LINE up to 100% which would be a second of $200,000 to draw from in the future if need be….

If the house drops to $500,000 in value then you can never get that extra $100,000) that you can get now in case of an emergency….

They don't come and cut your line later due to decrease in prices just like they don't cut your credit card line when your income drops from $100,000 a year to $45,000.

Follow me?  

Sincerely, Contraman

[contraman]

zk,

If a home is valued at 600,000 today and someone has a first mortgage of 400,000, we take a second LINE up to 100% which would be a second of $200,000 to draw from in the future if need be….

If the house drops to $500,000 in value then you can never get that extra $100,000) that you can get now in case of an emergency….

They don't come and cut your line later due to decrease in prices just like they don't cut your credit card line when your income drops from $100,000 a year to $45,000.

Follow me?  

Sincerely, Contraman

[contraman]

The new hybrid Option ARM was first introduced by Bear Stearns about 9 months ago and other lenders are now offering it (Loan City, Flagstar, Indy Mac, Dollar Mortgage) with several others following suite.

The problem with the standard Option ARM is people started seeing their index plus margin payment adjust upward every month and wanted something a little more predictable and stable concerning their rate and negative amortization. This is the solution for those that can't get into an interest only loan and don't want the old Option ARM.

They use the option ARM for a few reasons in my experience:

First, they just can't afford the interest only payment and are betting on a continual appreciating asset so they are willing to take the risk. Not good anymore, was good two years ago…..

Second, there are alot of self employed people in CA that have fluctuating income based on commission or by being self-employed. They have a 20,000 check one month and nothing for the following month so they want the option.

The tough thing for those in standard Option ARM's is that most lender's tied people up in a three year pre-pay to make bundles of rebate money (3% to 4% rebate) so these people are a little stuck unless they want to pay the pre-pay.

Believe it or not, most people that insisted on the Option ARM make more than the minimum payment every month as their interest only rate is in the mid 6's which would be where they would be today on a 7 year IO at WAMU or Wells Fargo.

My business is all over the place right now. I don't put harldy any people in a standard Option ARM, a lot of people in WAMU's 7 year Interest Only, and some people into the hybrid.

Not much cash out, just a lot of equity lines right now (they are free to my clients) to hedge against property value drops in the coming years.

Sincerely, Contraman

[contraman]

Poway Seller, In response to your question concerning the resetting or what is commonly referred to as the recasting of a an Option ARM loan, here is what is happening.

An Option ARM loan with potential for Negative Amortization has a reset when the principal amount of the loan reaches 110% to 115% (based on the lender's guidelines) of the original principal that the borrower refinanced or financed at….

For example, you refinance into an Option ARM loan with an at the time balance of 400,000. Every month you defer when you make the minimum payment. Let's say you make the minimum payment and the difference between that and the fully amortized Interest Only payment is $1000.00 per month / so $12,000 per year in deferred interest.

In three years and 4 months, if you have a 110% guideline with your lender your principal is now $440,000 and the loan recasts without the minimum payment option available… This is the reason for the early recasting.

These loans are risky and potentially dangerous but they do and better yet "did" have a place for borrower's and investors. A bomb or explosive device, if used properly, and applied in the right manner can be used for good but if in the hands of someone not understanding it's potential…this is obviously dangerous….

By the way, There are "hybrid" Option ARM's now with a 5 year fixed minimum payment and a five year fixed fully amortized rate. We are moving many people into them from the standard Option ARM as a safer alternative, although I prefer to see people in at least a 7 year Interest Only product if they are going to refinance or buy…

Hope this helps….. 

Sincerely, Contraman

[contraman]

Vrudny,

As I said, it is just my opinion. Obviously, you and everyone else here are free to treat others misfortune as you wish…..

I just try to put myself in others shoes and think about what I would expect from others during difficult and trying times in my own life….

Remember, pride always comes before a fall….it is a cycle in life just like Real Estate my friend….

 

Sincerely, Contraman

[contraman]

Just my opinion here for everyone, I, like alot of you, sold my real estate holdings this past year and dodged the proverbial bullet. I broke even on the properties financially but the stress and sleepless nights that I had for three months were not fun at all.

I will be fortunate on one hand in a about two years to be able to purchase a home the sane way with a lot of savings for reserves and a substantial down payment.

The flip side of this coin is that there are people out there, family members, and friends, that will get badly hurt in this market both financially and mentally over the next few years.

They made a poor decision and will pay dearly for it. I think it right and mature not to glory over the misfortune that will be coming to them but rather try to support them through this downturn.

We would expect the same from them if we made poor decisions for whatever reason and were living through the consequences.

I don't think it was right for people to brag to renters about all the money they made in the hay day and I don't think it now justifies us in a more fortunate position to spite them as homeowner's who are caught in the downturn here.

We should give them sound and sober advice if they ask it of us, and that is all we can do….

Let's face it recessions affect everyone in one way or another.  

Sincerely, Contraman

[contraman]

A little late night story time,

You know when I was young I used to collect baseball cards (late 80's). I would buy a magazine called Beckett to find out what they were worth every month.

I would brag to my Dad about how my collection was worth so much and how a card I had last month that worth 20.00 is now worth 35.00.

Man, how I was excited. My Dad would just look at me and nod…

I remember my first experience trying to sell the cards to a Investor / Collector. I handed him a few of my doubles, knew what the Beckett (MLS) said they were worth ( I was a smart kid), and then he said he would give me 30% of what I was expecting to get for them.

I went home that day a little discouraged to say the least. My Dad saw my sad countenance and asked me what was wrong.

I proceeded to tell him my experience and he looked at me and said something I have never forgotten to this day concerning the VALUE and WORTH of something… 

"Son, always remember, it is only worth what someone is willing to pay for it"  

Sincerely, Contraman

[contraman]

SD Realtor,

Very well put. I am glad to be meeting people like you through this site, fellow peers with the same ethics and attitude, and care for their clients. 

If you ever have any questions about financing programs, let me know, I know them in my sleep. I study them more than the reps and UW's from the banks themselves.

Sincerely, Contraman

[contraman]

We have people downtown who live on the streets and don't have food to eat, we have a city council that takes our future away from us by not handling pension funds properly, we have people who are in need of housing assistance in San Diego and we spend tons of tax dollars arguing over the removal of a stone cross. I mean the guy who brought the lawsuit needs to think about the bigger picture here.

I don't see or hear of people that became a CHRISTIAN because they drove up to Soledad and saw a cross signifying sacrifice.

We need to address the real issues here. I wonder if the guy that wants to take it down has spent as much time and effort helping people in need of real help…

Who cares….keep it up or take it down…it is what lies in a person's heart my friends…it's what lies beneath….

Sincerely, Contraman

[contraman]

Wiley,

You are correct in the fact that the housing market is overvalued in San Diego. By how much, this is what we are all taking guesses at right now and educated one's at that.

Concerning you being wrong about the bubble several years ago says to two things:

1) Even at 2003/2004 prices you knew by common sense that things were getting out of whack. How much more now?

2) Your timing was just a little off and it is always hard for anyone to time the market. I guess all you can do is sense the calm before the storm but we don't know when it is going to show up. It is here. 

As you will note from my previous post, my business is also comprised of financing so that is my focus now. I have people come into my office and I educate them on the program they currently have, the positives and negatives of the program, and then help them make a decision from there in alignment with their goals they have set up themselves or with a planner.

If a client wants to list, I try to educate them on the state of the market and what is realistic at that time. Then, I list and market the property. My fudiciary  responsibility is to the SELLER not the buyer. 

Also, I work with alot of investors who are giving me the green light to pull the trigger on things out of state that CASH FLOW with very little down. Mainly in the midwest.

Hope this helps…thanks for offering to play the devil.:)  

Sincerely, Contraman

[contraman]

Larry has hit the nail on the head my friends…it is a financing problem. I am a mortgage broker and hardly any lender will touch them.

If this changes then it may be a good play but w/o financing it is a tough sell here…

Sincerely, Contraman

[contraman]

The MISINFORMATION AGE is truly alive and well. I am an established Real Estate and Mortgage Broker in San Diego, CA. When I read articles like this from some of my fellow peers I want to call them up and ask them how they sleep at night by convincing and misinforming their buyers about the state of this housing market in California.

It reminds me of the stock ANALYSTS (the equivelant of some of today's APPRAISER'S) of the late 90's who said Commerce One amonsgst other internet stocks (went as high as 300 something per share if not higher)had no limit to how high it would go, it was the HOLY GRAIL of internet stocks, has anyone looked at the ticker symbol lately? Hint: there isn't one. How about PPRO.

I am sure we could all put a long list together of these symbols branded in some of our minds, and license plates, possibly start a whole other blog, and everyone tell their stories about how their options were worth millions AT ONE TIME and ON PAPER which doesn't mean..you guessed it…anything.

At least with this asset you could sit in front of your computer via Etrade, fingers shaking, and push the button at any time and know what your loss is going to be that instant. You could sleep at night even though you had regrets and remorse…not so, with the not as LIQUID ASSET of Real Estate. Has anyone called up the proud owners who bought that stock after listening to this analyst on CNBC and falsely HOPED that the analyst was right and put THEIR trust in him? I wonder how they feel right now about it? Better yet, does the analyst care? I bet he exited the stock before it started it's slide into HELL (by the way, for all the fundamentalists this is translated GRAVE not an eternal abyss of damnation and punishment).

It reinforces the obvious fact that SOME people, especially prevelant in this industry, care more about making a commission than the people they have an ethical responsibility to educate and aid in making one of the BIGGEST decisions in their lives. Hopefully, these types of people will be filtered out during this statistically reinforced inevitable downturn.

How will these peers of mine feel when in a year one of their buyer's that has a wife and 3 kids lose their house and experience the emotionally devastating and humiliating reality of a foreclosure sale. Every time I work with a client I think about these things continually. The kids stressed and confused, the probable stress on the marriage relationship and their dreams down the tubes. You just don't bounce back from an event like this…you think you will be able to call these people and ask for a referral after their wonderful experience with your services?

 I, as a professional Broker have a responsibility to look out for the best interest of my clients not only short term but LONG TERM and if that means I have to reduce my office space, cut back on niceties and sacrifice for a few years, so be it. But there is not one client of mine in which I will convince and try to take advantage of in buying ANY RESIDENTIAL real estate here until:

 A) The FUNDAMENTALS come back into line (please see the graphs on the home page especially SD home prices vs. per capita income. "A picture is worth a thousand words or in this case thousands of dollars".

B) Situations come up with a listing where I can move my client or buyer into an opportunity where there is SUBSTANTIAL equity and not at today's APPRAISAL prices.

C) They have substantial reserves, this is liquid money in the bank, not 401K's and Pensions to be able to ENDURE any adverse situation that may come their way in the future.

In closing this thread, I want to address my fellow peers with a few thoughts to ponder:

1)We have a responsibility to EDUCATE our clients about purchasing Real Estate in today's market and the substantial risks at this moment,not hyping them up and manipulating them through self-interest statistics for a commission check.

2) A realtor's job is not just to find a house for someone. My 10 year old nephew can get on the MLS, check a few boxes and send listings to someone. IT IS TO BE HONEST WITH YOUR BUYER'S ABOUT THE RISKS OF THIS MARKET AND LET THEM ASSESS THE RISKS AND MAKE A DECISION.

By the way, if you do this, you will have happy and satisfied customers, plenty of referrals, and a long lasting and profitable real estate business. Because at the end of the day my friends it is about people and not money. Sincerely, Contraman

[contraman]

Likewise, my friend.

Everything right now is kind of situational and is a case to case basis with me. Like I conveyed in my thread. I have Investors / some buyer's who are sitting on the sidelines for opportunities that may come along over the next few months but it would have to be at no more than 60% current appraisal value to play it safe.

I can buy duplexes in Southern Ohio for $45,000 and collect $1,000 in rents every month and have the thing PAID OFF IN FULL in less than 15 years???? Why would I put an investor in this market right now?

We ALL know or should know that the fall and winter months in San Diego are very very slow. So there is ABSOLUTELY no reason to pull the trigger on ANYTHING until early next year when the psychology factor worsens over this period….and it will. Believe me, and I know you do, there will not be a lack of inventory on the market in Feb 2007 for buyer's.

I think people underestimate or rarely understand the POWER of FEAR and the POWER of MOMENTUM. We saw those powers over the last 5 yeas in this market. People didn't buy after checking the FUNDAMENTALS they bought out of speculation and irrational thinking. Their emotions got the best of them, FEAR OF LOSS, and they made a decision.

Once again, this is not everyone but MOST people in this market.

Concerning Selling, I think everyone should sell that can make over $200,000 on their property. How long would it take a middle class worker to accumulate that much in their 401 K plan for retirement??? Put the 200,000 in a CD or ING savings account and go rent from someone who can't sell their house. If they want 2000.00, offer them 1800.00.

Sincerely, Contraman

[contraman]

The MISINFORMATION AGE is truly alive and well. I am an established Real Estate and Mortgage Broker in San Diego, CA. When I read articles like this from some of my fellow peers I want to call them up and ask them how they sleep at night by convincing and misinforming their buyers about the state of this housing market in California.

It reminds me of the stock ANALYSTS (the equivelant of some of today's APPRAISER'S) of the late 90's who said Commerce One amonsgst other internet stocks (went as high as 300 something per share if not higher)had no limit to how high it would go, it was the HOLY GRAIL of internet stocks, has anyone looked at the ticker symbol lately? Hint: there isn't one. How about PPRO.

I am sure we could all put a long list together of these symbols branded in some of our minds, and license plates, possibly start a whole other blog, and everyone tell their stories about how their options were worth millions AT ONE TIME and ON PAPER which doesn't mean..you guessed it…anything.

At least with this asset you could sit in front of your computer via Etrade, fingers shaking, and push the button at any time and know what your loss is going to be that instant. You could sleep at night even though you had regrets and remorse…not so, with the not as LIQUID ASSET of Real Estate.

Has anyone called up the proud owners who bought that stock after listening to this analyst on CNBC and falsely HOPED that the analyst was right and put THEIR trust in him? I wonder how they feel right now about it? Better yet, does the analyst care? I bet he exited the stock before it started it's slide into HELL (by the way, for all the fundamentalists this is translated GRAVE not an eternal abyss of damnation and punishment).

It reinforces the obvious fact that SOME people, especially prevelant in this industry, care more about making a commission than the people they have an ethical responsibility to educate and aid in making one of the BIGGEST decisions in their lives.

Hopefully, these types of people will be filtered out during this statistically reinforced inevitable downturn.

How will these peers of mine feel when in a year one of their buyer's that has a wife and 3 kids lose their house and experience the emotionally devastating and humiliating reality of a foreclosure sale. Every time I work with a client I think about these things continually. The kids stressed and confused, the probable stress on the marriage relationship and their dreams down the tubes. You just don't bounce back from an event like this…you think you will be able to call these people and ask for a referral after their wonderful experience with your services?

I, as a professional Broker have a responsibility to look out for the best interest of my clients not only short term but LONG TERM and if that means I have to reduce my office space, cut back on niceties and sacrifice for a few years, so be it. But there is not one client of mine in which I will convince and try to take advantage of in buying ANY RESIDENTIAL real estate here until:

A) The FUNDAMENTALS come back into line (please see the graphs on the home page especially SD home prices vs. per capita income. "A picture is worth a thousand words or in this case thousands of dollars".

B) Situations come up with a listing where I can move my client or buyer into an opportunity where there is SUBSTANTIAL equity and not at today's APPRAISAL prices.

C) They have substantial reserves, this is liquid money in the bank, not 401K's and Pensions to be able to ENDURE any adverse situation that may come their way in the future.

In closing this thread, I want to address my fellow peers with a few thoughts to ponder:

1)We have a responsibility to EDUCATE our clients about purchasing Real Estate in today's market and the substantial risks at this moment,not hyping them up and manipulating them through self-interest statistics for a commission check.

2) A realtor's job is not just to find a house for someone. My 10 year old nephew can get on the MLS, check a few boxes and send listings to someone. IT IS TO BE HONEST WITH YOUR BUYER'S ABOUT THE RISKS OF THIS MARKET AND LET THEM ASSESS THE RISKS AND MAKE A DECISION.

By the way, if you do this, you will have happy and satisfied customers, plenty of referrals, and a long lasting and profitable real estate business. Because at the end of the day my friends it is about people and not money.

Sincerely, Contraman

[Author]

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