Bill Zimmerman's Weekly Tip - Why is Real Estate still Falling While Mortgage Rates are at All-time Lows??

Well, well, well. What interesting times we live in... Just a few short months ago all the experts were telling us the low interest rates were about to disappear. They were certain that, after the Federal Reserve ended it's mortgage-backed securities purchases this spring, rates would rise by at least .50% almost immediately. Most of us, me included, bought into those fears.

Now, with rates solidly in the 4%'s due mainly to a global "flight to safety" in US Treasuries (and, by extension, mortgage-backed securities) in order to avoid the risk of the falling Euro, we're all eating crow.

But, hey, I've never had crow taste so good! Be sure you're encouraging everyone you know who's even thinking about buying or refinancing to do so while they still can. With the combination of motivated sellers (except for some of the stupid banks "selling" short sales...), low prices, and extremely low interest rates we could very easily look back in a few years on this summer as the most affordable time in decades to buy a house. Keep spreading the word!!

Of course, some of the rain on the parade comes from the my side of the industry with irrationally tight underwriting and regulatory restrictions. To be honest, it really frustrates and ofttimes embarrasses me to have to ask for so much documentation from clients in order to comply with Fannie/Freddie/FHA/VA underwriting requirements. All investors have gotten to the point they don't trust anything from anybody because they're so afraid they'll end up being forced to buy a loan back. It's starting to feel like an invasion of personal privacy to have to ask for so much stuff on every loan. I hope the pendulum of reason will swing back a bit soon (but I'm not holding my breath...).

One of the industry writers I subscribe to (Lou Barnes - Ratewatch email alerts) summarized my frustrations best in this post from last week:

All in one furball: How can mortgage rates be so low, and home prices so low, affordability the best ever measured, yet housing defies recovery? One unifying answer: credit. Not enough, and wildly too tight.

The credit dearth is perfectly rational. At default rates like these, nobody knows what new loan is safe to make, and underwriting has been overtaken by hand-shaking, eye-glazed panic. The horrifying conundrum: new loans will inevitably produce new losses, yet without enough new loans, losses on existing ones will be greatly higher.

Underwriting rules should be based on prior loss experience. That is, any borrower characteristic that generates an outsized loss rate should be excluded. Example: credit score below a certain threshold. Early in the present disaster, in 2007 Fannie and Freddie (the “GSEs”) began proper re-calibration of underwriting, withdrawing their portion of the credit ease that led to the bubble.
! ;
In stage two, 2008 defaults surging further, the GSEs began to throw defensible exceptions out with the bathwater. No matter how big your down payment, no matter how much money you have, or how good your credit, or work experience, income underwriting will be 1040-or-the-highway. No exceptions. Hysterical blindness.

In 2009 stage three, unemployment drove some defaults to a hundred times prior worst case, and impossible to tell if an underwriting flaw caused a default, or the 75-year-record recession. GSEs began to issue rules having little to do with actual risk, tightening for the sake of tightening. The thunder of doors slamming on empty barns. The 2009 classic: if you have disputed a credit report item, the GSEs will block your closing until you prove that your dispute did not hide a debt outstanding. You prove.

Mortgage haiku: Every borrower looks like a concealed IED to people fried by PTSD.
New for 2010, Fannie’s Loan Quality In itiative demands a credit report re-run immediately before closing. Yes, once in a while a borrower will be found to have blown himself up by buying a new frig and washer-dryer on credit. Many, many, more times we’ll get a mistaken report, or an ambiguity, or an argument that will delay or kill closing. What’s the likely ratio of defaults prevented versus useless meddling? One to one hundred? One to one thousand? Ten thousand?

Nobody knows. Sounds tough, so do it. Another: under LQI, some creep is going to check to see if you really moved into your new primary residence. True, it is fraud to fail to do so, and misrepresented rental properties have much higher rates of default. However, heaven defend the poor souls who let sellers stay an extra month, or who engage a house-sitter while travelling, or who want to renovate before moving in. No power on or off planet will protect the new owner who has taken down part of the house to add-on and ad! d value. The ratio of loss-prevention to pointless intrusion and punishment of technical offense?

The GSEs have turned sensible and predictable mortgage closing into a field of open manholes, new ones popping open at each step. This effort at mortgage perfection -- instead of rational, actuarial management of loss -- has thinned the pool of eligible borrowers to the point that housing cannot recover. Not in time for the economy.

by: Lou Barnes


Remember that, regardless of the negative tone of that article, people still need housing - maybe not as many people as we'd like, but there's still a need. We just have to find them.

As a former manager of mine from 10 years ago used to say, "When the going gets tough, the tough get marketing." It's tough out there. Let's get marketing!!

Your Partner in Greater Success,

Bill Zimmerman

939-0002

P.S. - If you're a real estate agent in the Treasure Valley (Boise, Idaho area) and would like to receive free motivational and practical sales and marketing info by nationally recognized sales and marketing coaches, please read up on the benefits of joining the local Pinnacle Club for Realtors at http://www.foridahorealtors.com/. Feel free to contact me if you have any questions at bzimmerman@summit-mortgage.com. Make it a great week!