The day began with the normal list of email replies, phone calls to make and return. Then the new stuff begins showin’ up, and before ya know it, the day’s been rerouted completely. To those expecting to hear from me, please have mercy, as you’ll hear from me Tuesday. Only one thing on my list got done, and it wasn’t on schedule.
Between gettin’ my continuing education taken care of, and the normal unscheduled distractions — well, you get it. It’s not like you don’t see yourself as you read this, right? Thought so. None of us are the Lone Ranger, are we?
So, though I thought I’d be back in the normal saddle on the usual horse, it wasn’t to be. Still, I can’t let ya go away empty handed now, can I?
Let’s have a discussion on what you guys are seeing, from your perspective of course, out in the cold cruel world. I’m seeing signs out there showing me there are a couple three potential scenarios playing themselves out. Which one is it though? That’s for my cracked crystal ball to say, and it hasn’t said anything reliable since…let’s just be real here, since never.
What are the real estate markets, stock market, the different foreign economies, and the various media leading you to believe these days? I’m very interested in your take on recent goings on. It’s always pretty interesting to hear how others are interpreting all the same facts everyone else is watchin’ in real time.
Your participation is much appreciated. Have a good one, and I’ll be talkin’ with ya tomorrow — same BawldTime, same BawldChannel. 
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About BawldGuy
Okay, BG, I’ll jump in on what I’m seeing….
1. Consumers are, in a good way, realizing that they have spent too much and borrowed too much. We’re going to see a retrenchment of consumer spending.
2. In some areas of the country, we are closer to the “bottom” than others as far as real estate is concerned.
3. Once again, jobs are going to really make or break the scenario. If we end up witha bad jobs position, it’s going to take longer to get out of this.
4. For those who are smart about it and understand it well, opportunities will about. Opportunities in the stock market, opportunities in real estate, opportunities will be and are there, but education is key.
Now it’s time to get to work.
Tom
Okay, my observation is in the lending environment.
In 2005 lending standards were arbitrary and capricious. Contrast that with 2008 where, you guessed it, lending standards are arbitrary and capricious.
2005: WTF? Howinthehell did they close that loan? It makes no sense on any level.
2008: WTF? Howinthehell did they deny that loan? As close to a sure thing short of making a pact with the devil.
Robert — My favorite lender story so far, is the underwriter who had an appraisal reviewed not once, but twice. No, that happens these days, so in and of itself it’s not even rare.
The buyer was putting 50% down. If the appraisal was overvalued by 25% the loan would still have sported an LTV of over 65%! When the loan officer pointed this out, the underwriter became indignant.
Let’s say the prop was appraised for $100,000 which means $50,000 was put down. If a foreclosure was necessary and the prop was indeed worth only $75,000, the lender could sell it for $60,000 (20% discount on market value) and still make out.
You can’t make this stuff up.
Robert and BG,
You’re operating under a mistaken assumption, in my book. Underwriting guidelines aren’t written in today’s market towards what makes sense, they are written according to problems that have happened. I can almost guarantee that the appraisal that Bawld Guy was talking about was an issue, not because of value but because some internal indicators were out of whack.
Common sense has nothing to do with mortgage lending right now. It’s all about saleability. The hoops have to be jumped through, not to make sure it’s a good loan, but to make sure that the lender can off load the loan to someone else.
Does that make more sense in a twisted mortgage lender type of way?
Tom
Tom — My point was that there WAS no common sense. Driving with your eyes always on the rearview mirror is dangerous.
There are few investors who would turn down loans with over 30% down payments. The down payment if it was 25% overpriced would still be 33%.
I get your point about internals being out of whack.
We’re on the same page here, all three of us. The bottom line is, lenders historically have played the internal game of ‘How far away can we swing the pendulum as we adjust to our last pendulum swing’?
Tom,
What part of “arbitrary and capricious” are you objecting to exactly?
Robert,
To me, the definition of arbitrary and capricious would mean without any sort of reason or rationale to it. I’m just saying that there actually might be reason and rationale behind the underwriting guidelines of today’s mortgage world. Are the rules anywhere close to common sense? In many ways no. Are they based on reacting to delinquent histories in other mortgages? I think so.
Does that make sense?
Tom
OK, time for another recent story, this one straight from Brian Brady.
Two loans submitted, same buyer. Both props same block, same everything. Supervising underwriter approves one. One of his young underlings rejects the other one. Brian tells here what it is she’s missing, and tells her how her boss just approved the exact same package.
She walks down hall. Shortly thereafter she approves her loan too.
Same lender, borrower, property, everything.
Not capricious, but certainly not uniform in execution. If Brian hadn’t had the experience and patience to walk her through it, I guarantee you the lender would’ve backed both the approval and her rejection.
Go figure.
Tom, I’m not sure about reacting to delinquent histories. Unless, someone comes up and demonstrates that credit scores are not doing a good job of predicting foreclosures. As far as I know, foreclosure percentage relative to credit scores still work. Do you know different??? And loan to value percentages the same issue. Are not high loan to value loans correlated with high foreclosures???
In other words on the foreclosure matrix someone with a 760 middle credit score and a loan to value of less than 75% would have a very low foreclosure percentage even today. If you know different, let me know.
Another point of reference is the still low foreclosure rates for fixed rate conforming loans. I bet if one looked they would find that fixed rate conforming loans with less than 81% LTV on origination forclose at a rate of less than .5%!
What I’m trying to say, and not communicating as well as I’d like, is that I believe that the majority of the changes that we’re seeing in underwriting guidelines are in response to something that someone (at Fannie, at Freddie, or someone else who analyzes the loan portfolios) saw in the problem loans that they have. So, in reaction to that, they tweaked this, adjusted that, instituted pricing increases in that area…..
Does that make sense?
Tom
Here’s what I’m seeing in the Phoenix investment market.
The casual investor, the person or couple looking to buy one or two properties to diversify their investments, is transfixed by the financial drama unfolding in front of them. They are too scared to do anything, and anyway they are too busy watching CNBC and checking their account balances several times a day to talk about real estate. The agents who lived off their deals are looking for jobs.
The professional investor in low end properties is happy to finally buy something again that will cash flow. They are busy buying sub-$70,000 homes in West Phoenix, Glendale, and places like that, cleaning them up and renting them out. They are paying cash or have lines of credit. They are too busy to watch CNBC.
Then there are the people that believe the outer ring suburbs are coming back fairly soon. They are buying here and there in Queen Creek, Buckeye, and Maricopa – bread and butter 3/2/2′s and 4/2/2′s up to $100,000 or so, a little more for bigger houses. For some reason, a lot of agents and property managers fall in this group. The rental market is slow in these areas, so they are buying one or maybe two each as speculative investments. This group is affected more by the underwriting guidelines and often a spouse with a j-o-b is part of the equation. They watch CNBC and are worried, but they still see real estate as important in building their wealth so they are nibbling.
Once the selling stops in the stock markets and the bottom appears, and the banks decide to lend again, we will have a better idea of what the “new” markets will look like. I agree with Tom – jobs are key. More job losses mean more foreclosures and more price deterioration.
Investor — Been watchin’ what you’re talkin’ about in PH.
Jobs? They’re always the difference maker, and this time won’t be any different.
Don’t be a stranger, OK?
What I’m seeing from the younger generation view..
I still have my day job, I’m still socking 20% of my gross pay away every other week (ING account), and still hunting for the right deal (that is.. one that makes sense in my area).
I’m still buying food, I just bought a mac and am looking to buy another (yeah.. they are that good), and even bought a Wii. I checked my stocks in my IRA and they are down 35% overall but I’m not worried because I’m still buying each and every month into my portfolio. I have old man time on my side and he’s selling his goods cheap at the moment.
The bills are paid, my pay check keeps coming, and I just keep on truckin’ on.