Great Article on the Financial Crisis

Mortgage Success Source's Barry Habib posted the following on LoanToolbox's Message Boards:

Hi everyone. Crazy times. Whatever the political posturing, a plan needs to be passed. Credit markets are frozen and banks are going bust every day. This is not totally because of "toxic" mortgages. This has a lot to do with FASB 157, also known as "mark to market."

Each day lenders must mark their assets to the marketplace. It's like you having to appraise your home everyday and if your neighbor was under duress because they got very ill, divorced, lost their job and was forced to sell their home quickly they may have sold it super cheap. Now, does that mean your house is worth that super cheap price? Clearly not. Why? Because you are not under duress. You have the time to sell your home and get a more normal price, which more accurately reflects true market conditions. But "mark to market" does not allow for this, which creates a vicious cycle.

Why is this so bad? Because as lenders mark down their assets the amount that they have loaned previously becomes much riskier in relation to their assets. For example, say a bank has $1 million in assets and say they have $15 million in loans outstanding. Their ratio is an acceptable 15 to 1. But should they take a paper write down of $500 thousand due to "mark to market" requirements, their ratio suddenly changes to 30 to 1. This is because their assets are now only $500 thousand after taking the paper loss, while their loans outstanding are $15 million. And at 30 to 1 this bank is viewed as a risky investment. So the stock price starts to get hit, it becomes harder to borrow, and most importantly harder to make money. The bank is then forced to sell some of its loans to reduce its ratio...at cheap prices. And this makes the vicious cycle continue.

And a quick look at the holdings of these loans show that 95% are problem free. Additionally, the Credit Default Swaps (CDS) that are used with the pools of mortgages, are relatively safe. But this requires a bit of understanding. You see, when a pool of mortgage loans is put together it isn't just A paper or B paper etc., it's everything. It’s got some A paper, B paper, C paper, and even what looks like toilet paper. An "A" investor buys the whole pool but because they are an "A" investor their safety is greater because they can avoid the first 20% (an example) of defaults. So they own the whole pool but are sheltered from the first batch of defaults, and for this they get the lowest rate of return. As you can figure from here the more risk investors want to take, the higher the return. So the investments are relatively safe, but the accounting rules currently place undue pressure on the banking institutions.

Now add to all this the opportunistic shorting done on the financial stocks, much of it illegal because those shorts did not legitimately borrow shares (called naked shorting), and you exacerbate this whole problem. Thank goodness for the recent temporary ban on shorting in the financial sector. As for the plan the government is the only one who can step in to do this. And they have to do this. And they will do this. The nauseating political posture from both sides is just part of the process.

This is not easy to understand for the general public. In fact most politicians don't get this either. That's why it is a difficult yet critical bill for them to vote on.

Once this is done it will take some time but the markets will stabilize. As for our industry it will take a bit of time but we will make it through this. Rates will remain attractive and the influx of credit availability will help the housing market gradually improve. This ultimately will be the medicine needed to fix our industry. We just need to be patient. Those who can stick it out will be handsomely rewarded.

Going Green: Green Homes Renewable Energy Festival

WHAT: Green Homes & Renewable Energy Festival; Green House Tour

WHEN: Festival - Saturday, Sept. 27 from 10 a.m. to 6 p.m.; House Tour - Sunday, Sept. 28 from 11 a.m. to 4 p.m.

WHERE: 3600 block of Grandel Square in mid-town St. Louis

COST: Festival admission and parking is FREE; House Tour tickets $10-$15

SPONSORS: Produced by the EarthWays Center and Missouri Coalition for the Environment; presented by AmerenUE. Major sponsors: Herb'n Maid; KDHX-FM 88.1-St. Louis Community Radio; KTVI-Fox 2; Laclede Gas; Metro; Lucky You Productions: Missouri Botanical Garden; Riverfront Times; St. Louis-Jefferson Solid Waste Management District; U.S. Green Building Council-St. Louis Regional Chapter; Wind Capital Group

INFO: greenhomesstl.org; (314) 577-0220

The Next Little Thing?

The New York Times has an awesome article about the "small house movement" - that being, as the New York Times best describes it: minimizing one's footprint - structural as well as carbon - by living in spaces that are smaller than 1,000 square feet, and in some cases, smaller than 100.

It's a super read, and certainly begs the question - how much space, is too much space?

Zillow.com® Launches Home Page Featured Listings for National and Regional Real Estate Brokers

Real estate Web site Zillow.com announced today the launch of a new advertising platform for national and regional real estate brokerages that features local for sale listings right on the Zillow.com home page. Using Zillow's ad serving technology, the listings are customized to the user's most recent search of homes -- down to the neighborhood or ZIP code, home size, price range and attributes. For a national or regional brokerage, this means exposure for their listings to the more than eight million visits that come through the Zillow.com home page every month.

Called Home Page Featured Listings, these ads use innovative ad serving technology developed by Zillow engineers to match sponsored brands' for sale listings to a buyer's search preferences for homes on Zillow. The Zillow home page features three graphical ad units at a time -- two sponsored by national brands and one sponsored by a regional brokerage. Because the ads are targeted to a user's most recent search (versus their geographic location), advertisers are able to target all buyers, including those who may be relocating or purchasing a second home.

"At Zillow, we recognize that in today's challenging housing market, national and regional brokerages need performance-based online advertising solutions that deliver real results for their agents and sellers, while strengthening brand awareness," said Greg Schwartz, vice president of ad sales at Zillow. "Zillow's new Home Page Featured Listings are another example of our commitment to providing high value, high return advertising solutions for real estate advertisers."

Fletcher House

This super cool house is a rehab of an existing house and garage by a team of graduate school architecture students from the University of Pennsylvania including Todd Bennett, Amy Campbell, and Ross Findly.

Check out a lot more details at 100K House.

Keller Williams Ranks Highest With Buyers

A new first of its kind study was done and found that Keller Williams ranked highest with Buyers. Unforunately, due to licensing issues, I can't say who actually performed the study, but it was a highly reputable company. I know, I know - it sounds squirelly, but it's true! If you are interested in hearing more about it, send me an email!

Seizure of Fannie and Freddie...

Great article from The Realty Times...

The dramatic seizure of Fannie Mae and Freddie Mac by the federal government has had no downsides for real estate -- although it could ultimately cost taxpayers billions if the companies' loan portfolios continue to bleed red ink. So how does that all sort out for individual home buyers, sellers, builders and real estate professionals?

Here's a quick overview with a Washington perspective: Fannie and Freddie provided -- and will continue to provide -- liquidity to the American home mortgage market … that is, plenty of money for qualified buyers and refinancers.

They're not going away. Only their top brass pulling down eight figure annual salaries and $100,000 country club membership perks are going away.

And most lamented of all in the corridors of Capitol Hill, the two companies' notoriously generous political action committees, which put $3 million into the campaign coffers of carefully selected congressional and Senate leaders in recent years, are going away.

Ironically, although Fannie and Freddie claimed that they lowered mortgage rates, the reality is that the biggest impact they ever had on ordinary folks' interest rate quotes was when the feds busted in and took them over.

Rates dropped anywhere from half a point to three quarters of a point within the first week, slashing hundreds of dollars off monthly principal and interest payments for thousands of home buyers and refinancers who rushed to lock during the free fall.

Government rule of the bankrupt companies is likely to extend through 2009 -- or as long as it takes for Congress and a new administration to figure out how to reconstruct them.

In the meantime, it should be pretty much business as usual for new borrowers. But don't expect federally-run Fannie and Freddie to get out front and innovate with lower downpayments or easier underwriting standards.

Anyone needing a really low downpayment or more consumer-friendly credit to buy a house will need to turn to FHA, not Fannie or Freddie. Between now and January 1, FHA will be able to do 3 percent down loans of up to $729,750.

After January 1, FHA will offer 3 and a half percent downpayments on maximum loans of $625,500. Fannie and Freddie will have the same upper limit for high-cost areas, but won't be able to come close on downpayments or credit standards.

Bottom line: Weep not for Fannie and Freddie, who drove themselves into bankruptcy. Instead, raise your glass and toast FHA. It's been around since the Depression, its leaders aren't paid millions, and for many home buyers it's going to be the only game in town.

Mortgage Rates Drop Like A Rock

Interest rates for the 30 year fixed rate dropped nearly half a percentage point overnight this week in reaction to the announcement that the U.S. federal government is taking control of Fannie Mae and Freddie Mac.

A brief synopsis of why rates have come down so quickly:

Mortgage interest rates are determined by the price and yield of bonds issued by Fannie Mae and Freddie Mac. These agencies issuebonds to raise cash (investors purchase the bonds) which they use to purchase mortgages from U.S. lenders. The yield (rate thatFannie/Freddie have to pay on the bonds) represents the agencies' cost of funds, ie. If they need to pay more to entice investors tobuy bonds, they will need to charge more to the U.S. consumer (conversely if they can pay out less, they will charge less.)

In the past 12 months, speculation about the financial solvency of these agencies has spooked investors who deem Fannie/Freddieand the whole U.S. mortgage mess as a risky investment. So...Fannie/Freddie have needed to pay more to entice investors. Paying more means charging more, and hence the rates have been relatively high. Now that the federal government is officially behind Fannie/Freddie, these agency bonds are deemed to have considerably less risk. So investors are excited again, and with investors rushing to buy bonds, the agencies don't need to pay so much to attract investors,and the agencies can charge less to consumers.

Staging: Worth the Cost

I've repeatedly told clients that staging your home is worth the money invested. Most Sellers tend to ignore my advice, but I can see where it would be tough to invest the money if you haven't personally seen the benefit.

Yahoo! Real Estate has a great article on the matter here.

Sweet Flooring...

Cobbleblock™ & Cobblewood™ Flooring: fabricated from antique beams, sliced cross-grain, sanded & triple oiled. And, they come in Pine as well...Pretty amazing.

I'd Sure Have To Throw A Lot of Stuff Away...

"If you want a golden rule that will fit everything, this is it: Have nothing in your houses that you do not know to be useful or believe to be beautiful."

-William Morris

Going Green: GreenFiber Insulation

If you are contemplating doing some insulating before the winter months hit, GreenFiber Insulation would be a great product to employ. It can be used in attics, floors, and walls of new construction or reinsulation. As with all insulation, it provides great thermal performance, fire-resistance, and sound control. And - the best part - it consists of 85% recycled content.

Recently, I did a "blow-in" insulation in some walls in a home I was rehabbing that had a room where there was no insulation in the walls - It was super cold in the winter, and lost a lot of the cool air being pumped in in the summer. It was super easy - you just drilled some holes in the drywall, stuck the hose in the hole, and "blew" the insulation in. GreenFiber was used, and it worked perfect.

Rumor Has It...

Word on the street is that Ruth's Chris will open a location at the Hyatt in Downtown Saint Louis...

Pi to Multiply?

Word on the street is that fairly new pizza place, Pi, might soon be opening another location in the Central West End. Sauce says that the plans calls for a two-story restaurant with space for private parties, seating for over 100 on the elevated terrace out front, and a menu full of Pi's signature cornmeal-crusted pizzas.

Innovate + Real Estate: Leviton Triplex Outlet

How cool is this? I think I might be spending a Saturday switching out all of our outlets soon....

Awesome Re-Use: Skateboards to Stairs

What an absolutely awesome idea for a set of stairs. Apparently, the Roarockit Skateboard Company runs a school in Leaside, Toronto teaching their method. I think this would be an awesome set of stairs leading to a contemporary finished basement.

White Lie? No - Green Lie

I've written about tankless water heaters before, and while my opinion is that the main benefit is "on-demand" hot water, the other benefit that is touted is always the Green concept that it is reducing energy consumption, thus lowering your bill.
However, the Los Angeles Times had an article that claimed energy bills aren't always reduced. You can read about it here.

Credit Unions: Good Source for Mortgages?

I generally refer my clients to a lender I have worked with since being in the business. I love working with them, know that things are going to happen in a timely manner, and that I will have control over the entire closing and period leading up to closing. The worst thing that can happen is to get a call the day before closing from a lender that says, "we can't fund this loan."

However, there was a great article in the New York Times about Credit Unions having some pretty solid deals on mortgages. Read the article here.

Posts to Resume...

My apologies this blog has been lacking lately. It is still your source for all things Real Estate in Saint Louis and beyond. Regular posts will resume!

If you have any questions at all, don't hesitate to email me or call me!