Category — Loans & Mortgages

PETER THIEL brings us an optimistic thought experiment on globalization that includes an analysis of the subprime mortgage market bust on global markets.  This is an important article for anyone interested in global markets, booms, busts, and the future.

My favorite line by Thiel: “approaching retirement in an actuarially bankrupt country.” Sigh.  Unfortunately true.

FANNIE MAE’S new conforming loans are now available.  Eric Trailer’s post at 3 Oceans is a must read for buyers, and real estate professionals in California.  The maximum purchase price is $810,000 with 10% down.  Loan underwriting and qualifications, including links to Fannie Mae’s website are detailed in this highly readable article.  Thanks Eric.

EQUITY SCOUT has an excellent post on long term real estate investing and income.  Read the whole thing.  With fixed rate investment mortgages as low as they are likely to go,  it is time for investors to buy.

Over the long term, 7-10 years, mortgage interest will have more impact on net income than an even a 10% drop in value.  Now is the time to buy rentals to lock in low fixed rate mortgages over the long term.  Fixed rate 30 year mortgages are likely to rise above 7% as soon as the recession is over.

The smartest real estate investors have always bought counter cycle.  Buy low. This requires mental independence and believing income and expense calculations.   Investors don’t go broke making a profit.  This simple formula requires guts to follow when the market is down.

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AS THE FED WHACS DOWN financial market wows, mortgage interest rates tumble downward to 5.74% for 30 year fixed rate on news of another fed funds rate reduction today.  Via Inman News.  What real estate needs now is market stability for the next several months, and some mortgage market structural change.

THERE ARE SO MANY reasons to like the current real estate market.

Now, I’m not Polyanna. Here are some of the positives in the market:

1. The real estate market has been a Roller Coaster. Roller Coasters are fun. I love roller coasters. First you go up. How high can you go? You go slower and slower near the top… no one seems to notice, and then down, down, down, down faster and faster. Very scary! I like nice gentle markets.

2. The buyer mob is gone. I recall an open house in Cupertino with 137 groups touring the house in one day! Twenty-five offers. Nuts. Buyer-shark feeding frenzies. I don’t like mobs, but regular 30-60 day sales.

3. Insane ARM mortgages are gone. Mortgages of 103%, nothing down, $5000 cash back, 2% two year fixed negative amortization “sucker rate” interest resetting to 5% over the Libor rate (9.5%) in 2 years; stated income “liar” loan were common. Insanity.  Loans that buyers cannot repay are not my thingy.  I like loans home owners can understand.  Hopefully the new federal regulations will provide more information for buyers.

4. Seller euphoric greed is gone. All sellers believed they owned the Taj. No price was to high; no term too onerous. Lowly buyers need to bow and scrape to the whim of sellers. “I will reluctantly agree to sell you my uninhabitable house, provided you pay to have the toilets installed.” Na. Not for me.

5. Mortgage lenders approving loans they knew, or had reason to know, borrowers would default on are gone. Greed. Want to buy a home in Foreclosure City?

These are just some of the reasons for the current market correction.