Stocks rise as investors predict rate reduction

October 29, 2007 | Filed Under Mortgage and Finance, Boston Real Estate | Leave a Comment

Despite record high crude oil prices, the stock market advanced today as investors speculated interest rate cuts by the Federal Reserve on Wednesday. The Fed will begin its two-day meeting tomorrow and a rate cut is expected the following day. The move would follow a half-point reduction in September. The Fed may be looking to boost a stagnant economy, but a cut may lure more buyers into the turbulent credit market.

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Written by Elad Bushari

Cash-flow investments

October 25, 2007 | Filed Under Real Estate Trends and Statistics, Real Estate Investment, Mortgage and Finance | 3 Comments

So you want to invest in real estate. You want to buy a condo and rent it out for a decent cash-flow, say 7%-10% return on investment (down payment) per year, after all expenses of course. You have heard all over the media that it’s a buyer’s market and foreclosures are up; so why can’t you find a condo with positive cash-flow?

The large majority of properties currently on the market, even in the student saturated neighborhoods of Allston and

Brighton, will barely carry themselves let alone bring you wads of cash during the first year. I am even talking about the short sales and foreclosures now on the market…with 20% down! I am not suggesting you purchase something with negative cash-flow, but I am suggesting that you look for potential. You may need to invest a few thousand dollars upfront in simple upgrades like new bathroom tiles or appliances. That investment will be well worth it when you will find it easy to raise the rent. Another option is to think big. Purchase a three family or multiplex building. In the long run, you will have less expenses as all the units will be under one roof (ie: there will only be ONE roof to eventually fix). You will also have full control of the budget and running of the building, giving you the freedom you need to make the changes needed to actively increase the value of your investment.

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Written by Elad Bushari

MA to impose tough mortgage regulations

October 18, 2007 | Filed Under Mortgage and Finance | Leave a Comment

According to the Boston Globe online,

Massachusetts is looking to impose some of the most stringent mortgage regulations in the nation in the attempt to prohibit mortgage companies from granting loans borrowers cannot afford. Lenders and brokers will not be permitted to approve loans that they do not have a “reasonable belief” the customer can repay. The decision would be based on available information about the borrower’s financial circumstances to make that judgment. Um, duh. Do Massachusetts public officials really think that mortgage companies enjoy filing for bankruptcy? It is in the companies best interest to approve loans borrows CAN pay. Foreclosure is expensive and time-consuming, not only for the homeowner, but also for the bank! Yes, many mortgage companies dug their own graves and there has been a lot of housecleaning in the industry in general….this is how the free market regulates itself. The poorly run businesses will crash, while the smart and responsible businesses will prosper. The poor decisions of some mortgage companies have strongly impacted our economy, but those companies are suffering from their own misdeeds.

Massachusetts will end up regulating the companies that already self-regulate as a good business practice.

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Written by Mara Tamaroff

Summit Mortgage is Out of Business

October 12, 2007 | Filed Under Mortgage and Finance, Boston Real Estate | Leave a Comment

Summit mortgage, one of the leading mortgage companies in Boston closed yesterday, laying off most of its 140 employees. It was a rumor for a while that Summit mortgage is struggling and doesn’t have money to lend; now it’s final.

Here is their Press Release:

BOSTON, Mass., October 11, 2007 — Summit Mortgage announced today that it will no longer accept new loan applications and will wind down operations. The company expects that all loans currently in process will be funded.

The Company has been bombarded by a rapidly deteriorating mortgage environment and despite recurring capital infusions is unable to continue operations.

According to Richard S. Fedele, Chief Executive Officer and Founder, “This heartbreaking decision was made only after we considered all possible alternatives. We had the best sales, operations, and marketing teams in the business however, the current mortgage environment proved to be insurmountable.”

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Written by Elad Bushari

Forclosure rate and expectations

September 6, 2007 | Filed Under Mortgage and Finance | 1 Comment

According to AP, foreclosures and the delinquency rate (which tracks the number of homeowners behind on their payments but not yet in foreclosure) recently rose to record highs due to the problems with subprime mortgage rates (see article). Welcome to the world of adjustable rate mortgages. Creative financing with adjustable rate mortgages can be tricky. Creative financing can be smart if you have the money to put down but would rather invest it elsewhere, or you are a medical resident and expect a large pay increase in the next year or two. However, many people took adjustable rate mortgages in the past few years because they couldn’t afford the record low mortgage rates being offered. Bad move. If you took creative financing because you couldn’t afford a 30-year fixed rate of say, 5.8%…honey, you couldn’t afford the house. With millions of adjustable rate mortgages scheduled to reset this year, you may be one of many Americans facing foreclosure.

For all of you Boston buyers out there waiting to pounce and swoop up forclosure and pre-forclosure properties at discounted rates, get ready to be disappointed. Just because foreclosure rates are up nationwide doesn’t mean you will find anything in Boston’s prime neighborhoods. In fact, you probably have more chances to find a bidding war than financially distressed sellers in Back Bay, Beacon Hill or Downtown.

This is a great site to look for Mortgage Rates and Foreclosures.

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Written by Mara Tamaroff

Current State of Mortgage Financing…What’s Going On?

August 16, 2007 | Filed Under Mortgage and Finance | 2 Comments

Anyone watching or reading the financial news over the last few weeks has seen a lot of angst and consternation over the state of the mortgage industry. In fact, one of the larger lenders in the US, American Home Mortgage, was forced to shut down operations recently. But why? What is happening, what does all this mean to you and most importantly… what should you be doing do right now to make sure you are protected?

Here’s the scoop:

Over the past several years, many loans were made to homeowners with somewhat non-traditional or “non-conforming” situations, be it a poor credit history, inability to document income, or any number of factors that do not fit within the traditional “box” for home loans. These loans are often called “Sub-Prime”, or “Alt-A”, meaning that they were somewhat riskier in nature than A credit, prime, or traditional loans. Another type of “non-conforming” home loan is one where the credit and income might be perfectly fine, but the loan amount is higher than $417K, which is the current maximum loan that can be done using pools of money from mortgage giants Fannie Mae (FNMA) and Freddie Mac (FHLMC). If the loan amount is higher, it can certainly be done - it’s called a “jumbo loan” - but the end money comes from private institutions, not from the large government sponsored entities of Fannie and Freddie.Most non-conforming loan product rates popped significantly higher recently. Here’s what happened.

The end investor for Subprime or Alt-A loans will charge a premium for taking on a pool of these loans, because they know that traditionally, they might have a higher rate of default and delinquent payments within that risky pool. But lately, default and foreclosure has been on the rise - partly due to the fact that with credit tightening and a soft real estate market, many troubled homeowners are unable to refinance or sell in order to get out of trouble. So now, these end institutions are demanding a much higher “risk premium” for taking on these pools of loans, as they see the rates of default are climbing higher.

But since these institutions are purchasing these pools of loans sometimes months after the borrower has actually closed at a given rate, this increase to the risk premium means that instead of paying $101K for a $100K loan that will bear interest, they may only be willing to pay $95K for that $100K mortgage to account for the risk. Multiply that times thousands upon thousands of loans…and you have millions upon millions of dollars in loss for the company trying to sell the pool at a much lower price than they were expecting. This is called a “liquidity crisis”, and is exactly what happened to American Home Mortgage - there was no mismanagement, but they simply got caught holding too many “hot potato” loans, forced to sell them at massive losses…and eventually they had to make the decision to close the doors and stop the bleeding.

Further, even when a lender is able to take some losses, they may be subject to a “margin call”. This means that as their losses and risk premiums increase, the value of their loan portfolio decreases. As the value decreases, the credit lines that are secured by those portfolios begin to issue margin calls as the value of the asset that they are secured on is now diminished. This is exactly like margin calls in the Stock market. If you have a loan against a Stock that is losing value, you will get a “margin call” and need to pay down the loan, as the underlying Stock is losing too much value to be considered adequate collateral any longer. So for the big lenders, as their portfolio is losing value due to increased risk premiums and losses…the margin calls start coming in, and they are required to pay down their balances. In turn, this means that they have less availability to fund their new loans, which then exacerbates the problem.

In response to seeing this situation play out in the demise of American Home Mortgage, lenders of other non-conforming loan products increased their interest rates dramatically almost overnight to be better prepared - and likely over-prepared - for increased risk premiums down the road. Even though loans above $417K are not presently suffering from increased delinquencies like the Subprime and Alt-A loans are, these rates popped higher as well, because they are being purchased by smaller private entities that can’t afford to take on any margin of risk.

What happens next? The major damage is probably already done, and the present situation will likely settle out over the coming year. Lenders will stop pulling products off the shelf, and the rates on products that have moved so significantly higher now should trend lower down the road as delinquency rates stabilize.

But here are a few important things YOU should do right now:

ONE: Even if you are not presently in the market for a home loan of any type, make sure that your credit standing is as solid as possible. Many people in the market for a home loan didn’t expect they would have a need, and didn’t plan in advance to ensure their credit would qualify them for the best possible financing. With no immediate need for a home loan, time is on your side… why don’t we take a few minutes together and just make sure you are prepared, should a need arise down the road? Call or email me right away.

TWO: If you are in the market for a home loan, or know someone who is - understand that now is the time to be working with a real qualified professional who can keep you informed of changes in the market and get your loan funded quickly. Now is NOT the time to be playing the risky game of trying to scour the entire state or the internet to find someone who promises to save you a paltry amount on costs, or deliver a rate that seems too good to be true… it almost always is.

This is a great site to get more Real Estate Information.

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Written by Elad Bushari

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