Britt Miller

The Fed's (Federal Reserve) in late Nov 2008 announced they were launching a program to buy up to $500 BILLION ($600 B in total really) of securities backed by mortgages (essentially Fannie & Freddie guaranteed loans). As a result, I have watched 30 yr & 15 yr (long term money only...not ARM's..pricing is still way to inferior for all of our expectations) drop from around 6.00% in late October, to 4.50% - 4.875% depending on loan size, FICO score, LTV, etc.

If you currently owe less than $625,000 on your 1st (or even a combination of 1st & 2nd), the Fed's are extending the olive branch to a point right now that we have only seen since during an abbreviated period in '03 -- I'm sure some of you have have read, but mortgage rates have only been this low 2x's in the past 53 years -- TODAY & back in '03 (unreal that we have seen these extreme low's just in a 5 yr period).

There are some technicalities and nuances to qualifying. It's evident the Fed's are committed to lowering mortgage rates to stimulate not just housing, but a much bigger issue now...the economy. If you would like to assess and lock in "long term fixed" money at rates between 4.50% - 4.875% (principal & interest), please call me so we can work up your scenario. Lenders are getting flooded, so turn times are being compromised.

Other Points:

- Loans under $625,000 are currently around 4.875% (this is .625 in origination....approximates depending on individuals credit profile and equity in the house)

- Loans under $417,000 are currently around 4.50% - 4.625% (this is .625 in origination....approximates depending on individuals credit profile and equity in the house)

- I have some clients that are moving money to their HELOC to fall under the $625,000 limit or $417,000 to optimize and lock in the lion share of their money. This move depends on your personal situation -- we can review.

- This program is based on a minimum Debt to Income (DTI) of 45% with full documentation only

- Also available for 2nd homes & Investment property (although pricing is impacted accordingly but not much for 2nd homes and around 5.625% for non owner)

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If you would like to explore these opportunities, please take a moment to contact us using our confidential loan request form.



Best Regards,
Britt Miller
Vice President
Steelhead Capital

Britt Miller

As the real estate markets continues to move through this current correction, the media continually apprises us of the status of defaults, foreclosures, lender tightening, Fannie Mae stimulus packages or lack there of, drop in sales volume and median home prices, mortgage & appraisal fraud, etc. There is definitely no shortage of information out there.

So what are we to make of all of this?

Over the past two years I have watched closely as the real estate ball started to unravel. Some of it was 100% anticipated, and some of it quite shocking. As I reflect back over this period, here are some of my personal take away’s that you might be able to benefit from:

Real estate is a LOCAL game - proximity to employment, available land, school test scores, diversified economy, type of neighborhood, access to transportation/airports, size of lot, size of home, number of bedrooms, quality of construction, etc., are all driving factors that effect real estate values. In the bay area, same zip codes can be dramatically affected based on test scores for grammar/high schools... just using one example. A broad brush approach does not apply when you drill down in real estate.

Core, well located, in fill markets are insulated from speculative home builders – Home builders buy land for a fraction of what individuals pay. Areas like Vacaville, Pittsburg, Antioch, Brentwood, Gilroy, and Salinas (to name just a few) saw huge run ups over the past four years because the economics and access to land made sense for builders and prices were attractive for buyers. When the tide turns, the builders still attempt to eek out a profit to the detriment of some initial buyers – when builders are buying land at $25k - $50k a lot, and building for $110 - $130/ft, you can see why the people who paid $300/ft (retail) for their house are vulnerable and sometimes walking away due to being completely upside down. Builders create an incredible wave on the way up, but when the tide turns they are "out".

Cash is King – Great buys are happening today for those that have cash. Lenders are rewarding people with strong reserves and highly motivated sellers are putting a huge premium on strong buyers – they are looking for certainty of execution.

Borrow when you don’t need to – there are a lot of people right now that need access to money. Unfortunately the rules of engagement have changed. No one has a crystal ball, but I can't tell you how many borrowers I have seen run their ARM down to the "last month or two" to preserve a rate. In a volatile market, the extra 30 – 60 days could cost you a refi or more realistically could cost you .5% in rate. Over the past 60 days, I have watched rates on ARMs go up .50% and lenders pull back from 85% - 75% LTV. Could be painful as you wait for the stars to align.

Don’t live beyond your means – this is pretty self explanatory. Our home is really the only visible asset to our friends/family/co-workers, etc – but don’t let it be your Achilles heel in pursuit of looking like you made it. Buy what you can truly afford.

Don’t buy based on terms, buy based on fundamentals – in the commercial world, an investor can pay a lot for a Jiffy Lube or a Walgreen’s because they have great credit which results in better than market terms from the lender. It's all great until Jiffy Lube becomes Al’s Oil Change and Walgreen's decides to move down the street and Bob's Pharmacy moves in. Don’t over pay for a property because you can get a teaser rate for 5.0% and all you care about is the monthly payment. Look at the fundamentals – how does it comp out. Time DOES NOT heal bad real estate buys – trust me.

If you can build your same house for less than what you paid for it, the headache could be worth it (contrary, if you can buy below "replace costs" you mitigate downside risk). This is a fundamental principle in real estate. We all put a premium on a turn key home. If you can buy a 2/1 for $725,000 on a 6,500 sqft lot, scrape it, and build a 2,500 sqft home for $600,000 ($1.325m total), DO NOT pay $1.55m for a inferior, older home, in the same market. You are economically disadvantaged the day you close. If you are okay with that, then just realize what you are getting into and you will have to find that "special buyer" when you sell. We all know it only takes one, just don’t be the "one".

HELOC's are the “bravado barometer” in the market – when lenders were giving out loans at 100% of the purchase price, the market was at its peak. In the future, let's be cognizant when HELOC's go to 100% LTV -- might be time to sell (or not if you plan on living in your home "forever").

Stated Income was the Hockey Stick – Look at values across the board in any market. The hockey stick effect was formed when stated income loans were introduced. Stated loans made up approximately 7% of loans originated in 2002 and the number ballooned to 45% in 2006. I personally don't think stated income loans will be back for many years unless you have an established banking relationship with a lender who really likes your liquidity and/or assets.

Lenders drive behavior – Sam Zell, a very prominent real estate investor out of Chicago, says liquidity drives value. Access to credit (i.e. credit cards), allows people to buy. Easy access to mortgage money, causes values go up. Very basic relationship.

ARM money – very appealing if rates make sense relative to longer term money (i.e. 30yr fixed) and a great solution if you foresee living in your home for 3-5 yrs. On the contrary, if the trade off between shorter term money (ARMs) and fixed rate (10yr, 15yr, 30 yr) is less than .25%, you should probably consider locking in longer term money especially if it's a residence you could live in for 5+ yrs.

LTV fuels appreciation – most borrowers would take more leverage/loan proceeds in lieu of higher interest rates. With the pull back in the lending market, buyers are being required to put down anywhere from 3% (conforming…up to $417k) to 20% (non conforming/jumbo) in equity.

Speculate in Vegas, invest in real estate – betting on "gut" only flies at the black jack table. Before you pull the trigger, do your homework!

Get comfortable with 6.25% - 7.0% money -- we are all reading about inflation. All indicators are pointing to higher rates over the next few years to offset a spike in inflation. Additionally, lenders are coming out of a seven year bull market by increasing their margins to price risk (short sales, foreclosures, defaults) into the interest rate equation.

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Overall, the market is going through a contraction and correction that was needed in order to bring everything back in line. There is risk in everything, and the day you are only buying and focusing on “the upside”, is the day we should probably hold off. The area that has surprised me the most, is the pull back in the secondary market for securitized residential loans. Wells, WAMU, Citi, and some of the other big institutional lenders, have priced their loan products where they have to make money.

While the indexes such as Libor, Treasury, MTA, COFI, are all down 30-35% from a year ago, lenders have priced the “new risk” into the margin – for example, if you want a 5yr, 6.5% interest rate on a jumbo loan at Wells Fargo, you have to be prepared to pay 3-5pts – this unfortunately is not a typo. Portfolio lenders such as Downey Savings and ING Direct, are able to utilize their deposits creating a pricing advantage in this market since they hold their loans on their books. i.e. 6.00% - 6.375% for the same loan.

In closing, here's to a great second half of the year and if you have any real estate questions or would like to review financing scenarios, please do not hesitate to call me or John Herndon (415-902-4188) who works with me.



Best Regards,
Britt Miller
Vice President
Steelhead Capital

SOURCE: Reuters

A type of specialized mortgage that required minimal documentation was the downfall of IndyMac. IndyMac, a California-based bank became the fifth U.S. bank to fail so far this year as the housing bust and credit crunch put a strain on financial institutions. Adam Compton, co-head of global financial stock research at RCM in San Francisco said "IndyMac is a company that was pretty much 100 percent invested in mortgage assets, and we're in a bad mortgage market, and it had no capital. It's not complicated".

An investment banker with Westwood Capital In New York, Daniel Alpert, is predicting that IndyMac's takeover could be one of many to come. Ann Graham who is a former FDIC official said that it isn't unprecedented for the FDIC to run a bank after it fails. She said that this allows time for the FDIC to shop the bank around to potential buyers rather than having to hurry a sale. The FDIC is allowed to operate an institution for up to two years before selling it.

Even though IndyMac is the largest independent publicly traded U.S. mortgage lender, the Office of Thrift Supervision (OTS), who is IndyMac's primary regulator, said that they do not expect significant market impact from the IndyMac closure. The feel this is because the firm is not a systemic institution and is without numerous counterparties.

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SOURCE: Yahoo News

The largest percentage increase in new home construction in over two years was reported for April. This is a rare bit of good news in the housing downturn. Even with the improvement in April, housing construction nationwide was 30.6% below the level of activity a year ago. Applications for building permits are considered a sign of future activity. April recorded an increase of 4.9% up to 978,000 units.

The Commerce Department reported Friday that housing construction rose by 8.2 percent in April to a seasonally adjusted annual rate of 1.03 million units. While apartment construction rose by 36 percent, building in the much larger single-family sector of the market fell by 1.7 percent, the 12th consecutive monthly decline, pushing single-family activity down to a 16-year low.

It is felt that this slump in housing will continue for a number of problems. One of the main difficulties includes banks tightening lending standards. Another is the reluctance of many people to make the commitment of buying a home when prices are still falling. Treasury Secretary Henry Paulson said Friday that he believed financial markets are "considerably calmer" now than they were in March.

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SOURCE: The New York Times

Even with Fannie Mae's recent announcement of quarterly losses investors are still optimistic about the company. The optimism felt is based on the belief that Fannie Mae will be able to pick and choose from the safest loans available in the marketplace. In fact they have also announced that they will raise an additional $6 billion to purchase additional loans.

"As the market recovers, we will be a prime beneficiary," Fannie Mae's president, Daniel C. Mudd, said in a conference call with analysts Tuesday morning. When the housing market finally stabilizes, the company will "feast" on the mortgages it is currently buying, he added. It is partly due to this belief that the stock price for Fannie Mae has increased by 9% up to a close of $30.81.

The Office of Federal Housing Enterprise Oversight also bolstered these sentiments by announcing that Fannie Mae had been released from growth limits that had been put in place in 2006. The capital reserves that Fannie Mae must hold have also been reduced which will allow it to invest more aggressively without having as large a cash cushion.

Both Fannie Mae and Freddie Mac are essential in today's housing marketplace. They buy more than 80% of all home loans made by banks and other lenders. This helps to provide financing for more home mortgages.

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SOURCE: Wall Street Journal Online

A bipartisan provision unveiled Wednesday by Senate leaders would allow companies, including builders, to apply current losses to taxes paid four years ago, instead of the current two-year carry-back. That would help builders in particular because they can apply losses against the big profits they earned during the housing boom.

Some builders feel that the tax benefit will help them by preventing companies from rushing to sell off land at big discounts so that they can apply the losses to profits from two years ago. They feel that these fire sales are helping to drive down the property values and contributing to the number of foreclosures that are taking place. The National Association of Home Builders also said that the carry-back could prevent small builders from going out of business.

This carry-back is being proposed as part of a legislative package which is aimed at the housing market. It may also help other industries like banks and financial-service firms. They may also be able to apply the measure to the losses that they may experience in 2008 and 2009.

One of the most recent examples of builders unloading properties for a huge discount is Centex Corp and their sale of 8500 home sites. These were sold at 30% of their book value which has allowed the company to reap a $294 million tax refund. The carry-back legislation should help to stem this type of contribution to the falling prices.

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SOURCE: Forbes

New York has historically set record prices for some residential properties and the price per square foot and median sales prices have seen new highs. There is a lot of new construction but vacancies are on the rise. Between the various indicators with the loosening market, job losses, and new construction projects adding to an already growing inventory, these all add to the mix when buyers are looking to make a purchase.

"What happens is that people tend to look at prices as a barometer of the health of the market," says Jonathan Miller, president of Miller Samuel, a Manhattan appraisal company. "But it's really how many people are in the market, and what you're seeing now are people dropping out because of affordability or because they can't get credit."

West coast sellers are faring better. Farther north, San Francisco's conforming loan limit jumped from $417,000 to the maximum $729,750, which makes getting credit a simpler affair for many of the city's home buyers.

The main thing to understand is that job growth, new construction, vacancy rates and the ability to get credit are important measures; the key is that when there are more buyers than sellers it should translate into a quicker sale. Even though this may mean a small or little price gain, it's still a sellers market in some areas.

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