patrick.net

I was told by a mortgage broker than there is now a loan program that is portfolio based that will give people a loan the day after foreclosure if they have a 600 FICO. 6.99% 3 year ARM, must stay in for 1 year to avoid a pre-pay penalty of 6 months interest. As someone who lost big last time its very hard to mentally weigh the feeling of missing out with the feeling of becoming a 2 time sucker.

That's lunacy.

3 Facebooksux 2013 Feb 23, 7:34am

Don't worry Roberto, you'll always have a future job detailing my M3.

4 lotr1978 2013 Feb 23, 7:54am

Goran_K says

lotr1978 says

I was told by a mortgage broker than there is now a loan program that is portfolio based that will give people a loan the day after foreclosure if they have a 600 FICO. 6.99% 3 year ARM, must stay in for 1 year to avoid a pre-pay penalty of 6 months interest. As someone who lost big last time its very hard to mentally weigh the feeling of missing out with the feeling of becoming a 2 time sucker.

That's lunacy.

Which part, just curious? I am paying 1500 a month in rent sitting on a 6 figure down payment earning .02% interest with not enough gumption to invest the cash in anything else. The 6.99% rate is 3 points higher than the norm I guess but the mat actually make sense, despite how bad it feels.

5

David Losh 2013 Feb 23, 8:06am

that ain't 'bouncing along the bottom'

Actually according to last week's numbers property prices were up 12% nationally.

In Real Estate though good news is actually bad news. You bought into your market place after a global economic collapse. I'm still not convinced that was a good move based on a five year appreciation.

In your case it is a part of an over all strategy so for you, yeah that is probably working out.

For home buyers I think there is a lot of over paying going on. There are prices far in excess of value. So I don't think you can compare your experience in Phoenix, which was kind of a bright spot of investing, to the rest of the country.

The Bay Area is another kettle of fish that never had the amount of price drop that your area saw. The increases in prices maybe the result of newer money moving in, I don't really know, but that is kind of what I hear, my brother in law is in commercial Real Estate in Palo Alto.

It's kind of a big thing that the middle class is being squeezed by these housing prices. I think it's good that people are warned to buy well, if they buy at all.

6

Goran_K 2013 Feb 23, 8:33am

The 6.99% rate is 3 points higher than the norm I guess but the mat actually make sense, despite how bad it feels.

If you say so.

7 Reality 2013 Feb 23, 9:12am

The first time home buyers are squeezed out by the cash investors.

This claim makes no sense at all. If near-zero money down, and 3.5% interest with upto 35% debt service to income ratio still can not enable a would-be first time buyer beat the investor, it's probably in the would-be first-time buyer's interest to rent from the investor who is seeking less than 3.5% return!

The real reasons for the relative lack of first time homebuyers are quite simple:

1. Anyone who could fog a mirror and wanted to buy a house already bought during the peak, and now they are suffering from bad credit after foreclosure. That's the result of government policies pulling demand forward: the payback/blowback is a pain in the butt.

2. Government giving money to banks to carry on the extend-and-pretend drastically reduces the supply available on the market, hence less supply and higher prices for the first time homebuyers. The new ARM loan gymnastics for homeowners already defaulting on existing mortgage is yet another way of keeping supply from reaching the first-time buyers.

BTW, this 6.99% ARM for people already foreclosed upon in the same house sounds like a time bomb waiting to go off in a few years.

8 Reality 2013 Feb 23, 2:02pm

Wrong, if you are a "seller" would you rather sell your house to a all cash buyer or have to sit and wait to see if your buyer can get approved for a 3.5% FHA loan with the tough qualifying conditions today?

Depending on the price difference. The borrower can bid up the price sky high with 3.5% interest rate with near-zero down. The cash buyer would be a moron to bid the price so high as to make rental yield only 3.5%

The hard to approve part was so 2010-2011. The loan standards have been very lax in 2012.

With the low inventory, a seller can pick and choose who he wants to sell to. I sure as hell would want a all cash buyer instead of having a contract with a mortgage contingency which could blow up a month or two down the road when they can't get a commitment.

So long as the inventory is low, the seller can afford to wait. In a rising market, the seller can afford to wait even longer. The real issue here is low inventory. As a cash buyer, I have been out-bid by home-borrowers on numerous occasions, as I don't want to bid high. On some occasions the houses came back on the market after a few weeks because the borrower simply didn't have the money to fix the house enough even to make the house mortgageable. How do you expect such a "buyer" be able to keep the house in the long run? What happens when the roof leaks or the furnace or water heater breaks? 20% down requirement had been there for a reason: proof that the person is capable of saving and managing a household budget for emergencies.

9 ducsingle5313 2013 Feb 23, 4:42pm

http://www.foxnews.com/us/2012/11/27/chinese-buyers-lead-foreign-investment-in-us-housing-market/

For a so called math major, you really are a total asshole and unbelievably clueless!!

Give Roberto some credit. He's more than a math major - - - his resume indicates he's a washed out mathematics PhD candidate with a masters degree consolation prize! He seems to be enjoying the desert slumlord gig though.

10

lostand confused 2013 Feb 23, 10:55pm

SFace says

In any case, a lack of first time buyer is extremely bullish for the real
estate market prospectively.

Ok, now I am thinking we really are in a massive bubble again.

11 ducsingle5313 2013 Feb 24, 1:09am

SFace says

San Francisco real estate has shares. Each share will have an owner and have been for hundreds of years. The value of each share will based on a variety of factors. More people, more money, more income net against negative factors. There is nothing pyramid about any of this.

In any case, a lack of first time buyer is extremely bullish for the real estate market prospectively.

Agreed the pyramid scheme description is questionable, but for somebody named SFace, you should really brush up on your SF history. San Francisco was a backwater outpost starting in the late 1790s and the population was less than 1000 until the 1849 Gold Rush. So your "hundreds of years of ownership" statement is wrong.

And I don't see how a lack of first time buyers makes the real estate market healthier.

12

Eman 2013 Feb 24, 1:14am

Goran_K says

lotr1978 says

I was told by a mortgage broker than there is now a loan program that is portfolio based that will give people a loan the day after foreclosure if they have a 600 FICO. 6.99% 3 year ARM, must stay in for 1 year to avoid a pre-pay penalty of 6 months interest. As someone who lost big last time its very hard to mentally weigh the feeling of missing out with the feeling of becoming a 2 time sucker.

That's lunacy.

I think the market is trying to fill avoid here. I'd call it a niche market. I don't know the all the details on that loan program, but here in the Bay Area, stated income is back. 40% down at 5.5% interest rate for a 5/1 ARM are being done all day long. In 2-3 years when your credit score is improved, you can refinance to 3.5% at 30 years fixed.

I work with a loan officer that can get you a loan at prime rate if you make just $8/hour and have a FICIO score greater than 720. There's another loan program with 5% down at 4% interest rate with no PMI. Pretty crazy if you tell me. Here's the catch. You'd have to get in contract first before you can implement one of these programs.

13

SJ 2013 Feb 24, 2:46am

Yes those Chindians with suitcases full of cash are driving out new first time home buyers from the RBA. I would need to make 500k plus to buy a decent home in the RBA radius of 100 miles!

14

David Losh 2013 Feb 24, 3:12am

E-man says

So god damn glad I'm not working the "normal" market.

It's a global market place and there are properties in hot areas that sell for a premium. The Bay Area is one of those areas.

I think in most corners of the world, where there are economic forces, you can ask and people will tell you the Bay Area is where they want to be.

15 MMR 2013 Feb 24, 5:23am

I've seen a number of articles regarding Chinese investors buying houses with cash. I haven't seen nearly as many "fresh off the boat" Indians doing it, even from well-off families.

Living in Fremont, I saw tons of people living in apartments for years saving money to buy a house. Of course they pick Fremont based on affordability and proximity to the BART. Others are moving up with money saved and possibly a little help from parents back home, if they have money. People who live in the Mission San Jose hills usually came more than 25 years ago. The overwhelming majority, do not buy houses with cash in a suitcase.

There aren't tons of Indians in cupertino/palo alto vs Chinese. Or even Los Altos, for that matter. People going for Lynbrook, Cupertino high or Gunn High are chinese.

People going for Mission San Jose High School are increasingly Indian, as is the case with American High School. Last time I checked, I don't see anyone scooping up large quantities of homes in Fremont with cash in a suitcase

If you have evidence that I overlooked, I would be interested to look at that though.

SJ says

Yes those Chindians with suitcases full of cash are driving out new first time home buyers from the RBA. I would need to make 500k plus to buy a decent home in the RBA radius of 100 miles!

16 lotr1978 2013 Feb 24, 6:03am

E-man says

I think the market is trying to fill avoid here. I'd call it a niche market. I don't know the all the details on that loan program, but here in the Bay Area, stated income is back. 40% down at 5.5% interest rate for a 5/1 ARM are being done all day long. In 2-3 years when your credit score is improved, you can refinance to 3.5% at 30 years fixed.

I work with a loan officer that can get you a loan at prime rate if you make just $8/hour and have a FICIO score greater than 720. There's another loan program with 5% down at 4% interest rate with no PMI. Pretty crazy if you tell me. Here's the catch. You'd have to get in contract first before you can implement one of these programs.

The question for me is post-FC seasoning. My credit never tanked after a FC in May 2011, it did take a hit but 6 months later FICO was in the 690 range. Now I imagine it must be over 700 though I haven't bothered paying the 20 bucks to find out. I know FHA is 3 years seasoning for FC (2 for BK, now that makes sense). The real estate Sunday talk show on the radio said you can actually do conventional is you have a large downpayment (40-50%). I have yet to verify this.

17

JodyChunder 2013 Feb 24, 7:46am

Anyone who could fog a mirror

ARGGGHHHHH!!!!!!

18

JodyChunder 2013 Feb 24, 7:52am

David Losh says

you can ask and people will tell you the Bay Area is where they want to be.

It's primarily because of a go-to mentality for people with generic geographical references is all.

19

JodyChunder 2013 Feb 24, 7:56am

Now I imagine it must be over 700 though I haven't bothered paying the 20 bucks to find out.

Trust me...it matters. Go try and qualify and see if it doesn't come up.

20

TechGromit 2013 Feb 25, 3:45am

This is another reason why this so called housing "recovery" isn't sustainable. The first time home buyers are squeezed out by the cash investors.

I can't say I understand this statement. If the first time buyers are being squeezed out by investors, they don't stop existing, do they? If we ever run out of investors, the first time buyers will still be there to prevent any significant price slide.

21 thomaswong.1986 2013 Feb 25, 9:37am

bmwman91 says

This bubble has the full faith and deliberate backing of the federal government and our central banking nexus. We are probably witnessing the build-up of the most massive speculative bubble in human history, and when it pops, I think that it will make the last incident pale in comparison. 2000-2006 was just a practice run. Wall Street saw how pathetically easy it was to rape the general public with housing in the 2000's..
o

or is it Politicians playing to the public for the vote... no more than what we had with the GSE for all the prior years... getting people easy access to home.

The fact is .... since the 30s we hadnt had a full market economy in residential RE... it was supposed to end by 1966 with passage of GSE reforms during the Eisenhower years decade earlier... but it didnt happen.

22 Reality 2013 Feb 25, 9:53am

E-man says

I see FTHB got squeezed out of the sub $500k market by investors. It's pretty amazing the see FTHB buying houses in the $750k-$1M range in the Bay Area.

LOL, somehow the $1M starter home doesn't quite fit the mental image of a starter home. BTW, people buying $1M single family houses are not investors but gamblers; there is very little chance a $1M single family can collect $10k/mo rent or even $5k after tax. The buyer is gambling on price appreciation not rental income. Either that or the cash buyer just really like the area for bragging rights.

IMHO, the Chinese buying in really expensive neighborhoods are making the same mistake that the Japanese made buying top CA and NYC properties in the late 80's and early 90's. Even 50% cash down can still be foreclosed, like how Mitsubishi lost every cent it spent on buying the Rockerfeller Center, and then some. Mercedes paid $80B for Chrysler, and a few years later had to pay to give it away!

My advice to first time home buyers, or any American buyers, is to stay the heck away from those areas, unless you are fond of losing money.

23

evilmonkeyboy 2013 Feb 25, 10:03am

TechGromit says

I can't say I understand this statement. If the first time buyers are being squeezed out by investors, they don't stop existing, do they? If we ever run out of investors, the first time buyers will still be there to prevent any significant price slide.

Really, so if investors stop buying houses then 1st time buyer magically qualify to buy the overpriced homes????? Most 1st time buyers can't buy because they are priced out, the only way they get priced in is by having a drop in price.

24 Reality 2013 Feb 25, 10:30am

That's it... the investors are buying the "low hanging fruit" with cash which eliminates many of the cheaper homes for the first time home buyers. If a seller has two offers sitting in front of him, one for all cash and one with a mortgage contingency, which one do you think they accept?

Is your beef with cash home buyers or investors? If an investor bids cash offer price that would have 3.5% rental yield on the house (that's how high the borrower can bid with PITI becoming the same as the rent he is paying), that's not much an investor, is it? That would be a money loser.

In reality, many of the so-called "low hanging fruits" are not mortgageable because they are in such poor shape. The house is not livable without being fixed first, and of course the home borrower doesn't have the income to pay the mortgage and pay for current rent at the same time during repairs of unknown duration.

25 Reality 2013 Feb 25, 12:27pm

My whole premise is that this is a "artificial" housing recovery being spurred by a larger than normal investor purchase environment. If you look back over past decades where the true foundation of housing growth came from, it wasn't from investors looking to make a few bucks on rentals.

That's because a larger than usual proportion of sellers (actually selling) are not in a position to fix up houses before selling, such as bank REO's. That means someone has to have the cash either to fix the house before owning or to buy the whole house on cash. There is no out-bidding there against first-time home borrowers, simply because the borrower wouldn't be able to borrow against such a house at all.

For houses that can be borrowed against, Investors looking for rental income can not realistically outbid home buyers that can borrow at 3.5% interest rate unless the "investor" is willing to accept 3.5% rental return, in which case the "investor" is little more than a gambler or money loser.

An investor isn't going to invest in a house like an owner would. They're in it to keep their costs to a minimum. They don't do nice upgrades and maintain a house like a young couple would.

Investors are going to invest in a house a heck lot more than a home squatter who quit paying mortgage long time ago, and a heck lot more than a home borrower who do not have the saving habits necessary to fix leaking roofs and broken furnace.

That doesn't help home values in a neighborhood. Plus, sticking renters in a neighborhood of homeowners doesn't help home values either. Most renters don't give a shit about keeping a house neat and clean or care about the rest of the neighborhood.

The landlord does, much more than home squatters and the nobody in an empty house. The home borrower simply can not borrow against houses with major defects, so the "out-bid" is a non-issue.

These new investors will find out that the ROI on these rentals won't give them what they originally hoped, and I predict they will bail if housing prices stop rising along as their costs for repairs from shitty tenants goes up.

What do you think the home borrower did so the house became foreclosed to begin with?

In the mean time, many first time young couples wouldn't have had the chance to buy a low cost house to start their "home ownership" path, because the affordable houses were grabbed by the investors.

That's nonsense. Almost all post-foreclosure sales offered by Fannie, Freddie and FHA have exclusive period when only owner-occupant can bid on, investors are excluded. Beyond that, owner-occupants qualify for all sorts of loans that enable them to bid price to a level that would not make any sense for the investor.

This current artificial "recovery" IS NOT the path to a sustained housing recovery!!

I can agree with you on this one, and the cause for the price rise was due to artificially restricted supply! Not due to investors buying. If investors don't buy them, the houses would stay empty because home borrowers can not borrow against those houses. Investors buying and fixing them up actually make the houses available to the rental market, or even buying market if the "investor" is doing a flip, so that the house actually becomes part of real supply instead of sitting outside the market becoming more and more dilapidated. How would an empty dilapidated house be good for a neighborhood?

26 thomaswong.1986 2013 Feb 25, 3:26pm

LOL, somehow the $1M starter home doesn't quite fit the mental image of a starter home.

No they certainly are not.. and certainly were chicken feed before the bubble..
all it did was give some a quick way out of town + early retirement.

27 thomaswong.1986 2013 Feb 25, 3:30pm

IMHO, the Chinese buying in really expensive neighborhoods are making the same mistake that the Japanese made buying top CA and NYC properties in the late 80's and early 90's. Even 50% cash down can still be foreclosed, like how Mitsubishi lost every cent it spent on buying the Rockerfeller Center, and then some. Mercedes paid $80B for Chrysler, and a few years later had to pay to give it away!

Sorry R, no one every heard of it... i tried telling some the same 10 years ago..
all you get is blank faces.. they never heard of Japanese buying RE in NYC or
down in Monterey and getting taken to the cleaners...

28 thomaswong.1986 2013 Feb 25, 3:32pm

An investor isn't going to invest in a house like an owner would. They're in it to keep their costs to a minimum. They don't do nice upgrades and maintain a house like a young couple would.

and once there is a better investment with higher returns like the stock market,
they are out in a second...

29 Cheeseus Sonofdog 2013 Feb 26, 6:23am

Some of you don't understand. First time buyers are out because they consider prices to be too expensive. Their wages have been flat while the Feds money printing has nearly doubled the price of most essentials in just the last four years. Their paycheck buys 50% less than it did. Meanwhile they are faced with ever increasing insurance and property taxes. Many counties even jacked up property taxes to make up for the drop in values. And many single family homes are away from the work hubs and one must commute. Gas and auto insurance have never been higher, making that trip a paycut.

The first time homebuyers also see how they got shafted by the system. How they were responsible and didn't take on a mortgage they couldn't afford, while their neighbor did and has been living for five years without paying his mortgage, taxes, hoa or insurance. That is bound to make your blood boil. Then the first time buyer saw the banks get bailed out. See how they have homes on every street sitting empty yet refuse to list them. The collusion and Fed manipulation doesn't give them confidence.

Further, the first time buyer has seen this latest bubble over the last year. They saw what happened last time. They also note that most of the properties being bought up are by speculators. Ones who think they will make a killing being a landlord. The renter sees a rental bubble and oversupply of units. Millions of new rentals coming on the market. Millions of new apartment buildings coming up. He knows his rent will be falling like a rock within time. He can wait for this latest batch of speculators to lose and buy up their bad bet a lot cheaper.

30 Cheeseus Sonofdog 2013 Feb 26, 6:26am

"....and once there is a better investment with higher returns like the stock market, they are out in a second..."

Or once their "profit" starts slipping away and they try to cash out with the millions of other "investors". A stampede for the doors.

31 Reality 2013 Feb 28, 9:50am

The Professor says

Reality says

Investors buying and fixing them up actually make the houses available to the rental market, or even buying market if the "investor" is doing a flip, so that the house actually becomes part of real supply instead of sitting outside the market becoming more and more dilapidated. How would an empty dilapidated house be good for a neighborhood?

Thank goodness for the investers! Without them the first time house buyers would have nothing (nothing) to rent.

How many first time home buyers are all-cash buyers? Extremely rare! That's why the government offers all those near-zero percent down payment loans. In the case of those houses that I'm talking about, the loans are simply not available for those houses because the houses have major defects that make them non-morgageable! Banks don't usually issue a loan for a house that can not be lived in . . . because buyer doesn't have the money to pay for the mortgage, the repair and rent at a different place all at the same time!

For houses that loans are available, there's simply no way a rational investor can beat a first-time home buyer willing the pay the rent that the investor would have to charge in order to maintain a reasonable return. The 3.5% interest rate with near-zero down is far lower than any metric for a reasonable rental return. The 1st time home buyer can always outbid the investor buying to rent to the same occupant, when the house is mortgageable. Here's a simple numbers illustration: a house that rents for $1000 can be bid up to nearly $300k by a first-time home buyer with 3.5% interest and near-zero down requirement. The same $1000/mo would only justify a $100k to $150k price for the investor. The two numbers are not even close to each other.

So the whole argument of investors outbidding first time homebuyers is simply nonsense. The first-time homebuyers can't buy these houses because the houses don't allow loans due to the sorry conditions that they are in, thanks to the previous home borrower / first-time or otherwise! Someone has to buy it with cash, fix it up, then put it on the market to make it available to first time home buyers, who are almost all home borrowers.

32 Reality 2013 Feb 28, 10:11am

The Professor says

It seems as though rents are going up. The first time buyer could be spending PITI and maintenance cost and still have a spendable excess that they would spend in the consumer economy every month. Instead they are forced to pay "double the PITI" to an invester who takes that money and hoards it into more investments.

I caught you on this "double the PITI" nonsense last time, and you admitted to be exaggerating, then why are you repeating it here? If the house is at all comparable, there is nothing preventing the renter to buy the house. With government subsidized 3.5% interest rate with near-zero down for first time home buyers, a $1000 monthly payment translates to nearly $300k bid upper limit for the house! The same $1000/mo rent income would only justify a $100k-$150k bid from an investor (I wouldn't pay more than $75-100k!) There is no snowball's chance in hell any rational investor can outbid a first-time homebuyer who is also the prospect renter for a comparable house.

What you are missing in two consecutive transactions for the same address is all the repairs and risks that investor undertook, making a house that was previously not available to first-time homebuyers or renters due to defects in the house making it non-habitable, into something that is now available to the first-time home buyers and renters alike. Your complaint is about as silly as accusing the baker of ripping people off because he is not selling his bread at the price of the dry flour that went into it.

33 Reality 2013 Feb 28, 10:47am

Sure there is. The first time buyer needs an APPRAISAL, and even though he/she may be wiling to pay more, the loan won't get approved.

Get another appraisal, or wait for this one to close then go after the next one citing this sale. In any case, appraisal getting in the way is not exactly the successful buyer's fault; whoever wins such a price at significantly above appraisal is taking a huge risk. In any case, we are talking about getting good deals here (and allegedly stealing good deals), not about competing to be the latest sucker. If one can't even get an appraisal higher than the bid price, the bid is probably already too high.

Also, the 1st-time home borrower only needs to put up the difference between the appraisal and bid price to get the loan approved.

So, a cash offer doesn't have to even match what a first time buyer offers. You can be lower, and convince the selling agent you will close with no headaches.

Is such a time advantage worth tens of thousands of dollars? especially in a rising market? Like the numbers I gave, the 1st time homebuyer can literally outbid the investor by a factor of 2x!

I even do my inspections up front, and wave the inspection period to make my offer stronger than all the others, except for price.

I do that for every bid as well, yet I still got routinely outbid by 1st time homebuyers. It was when the house came back due to non-mortgageability that I got a second chance. I have pretty much given up on houses that can be mortgaged. There's no point bidding against first time home borrowers.

34 Reality 2013 Feb 28, 12:56pm

I have seen worse bathrooms, and bought and fixed worse ones. Some were missing all copper pipes throughout the house. It would cost the home borrowers a bloody fortune to get FHA home repair loans in order to get the same repairs done after bouncing between several contractors and estimates. Heck, some houses needed $20-50k repairs even when I was paying all cash and calling the shots and doing part of the work myself.

That's why I was pointing out to the Prof, the investors are actually bringing uninhabitable houses onto the for-sale and rental market. It's ridiculous to think just because it's the same address, it must be the same house unchanged.

35 Philistine 2013 Feb 28, 1:13pm

It's ridiculous to think just because it's the same address, it must be the same house unchanged.

Yes, but it's interesting that most of the flips I have seen are sold 6 months prior for $200k less. You can't tell me that a $50k trip to Lowe's = $200k on the open market (maybe it does? maybe home buyers are this stupid?). The real joke is that the majority of these houses are still far in excess of comps on the street, even compared to other remodeled units.

These ass hats are not happy to gross 33% margin, they get all greedy and many of these buyers are more than happy to play footsie with them. OTOH, I have seen plenty of houses like this that are still sitting after 8 weeks or even pulled back off the market.

36

Eman 2013 Feb 28, 1:17pm

The question for me is post-FC seasoning. My credit never tanked after a FC in May 2011, it did take a hit but 6 months later FICO was in the 690 range. Now I imagine it must be over 700 though I haven't bothered paying the 20 bucks to find out. I know FHA is 3 years seasoning for FC (2 for BK, now that makes sense). The real estate Sunday talk show on the radio said you can actually do conventional is you have a large downpayment (40-50%). I have yet to verify this.

Yes. You can buy with 40% down. The interest rate is slightly higher, about 5.25%-5.5% for a 5/1 ARM. The lender is East West Bank. They don't sell their loans to Fannie & Freddie so they don't have to follow their guidelines.

I believe East West bank only lends to 3 counties in the Bay Area with Santa Clara County being one of them. Check them out.

37

Eman 2013 Feb 28, 1:20pm