Allowing Greed To Overcome Common Sense
A report from Bloomberg. “It turns out that even the well-off need help in a housing market as crazy as the one in the San Francisco Bay area, and lenders are elbowing each other in a rush to provide it. They’re courting Silicon Valley workers with tailored loans, guaranteed 24-hour approval and financial-planning services. Social Finance Inc. has deals with Google and other top technology companies that allow it to market to new hires. First Republic Bank — which gave Facebook Inc. billionaire Mark Zuckerberg a 1.05 percent interest-rate mortgage — has opened branches in Facebook and Twitter Inc. headquarters. San Francisco Federal Credit Union will finance 100 percent of houses costing up to $2 million.”
“For many, it’s not home values that keep them in rentals but alarming down payments, which can be more than the cost of the average U.S. house: $187,000. That’s where San Francisco Federal Credit Union comes in. It started offering zero-down loans in December to people who work in San Francisco or San Mateo County. The credit union has more than $100 million pre-approved for 30-year adjustable-rate mortgages in what’s called the Proud Ownership Purchase Program for You.”
“As the tech boom starts to show signs of cracks, there’s some concern that high loan-to-value mortgages are dangerous. Silicon Valley venture-capital funding fell 20 percent in the second quarter from a year earlier, according to a report by PricewaterhouseCoopers and the National Venture Capital Association. New companies are staying private longer, leaving fewer options for shareholders to cash out.”
“The median San Francisco condo price rose less than 1 percent in the second quarter after an 18 percent increase a year earlier, data from Paragon Real Estate Group show. Inventories of condos listed at $2 million or more jumped 44 percent — but the number sold fell 30 percent.”
“‘Lenders get so caught up trying to stay competitive and finding a market edge, they basically allow greed to overcome common sense,’ says Terry Wakefield, a mortgage consultant who co-founded one of the first online direct lenders in 1998. ‘Easy money does fuel and accelerate the inevitable bubble.’”
“And the notion of 100-percent financing makes some in the industry nervous. ‘Given what we went through in 2008, zero-down financing is suicidal for our country,’ says Chuck Green, CEO of Bay Area Captial Funding Inc., a mortgage brokerage that offers loans from about 40 different companies. ‘We have to learn from our mistakes.’”
A sign of the top?
I was just in Denver and heard John Elway sub-prime mortgage commercial on the radio…
There’s no subprime mortgage anymore. LOL
Yes; sub-prime is the new prime.
One-hundred percent financing in a red hot market. Hmmmm … let’s take a look at this:
The higher goes the price the closer to the top it gets. This could only be not true if there is no top to the market.
The closer to the top the price gets the greater is the risk for the lender. If this is true then the percentage of the price that is financed should decrease as the price rises, not increase.
Not that any of this matters.
‘the percentage of the price that is financed should decrease as the price rises, not increase’
And when prices rise, there should be less demand. Unless something else is at work.
“Unless something else is at work.”
Values determined by prices could be this “something else”. Raise the price and you raise the value. And when values rise then - presto! - wealth Springs into being.
Magic!
First, any 100% financing loan is crazy. This is completely mad. I was able to get a pretty good rate from a bank who wanted my business, but I still needed to put down 25%.
“And when prices rise, there should be less demand. Unless something else is at work.”
There should be less demand–all else equal (jobs, wages, population, cost of renting, etc.)…that is true. However, while you are implying bubble mentality, I don’t think you can say that all of the other factors have been stable.
Additionally, there should also be more supply in response to the higher prices. So far, higher rents have brought out the rental supply, which is starting to effect rent levels, but higher home prices have not yet increased for-sale home supply in any meaningful way.
From yesterdays post:
‘Lisa Frey, a buyer’s agent with Keller Williams Realty in Eugene, has worked in real estate sales locally for 19 years. She watched Californians flood the market here during the mid-2000s boom. As the economy has recovered from the recession, they’ve returned to the Eugene market, competing with local buyers. The hot real estate market in California allows owners there to sell their property and direct the cash into Oregon. ‘The last six months is when I really noticed the frenzy start picking up,’ Frey said. ‘I just talked to somebody on Sunday who said, ‘We hate California. We want out.’
The median household income in Springfield, OR, which is essentially a suburb of Eugene, is less than $40k. That’s household income. Land is priced at $200k for 5 acres. Yeah, no bubble there…
Nope, not all 100% loans are crazy…the VA/GI Bill program has been guaranteeing them for many years and the default rate is quite low, however they check the borrower and property out very carefully and have a cap on the loan amount. Bought a house myself this way in 1997 and paid off the loan in full when I sold 10 years later. FWIW didn’t bother even trying to go VA when I tried to buy again in 2011/2012, could not get an offer accepted even w/ a conventional preapproved loan and a big down payment. (GI Bill loans have some minor extra fees and inspections so they aren’t much use in a overheated market…sellers will go for a buyer with a cash offer or conventional loan)
OTOH making $2 million 0% down loans in the Bay Area is indeed madness, when the housing and tech bubbles inevitably pop in the near future I’d guess the default rate will be extremely high on these loans including plenty of strategic defaults
Incorrect. VA has been pimping 100% cash out refi for years now. This is subprime by definition.
“That’s where San Francisco Federal Credit Union comes in. It started offering zero-down loans in December to people who work in San Francisco or San Mateo County. The credit union has more than $100 million pre-approved for 30-year adjustable-rate mortgages in what’s called the Proud Ownership Purchase Program for You.”
I don’t really care about the zero-down part. It’s the “adjustable rate” that worries me.
It’s all falling prices back to long term trend anyways Donk.
You can always adjust lower… Why should that worry anyone?
Talked to a RE here in Monterey area. Lots of people looking ($500K+) but when they want to submit an offer they don’t qualify. Gee, imagine that.
The irony is there isn’t a SFR on the planet worth $500k. Any one of the 150 million houses in the US can and are built for <$220k.
But the land near jobs on the other hand…
There’s a globe full of land where 95℅ goes undeveloped. Land is better known as worthless dirt.
You must have missed a couple of words that Ethan wrote there.
Irrelevant.
You can dig a basement anywhere, and as long as mom’s buying the cheesy poofs, employment is irrelevant.
Cheer up CrackPipe and remember…… Rental rates are half the cost of buying at current grossly inflated asking prices of resale housing. Buy later after prices crater for 70% less.
Who would be shopping for a house when they were not already approved for a loan?
‘Panera Bread Co. was downgraded by analysts on Tuesday, supporting fears of a mass decline in the restaurant industry. Stifel Financial Corp. analyst Paul Westra noted that recent surveys show a decline in restaurants that could be alarming for not just the industry, but the overall market. “Today, we adopt a bearish outlook for restaurants as we confidently believe that, at a minimum, the simultaneous -150 basis points to -200bps deceleration of restaurant industry comps across all categories during the second quarter within our most recent Stifel Sales Survey reflects the start of a U.S. Restaurant Recession,” Westra noted.’
Good for America’s waistlines.
‘Slowing restaurant sales are the ‘canary that lays the recessionary egg’: analyst’
‘What makes Westra even more bearish on the group is a belief that the eventual recovery will be much more muted than usual. Restaurants usually reap “windfall profits” from the decline in food labor costs in the year following a recession, but that decline has already occurred starting in 2015. In addition, Westra said prospects for minimum-wage increases will fuel wage-cost inflation in 2018.’
“A prospective 2017 U.S. recession could be the worst ever for restaurants,” Westra wrote in a note to clients.’
‘the decline in food labor costs in the year following a recession…has already occurred starting in 2015′
Recessions start when things are booming, because it’s the boom that causes the recession.
“Recessions start when things are booming, because it’s the boom that causes the recession.”
I dunno how you read this stuff day after day without developing a case of the screaming me-me’s.
And they’re healthy. They punish all of the malinvestment, leaving the more prudent to pick up the pieces and prosper. Now, we have Granny Felon picking winners and losers.
“Good for America’s waistlines.”
It will probably have no effect. The food in the grocery store has just as much crap carbs and processed vegetable oil as restaurant food. The only way to eat healthy is to eat the old fashioned way: buying raw ingredients and making meals from scratch.
Hmm…I guess I will have to find the nearest Applebee’s to see whether or not this is true.
‘It started offering zero-down loans in December…’
Drip, drip. And people marvel at how prices go higher and higher.
‘Low Inventory and Extremely Low Interest Rates Heat Up the Housing Market’
‘The housing market is hot right now for buyers and sellers. Opening the door to a new home is an exciting feeling for anyone. But especially for Kasey and Krissy Kaderly, two millennials and parents. They had to jump several hurdles before finding their dream home in Waukesha.’
“We wanted to go see several houses before we made a decision, and we started to feel like well maybe that isn’t going to happen because it seems like if you find a house you like, have to put in an offer that day,” said Kaderly.’
‘It’s a problem many families are running into… not enough houses for everyone. Low inventory and extremely low interest rates. “If you go back, even back 100 years, we’ve never seen interest rates as low as they are right now,” said Mike Ruzicka, president of the greater Milwaukee association of realtors.’
“The last couple years have been pretty good. This year has been absolutely white hot. And it’s really driven by inventory. We don’t have enough inventory for houses under $350,000,” said Ruzicka.’
“It’s a good time to buy real estate. The market’s on the way up,” said Ruzicka.’
‘Kasey and Krissy took advantage of that rate, despite several set backs. “You worry a lot. A lot of unknowns,” said Kaderly. Like losing out to higher bidders and finding the right mortgage loan. “I had like 3 gray hairs pop out of my beard instantly, and the last time that happened is when I had my daughter. That’s how I can compare the stress,” said Kaderly.’
It is different this time:
‘If you go back, even back 100 years, we’ve never seen interest rates as low as they are right now’
Yet the demand for new houses is at 1960s levels.
The housing market is hot right now for buyers and sellers
How could it be hot for both?
“Drip, drip. And people marvel at how prices go higher and higher.”
In a shockingly identical fashion, year after year. I actually printed out this graph from Zero Hedge last week to keep because it is so remarkable. Check out the existing median home price from 2011 to now (green line) - has anyone ever seen such a perfectly repeating pattern going up, year after year? It’s downright scary how obvious the manipulation is:
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/07/19/20160721_ex1.jpg
From the link:
‘The city’s median home value is $1.13 million, up almost 67 percent since 2011, and the numbers are higher in some nearby towns — $6.36 million in Atherton, according to Zillow Group Inc., and $4.12 million in Hillsborough.’
‘Nick Merz knows how tough it can be. He’s a 41-year-old product designer at Apple Inc. whose wife also works there, and says they couldn’t figure out if they could afford to own a place anywhere near the company’s offices in Cupertino, where the median value is $1.8 million.’
‘One reason: Almost half of their compensation packages are in Apple shares. So their lender, Opes Advisors, assigned the couple a financial adviser who used a software program to factor in debts and future income, including the stock, and the costs of education over the years for two young children.’
‘Scary Market’
‘The result? No problem. They could buy in the range they were looking without jeopardizing their finances.’
Happens all the time Janet:
‘up almost 67 percent since 2011′
Oh, and the headline:
‘Silicon Valley Elites Get Home Loans With No Money Down’
I can’t help but notice how often we see “Elites” these days.
Sometimes the Apple folks get lucky. A guy I went to high school and college with got his first job at Apple. By the end of the 1980s his Apple stock was worth 7 figures. And he was just turning 30 then. What’s $1,000,000 worth of Apple stock in 1989 dollars worth now?
Almost half of their compensation packages are in Apple shares.
I have a solution:
Instead of simply taking the shares, how about you sell the shares and turn them into cash? I mean golly, both earners have their salaries tied to one company and they want to add concentration to that company?
They are effectively tying their life to one company, and then on top of it, buying at a very high point in the cycle with no money down, in a small city that is DOMINATED by employees for that very same company?
They sure better pray to the God of Steve Jobs every night before they put their head on the pillow that Apple stock continues to do well.
“how about you sell the shares and turn them into cash?”
Good point. But selling shares is what poor little normal people do. Special people want to buy stuff AND keep their (supposedly) appreciating shares.
Just like when you read about some billionaire going broke or having a liquidity crisis, and it’s revealed everything they own is bought with a loan backed by their stock holdings.
Why does Zuckerberg need a mortgage? I mean really, why? It’s a $6 mil house and his net worth when he bought it was $15 Billion. Yes, it’s free money at that interest rate. And yes, you can keep that money in the market working for you. And maybe get a tax deduction. But really, it’s the equivalent of one of us taking out a low-interest loan to buy a snickers bar.
It’s all greed. All for that minuscule extra bit of leverage. People are so inured to risk at this point, so desperate for the tiniest edge over everyone else, that a billionaire has a $6 mil mortgage.
I think the Zuckerberg question is different…the fact that he sells any shares could have a negative impact on the stock price, regardless of why he is selling them. Additionally, to sell, he would need to enter into a plan (becuase he has material non-pulic information aboutthe company)–he can’t just decide to buy a house, and sell stock whenever he wants to raise the cash. He needs to plan long in advance to liquidate anything.
For him, it DOES make sense to borrow…but holding the debt for any length of time other than a short horizon is greed.
“I can’t help but notice how often we see “Elites” these days.”
I think it’s very clever how the finance system manages to enslave people who are wealthy enough to be financially independent. Truly, the dream of the parasite has been realized with these magnificent hosts.
I love how “elite” means that they need to borrow 100% to buy a home after renting.
My definition of “elite” was a guy I knew who got a home loan because the money was the cheapest he had ever seen, and he struggled to get a bank to lend to him because he had no W-2 income (he was long retired) and they couldn’t understand why someone with $10MM+ cash in the bank would borrow $1MM on an $8MM house that he owned free and clear.
Elite means you never NEED to borrow from anyone, or work ever again in your life, and it is likely that your heirs at least one or two generations deep don’t need to work either.
Well heck, that makes me elite then… woo hoo!
“Elite means you never need to work again.”
I think your example is a traditional upper class person who is “well-off” or even “rich.” But when I think of “elite” in the political sense, I think more of the mega-wealthy nouveau riche who only got that way through Fed policy and market manipulation, the $100-million-plus crowd.
I also think of TheCentralScrutinizer’s apt definition of someone enslaved by the financial system who in a normal world would be financially independent - those upper middle class people who are the foot soldiers for the mega-rich and dependent on their cheap money loans to acquire all the trappings of success (Teslas and $1.8 million Cupertino houses) they can’t really afford thanks to the inflated costs of living due to the policies that help enrich their mega-wealthy bosses.
I guess I’m just uncomfortable with a class-war paradigm that lumps your traditional rich guy (who probably got that way through prudent investment and sound financial decisions) with the highly leveraged low-interest rate-junkies of the mega-wealthy and their upper middle class servants responsible for our current mess.
Your traditional rich guy’s interests are likely more aligned with the true middle class (sound money, lower asset prices, letting bad businesses fail, reasonably higher interest rates, lower debt) than with the cheap money, $100 million Warhol elite and their leveraged-to-the-eyeballs employees.
Nah, the guy I describe is worth well north of $100MM. Read my definition again:
“Elite means you never NEED to borrow from anyone, or work ever again in your life, and it is likely that your heirs at least one or two generations deep don’t need to work either.”
When I say that it’s “likely” that at least your kids and grandkids don’t need to work, what I mean is that your heirs don’t blow the inheritance Brewster’s Millions style. To go 2 generations deep without anyone needing to work, when considering estate taxes, etc., you need uber-wealth. Maybe not $100MM if you and your kids are frugal, but the number needs to be pretty damn high.
That’s definitely “elite” as far as I’m concerned.
I got no kids, so I don’t have fulfill the generational requirement.
Sorry, then you’re not “elite” by my definition…you need to have the kind of wealth to be able to create at least 2 generations of coke-snorting, Ferrari-driving miscreants…regardless of whether you do.
America, what a country!
“Proud Ownership Purchase Program for You.”
AKA jamming it up your ass sideways with a smile.
‘What’s $1,000,000 worth of Apple stock in 1989 dollars worth now?’
Yahoo Finance has the stock at about $1.50 +/- in 1989.
“For many, it’s not home values that keep them in rentals but alarming down payments, which can be more than the cost of the average U.S. house: $187,000. That’s where San Francisco Federal Credit Union comes in. It started offering zero-down loans in December to people who work in San Francisco or San Mateo County. The credit union has more than $100 million pre-approved for 30-year adjustable-rate mortgages in what’s called the Proud Ownership Purchase Program for You.”
Where does the $187,000 (or whatever) downpayment come from on these crazy loans? And who is going to eat the losses when the whole scheme blows up?
It’s borrowed. 80/20 piggybacks never went away.
I would guess they cash out as much stock and/or 401k as they need to get approved for the loan.
The 401k cash out is particularly scary. If things go south, you risk losing both the home and your retirement. Yet I know at least one person who’s done this…
Redwood City, CA Housing Prices Crater 10% YoY
http://www.zillow.com/redwood-city-ca/home-values/
Sheriff Jones better prepare the RageCages. There are engagements with enragement every this week
South Florida ranks as the nation’s 25th most stable housing market, according to a report Wednesday from mortgage company Freddie Mac. Palm Beach, Broward and Miami-Dade counties scored 91.7 on Freddie’s Multi-Indicator Market Index for May. That’s up 13 percent from a year earlier. Freddie Mac…
http://www.sun-sentinel.com/business/realestate/
Home prices are rising across the country, but they’re going up faster in South Florida, according to a housing index released Tuesday.
Prices in Palm Beach, Broward and Miami-Dade counties rose 6.6 percent from a year ago, data from the S&P CoreLogic Case-Shiller index show. Nationally, prices jumped 5 percent.
Case-Shiller monitors prices in 20 metro areas nationwide.
Portland, Ore., led with a 12.5 percent annual increase, and Seattle was second at 10.7 percent. The 18 other areas saw increases of less than 10 percent.
In a statement, David M. Blitzer, chairman of the index committee at S&P, cited a housing expectation survey from the New York Federal Reserve Bank that shows consumers think prices will continue to grow, but at a slower rate.
“Overall, housing is doing quite well,” he said.
Jon Klein, a real estate agent for Real Living 1st Choice in Coral Springs, said the market is strong, though he said buyers are showing more restraint. They’re not interested in obviously overpriced homes, and they aren’t as willing to pay more than appraised value, he said.
“The market seems to be steady, not out of control like it was, and that’s a good thing,” Klein said.
http://www.sun-sentinel.com/business/realestate/fl-case-shiller-home-price-index-june-20160726-story.html
“Proud Ownership Purchase Program for You.”
Sounds like something the Chinese government would come up with.
And I stupidly missed the title. It’s a “POPPY” loan. Maybe something the government of Afghanistan would come up with?
Ooo, POPPY. So fanciful and lighthearted.
Where do I sign?
Antique real estate: Oldest homes on the market in southwestern …
http://www.ctpost.com/realestate/article/Antique-real-estate-Oldest-homes-on-the-market-8997004.php - 375k - Cached - Similar pages
1 day ago