Entries Tagged 'Loans' ↓

I am sure that most Americans are quite excited about the tax rebates that may be coming soon this year due to a major economical stimulus package. What is lesser known about this package is that it will also raise the “conforming” mortgage loan limit from $417,000 to $729,750 in high priced regions until the end of this year. This means that government sponsored enterprises such as Freddie Mac and Fannie Mae will be able to purchase loans as large as $729,750, and any loan under this limit will not be a jumbo loan. Basically, people will be able to borrow more money and pay less interest. Who is cheering for this change and why? More importantly, how will you be affected?

Opposing Views on the Issue

What I found interesting is that the National Association of Realtors put out an extremely positive review about this move stating that “NAR’s research found that simply increasing the loan limits for Fannie Mae and Freddie Mac to $625,000 would permit as many as 300,000 families to enter the housing market, reduce foreclosures by as many as 210,000 and allow as many as 500,000 jumbo loan borrowers to refinance to lower cost loans, saving these people $274 to $411 a month.” On the other hand, this article states that “the director of the Office of Federal Housing Enterprise Oversight (OFHEO), which is the governing body over America’s government-sponsored enterprises (GSEs), warned the Senate Banking, Housing and Urban Affairs Committee this week about expanding the GSEs’ ability to take on jumbo loans without first having the appropriate stipulations and regulatory structures in place.”

Who should we believe? The glowing report of an association of realtors who have lobbied for the change or the director of a branch of the government that has been tracking housing prices and demographics for more than three decades? I personally believe that the director of OFHEO’s opinion is prudent and logical. With bigger loans, the government sponsored enterprises will be taking on more risk, and if these agencies are destablized by more risky debt then the entire economy could collapse even further.

Best Case Scenario for the Average American

The best case senario I see is that nothing really happens and very few loans get funded under the new limit. These few homeowners will benefit from the lower rate and keep on paying their bills. Hopefully, the paltry number of these homeowners will not affect the housing market in any significant way. The prices of houses continue to decline for a while making homes more affordable and lowering the need for jumbo loans. Basically, the best we can hope for is that nothing changes.

Worst Case Scenario for the Average American

Unfortunately, I think it is possible that this footnote to the stimulus package could have a devastating effect on the current mortgage crisis. First, it may prolong the bubblicious prices in California and the Northeast. Right now I am reading many stories where offers on homes fell through because of the lack of financing. Considering the fact that the average price of shacks in my neighborhood is $700k to $800k, most of these buyers are trying to secure jumbo loans. Once this package goes through, financing will be possible, and the prices on the shacks will not come down as quickly. Even though this higher limit is only in effect for one year, it is possible that more speculators and fraudsters will get into the market and drive prices up even higher. After all, it only took about two years (2004 to 2006) for home prices to double in many parts of California. You may say that this is not a problem for the rest of America, but if Freddie Mac and Fannie Mae become insolvent because of more risky debt, then all Americans will have to pay dearly with mandatory bailouts. Then we can kiss that tax rebate and even more money goodbye.

What I Think Should Happen

I am not an expert, but I firmly believe that what we need is more affordable homes, and not larger loans. So it is probalby best if the limit was left alone and the ridiculous prices fell back down to earth. I think it is ludicrous that the “conforming” loan limit is being lifted more than $300,000 in this package in the blink of an eye considering that it took a span of 23 years for the loan limit to go up from $115k to $417k. Is more debt really good for Americans? What do you think should happen?

Share This

Well, it’s been two weeks since my last update on the homes selling for less than their last sales price in San Mateo County. So today is the time for another update.

I found another 50 properties that have listing prices lower than their last selling prices. There were a little more than 400 properties in San Mateo County that were listed on Redfin in the last 14 days, so that means 50 properties is once again about 10% of new properties coming up for sale. Here are some highlights of these listings.

Total Count of San Mateo Home Sellers in Trouble for 10/22/2007 to 11/04/2007: 50

Average Time from Last Sale Date: 1.76 Years

Average Annualized Loss: 14%

Average Size of Home: 1382 Sqft

Average Price Per Square Foot: $483

Biggest Loser: 375 Keith, Pacifica with an annualized loss of 98.4%

Most of the homes in trouble were in Daly City and East Palo Alto, but some were also found in Menlo Park and Redwood City. In fact, the most expensive home on the list is 101 Laurel St, and the least expensive is 1154 Carlton St, and both of these are in Menlo Park.

I am glad to see that it seems like the homes getting discounted are of larger sizes than previous reports. Also, I did a scan of the homes in my last data collection and it seems like none of them have sold. A couple listings were withdrawn but for the most part all of the listings are still active on Redfin. A couples of the listings also went through more price reductions in the last two weeks. The most drastic of these reductions was on 1363 Windermere in Menlo Park. On 10/21/07 the list price was 649,000, but now it lists as 499,000. I haven’t seen any properties that really caught my eye yet, but some of these properties could be a good deal for people who are good at fixing up homes. So once again, the raw data is available on the statistics page for this series. Enjoy, and keep in mind that I don’t have every single distressed San Mateo property listed here. I only grab what I see from Redfin, and that is by no means an exhaustive source. I am sure if you dug deeper you can find cheaper homes in San Mateo.

Share This

Well, I haven’t done a carnival roundup for a while. Today was my last day at my job and this entire week has been quite crazy.

Carnival of Debt Reduction #111 ~ What’s Scarier Than Debt? at I’ve Paid For This Twice Already. My post in this carnival is about not buying things you don’t need.

Carnival of Personal Finance: The Trick or Treat Contest Edition at Millionaire Mommy Next Door. My article in this carnival showcases the strange and crazy bosses I have met.

Carnival of Twenty-Something Finances at My Adventures into the Street. My post in this carnival is about leaving my job.

The Carnival of Family Life included my article on being an only child.

The Baglady hosted Carnival of Money Stories #32 — True Financial Horror Stories! Check out the carnival for some awesome stories from all more than twenty personal finance bloggers.

Finally, the story about my super cheap ex-boyfriend got a 4th wind this week since it was linked on one of the MSN Money Central blogs and then linked by JD over at Get Rich Slowly. My ex-bf wants to say that the part I exaggerated about is the 25 cent spaghetti, and I want to say I didn’t really break up with him because he is cheap.

Share This

I think most personal finance bloggers have heard of Prosper.com marketed as the peer to peer lending site where people act as banks. Well, I have been a member of Prosper for six months now and made a total of 6 loans with a total value of $300.64. One is already paid, and the rest are current. I didn’t dump my money all into high interest loans because I knew that renting money is risky business. Here are some of my lending criteria even though I am still a very novice lender:

1. I don’t lend to people that use the money to buy houses or are in trouble with their mortgage. Usually I just stay away from the real estate related listings like “help me save my house!”. The reason is very clear. If they’re in trouble with their mortgage, it’s very very hard for them to catch up, and if they’re borrowing on Prosper for their mortgage they’re just delaying the inevitable foreclosure. Not lending to distressed homeowners was just an instinct I had, but apparently other Prosper lenders have the statistics to back up that homeowners are more likely to default in the prime and near-prime credit grades.

2. I don’t lend to people with credit ratings less than D because the default rate is just way too high when people have worse credit ratings. I prefer B and C because I am personally in that credit score range and it’s not because I don’t pay my bills.

3. I don’t like very high revolving debt percentages and delinquencies in the credit report. This is also very obvious. If they’re maxed out and has a history of not paying bills then they’re not very good candidates for paying my money back either.

4. I don’t lend to people who are “reinvesting on Prosper”. The reason is that I did an analysis early on on whether or not I could actually make money by borrowing money on Prosper and then reinvesting, and I found that I have got to be extremely lucky to do so. Apparently other people also did the same analysis as me and found that making money on the spread is very difficult on Prosper. Also, now there are many stories of “blenders” who are defaulting on their own loans while they’re collecting funds from the loans that they funded. That’s extremely retarded in my book.

5. I don’t really like listings that say they will pay me back faster than the three year period because they are admitting they’re a prepayment risk. I like people who pay on time for the right amount.

6. I do like verified bank accounts and I like people who link up Prosper to their bank even more.

7. I do like some listings where people are trying to consolidate their credit cards or higher interest loans. The reason is that these borrowers are using Prosper the right way. If Prosper is giving them a lower rate than they’re currently paying then they’re saving money, and I am all for helping people save money.

I think even after six months, I am still not ready to pour in large amounts of money into Prosper because humans are unpredictable investments. Also, Prosper still has a lot of things it could improve to make it a better place for lenders. When you loan small amounts of money like me, Prosper is really good just for entertainment purposes. There is a certain level of voyeurism similar to reading personal finance blogs when you read other people’s credit reports. I think the financial transparency is what makes Prosper fun to personal finance addicts. Currently there is a pretty good bonus of $25 for being a new lender and funding a loan of at least $50. So if you want to try your hand at being a Bank of One or just check out other people’s debt, you can sign up here and I will get $25, too. Otherwise, if you’re a borrower, you really have the upper hand on Prosper and you can wipe out your credit card debt faster with a lower interest rate. Currently I am still adding bits of money to Prosper. Basically every month I add a few dollars to Prosper from my checking account so my account balance ends in zero. I know it’s silly, but I think Prosper.com has potential to be much more than what it is now.

Share This