Entries Tagged 'Real Estate' ↓

Recently I read that Senate Republicans are proposing an amendment to the Obama stimulus plan which calls for 4% mortgage rates for all credit worthy borrowers who want to refinance. I think this could potentially be a true stimulus to the economy, and here is why.

First of all, I think very few people have a 4% fixed mortgage right now. That rate is pretty much unheard of since mortgage products were invented. This means that a lot of people stand to save money month over month. For a person who has a 6% rate, a refinance to 4% means that they would save 33% on their mortgage. For a typical mortgage in California consumers can save anywhere from $200 to $500 a month, and that is a much better boost than a one time $500 or $600 tax rebate. That extra money can go into savings or be spent on other things. Since prices have come down on many items in this economy, it is likely consumers will spend their money if they have it.

Second, banks can definitely afford to lend out at 4% because the government already cut the interbanking lending rates drastically. In fact, they are pulling in more profits than ever even when they lend more than 5%. Historically, the difference between the 30 year mortgage rate and the 10 year treasury rate is 1.7 percent. Now it is around 3.3%, so banks can afford to cut the rate and still be profitable. It is pretty unfair that these banks are getting all of the benefits of the current mess even though they created, and perhaps they should do their part in helping consumers now.

Finally I like the plan because it rewards responsibility. If people with good credit can refinance at the low rates then it encourages good personal finance behavior. Instead of letting all the bailouts go to those who spent too much too fast, maybe it is time to help those who are working hard and being accountable to their own debts.  The economy can be really stimulated if people have trust in the financial system again and start investing and spending, and I think this would be a good start.

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Happy new year everyone!  I have been away from my blogs for a while since I spent the last couple weeks in our new home down in Southern California.  My inlaws are moving to the Philippines in about 10 days and this may be the last Christmas we will spend with them in California.  This year we do  plan to go to the Philippines to visit them for Christmas.   The last two weeks was filled with a flurry activity.  We saw my sister in law get married in Temecula to her Navy seaman and then my parents made a drive down for a couple days.  We took them to the San Diego Zoo and also Hollywood Blvd.  My husband also had the chance to see quite a few friends and have dinner with them.

Christmas was lean last year because everyone is trying to save money.  The only shopping trip we went on was after Christmas at the local mall.   I lounged a bit in the Bath & Body Works since they were having a sale, but ultimately did not buy anything.  In the end, we went to  TJ Maxx with my parents since my mom is a big fan of that store, but I have never been in one.    TJ Maxx is kind of like Ross where brand name goods  are heavily discounted for consumers. I was surprised that they had a huge selection of beauty products including AHAVA brand moisturizers that my hubby got me from Israel one year.  My mother often buys the cosmetics there as gifts for friends in China because they are really into brands in China.   Anyway, this was the place I did the bulk of Christmas shopping.  I bought two large bottles of shampoo, a camera case for my dad, a shirt for my mom, and a pair of  PJs for myself.  Everything came under $45 since the store is so discounted.  You do have to dig a bit through the many multicolored shelves, but there are plenty of heavily discounted goods to be found.

For my inlaws we waived their rent payment on the house for these last few days and didn’t really buy anything new for them because they are  trying to get rid of everything in the house right now.  They actually gave us one of the presents we got them last year for Christmas because they can’t bring it to the Philippines.  Every single day we were doing some packing and sorting because a lot of things had to go.

On New Year’s day we drove a caravan back up here to Northern California with quite a bit of furniture and kitchen goods.  My inlaws also sold one of their cars to an aunt so they’re going home with less stuff.  It took us another half day to sort everything into our closets and storage spaces.   So basically we have been quite busy.

We also found a family that agreed to be caretakers for our house after my inlaws leave.  We reserved the right to use the downstairs guest room at anytime and they will be taking care of the gardening, pool, and utilities.  It is really an awesome deal for them, but we’re hoping it will not be long term.  The hubby is really contemplating moving down south, but we would need to secure employment there and that seems to be a lot tougher than getting jobs in the Silicon Valley.  Also, the hubby is waiting for his company’s games to be published this year so that he could say on his resume that he has shipped a couple games.  So basically we won’t be moving for at least one year.   Honestly speaking, if we both had jobs with comparable pay the quality of life is a lot higher there because the cost of living is quite a bit lower.   We could actually just live on one income if we moved into our house because it’s cheaper than renting a two bedroom apartment here.  The public elementary and middle schools there also have pretty high ratings so my hubby says that it’s more likely we’d move after we have kids.   As my friend Michael jokingly (or maybe seriously)  said once, “the Bay Area is where you work really hard for a crappier life”.

Even though this year  has just begun, I already have a list of things I’m planning to do.  First, I am seriously looking into a refinance even though we just bought the home a few months ago.  The reason is that interest rates have come down significantly in the last month because of the Fed’s plan to buy mortgage backed securities.  If you have significant equity in your home, good credit, and good income then it may be a good time to refinance, also.  I’m specifically looking into a no-cost refinance and right now I’m watching the rates at IndyMac and Technology Credit Union.  IndyMac quoted me a no-cost refinance rate of 4.75% a couple weeks ago but it was impossible for me to get all the paperwork through and their phonelines are always busy. They’ve also been sold to a bunch of private investors so I’m not sure the rates will ever get that low again.   Technology Credit Union is a local Silicon Valley credit union and they have a pretty straightforward online application so I’m watching the rates there.  They also answered phone calls pretty quickly when I called so I may do the no-cost refinance with them when the rate drops a little lower.  Their rate is currently at 5.25% for the no cost and lower than 5% with costs.  This credit union is for people who work or live in Santa Clara, San Mateo, Santa Cruz, San Francisco, Contra Costa, and Alameda, so pretty much most Bay Area folks can qualify for membership.

The next beast on my list is taxes for the year of 2008.  I may hire a professional this year to do it because I exercised some stock options last year and  bought the house with the hubby.  Seriously, I really hate taxes.

I think the rest of 2009 should be quite interesting since Barack Obama will be the new president.  Will the United States be revitalized or go down the tubes?  No one knows yet, but we will be okay as long as we trust God and be responsible with our own actions.  This is a year that will be filled with challenges for everyone around the world, and hopefully these events make us stronger and more prudent in the years to come.

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A year ago I wrote this article about the government’s plan to freeze mortgage rates and how ridiculous it was. I also suggested that people should just walk away from their gigantic loans and buy something cheaper. A lot has happened since then. There were countless attempts by the government to revive the housing market with very little success, and many people did walk away from their underwater loans and buy cheaper homes. Yesterday, a report released by the Comptroller of Currency showed that more than 50% of borrowers who received loan modifications end up defaulting again anyway.

When I read the news I thought to myself, “well, what did you expect?” Many of these loan modifications either changed the loan term from 30 years to 40 years or lowered the interest rate, but the borrowers still owe a gigantic debt on a depreciating asset. There is no incentive for them to pay the debt if they can find a place to live in for even less money than the reduced mortgage payment.   Seriously, who would want to pay a $400,000 debt on an asset that is worth only $200,000?

Additionally, all of these loan modifications encourage bad behavior.  The borrowers probably think that if they don’t pay they will be bailed out again because bailouts are all the rage right now.  Everyday the news is reporting some kind of government action to deal with foreclosures.  So if you already got free housing for 3 to 4 month and then got a modification on your loan, then you have another 3 to 4 months until a foreclosure comes.  That’s 6 to 8 months of no housing payments even if there is no second modification, and that seems like a good financial incentive to default.

Another driver in re-defaulting is the worsening economic state of the world.  In November the United States lost 553000 jobs, and perhaps a lot of people no longer have the amount of income they had when they received the loan modification.  For now, I think the unemployment situation is only going to get worse.

I think the lesson in this is that the government should stop messing with the free market and let foreclosures happen naturally.  These modifications and bailouts are just prolonging the pain for everyone involved.  I suppose that more than 40% of these borrowers are still paying for their modified loans,  but they really  may be better off by renting and saving for a down payment on a cheaper home.  Home prices have come down more than 25% in many parts of the country, and it is slated to go down even further.  It would take a while for a foreclosure to come off someone’s credit report, but that might be the perfect time for that person to build up a sizable down payment.

I think home prices will go down for at least another 4 to 5 years and recover if the government stops with the interventions.  If they continue to manipulate the market through interest rates and loan modifications then it may take the housing market a longer time to recover precisely because the bad apples will still be hanging on.  For example, if a person gets a foreclosure now then  it would take seven years for it to come off their credit report.   So in seven  years this person would be a prime borrower again.  However, if he hangs onto the mortgage through various bank and government deals and then redefaults after two years, then it would take nine years from now for that person to become a prime borrower again.  The sooner people get foreclosed on, the sooner they can rebuild their credit and become suitable homebuyers again.  The housing market will only recover when the demand returns, and I truly believe that  all of these government polices to prevent foreclosure will simply stall the recovery of the housing market.

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I am leaving San Mateo for China first thing in the morning tomorrow.  Sorry for the lack of updates but these couple weeks have been insanely busy for me.  We actually still haven’t completely closed on the house because of a bunch of mix ups and confusion.  Hopefully it will be done tomorrow, but I won’t be here to see it.  That sounds pretty precarious and believe me, I have been pulling out my hair for about two days.  I have also been trying to tie up loose ends at work and it has been two extremely chaotic weeks.

I am so glad that I will be leaving on a jetplane tomorrow because I just need to get away from this crazy country for a while and escape to another crazy country.   We will be watching the presidential election through the filter of CCTV.  The hubby already voted early on Saturday, so he is all set.

I will be back early morning of November 14th, but there will be an excellent guest post by The Wandering Tax Pro in a couple days.   Stay tuned!

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So a couple weeks ago I wrote that we entered escrow for my husband’s parents’ home.  Since then, we have locked down a 30 year fixed mortgage at 5.875% with a 0.875% origination fee last week.  Looking back, I am so glad that we locked down the rate because a new CNN article states that mortgage rates are heading towards 7% and had the biggest weekly jump in 21 years. Our loan has no prepayment penalty so in the unlikely chance that mortgage rates ever sink significantly again we can always refinance.

Additionally, we also got dozens of disclosures, inspection reports, and the appraisal report.  I think the hubby is getting tired of reading all of these forms that explain to us what we’re getting into.  I find the disclosures very helpful, though.  Even though we are buying the home from someone we trust, we still need to know all the problems and issues the property has. I actually found out a lot of things I didn’t know previously about the house.  The hubby was reading the report and found a few surprises, too, but they were mostly minor.

The appraisal report showed six comparable properties and gave an appraised value range of $514k to $550k and I thought that was a fair estimate for the current market, but the appraiser did note in the report that the market could slip down further due to the tightening of credit and the amount of foreclosures in the area.  In fact one of the comparables he used was a bank owned property and it sold for $520k.   We’re technically purchasing it for quite a bit less than the lowest end of the appraisal so we will have some cushioning for the down market.  The good thing about the appraisal is that our lender should accept that the house is worth a lot more than the loan amount we’re seeking and we will not have  to get mortgage insurance.

Next, I did a lot of research into home insurance, and learned quite a bit about building materials and various natural disaster zones.  For example, the home has a concrete tile roof, which is considered one of the most long lasting roofing materials and some insurance companies actually give a discount for that.  The bad news is that the home is in a zone with high incidences of brush fire so a couple insurance companies actually refused to quote me.   In the end I settled with a policy sold by Nationwide, which offered the best balance of coverage and price.  I got more than ten quotes and the range of prices was from $440 to $1200 for varying amounts of coverage. Interestingly enough, the most expensive policy didn’t really cover more than some of the cheaper policies so I guess  it really pays to shop around when you are purchasing any kind of insurance.

Amidst all of this stock market turmoil, I am actually glad that I have this real estate transaction to focus on right now.  We are hoping to close in less than two weeks, and so far things have been going well.  I haven’t met any unscrupulous loan or real estate agents that some people say caused the current crisis.  The loan agent I dealt with was very straightforward and explained everything.  There were also many disclosures that are required by law that tell you what you are responsible for and that the real estate market doesn’t always go up.  So after going through this process I don’t think it’s fair to blame all the real estate professionals on the ground floor for the current meltdown.  A lot of them are people like you and me making an honest living.   Home buyers are really responsible for their own actions and everyone needs to do their due diligence before making any kind of big purchase or investment.
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