An Interesting View on the Sub-prime Market Problem

I know that most of what I have written about here is on San Diego life - some on housing, but more on just living here in general - what I enjoy, things I have learned as a new resident, and more.

I am stepping out of that tradition just a bit to talk some about the foreclosure and short sale problems we are seeing here in San Diego, and the newer issues surrounding the subprime market. I can't help it, because I am in the industry, as a Carlsbad REALTOR. You have all heard about it, no doubt - the media has certainly done their job of publicizing the increase in both types of sales - it's been everywhere in the headlines, on the TV, the radio, and all over the Internet. Some people who are facing financial troubles are fortunate and able to sell their homes before foreclosure occurs. but many are not...or perhaps don't try, or don;t see that they have any choice.

While the foreclosure rate here is high, and has increased since last year, it is not anywhere near the rate some other states, like Michigan, Florida and Colorado, are seeing.

Coupled with that, we have recently been bombarded with news about the subprime market and the financial difficulties that certain lenders, most notably New Century, are facing. Potential bankruptcy, and more. But it also means that buyers who are trying to get financing, at least 100%, may NOT be able to do so, although it was easy in the past. Or that buyers who have been approved for such a loan, but not yet closed, may find themselves in a bind with no loan.

It's not clear what the source of all these problems is - is it the fault of the mortgage lenders and the kind of programs they encouraged buyers to obtain? Is the foreclosure and short sale rate rising rapidly because so many buyers are not being responsible, or got themselves in over their heads with huge mortgages?

And what about the potential impact on the economy if these problems continue to escalate?

I read a recent article in Inman News about this very issue, and I thought the author's take on the matter was enlightening. Rather than put the blame on these troubles on the homeowners who took on these mortgages that are now creating their financial woes, as we tend to see in the media, Scott Thompson, the writer, takes the position that we must really look at the mortgage companies themselves as the source of the problem. "A Short-sale Tale" is an interesting read.

Market Update (Guest Blog)

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Here is a great update on the housing market in San Diego with a focus on the issues we have all heard about in the sub-prime lending area. If you have any questions, be sure to contact Chris at Pacific Mortgage. Rather than try to paraphrase, I included it here verbatim.

To All,

What a crazy time for lenders. As you may have heard, subprime lenders are going under by the day and the repercussions are being felt throughout the entire mortgage industry. We're finding more and more buyers who were qualified are now not. This whole shakeup has cause all lenders to revamp their lending standards in order to generate mortgage loans that are marketable on the secondary mortgage market. From what we're experiencing here at PCM, the biggest changes are with 100% financing, increasing minimum credit score standards for qualifying, and more scrutiny with Alt-A lending (stated income, no ratio, no doc, stated income/stated assets, etc.) For now, the days of free flowing money from lenders has ceased. If you'd like to discuss this further, please give me a call.

Now on to the good news. Inflation in check, easing job market, slowing GDP, mortgage market issues, slowing national housing market, and an overbought stock market has helped push the 10 year bond yield to 4.49%. The bond yield briefly hit this level earlier this year and last December but we haven't seen it hold at this level since January 2006. Should bond yields hold or move lower, we can expect mortgage rates to do the same. We're still in that narrow band of 5.75% to 6.25% for all programs but rates are moving to the lower end of that range and I'm optimistic they'll remain there for the short term. There is still talk of if and when the FED will start to lower rates but that's all it is, 'talk'. Until the market data is continuously bearish for say 2-4 months, it's unlikely the FED will make a move.

Right now it's not a bad idea for borrowers to float their rate. As long as their loan officer has a handle on bond market tendencies, then that loan officer should be able to shield their client from market increases and possibly get them a lower rate if the market moves lower. Keep in mind too, with many sellers offering incentives, 5 year and 7 year ARMs can be bought down to the low to mid 5% range.

For more daily market updates, please visit my website at Ask Comer.

As always, I'll keep you posted.

Best Regards,
Chris Comer
Pacific Capital Mortgage
760-533-5174