Ask the question.....you might get an answer

It wasn't so long ago that I was having a conversation with my wife over dinner. We were talking about how quickly things had changed in the real estate market. I shared a few ideas and told her, "I think I will write a blog entry about it."

She looked at me and said, "You have been writing about it. You sit down at the computer and decide what you want to focus on and thirty minutes later you hit the enter key and voila....another epistle from Dippy."

"Instead of telling them what you think they need to hear, why don't you ask them what they want to know?"

That night, I formulated a little questionaire and sent it out to about 500 people. I waited a day or so and questions began to trickle in. This will be the first of series of sharing the questions and offering an answer.

I keep hearing that real estate is in the tank, yet, it seems there are more agents than ever in my area. I would have thought with the market collapsing, a lot of them would try something else. Why are there so many still in your business?"

That is an excellent question. At first, I thought the same thing would occur. After receiving your quetion, I did a little digging and asking around.

A lot of the agents in this area got into real estate in the last few years. Prices were going up and inventory could not keep pace with the buyers. If you were an agent and listed a house, it sold quickly and usually for more than the asking price. Listing agents were making a tidy income. Buyer's agents were spending about a day or so with clients, writing offers and usually finding success quickly. They too were making a tidy income.

When sales were so fast and frenzied, new agents saw no need in learning the profession. They were making more money than they ever dreamed of because they were there.

Those days are behind us. The memory of the reward for making just one sale lingers on. Agents that are without business today hang around the office hoping that lightning in a bottle will strike one more time. They have researched other jobs. There is not one job like real estate. In this market, one deal will carry a lot of agents for two or three months. In this market, faced with no income and the prospects of a long cold winter, one deal is all you need to get to spring.

So they stay and wait. It is survival of the patient and long suffering. It is not survival of the fittest. The quality of an agent can not be measured by the fact that they have remained in the business. It is still very important to interview two or three agents and make sure you have aligned yourself with one that is here because it is their career and not because they have no other choice.

"I keep seeing offers to get a CMA. Just what is that?"

A CMA (short for comparitive market analysis) is generally regarded as a document that shows homes that have sold similar to yours and uses that information to give you a general estimate regarding your home's value. It is not to be confused with an appraisal. It is not factual, it is a "best guess" about market value based on current market data.

Agents routinely offer these as a way to get into your living room in hopes of being the one that will list your home. If you are thinking about selling, you really should speak to more than one agent and I would recommend you spend the money on an appraisal before you put the home up for sale.

"If prices are falling, but the average sale is going up and total sales are going down....just what is market value?"

There are many opinions about market value. Some will tell you it can be determined by recent sales of similar homes. Some will tell you that it is the ultimate price someone will pay for your home. I fall somewhere between the two. I think you have to determine a reasonable starting point for pricing your home. The actual market value should be your final price. Your choice of an agent and how extensive their marketing plan it will either increase or decrease your market value.

Prices are falling and there are less sales, so determining a starting point is becoming much more difficult. The average sale is going up because there are fewer sales and the average price of what is selling is higher. Entry level homes (condo's etc.) are remaining on the market longer. Statistics you see must be analyzed seperately. Each figure is only an indicator of that segment of the market.

"Is this a buyers market?"

No. It is not a sellers market either. This is the most unusual market we have ever experienced. It is the mirror image of the frenzied market of three and four years ago. If you remember, there were more buyers than there were homes for sale. Sellers were receiving multiple offers for much more than they were asking. Now we have more homes than buyers. Sellers are receiving no offers or they are receiving offers for much less than they are asking. The market did a flip. In days gone by, it was like a pendulum swinging back and forth. We now are seeing it flip. It changes quickly, but right now.............we have no market.

That being said, everyone understands it is a great time to buy. Interest rates remain historically low. (If you thought the Fed cutting the rate would get you down to 5.5% again....you were wrong. Right now the Fed rate is close to 5%. When mortgage rates were down around 5%, the Fed rate was 1%. Don't expect those days to return for a long time.) There is a lot of inventory and there are many sellers that have to sell. Talk to your agent about the market. It may be time to buy for you.

Well, I think that is enough for now. Please continue to send me questions and I will answer them privately right away. I will put together another batch to share here as well.

The truth about tomorrow!

The only people that get hurt on a roller coaster ride jump off in the middle. Most folks are watching the perils of Wall Street, listening to Jim Kramer rail against the attitude of the Federal Reserve and being bombarded with newscasts that predict the end of the world as we know it.

It just isn't true.

The truth is - many lenders chose to go the expedient route of desktop underwriting on mortgage loans. The underwriting process factored in data such as income, employment and your FICO score. The internet became the "deadbeats" best friend. There were some people that did not have a good job history. There were some people that did not have verifiable income. There were some people that had low FICO scores.

No problem.

You could go on line and pay a company to verify whatever job you chose to claim. You could just tell the loan officer how much money you made and if it made sense with the job you created, you could just state your income. That would work as long as your FICO score was high enough. But you don't have a good FICO score...?

No problem.

There was this nifty loop hole in the FICO system that allowed you to be added as an authorized user to someone with good credit. That's right, you could just pay a fee and have your name added and BINGO ...up goes your credit rating.

All of the sudden, anyone with a pulse (and access to nefarious firms on line) could get a mortgage. The smiling loan officer would just ask...how much do you want to say you can pay each month. Lies were told, paperwork was signed and loans were quickly resold. The valuble loan officer was the one that could close loans that would last 3 or 4 months before defaulting. (If the loan was sold and payments were made for a few months, the purchasor could not demand that the loan be sold back).

BIG PROBLEM.

First it was the sub-prime loans that began to go bad. The larger lenders sat back and smugly shared sound bites "We don't make those kinds of loans." The lenders that did make them are now pretty much history. Any reputable lender that did have some on their books, stopped underwriting them. The fall out was the demise of the sub prime business. Eye brows were raised and investors were stunned to see they were not going to get that big return. The question was raised...how could this happen?

Very old axiom....if you lend money to people that do not have the ability or inclination to repay it...you will lose your money!

The dust had barely cleared when larger lenders began to run into what they called "liquidity problems". If everyday terms, the investors began to feel the pinch and they reduced how much they were willing to pay. American Home Mortgage was the largest recent victim(?).

Now, rumors run rampant that Countrywide will fall. They did run into a problem. It is significant to note that the other big banks lent them the money to continue operations. They have announced some changes. Those changes portend tomorrow.

The TRUTH ABOUT TOMMOROW!

The situation has no relationship to chicken little or a fallng sky. Lenders have tightened their requirements. Jumbo loans (those over $417,000) are more expensive to get. There is still money for mortgages. The lenders are just beginning to focus on those loans that are guaranteed by Freddie Mac, Ginnie Mae and Fannie Mae. They need to make sure that the loans they make will be purchased.

It would seem to me that if the money pool remains the same, and companies are focusing on conforming loans, the housing market is in better shape than most understand. If the pool of money used to fund Jumbo loans is not being used, that money will have to be lent to someone. The amount of money that will be available to the conforming folks will increase. Remember, the lenders only have a chance at making money when the actually lend money.

In case you haven't noticed, buyers at the lower end of the scale have not been knocking down doors to get loans lately. There are several things that have spooked them. The media with it's continuing gloom and doom soundbites has tempered enthusiasm. The month after month increase of the interest rates when the Feds meet has created the illusion that interest rates are high. The increase in the cost of living on day to day things like gasoline, dairy products and basic entertainment (like a family nite at the ball park) has them worried about the future.

Lenders will have to take a long look at the potential pool of borrowers and come up with a way to entice them back into the housing market. The federal government will have to come up with a way to stave off the recessionary possibilities that now exist. One answer will solve both problems. Interest rates will come down a bit. It won't take much. A quarter point drop on Sept 18th or before will resonate across the market place with the power of the started at the Indy 500 intoning "gentlemen, start your engines".

Real estate has always been a bottom up industry. The people that buy the $200,000 home enable the seller of that home to become the buyer of the $300,000 home and so on. It is sort of a trickle up effect. We will have more money available to the first time buyer or the buyer purchasing property at the lower end of pricing. Those sales will trickle up and we will see a return to housing sales.

This is not to say that we will return to the days of escalating prices and homes sellng for 10% or more over the asking price. Those days were fueled by lies and those lies have seen the light of day. Prices will probably go up in accordance with other costs in the economy...no more and no less.

Realtors will once again pre-qualify buyers and listing agents will take a longer look at the ability of buyers to purchase their listings. It used to be that way.

You see, real estate agents got lazy too. They opted for the "talk to your lender and bring me a pre-approval letter and then we can go look for homes". They passed the buck and responsibility onto the lender. The lender passed the buck to the desk top underwriting system and various documents that were not verified. Folks selling homes were willing to accept offers as long as the money got to the settlement table. Everyone turned a blind eye to reality.

As I have shared...those chickens have come home to roost. The absolute truth about tomorrow is that everyone will be more careful. Loan applicants will actually have to be credit worthy. The housing market will improve.

Tomorrow.

County Fair Diary ...Day Six

So in the Bible, on the seventh day, God rested. Those shoes are too big to fill for me. I had to take a break on day six. I planned to visit a BNI group for a breakfast meeting (I was subbing for a fellow agent and that meant the breakfast was free!) and then drive over to Needwood Golf Course and play a round of golf.

It was overcast and reasonably cool and I was able to join a threesome on the first tee. My drive was perfect, splitting the fairway and coming to rest about 90 yards out. I used a wedge to hit my approach shot to within 15 feet of the flag. My birdie putt was just a few inches from the mark and I settled for a solid par to start my day.

Then........the rains came. The thunderstorm scheduled for late afternoon erupted six hours early. I returned to my car and put my rain soaked clubs in the back and drove to the office. I spent the rest of my day off dealing with various transactions. All was not lost. In the evening, my wife and I enjoyed the ballgame at RFK. A good friend had tickets that they could not use and dropped them off at the office for me. Great seats!



So even a day off that gets turned upside down can end swell. County fairs and baseball....great American pastimes it is a priviledge to share.

County Fair Diary ...Day Five

Well, it is wednesday night and I have to share....my feet hurt. I had the afternoon shift today. I got there a little early figuring that the person working the morning shift might want to scoot sooner than later (I seem to be the only one in the fair crew that loves the opportunity). Well, much to my surprise, I replaced no one. The early person left around lunch time and the booth had been empty for awhile.

Within minutes of my arrival, a very nice young woman stopped by and wanted to discuss the sale of her home. She has been going back and forth between her house and the home her mom left her two years ago. She had stopped by a bit earlier but no one was in the booth and she was taking one more chance on her way home.

I shared what appeared to be her options and she asked the I come by next week and tell her what has to be done to sell. She also asked that I bring the paperwork necessary to list the house.

It wasn't an hour later that another homeowner came by and asked about selling their home. We talked about pricing and the market. After a conversation and answering questions, we made an appointment to have me come by and list the home this weekend.

The rest of my tour was spent blowing up balloons, chatting with folks that came by for general information and taking a break to partake in the most wonderful funnel cake.

My shift ended at around six and I was able to go across the way and enjoy the finest fried chicken dinner on the lot. After eating, I figured..why sit in rush hour traffic and went over and watched the monster truck show. Just another day in paradise.

County Fair Diary ...Day Four

All is fair in love and war. The same holds true for working the booth at the fair. I had to actually do work related activities during the day. My shift began at six. Once again I enjoyed the private delight of driving through the special vendor entrance, guiding my jeep past horses, the cow barns, stopping at the pedestrian cross walk and continuing to the on-site parking for vendors. It really is nice when such small priviledges bring such joy to my heart. It was extra special tonight...my lovely wife was with me and she got to enjoy the treat as well.

On to the evening. There was a lot more traffic in the vendor area. Apparently, local fair goers suffer from "fair fatigue" early in the week of our fair. It follows on the heels of a nearby counties events and those that enjoy visiting the fair circuit need a little time between visits to recharge their batteries.

I was in the middle of explaining the highly technical job of blowing up balloons when a young couple stopped and exclaimed, "Hey, we know you, you helped us buy our house!" I looked up to see Rob and Melissa (apparently on her way to being great with child). They were very happy to see us and began to relate the story of how they got their first home.

It was a couple years ago, about mid-January, when they first began their search. Rob laughed as we talked about the superbowl sunday when I met them to tour an open house. We got there around noon for a one o'clock open house and found a crowd of about 50 other people waiting to get in. Parking was at a premium. I was walking from my car to theirs and took an awkward step on ice. Apparently, they were in tears as they watched me, my briefcase and their paperwork go flying through the air.

The house was not quite for them and they decided not to join the other six offers that were being submitted that afternoon. The following weekend, one of the homes chosen for viewing had been on the market 2 days and was available for viewing during an open house. The listing agent was one of those folks that put a sign in the yard and tell the seller to hold the open house. Rob and Melissa walked through and loved it. The owner was hosting the open house. We went outside and "we want to submit and offer on this house." I pointed out the large numbers of buyers that were coming and going and told them, "OK, let's write the offer right here on the hood of my car. You will then walk back into that house with me and tell the owner that youi will pay him full price for the house if he accepts the offer right now." I wrote it up and Rob and Melissa went back in and cornered the owner in the kitchen. Rob made his pitch and the owner stammered "I think I need to talk to my wife, she won't be home for thirty minutes." I could have kissed Rob when he smiled and said "We'll wait." The owner turned to me and asked, "Can I accept an offer now?" I told him that I was not his agent but it was my understanding of Maryland law that he had the right to accept or reject any offer.

Cut to the chase. His wife came home. They accepted. Later in the evening, his agent called to say that it was underhanded and he had three more offers to present. I told him to hold onto them, my clients might not like the ocndo docs but as it stood, they had a ratified contract. Rob and Melissa are going to need a bigger place once the baby arrives. They asked if I had time to sell their home and help them find a new one. It is nice being at the fair. Would I have been involved if I had not seen them at the fair...maybe. They did mention that they do receive my monthly market reports, but I didn't know she was expecting and I believe that I may have missed the boat if I had not been here at the fair.

The rest of the evening was spent chatting with folks. Most were concerned about the mortgage industry implosion. I shared that the dust will settle. The feds will cut rates and the market will improve as it always does ...from the bottom up.

County Fair Diary....Day Three (Bus man's holiday)

Well Monday is children's day at the Fair. I did not sign up to work in the booth on this day. I have to share that one of the great fair attendance joy's is to see the wonder in children's eyes as they wander from one livestock area to another. Grownups usually have forgotten the thrill of standing right NEXT to a real cow! The biggest thing wandering the suburbs in today's world is the neighbors dog (that is unless you live in the western suburbs that occasionally receive a visit from a wayward black bear).

I spent my day off from the fair at the fair. I went from booth to booth rediscovering the longing for a hot tub that I thought was quite removed from my psychie. I sampled assorted flavored pretzels from Pennsylvania. I tried my luck hurling darts and unbreakable balloons. I test my free throw skills with basketballs that had more bounce than the original super balls. I plunked down my dollar and spent some time with the worlds largest horse. I have to confess, I even spent the money to see the two header raccoon and five legged goat.

The time spent on the midway always seems to tire me out. As luck would have it, when the heat and walking finally hit me, I was standing in front of yet another pizza vendor that was situated adjacent to the Bingo tent.

Those of you that passed by in mid-afternoon may not have noticed, but that content looking fellow wiping the pizza off his t-shirt really did say BINGO. The magic continues.

County Fair.....Diary Day Two

I had the early shift Saturday arriving at the fair grounds a little before 9 a.m. There is something special about directions that include "turn right at the goat barn, go to the end and then turn into the vendor lot next to the livestock exhibitor parking".

The gates opened and the first visitors began their search for giveaways and as much free stuff as their plastic bag would hold. I was ready. I had a full helium tank and a 4 boxes of balloons prepped with ribbon and a nifty little filling cap. Soon the midway was adorned with small children holding on to red, yellow and blue Long and Foster balloons.

There was an occassional break in the action which afforded me the chance to slip next door to the Cheese booth and purchase a delightful grilled cheese sandwich. Later in the morning, I headed north to avail myself of a couple free samples of italian ice.

About mid-morning, I actually had the chance to chat about real estate. Two women came up and explained that their mom had recently passed and wanted to know if I could explain how they could sell the house when they both didn't live in the area. I went over the process as best I could, got the information and made an appointment to visit the home after the fair and list the property.

Then came the pleasant surprise. The real estate editor of our local paper dropped by to chat me up about the market and what folks were saying when they visited the booth. We talked for a while and she made sure to fill out a form to enter her name in the drawing for one of my paintings.

As my shift came to a close, the sweetest little bundle of joy on the fairgrounds rolled up in the stroller her mom was pushing. She squealed with delight when I tied the bright red (just like Elmo) balloon to her little wrist. It was her first visit to the fair. Rather than pack and go, I offered to walk the grounds with her and her mom.

I made sure to point out McDonalds farm and enjoyed the wonder in her eyes as she stroked a bunny rabbit. Our last stop was at the ice cream booth manned by the Lions Club. We ordered and sat back in the corner so this little princess could watch people come and go. She actually has acquired the talent to bite an ice cream cone and soon her smile had a sticky chocolate ring around it.

I walked them to the exit and gave her mom a hug and thanked her for letting me pass on the tradition. Can life get any sweeter than having your daughter bring your first grandchild to the fair so that you can share a family tradition? I think not.

>

My beautiful granddaughter Rylee

Daily Fair Diary... Day One

Well, my first day at the fair has come to an end. I have a feeling that the people that stopped by to chat and ask questions represent many of you that haven't had the chance to stop by. I thought I would share a little of the information requested.

Bob T. came by and shared that he and his wife had recently sold and were now renting a condo. He said that they got less than they thought they would get for the house and decided it would be better to rent for a year before buying another home. He and his wife saw a couple homes they liked. They figure with all the turmoil in the market, the prices will drop and they will get a better deal next spring.

I just happened to have my laptop with me (had to use the battery, the fair did not include an electrical outlet in the package). I pulled up the two homes that he mentioned to see if the price had come down. He and his wife just stared blankly at the screen when both listings came up as sold. Not only that, one of them sold for a bit more than the asking and the other sold for full list price.

I told Bob, prices may come down a bit. No one has a crystal ball. The downside of waiting is that someone else may like the property you want and they may not be willing to wait. There may be another house just like the one you didn't buy. No one has a crystal ball. All we can do is act on the facts before us.

If you buy the home you want today, and a similar home sells next spring for less money, you still own the home you want. Next springs prices have nothing to do with today's prices. In the long term, home values go up. You are buying a home, not investing in real estate. Tomorrow will always have the possibility of being better or being worse. Today you can make decisions based on facts...not possibilities.

So......that was the most involved question of the day. Two steak sandwiches and one ice cream cone later...my day was done (now if I only get them to call B7, I will have Bingo 2 ways on one card and a four corner on another).

If it is 100 degrees and August....it is time for the fair

Folks are sitting around pools and the temps are reaching triple digits. The Redskins are in training camp. Commercials are heralding back to school specials. These occurences can only mean one thing. It is time for the Montgomery County Fair.

Now, I have been going to the fair since Gaithersburg was the outer fringe of Montgomery County. Directions to the fair included things like...go on out the Washington Frederick Road past Agnew Inn about 10 miles, once you go over the bridge the fairgrounds will be on your left. Today folks will use 270 and exit right into the fairground area or drive over to Lake Forest Mall and take the shuttle.

There is more information at www.mcagfair.com/

I will be working in the commercial building during the fair. My personal schedule is:
10th 3-6
11th 10-2
14th 6-10
15th 2-6
17th 10-2
17th 6-10
18th 2-6

If you can stop by, I will gladly answer any questions you have about real estate and I may even throw in a hot tip on the "pig races". If you come by at times that are not on my schedule, check the BINGO booth. The old guy eating cotton candy, playing three cards at once .... that will be me.

Enjoy...it remains Montgomery Countys finest tradition.

Mortgage chickens coming to deny your roost

While you've been away.....the mortgage industry has been imploding. Over the past few years, it has been mentioned here and in many other places that the amount of money being offered to anyone with a pulse would erode the foundation of the mortgage market. If you follow financial news, it is occuring before your very eyes.

The most recent casualty is American Home Mortgage. Their demise has caught the attention of those of us in the real estate profession. They were not making their living off of questionable practices. They did not lend money to anyone that applied. A lot of their money was lent to borrowers with very good credit scores. A lot of their money was lent to people that borrowed more than the $417,000 conforming amount.

The $417,000 figure is important to note. $417,000 is the threshold for loans that can be funded by Fannie Mae, Ginnie Mae and Freddie Mac. Those three institutions regulate government backed loans. If a loan is greater than $417,000, it is refered to as a non-conforming loan and must be funded by private investors. These private investors are usually found on Wall Street.

Here is a basic overview of how loans are funded. There are two ways of funding - public funds or private funds. A mortgage broker or lender sits down with an applicant and takes an application. Information is checked, a credit report is reviewed and the information is entered into a desktop underwriting program which will direct the lender towards the best solution for their customer. They may and often qualify for more than one program. The solutions are presented and program is selected. If the amount needed for the first trust is $417,000 or less and all other necessary criteria can be met....the loan is most likely funded in concert with one of the aforementioned agencies. If the amount needed is greater than $417,000 and/or other criteria can not be met....the loan will be privately funded.

If the lender has its own resources, they may choose to fund the loan and sell it off to an investor. If the lender does not have their own resources, they shop the loan to the investors on Wall Street.

Someone once said "If you want to get to the bottom of anything, follow the money." Mortgage lending is no different. It gets tricky when you involve investors and the stock market. It becomes a little more clear when we follow the money. No one is doing this altruistically, everyone wants to get paid.

For example purposes, I will use a $500,000 loan. The mortgage company offers the loan to a customer at a 6.75% rate and goes to Wall Street to seek funding of the loan. The investors on Wall Street figure that loan is worth $505,000 to them. The 6.75% return is a good one compared to what other investments are yielding and they will be receiving payments for a long enough period of time that they will show a profit on their $505,000 investment.

In this scenario, the lender can make the loan without having to charge any extra money. The lender is making 1% ($5,000) for processing the loan.

If a lower rate was offered, the investor would most likely pay less for the loan. An example might be the same $500,000 loan at 6.625% could only result in $502,500 and a 6.5% loan could only result in $500,000.

The lender has to make money in the process, so the lower rates must be paid for by the borrower. These are usually deemed "origination points". In order to maintain the same revenue...the lender would probably charge 1/2 point on the 6.625% loan and a full point on the 6.5% loan.

If the borrower wants an even lower rate, we get into "discount points". For instance, they borrower wants the loan at 6.25%. The investor may only offer $495,000 for that loan. The borrower would have to pay the additional $5,000 (one full discount point) as well as the origination point which in our scenario would be another $5,000. The borrower would have to pay $10,000 at closing to get the half point reduction in his rate, rather than take the market figure of 6.75%.

Everyone was fine with this system as long as mortgages were being paid on time.

Well, as we all know, that has stopped happening. Defaults on loans are increasing at an alarming rate. The investors on Wall Street have always measured the risk against the potential gain on any investment. The investors are constantly revising data and reviewing the current risk against historical analysis. The recent increase in mortgage default has increased their perceived risk. The increase in their risk has either lowered what they will pay for a mortgage or in some cases they have decided to not fund any mortgages.

Those that have continued funding mortgages have drastically reduced what they will pay. The $500,000 loan at market rate that was purchased last year for $505,000 may only bring $475,000 now. In order to make money, the lender would have to ask their borrower to bring $30,000 at closing (that's 6 points and none of them discount the rate - they are all origination fee). The other choice is to ask for a point and lose the other $25,000.

Unfortunately, the lender is in a no-win situation. The majority of borrowers would balk at this request on the lenders part. Recently, the news of these cost came at the last minute. Investors do not lock in rates. Lenders lock in rates for a short period using their best guess as to what they will be able to sell the loan for at the end of the lock in period.

So last week, the good folks at American discovered that the loans that they had to close at the end of July were going to cost them considerably more than they could recoup. I will not get into the spiralling behind the scenes cost that all lenders and investors are seeing daily. American could not fund the loans. Closing their doors was their only viable option. Other lenders face the same predicament.

Lenders have billions of dollars of unsold loans on their books. These loans have been funded. They were funded by loans the Lenders took out from their banks. You see banks will loan money to lenders based on the revenue the lender anticipates receiving once they sell the loans. This revenue is the value of the loans that have not been sold. When the investors reduce the amount of money that they are willing to pay for loans, the value of the loans decreases. The lenders can only borrow a percentage of the value. When the value goes down, they have to immediately pay down the loan so that the amount due the bank is a percentage of the new value. It sounds a bit confusing to the layman, but it is very devasting to the lender. If they can not pay down the loan, they are in default and that usually triggers a series of events that culminates with the doors being closed.

It also begins the ugly cycle because now a bankruptcy judge has to sell the loans that were funded and not purchased. Investors usually do not pay top dollar for assets sold at bankruptcy. The value of the loans is decreased and the overall impact is yet another increase in risk assignation and the possible reduction of what investors will pay for new loans.

I don't pretend to be an expert, this is just a general overview. I wanted to try and explain how the mortgage market is reacting and what causes a big company to go under.

The safest route for borrowers is to keep their loan a conforming loan and to provide all the documentation your lender requires. The statement "We fund all of our loans" does not guarantee that origination points will not be charged nor does it eliminate to possibility of discount points being charged. Consumers have to understand that almost all mortgages will be sold and the cost of that sale may be included at loan origination.

Steps from Metro, Minutes from Downtown

Solitude minutes from the maddening rush

The State of The Union

There are issues of wars being fought on foreign soil, there are issues of a growing illegal immigrant population, there are issues of mankind's impact on his environment. Nothing paints a clearer picture of who we are than the ongoing plight of our fellow countryman still suffering the effects and after effects of Hurricaine Katrina. Until we as a nation, collectively extend a helping hand to those in need, we will continue to exist as self indulged nuclear families living a life stimulated by ongoing sound bites about celebrity dramas and "would-a, could-a, should-a" remarks from candidates running for office.

Please consider your personal ability to help. The links below offer opportunities to assist those still suffering.

Family to Family.Org

Emergency Communities.Org

One Day Trip...Lots of Answers

I finally reached my limit yesterday. I have been spending weekends attending to the needs of buyers and assisting my growing group of clients attempting to sell their home. I may sound impossible, but I think it is likely, we can not see the forest for the trees.

Let's face it, the market is still sluggish. (note: sluggish is fancy real estate technical term for the fact that activity is maybe 80% of where we "thought" it would be)

I read the headlines. I watch the nightly news. I read trade publications. I have become proficient in an entirely new vocabulary. "The market has changed."" The market has died.""The bubble has burst.""The sky is falling." O.K., maybe not the last one.

It has been heralded that we are in a "buyer's market". Really? Call me crazy, but my assumption would be that a "buyer's market" would have ready, willing and able BUYERS.

If those buyers were out there, wouldn't they be buying?

I had to see for myself. I pulled up 15 listings in a price range comparable to what I would list my home for and went out to view homes like a buyer. I made the necessary calls. I went through all the steps that I normally follow for my clients.

Our first stop was Normandy Farm for brunch. It is the easiest $26 to spend on a Sunday morning. The food is wonderful, the service top notch and the experience makes you want to make it at least a monthly event.

Everyone looking for a home should hit the market on a full stomach feeling like a special person. Normandy Farm will take care of that part of the mission.

Then we began. The first house was being held open by the listing agent. Out of the 15 we visited, 6 were being held open. I am sure that the first agent had a lot to share, but we could not hear her over the traffic that roared by outside. It seemed to me that she should keep that front door closed. The flier pointed out the wonderful location. I asked why the price was the same for over 4 months and the agent just shrugged her shoulders and told me...."two years ago there would have been a line out the front door, contract in hand to buy this house." As we were leaving, I mentioned "This is 2007 and we aren't in Kansas anymore."

I won't bore you with a blow by blow description of the day. It did take 6 hours to visit all 15 homes. It was very tiring. When showing homes to clients, you keep a practiced eye on the structure of the home, how it is presented, etc. Your main focus is on your client. (I may have mentioned this - I have a home. When working, my client is buying the home. The advice and counsel are mine. The decision is theirs.)

Anyway, since the final decision rests with the owner of the home, I have something to say. You all need to rethink pricing. If you are sitting there month after month and your house is still on the market, IT IS PRICED TOO HIGH! I really don't care what the neighbor sold their home for last year. It really doesn't matter what you paid for your home. Your indebtedness has not relation to the market value of your home.

The media is running out of ways to explain the market. The "correction","bubble bursting", "change in mortgage guidelines", "impact of gasoline cost","buyer on the sidelines", "paralysis by analysis" and every other thought is sugar coating the bottom line.

There is only one word that neatly describes the reason for the current market. There is only one label that covers the main reason houses are sitting unsold. It has nothing to do with the mortgage industry. It has nothing to do with the willingness of buyers to make offers. It is not meant to blame anyone. It just describes in total, the underlying issue.

GREED

That's right, plain old fashioned GREED. We have the proverbial stand-off at the highest level. And the level is so high, no one is bothering to challange the sellers. Buyers see the house on-line, see the price of the house and do not bother to even drive over and walk through the door. They don't ask their agent to make an appointment. They just sit at home an wait. They are not even going to initiate a search until sellers realize that the gains of two years ago are gone.

You are not going to sell your home for more than the neighbor sold theirs. It is not going to happen. If you truly want to sell your home, price it like you want to sell it.

Of course, our trip yesterday took us from the Bethesda area to Derwood. The first house and the last house and every house in between was priced higher than it should have been priced. We don't have to rush back, we know they will be there next week and next month. The agent may change - sellers often like to use the agent as a scape goat when the house won't sell for the price they want. I imagine it is very difficult to accept that your home is not worth what you believe it to be worth. If you have the chance, try to remember the little voice in your head that whispers "what are they thinking?".

I know it will not sell headlines or keep folks riveted to the nightly news, but, the headline should be -

HOUSES LINGER LONGER WHILE OWNERS LANGUISH IN GREED ! ! !

I do feel much better. I was beginning to worry that there was a horrible reason that the housing market is sluggish. At least we can be comforted. GREED has been around a long time. We know how it will end.

The greedy owners will sit back and wait. They will fire their agent. They will contemplate for-sale-by-owner. They will continue to believe that their situation is different. They are not asking too much. Then time will become a factor and the price will come crashing down. They will sell for less than they could have received in the beginning. Prices will come down. The market will pick up and we shall have survived yet another cycle in our economy.

My wife and I will now just sit and wait. We learned two valuable lessons. One, the couple homes we did like will not be sold at the price they are asking. When they come down, the owners will be weakened by the experience and we will be able to negotiate strongly for every term we want. Two, when we put our home on the market, it will sell within a month. Homes priced correctly move quickly.

GREED is such an ugly word. Maybe that is why the market seems so....well, ugly.

The last day of April

So, I have been busy. I have been very busy and I am very grateful for the opportunity to practice my trade. Representing buyers and sellers is far more enjoyable than sitting around the office wondering what happened.

It is not a mystery! Spring has sprung and the pent up demand from last year's hiatus has erupted. Buyers have stepped up and out and they are looking again. The sub-prime fiasco has not impacted everyone. First time buyers are finding out that there is a way. I suppose that I will end all suspense and share the secret

Bank of America

That's right, just when everyone was beginning to believe that the home of their dreams was beyond their means - Bank of America has risen to the occassion.

I have no ties to the bank. I do not own stock in the bank. I don't think I have any relatives working for the bank. I just happen to believe that the Bank of America has the best loan program for first time buyers.

Are you concerned that the financing offered you is an 80% first trust and a 15% second with 5% down? Are you concerned that the financing offered you is an 80% first trust with a 20% second and no money down? You should be if that is what is on the table.

Call Bank of America and ask about the program that will finance 97% of the purchase (up to $450,000) with NO PMI. Find out what you can afford. There is a drawback. You actually have to have enough cash to put 3% down. Closing cost can cost you up to another 3%, but they can often be negotiated with the seller.

Before I leave, I just have to say....you need representation. If you have any doubt about whether or not you should talk to me, let me clear it up. You want me on your side of the table when negotiating begins.

My clients become home owners.

Isn't that what you want to do?

Sub-prime torpedoed

Dateline. Washington, D.C.

The ticker feed from all wire services is reporting the financial tsunami of defaults on sub-prime loans. Bernake is reported to have "said that uncertainties over the economic outlook had increased, most notably the future trend in oil prices and a possible knock-on effect from the sub-prime lending crisis into the broader US housing and credit markets. Thus far, the Fed chairman declared, the difficulties faced by sub-prime lenders - which deal with customers who are shunned by mainstream lenders - were being contained. He argued that the shakeout caused by defaults on mortgages by overstretched and less creditworthy borrowers was a necessary correction after the lending excesses of the past few years."

So we are to understand that investors pulling out of the market is a necessary correction after lending excesses.

Paul, just a word here....that dog won't hunt.

The same regulatory agencies that looked the other way while no-doc provisions were being abused will have to come to the table with some way out of this mess. The same regulatory agencies that allowed predatory lending to continue will have to come to the table with some way out of this mess.

It is rather ironic. Not to many years ago, the government was all about protecting minorities and the disenfranchised. Lenders across the county were complicit in "red lining". The folks in the board rooms determined it was not profitable to lend money to what they considered customers of greater risk. Of course, credit worthiness was not always the only yardstick and the purse strings became much tighter when the customer was of color.

Times have changed. Now lenders couldn't wait to pour money into loans for risky borrowers. It became the front end of high stakes bait and switch game with investors and bonds. The house of cards was built rather shabbily and it has begun to tumble down.

In the end, the same people will be hurt. Years ago, credit was denied and the opportunities that went along with credit were denied at the same time. All the legislation and affirmative action will never change what occurred.

Now, the reverse has occurred and credit has been granted that can not be repaid. Terms have been granted that were not understood and can not be met. All the new legislation and continued affirmative action will not change that it has happened again.

We won't see much of it here in this market. We will just see the effects of it. We will read of the fore closures in other parts of the country. Politics will keep it's hold on our headlines. The nightly news will do human interest stories. We just won't feel the pain.

I know that I am a big believer in people taking responsibility for their actions. There are many that would point to the people that borrowed the money to buy homes that they could not afford and say that it is their own fault. They put themselves in that position.

I will merely say that I believe every lender is a public servant with an inherent responsibility to be good stewards of funds that they are entrusted with and an obligation to be reasonable counselors in financial matters they are asked to supervise. I believe that every real estate agent is a public servant with an inherent responsibility to represent one side of a transaction in a fashion that is totally loyal and focused on the best interests of their client.

We can legislate ad infinitum. We can create associations with by laws and code of ethics. We can place hands on bibles and swear to the living God.

It won't change anything.

There are enough laws on the books. Enforce them!

I am sure that it is a violation of someones civil rights if you are placed in a position of trust and put them into a bad loan that ends up bankrupting them. I am sure it is a violation of someones civil rights if you put them in your car and show them homes that are out of the range of what they can reasonably afford and convince them that owning more house is a good idea. Cajoling people to extend themselves and then introducing them to a friendly sub-prime lender would seem to me to be a pretty egregious violation of their civil rights.

The laws weren't written for that you say? Oh, I just sort of take that word "civil" in a literal fashion. It is not civil to feast at the expense of an other's famine.

I will not be surprised to see the Federal Government intervene and come up with some sort of bail out plan for those that find themselves on the verge of foreclosure. I will also not be surprised to see the culprits slip out the gentle back door of corporate protection and never be held accountable for their actions. There may be the show case public hearings to justify the bail out. If so, there will be a great deal of pontification and holier-than-thou grandstanding.

As it unfolds, please remember, this is not happening in a far off land. This is your country. This is not a quirk in a system. It is just another step taken by people in positions of trust to destroy that trust. The same legislators that decry the behavior of the guilty were in power when the actions took place.

And when the dust settles, we will have returned to a place where folks save up money for a down payment before buying a home. If they save a little bit, the FHA has a program. Many professionals will learn that the advice to protect their reputation was really an admonishment to act professionally.

The sub-prime torpedo will finally have hit the correct mark and imploded. I think Dorothy was right when she sang "tomorrow, tomorrow, the sun will shine tomorrow".

Hell, go mow the lawn!

I am a member of a loosely knit group of Realtors across the country. We have our own website where we share ideas, complaints and commisseration with one another. No, we don't have a secret decoder ring or one of those fancy hand shakes, but we do take the time to support one another.

Recently, an issue came up and a Realtor asked for advice on how to handle the situation. All the names have been changed and faces re-arranged but the facts are basically accurate. Jim was approached by another agents client. The person told Jim that she hated her current agent and wanted Jim to represent her. Jim would like to accomodate her, but he is also bound by our code of ethics.

Jim shared his story on our forum. My good friend Stephano replied that he would be well within his rights to suggest that he would be glad to speak with the woman after her agreement with her current agent ended. Others shared that since she had contacted Jim, he had every right to explain to the woman how she may extricate herself from her agreement. A few even suggested that Jim just sign an agreement because no broker will ever risk bad publicity by going after an agent. (This is probably true, most brokers like to play nice and overlook issues that may be perceived in a negative fashion).

I shared the following vignette. It probably says more about lessons learned in life but I thought I would post it on my blog. I do want to keep my growing readership happy.

James,

Back in the day, I was a junior in high school and madly in love with Kathy K****. Now Kathy was drop dead gorgeous and sadly enough for me, going steady with Bruce B***.

One weekend, we were at one of those parties and Bruce passed out on the couch. Kathy grabbed me and pulled me into another room. She planted the most wonderful kiss on me and said she couldn't wait to dump Bruce. She claimed undying love for me.

Well, Kathy was way more advanced in the ways of the world than I at the time. Soon, I was cutting class and sneaking into the room above the gym for afternoon tryst with sweet Kathy. That went on forever. It must have been at least two weeks. Kathy dumped Bruce and began sporting the $1.00 silver ring I purchased at the Ben Franklin around her neck.

We were going to be lovers for life.

JMAC had become Bruce.

Sad to say, Barry S**** soon became JMAC. It was a few short weeks later that my ring was returned and I was left with the devasting heartbreak.

I could not believe that it could happen to me. Heartbroken, I sat in my personal hiding place, a storage room under the basement steps in my home, listening to Gene Pitney croon "Only Love Can Break a Heart". I figured that I could just die there and everything would be ok.

My father opened the door and asked "Dummy, (he always chose the most tender of nicknames) what are you doing under the stairs? Turn that damn radio off and get the hell out of there."

"But Dad, I have had my heartbroken"

"Really, well the grass needs mowing. Get out there and get it done or your rear-end will be broken too."

"But"

The look in his eye and the smell of alchol on his breath just washed ole Kathy and my heartbreak out of my mind.

It was first experience with a term that became quite significant during the Viet Nam incursion.

DON'T MEAN NOTHING

It also gave me the first lesson that if someone is willing to cheat on someone else to be with you, they will probably cheat on you to be with someone else. That sentence says more about self image than anything else.

I think that you deserve clients that will be loyal to you. I am sure there are exceptions, I just don't care to deal with them. I try not to agree with Steve too often, but in this case, I almost do.

I wouldn't want the client. I would be concerned that she/he would be crying the blues to another agent the first time I handled an issue in a fashion that was not satisfactory.

Hell, go mow the lawn.

jmac

Who are these people ???

I have this listing in the American Finmark. It's a one bedroom condo on the second floor just waiting for a young professional that wants to own his or her first piece of the rock. I had already warned the owners that the condo market was a bit soft and they would have to price it attractively to generate interest. They thought about it, looked over all the information that I gave them and decided on a figure.

I crossed my fingers and scheduled an open house.

Who are these people?

I had folks, young and old, with and with out agents coming through the door from when we started at 1pm until we shut it down at 5pm. At one point, I turned to my wife and asked her to pinch me. I asked, "Is this 2005 or 2007?"

Once again, the real estate market in our area has turned on a dime. Shifts that were once slow now occur in moment. Buyers are showing up in the office seeking help. The phone is beginning to ring on a regular basis. It seems that the realization that now is a great time to buy has finally sunk in.

I don't share this to startle anyone and I certainly don't want to give the impression that I am so busy that I just can't help anyone else. I always have time.

I suppose that my joy is best explained in this fashion. I love the Christmas season and I love shopping. The excitement in the air is palpable. The crowds, that some of you dread, represent a whole lot of happy people to me. Every long line is a sign that lots of people are going to have a happy Christmas morning.

The increased buyer activity is an indication that soon, lots of folks will be enjoying a new home and in many cases it will be their first home of their own. I can't represent all the sellers and all the buyers, but I sure can enjoy an active market. Some of those that I do have the chance to work with will become part of the new generation of home owners. The opportunity to play a small part in the ongoing community transitions around me is a wonderful reward for the effort I make.

Who are these people?

They are your new neighbors, your new friends, and in some cases - my new clients! It is a great time to be a Realtor.

Did I happen to mention...

It seems as if many people have responded to my call to get back into the real estate market. I have been blessed with several clients in the past few months. I truly appreciate the requests for buyers and sellers guides. The information is free and part of the service I offer to any interested person.

There is so much in the local and national news about real estate, I thought I should take a break and comment on all of it

The stock market is in a free fall after reports of sub-prime lenders going belly up. This is an interesting situation. I don't know where to begin with a comment. Did those that invested in the "blood sucking", "immoral" leeches on the bottom of the mortgage industry really think that their investments were sound? Did those that propped up the sub-prime thieves think that the cash cow would be offering milk forever? If those holding stock in companies that have been bilking the weakest and most vulnerable among us find that they are going to lose a lot of their money, so what!

Let's take time to call a spade a spade. A sub-prime lender has a customer base of people that either can not document their income, have credit problems and can not qualify for the most lenient FHA loan, or use english as a second language and do not know any better. Our housing market is not built on the shoulders nor the integrity of sub-prime lenders. It will be a cold day in hell when I start to feel sorry for people that were getting rich off of the surplus profits sub-prime lenders provided them. The only difference between those that mug the weakest in our society and the sub-prime lenders is the sub-prime lenders are not armed with a weapon. Sub-prime lenders are armed with a more devasting tool. They use the promise of a better tomorrow, the promise of owning a home and hidden in the small print is a price no one can pay. My advice is invest in those that invest in your community and let sub-prime lenders and those that support them rot.

Our economy is strong. Our housing market is strong. The trickle down effect of the sub-prime collapse will smooth out. The agents that have referred people to them will be easily identified. They will be selling snake oil on the street corner. It is a pity that we have outlawed "tarring and feathering". Any one that has abused a position of trust in order to achieve personal gain has no right to hold the position any longer and does not deserve a second chance. Real estate agents that "have been in bed" with sub-prime lenders are the pedophiles of our profession. They can not be cured and should be banished.

On a brighter note, my friend Glen finally has a home of his own. It is a long story that I related here moments ago. My little finger hit the tab button and erased the entire post. I only had the energy and time to re-type the rant against sub-prime lenders. Maybe another day....

Baby Boomer's Babies Backlash

There. I think that sums up the past few years of the real estate market in the Maryland suburbs outside the District of Columbia.

Yes, I am pointing that collective finger at my peers. The children of post World War II were labeled the baby boomers. Their history is still being written. They witnessed more change and turmoil than any other generation. They grew up in homes that were parented by adults that in many cases had lived through the great depression. They watched "Leave it to Beaver" and "Father knows best". They rebelled against the status quo and gave the world Woodstock and political upheaval with anti-war demonstrations during the Viet Nam era. They became parents.

It is the parenting that led to the current group of young adults. Baby boomers reacted to the upbringing they endured. They went to great lengths to make sure that their children never had to suffer the indignity of hand me downs and non-name brand clothing. They made sure that their children had a safe automobile when they reached driving age. They made sure allowances were available.

Something got lost in the love that was shared.

The sense of understanding the value of the nicer things in life somehow morphed into a very strange sense of entitlement. The perception of earning and working for long term goals was replaced by the sense that "I want it now!" is justified.

Apparently, when the need to earn money is replaced by parental grants, the understanding of the value of money is lost. Price tags no longer have a relationship to hours worked to earn the cost of the item. Price tags have just become another number.

Our market saw incredible increases in home prices. Income did not go up at the same rate. There was a perceived reduction in inventory. The reduction in inventory did not create such a shortage that prices would increase as dramatically as they did. There were a few factors that fueled the fire.

Traditional mortagages were cast aside in favor of newer non-traditional loans. The children of the baby boomers were presented with new options for financing their home. They would not be saddled with the old 20% down and finance 80% over 20 years. The new home buyer could now pick and chose from a plethora of programs. 100% financing became vogue and interest only loans came into favor. These changes increased the buying power of those entering the market.

What occured is history. The scenarios played out across the area were something like this. A young couple starts looking for a home. They meet a Realtor that advises them that they need to be pre-qualified in order to begin searching for a home. (This is normal. You have to know what you can afford to set your home search criteria.) The young couple calls a Mortgage Broker and finds out that they can qualify for a $600,000 loan. They don't stop and realize that they will have to make timely payments on that $600,000 loan. After all, if they could not afford it, the lender would never have qualified them for that amount. (This happens a lot. After all the lender doesn't have to make the payments for them.)

Pre-qualification letter in hand, the young couple begins searching for a new home. They find many that meet their criteria. They decide on one and ask their Realtor to prepare an offer. Unbeknownst to them, a few other couples have been searching and they also selected that home. The seller receives multiple offers and the bidding war begins. The home may have been listed for $450,000. Other similar homes have sold for $450,000. The home is actually worth $450,000 at the beginning of the bidding process. Our featured couple decides that they will pay up to $460,000 for the home. The home sells to another couple for $465,000. Our featured couple is crest fallen. The couple that bid $465,000 has an accepted offer (Now faced with hopes that the home will appraise.).

Our couple strikes out again. They find another home and go through the same process. They lose again. They ask the Realtor "What can we do?" The Realtor explains that patience will win out and that they will find a home.

Unfortunately, the young couple decides that they will get the next home come hell or high water. They look and find another home to place an offer on. They instruct their Realtor to use an escalation clause that will go to the max that they are qualified to spend. (The Realtor explains the escalation clause. The Realtor probably does not explain that the escalation clause is not worth the paper it is written on.)

The place an offer on a $450,000 home and win with an offer that is $600,000. They somehow believe that the home is now worth $150,000 more because they were willing to pay that.

Today that couple is sitting in a home that could sell for maybe $500,000. They owe $600,000 on the property because they have been paying interest only. They got the house.

How did this happen?

Baby boomers tried to make sure that their children were never lacking anything. It seems that this focus was on material things. Somehow the baby boomers forgot to instill a sense of value in things. Somehow these children never learned that the monetary value of desire is like quicksilver or fool's gold. There are practical rules regarding the value of real estate. Our prices are in the process of adjusting. The fancy non-traditional loans are resetting every year. As interest rates increase, the monthly cost of "I have to have that home" is increasing.

Now is the time for new buyers to learn from the mistakes of the past. Advice for them is quite similar to very old adages. Buy today what you can afford today. Plan for tomorrow based on fact and not emotion. Seek credit and financial counseling so that you truly understand the value of the dollars you earn and purchase accordingly.

Oh, and before you buy your sixteen year old child a brand new car, think about the message you are sending and the lesson you are teaching.