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Sunday, July 12, 1981

Wednesday Open Thread

This is your open thread for today. Please post random links and off-topic discussions here.

Here's a random little snippet of my own. Seen on the Craigslist forums last week:

Over the long weekend, one of the people I was camping with is an Escrow officer on the Eastside.

I asked her a few questions about how business has been - she'd been working 65 hrs a week lately. Then I posed a question about what percent of the loans were fixed rate, she chuckled and replied "ZERO! I haven't seen one in months."

Granted, this is only one office but they deal exclusively with Seattle area properties.

The most popular loan? Option Arms with initial rates under 2%.

Apparently she's seeing alot of Cali equity refugees buying up cash flow negative rental properties in this area. And in her opinion, the party is far from over.
Party on.


matt said...

Gal I work with is moving out of her 500K Central District house she bought with her significant other, into her smaller house she was originally going to rent out because it was re-assesed as an 'investment' property which added another point to her re-fi, another $350/month. I'm curious to see what she's going to rent the 500K place out for, but unless its hovering around $4K/month its going to be hard to cover the mortgage. Nice house but is anybody going to rent it out for that? I wouldn't... I could almost get a penthouse Belltown luxury apt. for that.

Anyway, just an anecdote.

S-Crow said...

Re: Tim's opening thread about an escrow officers comments......

It's why I just about fell out of my chair when one of the Realtors commented on the Seattle PI real estate pro blog that they would discourage their seller from accepting these "crazy offers" of 100% deals or other ARM's. The thought was that the borrower's offer and financing wasn't strong. As if it's rare to see these.

We close these ALL DAY LONG. This type of financing is what has moved, sustained and led to the huge run up in the markets across our country, never mind just Seattle-Metro.

Had a deal a couple weeks ago for $1.2 Mil by a loan officer & family.

Can you guess the type of financing?

My neighbors, God bless them, bought his house for $750K and change a year ago.

Can you guess the type of financing?

Closed a deal last week where the borrowers had several 30-90 lates, were delinquent on two vehicles that combined for $1000/mo payments. And they qualified for a $2500/mo mortgage. Can't pay for cars but they can for a house.

Can you guess the type of financing?

So, readers, it astounds me that some people in my own profession thinks this stuff is crazy and tow the line that they would not advise clients into these loans and not over extend themselves. I've personally have never heard, never, of a case where someone was advised not to make an offer or do a loan. They are out there, but certainly rare.

Anonymous said...

Here's a strange request...

Can someone put together a concise summary of this blog and the reasons why we are in a bubble with the facts to support it?

I've been reading here for a couple of months and I'm convinced, but when I get into discussions with others I tend to lose the details. I scanned through the threads and past topics and there is so much content (a lot of it doesn't add value) and I get lost when I'm trying to digest the last 60 days in an hour. You guys live and breathe this stuff and can come up with a quick paragraph much faster about where we are today and where the numbers show we are going?

Anonymous said...

Recently Patric's site listing daily articles of the housing bubble nationwide went to a fee subscription service. Personally I think they're asking too much for just aggregating stories readers send in. I'm not willing to pay for it on prinicple but still miss reading the headlines. Anywhere else we can find something similar? Tim - why not start a section of this site where readers can submit links to articles on a daily basis in one place where people could scan the headlines (and see the source) and open the ones of interest?

Eleua said...

Here is a quick synopsis of why the PNW is in a bubble:

Everything about the present housing market is positive for the market and unsustainable. That means that just about everyting will turn negative for the market.

The biggest player in the market is the use of unsustainable, hopeless loans that will never be repaid. Lenders are shoving money down the throats of people that have NO HOPE of ever paying off the loan. This represents the bulk of mortgage lending. These loans will end up in foreclosure.

Prices (in terms of monthly payment) are at the ceiling. If they could go higher, we would not need the creative loans.

The PNW is buoyed by x-Cal equity locusts. The California bubble is even more unstable than ours, as only 4% of California households can afford the median California home. Once Californians become trapped in their house, and lose their equity, all the Monopoly money that people are using to buy our homes will vanish.

The bulk of the job creation in the PNW is in the Real Estate Industrial Complex and retail (HELOC money). When the RE market inverts, this will throw many people out of work, which will tighten the spiral down.

Adjustable Rate Mortgages that went out at very low teaser rates, are now starting to adjust. Anywhere from $1T to $2T worth of loans will adjust every year for the next few years. If the borrowers could pay more, they already would be paying more.

That should get you through 90% of why this is a bubble. Just because Ballard is increasing in price, does not mean that it always will increase in price.

The NAZ was in a bubble iin 11/99, but it still went up 40% in one month, and didn't top for another three months. Nobody looks back on the NAZ and says that 11/99 was not a bubble, even though prices were still going up.

Christina said...

"For Sale": a June 2006 U.S. Credit Perspectives article by Mark Kiesel, Executive Vice President and a senior member of PIMCO's investment strategy and portfolio management group.

Anonymous said...

This is completely off what's being discussed, but I just want to note that this house has been reduced to $710k from $730k:

It was mentioned a couple weeks ago on this blog, and I've tracked it.

Anonymous said...

[continue from anon 11:35:45]: it was mentioned as one of the houses with "outrageous" price. $710k is still outrageous...

Anonymous said...

Anon 11:13-


richard said...

The propety on 5th and 80th was on the market last winter with an asking price of $399K. According to the KC records, here's the last sale: Sale Date 11/30/2005 Sale Price $330,750.

Nice house, but it's right next to the freeway at a busy intersection. I see alot of people looking at it when I drive by.

Tim, thanks for posting up the CL story. The friend I was talking with on the camping trip has a younger brother that is also in Escrow at a place in Burien.

When I talked to him a few weeks prior, he was a little more derisive of his subprime clients constant refinancing. Likewise, he mentioned virtually every loan was a 3-5 year IO ARM.

Eleua said...

The Tim, S_Crow, and Richard,

If I'm not the most bearish person on this board, I'm pretty close.

If what you guys are saying is even remotely true, I may have to become even more bearish.

This is going to be quite a bit uglier than I had anticipated.

S Crow said...


Your remarks sort of lead me to believe your friend is not in escrow but a loan officer?


In other news from Inman News:

Frank Nothaft, Chief economist from Freddie Mac, has this:

"In the first half of this year (2006), close to 90 percent of those who refinanced also engaged in cash out."

"Interest rates on some $500 billion in first-lien ARMs, or approximately 6 percent of all mortgage debt, will reset in 2006, Nothaft said. Factor in variable-rate home equity and second-lien loans, and the total amount subject to repricing this year is nearly $1.2 trillion, or about 15 percent of outstanding loans. While many families with adjustable rates will be feeling the squeeze of rising interest rates, those who haven't yet refinanced may not have the option."

15% of outstanding loans are currently or will adjust throughout this year.

The idea behind refinancing in the old days is to structure your loan to benefit you, or so I thought (reduce interest rates & payments for example). But the opposite is occuring.

This is not a problem if the market continues appreciating. But if it goes flat....or...

Eleua said...


Do you have any info on just how many people get "no documented income" loans? I'm talking about your garden variety illegal immigrant stating they make $10K/mo cleaning houses, and nobody even raises an eyebrow.

richard said...

s-crow, both the brother and sister work for escrow companies. The "clients" the younger brother was talking about are the 2 mortgage brokers he primarily deals with. One of these brokers deals exclusively in high end loans, the other with people in sub-600 FICO group.

His comments were with regard to the number of subprime borrowers that were rapidly refinancing.

My specific knowledge of the escrow business limited, so I'm not surprised if some of what I'm writing seems unclear to you. Feel free to correct me - I wish I knew more!

Anonymous said...

Overheard some flipper discussions in a terayki joint here in Tacoma (ok I'm nosy). They were talking about a woman who was attempting to flip houses and not doing very good with it. Apparently she owned numerous houses, was renting most of them out and had vague plans to renovate and sell them, but had not sold one for a signifcant profit in months. The man talking about this was also investing with her and had given her $35,000 cash but now he wanted it back. Apparently she was not giving him the return on investment she promised hehe...

S- Crow said...


What? Give you those stats? Might as well throw myself in front of a Randy Johnson fastball or shut down our business!

No way I'm going there.:) Just kidding.

Actually, a dead give-away is that some loan docs do come with lender disclosures regarding certifying that the borrower "understands that the loan was originated with limited or no-document underwriting" and therefore "borrower understands that the interest rate or other loan fees may be higher than they would pay if obtaining a loan with full documentation." (or similar language)

The lenders would have those stats and you couldn't pay me to go through every file to see which was no doc. But, I imagine that it's at least 50% or more of the transactions we close in our office.

No Doc loans are very popular because in reality they may be easier for both the loan officer and borrower to push through with minimal headache's, provided there is in fact a FICO score to see. Some feel the less hassle with paperwork is worth the extra 1/8 or more in interest rate risk lenders assign to these loans. But that statement is really reserved for those more financially saavy. It's been abused obviously and is used as a traditional loan more than ever.

One way lenders are tyring to reduce fraud is by including an IRS Form 4506 in the loan paperwork. This form is just a statement affirming that the lender can confirm via an audit that the borrowers income stated vs what the IRS has on record, jives.

So if the McDonalds cashier is making $10K mo, when they only report to the IRS they bring home $1800/mo. then the lender yells personal foul! Or gives the borrower a Zinedine Zidane red card: fraud.

My own residence was financed with a no-doc loan, but the parameters on our loan were tight: ie only for FICO scores's over 740. Since we met that primary requirement and 10% or more down payment we went for it. So there are no doc loans out there for every qualifying parameter depending upon the strength of the borrowers credit and eventual LTV.

darth_s said...

It’s official now. YOY market in San Diego is -1%!!!, and -5% from last November. Last week, as I cleaned out old newspapers, I saw in a July issue last year of the Seattle Times Real Estate section, it mentioned that San Diego had an appreciation of +26%. I can hardly wait the number for Seattle next July. I bet that it will be worse than San Diego today. Remember that the consensus for next year economic conditions will be much worse than today as the effect of the global tightening begin to take place…

Anonymous said...

Article by the Federal Reserve Bank of St. Louis: "Is the US Bankrupt?"

Ben Stein article on US govt. debt and the dollar:

meshugy said...

Here's some more news from San Diego:

County housing market continues to soften

“To me, this is just part of a plateauing of prices,” said Karevoll, of DataQuick. “Between now and the fall, I'd say half the months will be slightly positive and half slightly negative, but I really don't read the drama in these numbers that most people will.”

Looks like things are just flattening out their...that's what will most likely happen here for a few years.

jcricket said...

I think Jim Klinge does an excellent job of presenting the facts in an unbiased way re: the San Diego Market.

He's been pointing out that, overall, prices topped out in 2004 for the high end. Median price increases can be deceiving.

You can have the homes above the median moving down towards the median in price, and below the median moving up, and as long as the number that sell are still the same, the median moves up. If you had a home above that price, you saw your price go down from the previous year. If you had a home below the median price, you saw appreciation.

I think that's what I'm seeing in Seattle. Higher-end homes sit, lower-end homes sell fast. Means there's at least two "markets" for homes. And probably more, if you factor in teh difference between homes that need/don't need work. New vs. older, close-in vs. far-away, etc.

Individuals might even see median housing prices decline and still end up paying more for the house they want than in previous years.