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Alt-A Loan Resets Continuing Through 2011:  Analysts warn that recession woes are pushing a new group of mortgages into foreclosure. 

By now, everyone has heard of sub-prime lending and knows that these home owner's home loans are often upside (the loan value is more than the home's market value).  But, who has heard of 'Alt-A' loans?  'Alt-A' stands for 'Alternative-A' mortgages and if the analysts are correct, you will be hearing much more about them.  Alt A is short for Alternative A-paper, a type of mortgage that is considered riskier than A-paper, or prime, but less risky than subprime, the riskiest category. Alt A loans can be issued at fixed or adjustable rates.  So, there are prime loans, subprime loans, and somewhere in between is the Alt-A loan.

Pay-option loans were originally designed for borrowers with fluctuating incomes — such as the self-employed, construction workers and tourism industry employees — who sometimes could only make minimum payments and then catch up. Wealthy people used them to purchase rental property and repay mortgages with investment profits.

The option of making a minimum payment goes away after an introductory period, often five years, when lenders begin charging the deferred principal and interest. Higher payments can be triggered sooner, when the growing balance typically reaches 110 percent to 120 percent of the original loan amount.  These payment jumps are known as a recast. The biggest surge could hit in 2010 and 2011, or five years after pay option loans soared in popularity.

Now, those borrowers increasingly are discovering the true cost of their loans. When the introductory period ends, monthly payments can jump 50 percent or more on the typical Alt-A loan, far higher than many borrowers can afford.

“They were sold to the consumer as affordable but the payments on the backside are large,” said Hans Bruhner, managing partner of First Priority Financial, a Forestville mortgage company. “It was a recipe for disaster that everyone should have seen coming.”

What does this mean for the DFW Market? The following excerpts from a Dallas Morning News Article provide some insights:

• "The subprime adjustable-rate mortgages have just about worked their way through the market," said Jim Gaines, a research economist at the Real Estate Center at Texas A&M University. "Now there is another wave coming that is bigger than the subprimes."

Sub-prime Stats

• By some estimates, subprime loans once accounted for as much as 20% of the mortgage market in North Texas. They account for almost 50% of the foreclosures.

• Continuing Sub-Prime Woes:  In Texas, about 8% of prime and 26% of subprime adjustable-rate loans are late, first-quarter 2009 estimates show. That works out to about 45,000 potential home foreclosures statewide.

Alt-A Stats

• In the D-FW area, there are more than 40,000 Alt A loans on the books, according to First American CoreLogic Inc. More than 9 percent of those loans are more than 60 days behind in payments.

The implication is that around another 4,000 homes in the DFW area may go into foreclosure, but this time... it is not sub-prime home owners.  It is a new batch and this group includes people those whose rates were set until now and are now for the first time are being impacted by the double whammy of increased rates and lower property values.

This article was written with infomration comming from:

• Steve Brown at the Dallas Morning News
• MICHAEL COIT at the THE PRESS DEMOCRAT
• Anthony V. Migliore
  

Fixer Upper Words of Wisdom ... now, that is charming!

There is something romantic (in my opinion) about a can of paint and an old house.  I know that not everyone loves the idea of fixing up an older house, but it has always appealed to me.  So, I was pleased to see someone had done a little clear writing on how to think about buying a fixer upper... often referred to a house with "charm".

My favorite place to look for "charming" fixer uppers is in Dallas between Lakewood and the M Streets.

-------   Items to Consider

1. Purchase Price - The lower price you pay, the more potential there is for profit it at the end. Remember, you generally make the money when you buy, not when you sell!

2. Renovation Expenses - Be as exact (and honest with yourself)as you can for each room that you are renovating, and include some "room-to-move should you be faced with the inevitable surprises (such as dampness, termite problems, legals).

3. Holdings Costs - The longer you own the home, the higher your costs for mortgage, taxes, and insurances will be.

4. Anticipated Sale Price - Be honest with yourself and compare your property like-for-like (comparable homes) with others that have SOLD.

When undertaking a renovation, take into account how long it will take to complete. From "go to woe", the market conditions could have changed immensely (for good or for bad) so try and take into account each scenario and what your subsequent actions will be (eg. if the market is worse, what would you do?)

Simply by doing your homework you'll ensure you reduce the number of surprises.  Written by Simon Turner.

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I also liked this list of fixer upper repair estimates.

Easy fixes are:

1. Patching walls, stripping wallpaper and painting.
2. Refinishing floors, laying tile or carpet.
3. Installing ceiling fans and new light fixtures.
4. Replacing baseboards or adding trim.
5. Fixing broken windows.
6. Replacing bathroom subfloors due to leaky toilet seals.
7. Installing new or refacing / painting kitchen cabinets.
8. Replacing doors.
9. Changing out receptacles, light switches.
10. Painting the exterior.
11. Adding a deck.

More expensive fixes are:

1. Replacing HVAC systems or adding central air.
2. Shoring up foundations.
3. Reroofing, when it involves a tear-off.
4. Replacing all plumbing, sewer lines and electrical.
5. Pouring concrete for driveways, sidewalks, steps.
6. Installing replacement windows throughout.
7. Complete kitchen / bath remodels.
8. Building garages / additions.

written by Elizabeth Weintraub

Will the Obama Financial Regulatory Reform Plan Save the Day ?

The Obama administration has released its plan for how to fix the structural issues believed to be the cause of our economic woes.  Will it work?  You decide.  I personally hope that Obama's plan is "here to save the day" although I fear that the alternative might be just as likely.  The five main points of the plan are listed below along with the introductory text.   I will keep you posted as the news, analysis, and my thoughts about the plan begin to surface.

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Financial Regulatory Reform: A New Foundation

(1) Promote robust supervision and regulation of financial firms.

(2) Establish comprehensive supervision of financial markets.

(3) Protect consumers and investors from financial abuse.

(4) Provide the government with the tools it needs to manage financial crises.

(5) Raise international regulatory standards and improve international cooperation.

---------  the report starts with these words --------------------------------

Over the past two years we have faced the most severe financial crisis since the Great
Depression. Americans across the nation are struggling with unemployment, failing
businesses, falling home prices, and declining savings. These challenges have forced the
government to take extraordinary measures to revive our financial system so that people
can access loans to buy a car or home, pay for a child’s education, or finance a business.

The roots of this crisis go back decades. Years without a serious economic recession
bred complacency among financial intermediaries and investors. Financial challenges
such as the near-failure of Long-Term Capital Management and the Asian Financial
Crisis had minimal impact on economic growth in the U.S., which bred exaggerated
expectations about the resilience of our financial markets and firms. Rising asset prices,
particularly in housing, hid weak credit underwriting standards and masked the growing
leverage throughout the system.

At some of our most sophisticated financial firms, risk management systems did not keep
pace with the complexity of new financial products. The lack of transparency and
standards in markets for securitized loans helped to weaken underwriting standards.
Market discipline broke down as investors relied excessively on credit rating agencies.
Compensation practices throughout the financial services industry rewarded short-term
profits at the expense of long-term value.

Households saw significant increases in access to credit, but those gains were
overshadowed by pervasive failures in consumer protection, leaving many Americans
with obligations that they did not understand and could not afford.

While this crisis had many causes, it is clear now that the government could have done
more to prevent many of these problems from growing out of control and threatening the
stability of our financial system. Gaps and weaknesses in the supervision and regulation
of financial firms presented challenges to our government’s ability to monitor, prevent, or
address risks as they built up in the system. No regulator saw its job as protecting the
economy and financial system as a whole. Existing approaches to bank holding company
regulation focused on protecting the subsidiary bank, not on comprehensive regulation of
the whole firm. Investment banks were permitted to opt for a different regime under a
different regulator, and in doing so, escaped adequate constraints on leverage. Other
firms, such as AIG, owned insured depositories, but escaped the strictures of serious
holding company regulation because the depositories that they owned were technically
not “banks” under relevant law.

We must act now to restore confidence in the integrity of our financial system. The
lasting economic damage to ordinary families and businesses is a constant reminder of
the urgent need to act to reform our financial regulatory system and put our economy on
track to a sustainable recovery. We must build a new foundation for financial regulation
and supervision that is simpler and more effectively enforced, that protects consumers
and investors, that rewards

Evidence of Stabilization in Real Estate Markets

During the past few months, a growing consensus has emerged among many industry sources that
housing has begun to stabilize. While it is too soon to declare a recovery, we see evidence of
stabilization from a number of sources, which may indicate the beginning of a return to normalcy in
housing markets.

-------------------------

The National Association of Realtors (NAR) cited complimentary evidence on April 23rd by observing that existing home sales data is a key indicator that the market is showing signs of stability. Lawrence Yun, the chief economist for NAR, said that, "the market appears to be stabilizing with modest ups and downs."

In a May 27th report, NAR goes on to clarify that activity was rising in April, largely due to an increase in home sales in the low and mid price ranges. Additionally, NAR's chief economist comments that, "...home buyers are being attracted to deeply discounted prices and are bidding up many foreclosed listings, particularly in California, Nevada, and Florida - this will set the stage for healthy market conditions going forward."

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If prices have found their bottom nationally, then now is a good time to buy.  As noted in prior articles, though, prices per 'part of town' can vary tremendously.  If you are looking to buy or sell, then the smart move is to talk to a top realtor in your neck of the woods.  We can help.  We specialize in finding realtors with provable track records in buying or selling homes.  Just tell us what type of home you want to buy or sell and we will find a top realtor that matches your needs.