Thursday, September 12, 2013

CNBC Says Rich Are Borrowing Using Mortgages

Santa Monica Home Needs Jumbo Mortgage
$1.9M for this Santa Monica Beauty

There should be no surprise in the following article from CNBC.  The wealthy are wealthy because they know how to manage their assets and liabilities.  Even with mortgage up over a point since the Fed started hinting loudly about winding down their asset purchases, the reality is that we may not see mortgages under 6% again in this century.

So the rich are getting their mortgages while the getting is good.  Next year when mortgage rates are 6% and going higher, the rest of the population will panic and start buying, refinancing, and using leverage to increase their portfolios.  Here is the article in its entirety.  There was too much of value here to edit.  There are some video and other notes of interest where this post appears on CNBC.

Jumbo mortgage rush: Why the rich are buying

By: | CNBC Reporter and Editor

Even as the rest of America pulls back on mortgages, the wealthy are going on a borrowing binge.
New data from Realtytrac show that wealthy homebuyers are ramping up their use of mortgages to buy homes. In July, 46 percent of buyers purchasing homes ranging from $2 million to $5 million used mortgages—up dramatically from 27 percent in 2012. With purchases of $1 million to $2 million, the use of mortgages jumped to 63 percent from 49 percent a year ago.
The mortgage spree by the wealthy stands in stark contrast to the rest of the country, which has seen mortgage activity decline with rising rates. Nationwide, 40 percent of the homes sold in July were purchased with cash, up from 31 percent a year ago, according to Realtytrac.
Housing economists and luxury real estate brokers say the mortgage economics for the wealthy are different than for the rest of the country. While rising rates make borrowing and buying less affordable for everyday homebuyers, looming rate hikes act an incentive for wealthy borrowers, who use loans as financial tools.
As rates start to rise, housing experts say, the wealthy who were waiting on the sidelines to buy or borrow decide to jump in. They are scooping up the cheap capital before it gets more expensive.
"With mortgage rates picking up, some of these folks decided to get off the fence and take advantage of the low rates," said Daren Blomquist of RealtyTrac. "With the wealthy it's more of a financial decision."

Mortgage market & what's next 

CNBC's Diana Olick reports on the leading proposal in Congress to do away with Fannie Mae and Freddie Mac. 
The borrowing spree by the wealthy reflects a growing divide in the mortgage market between the wealthy and the rest of America. Interest rates on jumbo mortgages—loans over $417,000 in most areas and over $625,500 in higher-priced areas—are now lower than the rates for so-called conforming loans below those levels. It's highly unusual for jumbo loans to be cheaper than conforming loans, since conforming loans are traditionally backed by government agencies. Banks are cutting their mortgage staffs amid a big fall in applications and refinancing.
But uncertainty over the government's role in the mortgage market has added to the upward pressure on conforming rates. What's more, many banks see wealthy borrowers are more attractive borrowers. And many banks use mortgages to wealthy clients as a way to win their wealth-management and investment business.

Of course, cash remains king at the very top of the real estate market. More than three quarters of buyers of homes priced at $5 million or more used cash for their purchases in July—up from 56 percent last year.
Olivia Hsu Decker, a top luxury real estate broker in San Francisco, said the super-wealthy today have plenty of excess cash and some don't like to bother with the complicated and time-consuming mortgage process. And buyers can often get a better sale price if they pay in quick cash rather than waiting on a loan.
"Mortgages are not easy, even for the wealthy," she said. "They'd rather just write a check."
She added, however, that many of the wealthy get mortgages after they purchase, to take advantage of the cheap money.
Other brokers, however, add that the surge in mortgage rates and activity among the wealthy has driven a corresponding jump in sales—especially for second homes. Sales in the Hamptons were the highest ever in the second quarter, totaling $1.15 billion. Sales in Palm Beach, Fla., Aspen, Colo., and other high-end locales have also remained strong.
But some housing economists wonder if the high-end borrowing binge is temporary.
"The first half of the year was about pent-up demand and rising rates," said Jonathan Miller of Miller Samuel, the appraisal firm. "A lot of that has played out so I think you could see some decline in mortgages. But that will be determined by how fast rates rise."

The Jumbo mortgage market is certainly alive and well in Santa Monica, Beverly Hills, West Los Angeles and Bel Air.  If you are looking for a jumbo loan, we can help.  Call Bill Rayman at  310-424-8635

Tuesday, September 10, 2013

9 Facts About Getting a Mortgage after Bankruptcy


Using a Mortgage Broker Is Recommendation Number One for Those with a Recent Bankruptcy

 If you or a friend have recently gone through bankruptcy and are now thinking about getting a mortgage for a purchase or refinance, you have probably heard the routine answer that you must wait two to three years to get a mortgage loan.  While this is a good rule of thumb, it isn't necessarily true.

Here are the facts about mortgages and bankruptcy:

1.  It is possible to get a mortgage the day after you file for bankruptcy and/or the day after your final adjudication and dismissal in bankruptcy.  It all depends on the circumstances and your financials.  In order to even be considered for a mortgage so soon after filing or a final judgement, you would need to be able to show that the bankruptcy was due to extraordinary circumstances and unlikely to be repeated.  The down payment would need to be much higher than normal, the income proof requirements would need to be air tight, and the interest rate would undoubtedly be higher than market.

2.  The longer you wait to apply, the fewer the hurdles.  Your credit score will play heavily into any mortgage process.  Immediately after a bankruptcy, your credit score is likely to be less than 600.  If you are able to get credit cards or car loans quickly, you can begin to build up your rating.  As with mortgages, there are car loans available if you have good income and put a large percent down.

3.  Some banks or other lenders will not accept an application earlier than two or three years after the final adjudication.  However, there are plenty of lenders who will.

4.  It may seem obvious, but you will need to pay very close attention to your credit rating.  Any bounced checks, missed payments, late rents, or even evidence of building up massive amounts of credit will hurt your credit rating.  Keep track of what is showing up on your credit reports.  Immediately deal with any negatives. 

5.  Income verification will be scrutinized much more carefully.  Many lenders want to see that you have been at the same employment for at least two years, even without a major credit issue like a bankruptcy.  Be prepared to provide additional evidence of future income stability if you have changed jobs within two years of applying.

6.  Various programs available to borrowers have their own rules which might impact your ability to get a loan, the interest rate, and other terms of the loan.

FHA and the VA have strict policies regarding Chapter 7 bankruptcy.  You must wait two years from the date your Chapter 7 is discharged.  If you are in a Chapter 13 bankruptcy the FHA will require12 months of Chapter 13 plan payments and the approval of the bankruptcy court for you to be approved.  Both agencies will also want to see that the bankruptcy is unlikely to be repeated and/or due to circumstances largely outside the borrowers control.

7.  In the current tight credit market, every aspect of your transaction will be scrutinized.  Make sure you are not trying to buy too much house for your income, that you have a the down payment from approved sources, and that the property will appraise at levels needed to make the deal work.

8.  When you have spotless credit, plenty of down payment, and documentation on income that is easily enough for qualifying, an argument could be made that direct borrowing from a bank may not be a lot different than using a mortgage broker.  The right mortgage broker could still generally get you a better deal when considering all costs.  Moreover, a quality broker is more like a consultant who will provide you with services well beyond merely finding you the best possible deal.

When you have a difficult loan, however, and a bankruptcy certainly qualifies as one of the most difficult issues to overcome, then it would be hard to argue that a direct relationship with a bank is the best road to getting a mortgage or getting a good deal.  Mortgage brokers can search the market among various lenders to find out who has the stomach for bankrupt borrowers. A broker can also help you to assemble the documentation that is most likely to get the deal done.

9.  You will likely need patience.  That will likely be true at year two and three after you've received your judgement, but it will be a good emotional state to acquire if you are under those general requirements.  We hope that you will give us a call to discuss the potential for getting you set up in a new mortgage.   Call Bill at 310-424-8635

New Contact Information for Bill Rayman

Bill Rayman Home Mortgage

12121 Wilshire Blvd
Suite 350
LA CA 90025


Saturday, September 7, 2013

Did We Learn Anything from the Mortgage Debacle?


Some Are Raising Alarm Bells Again as Mortgage Rules Soften

The Charlotte Observer claims to be one of the first to raise a yellow flag regarding the housing meltdown in 2008.  In an article titled "Remember the Reason for the Mortgage Rules,"  associate editor, Peter St. Onge, cites an article he participated in for the Observer in 2005:

Back then, in 2005, we were among the first newspapers in the country to report on the depth of foreclosures. We knew why it was happening - for years, homebuyers were putting their signatures on loans that shouldn’t have happened. Many were victims of predatory builders and real estate companies taking advantage of a reckless lending environment. Regulators were clueless, intentionally so or not.
We also knew the root of it all. Both the Clinton and Bush administrations had made increased homeownership a policy goal. To that end, the feds loosened requirements for FHA loans. Homeowners no longer needed a down payment, and they could borrow more against their income. And because the FHA guaranteed repayment of those loans, lenders could take more chances, too.
The inevitable result: More bad loans, which banks packaged into toxic investments, and we all know the rest. 
 He goes on to sound an alarm about recent softening of Dodd Frank rules regarding zero down loans:

Last month, federal regulators announced that a key part of the Dodd-Frank financial reform law was getting a severe watering down. Two years ago, regulators had proposed a 20 percent down payment to qualify for home loans. The reasoning was simple: Home loan defaulters tended to be people who didn’t have a lot of equity to begin with. But now, a revised rule requires no down payment at all.
This retreat came after relentless pressure from housing industry lobbyists, as well as supporters of low-income housing, who argued that a 20 percent threshold would eliminate homebuyers and snuff out the housing recovery. They also argued that other new rules did enough by placing tough debt-to-income thresholds on loans and discouraging dangerous loan gimmicks that fooled consumers into thinking they could afford a home.
On that, the lobbyists are right. The new rules will stop the worst of the loans. But the loss of a down payment requirement – even 5 to 10 percent – opens a door for lenders to work the edges and homebuyers to take risks they shouldn’t. 

While Onge is evenhanded in this piece regarding who was at fault, including politicians, regulators, financial industry, lenders, brokers, and consumers as all taking advantage of the situation in order to meet their goals, he fails to address the reality of the but for argument.  Greedy lenders and borrowers alone could not create this horrific result.  But for pressure from the government to make bad loans, and regulators completely missing on valuations, the crisis would have merely been a normal swing.

Dodd Frank assumes that the government can make rules to keep things in check.  But it was government who provided the but for in 2008.  While it is unlikely that we will ever again see the perfect storm that created the collapse of the real estate bubble, we can certainly expect that government will overstep, mismanage, and act precipitously based on the current mood of constituents. 

Bill Rayman Home Mortgage

12121 Wilshire Blvd
Suite 350
LA CA 90025


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Monday, September 2, 2013

Warren Buffet's Top Ten Investment Tips Applied to Real Estate


Buffet's Birthday Present to the World: His Top Ten Investment Tips

One of the richest men in the world, and arguably the best investor in a generation or two, Warren Buffet loves to give tips to his followers and to others who will listen.  Last week CNBC and other posted a top ten list.  I thought it would be fun to apply these to real estate instead of businesses or stocks. 

1.'It's far better to buy a wonderful home at a fair price than a fair home at a wonderful price.' 
Source: 1989 Letter to shareholders  insert company for home

2.'Rule No. 1: never lose money; rule No. 2: don't forget rule No. 1'
Source: "The Tao of Warren Buffett" (2006)  No change necessary

3.'Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it's the lack of change that appeals to me. I don't think it is going to be hurt by the Internet. That's the kind of business I like.'   Just add: A 4 bedroom 3 bath home in a good neighborhood is always going to be a good bet.
Source: Businessweek (1999)

4.'I try to buy homes that are so wonderful that an idiot can make money from them. Because sooner or later, one will.'
Source: At a panel discussion after the premier of the documentary "I.O.U.S.A" (2008)  Substituted Homes for companies and make money for run.

5.'The real estate market is a no-called-strike game. You don't have to swing at everything – you can wait for your pitch.
Source: "The Tao of Warren Buffett" (2006)  Substituted real estate market for stock market

6.'Price is what you pay; value is what you get. Whether we're talking about socks or stocks or real estate, I like buying quality merchandise when it is marked down.'
Source: 2008 Letter to shareholders   I just added real estate
7.'Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.'
Source: "Buffett: The Making of an American Capitalist" (1995)  No change necessary

8.'If you understood the real estate market perfectly and the future of the business, you would need very little in the way of a margin of safety.'
Source: 1997 Berkshire Hathaway annual meeting  Substituted real estate market for a business

9.'We've long felt that the only value of home price forecasters is to make fortune tellers look good. Even now, Charlie [Munger] and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.'
Source: 1992 letter to shareholders   Simply substituted home price for stock market

10.'We don't get paid for activity, just for being right. As to how long we'll wait, we'll wait indefinitely.'
Source: 1998 Berkshire Hathaway annual meeting   No change 

If you'd like to read the original list with commentary, go to

New Contact Information for Bill Rayman

Bill Rayman Home Mortgage

12121 Wilshire Blvd
Suite 350
LA CA 90025