Thursday, August 16, 2007

Musical Mortgage Chairs!

In speaking to investors, clients and realtors; I came away with the idea that the mortgage freeze is like a game of musical chairs. Some of us can remember the feeling of scrambling for that last chair as the music stopped. Many property investors that have a large number of single family home rentals(10-15 in some cases) are trying to grab at financing that doesn't exist in today's mortgage market. They will be forced to sell. Many investors are barely holding onto rentals that only made sense for the property appreciation that happened between 2001-2006. The negative cashflow was big to the tune of 1-2k a month with the taxes and insurance per house. Many of these folks took interest only mortgages or negative amortization loans because they were really betting that housing would rise in the next few years and they could sell with huge gains. Now that housing prices are falling; the music has stopped, but so many people just don't realize it yet. Did you know the music stopped a few months ago? Better find that last chair.


Market Factors said...

But, but, but the infomercials said I could get rich owning 15 houses! It just seemed prudent to do whatever it took to own 15 houses.. interest only, neg-am, who knows about these things, I was just hoping to get stinking rich without ever working!!

Hot potato works too, but maybe that is for CDOs?

Anonymous said...

I'm a very small time landlord (2 units) and my major tenant has given notice...cutting the rent 10% so I have a wider tenant pool and can get a long term person into the house.

Despite the fact that I bought the property six years ago and financed at under 5% rates, barely cash flow neutral after all expenses. Cannot imagine what recent purchasers are doing.

Anecdotally, the "best" area in our little college town (1890's through 1940's) suddenly has lotsa inventory. Mine will be the lowest priced...and so the dominoes go.

Westside Bubble said...

Good to find your blog (via LA Times' LA Land)! You may be just the person to ask a burning question:

Given that most everything on the Westside requires a Jumbo loan, what are you seeing now for buyers to actually obtain a new loan (down payment, documentation, rate, seconds?, etc.)?

This would make a good new post topic, and I'd be interested in quoting it on Westside Bubble.

Westside Bubble said...

Here's more on this topic just posted at Paper Money:

"The availability of “Jumbo” mortgages, i.e. mortgages that exceeded the current OFHEO limit for Freddie Mac and Fannie Mae conforming loan status (currently $417,000 for a single family home), have essentially ground to a halt.

"I say essentially because you can still get a Jumbo loan provided you give full documentation of your income (tax returns, pay stubs etc.), put down 20% on the purchase and are willing and able to finance the remaining principle at an over 7% interest rate.

"Use now and see for yourself… fixed rate, ARM, Interest Only… it doesn’t matter they are virtually all over 7% and almost non-existent if you’re not putting down 20%.

"This is a kiss of death for the bubble-metro areas where home prices, even for the most modest starter homes, are still ridiculously inflated after having been pumped up by years of a loose lending induced buying mania.

"The availability of cheap Jumbo’s is absolutely necessary for these areas to maintain any volume and fluidity of home sales, now they are gone and the first signs of the impact should be seen in the home sales statistics compiled during the next several months."

Is this your experience too?