L.A. Area Trends

Yesterday the Dow broke 13,000 for the first time, there's no sign of rents decreasing overall, and the median home price in Los Angeles County continues to increase so far for 2007. In spite of all the talk about foreclosures and subprime loans resetting in 2007 and 2008, California may only see a fraction of their delinquencies go into foreclosure because of preventive measures and assistance taken by the respective lenders.

Only a fraction of all delinquent loans will actually go into foreclosure because of measures taken by lenders to prevent costly foreclosures. For borrowers who face temporary problems, these include delaying payments for a short period of time or scheduling a lump sum payment in the near future. For borrowers with more severe problems, alternatives include short sales or mortgage forgiveness. At present, it is anticipated that the proportion of foreclosures in California should be near the long-run average of just under one percent.

Long Beach

Greenbrook in Costa Mesa

This Costa Mesa home in the Greenbrook tract is typical of the 1950's and 1970's ranch style houses favored by those who love open floor plans. Built by Larwin, the Greenbrook homes are located in Costa Mesa, Cypress and Fountain Valley--there's even a Greenbrook by Larwin tract at Long Island, New York where California ranch homes were popular for a while. This is the era of the cathedral ceilings and open kitchens adjacent to the family room. This model features 4 bedrooms/2 baths on a single story level, ample room at approximately 2100 sq. ft. Patio and private rear yard are attractive and neatly landscaped. Family room and the formal dining area make this home an entertainer's delight as well. This home is in an interior location of this quiet tract, yet very close and convenient to South Coast Plaza shopping and the 405 Freeway. It's ideal for less time spent commuting for daily needs. For more information, contact me, or go to my website's property search to find other homes in Costa Mesa.
Julia Huntsman, Broker
01188996


Long Beach costa mesa orange-county

Foreclosure Impact

Deep Impact: Foreclosure Surge in California. A surge of foreclosures in California has some economists concerned that the fallout will be long lasting and potentially wound the whole economy. The 11,033 foreclosures in the first three months of the year represent an 800 percent increase over the same period a year earlier. "For this rise in foreclosures to be happening in the midst of a strong labor market is truly unique and scary," says analyst Christopher Thornberg of Beacon Economics. He predicts foreclosures will top out at four or five times the current level — enough, he says, to induce a recession or at least bring the economy to the precipice.Others are less pessimistic. "The housing sector is in trouble for a considerable period," says Edward Leamer, director of the UCLA Anderson Forecast. "But the rest of the economy will muddle through." Source: Los Angeles Times, David Streitfeld (04/17/07) & REALTOR® Magazine - Daily News.

This article is like many others: It simply does not mention the big picture--for instance, what is the percentage of foreclosures of total mortgages in the state of California, or the U.S.?

"The truth is that 99% of all loans in the U.S. are not in foreclosure. The remaining 1% that were foreclosed upon had the following breakdown:

* 80% were classified by federal lenders as Professional Thieves and were turned over to the FBI.
* 20% were classified by lenders as Fraud for Property that resulted in unethical lending practices.
* Ca. Defaults: Historical 32,762 - Low: 12,145- 3Q ’04 High: 59,987 – 1Q ’96 Current: 37,273. [NOTE: February '07 data.]
* For all of ‘06, foreclosures accounted for only 1.81% of all Orange County sales, with lenders reselling those homes at an average discount of only 3.8%!" Gary Watts, http://www.impactre.com.

long beach ca mortgage california foreclosure

Home Price Up Over $500,000 Median for L.A. County

Los Angeles County's median home price (including houses and condos) is over $500,000 for March sales.

"If nothing else, the long-awaited downturn seems a little tardy — at least in most of Southern California.

"The perception out there is that we're at the edge of a volcano and about to fall in, but the numbers don't indicate that's happening," DataQuick analyst John Karevoll said." Los Angeles Times.

Mark Zandi at Economy.Com continues to believe, however, that the Southern California "housing correction" is in full swing and will last through next year.

So far, it would appear the correction is in the number of properties sold, as opposed to price, at least concerning Los Angeles County.

Local Credit is Very Global

What constitutes news and relevant information about real estate? About you as a real estate consumer? Well, a lot of things, not just pictures of residential property. Someone was recently upset because of an article about vehicle license renewal and what may happen if you’re stopped and maybe you just haven’t paid your overdue fees yet because you thought you had until the end of the due month on your license tag, and the fact that police have immediate access via computer to see if you’ve paid your annual fees on the due date. If it went unpaid (not that we must assume the worst, but here it is), notice of that goes to the Franchise Tax Board where it would ultimately appear as a tax lien connected to you. Then think about your credit report and what gets reported on it.

Think about your credit score being a reflection of financial events connected to you. Did you know that when you apply for insurance, or a bank account, your credit report is viewed? Then think about the fact that mortgage loan underwriters also take a look at that credit report, including recent events of all kinds just before they decide to give you a loan. The workings of our bureaucratic world are very important to know about when it comes to getting a loan. That way, when you get the loan, you can get the house. You may obtain your free annual credit report at http://www.annualcreditreport.com/.

Long Beach

Subprimes Are One Part of the Total Picture

This topic appears almost daily:

But what’s often missed in the current uproar is that while a substantial minority of subprime borrowers are struggling, almost ninety per cent are making their monthly payments and living in the houses they bought. New Yorker

While the West Coast is one of the areas seeing a rise in foreclosures, it also has a strong economy with strong employment.

"Foreclosures are increasing inventories in certain local markets. The projected flood of foreclosures are problematic and will add to the already loose housing supply in some local markets, but these local markets are exhibiting healthy economic activity, enabling them to be able to absorb increases in foreclosures," [National Association of Realtors Economist] Lereah said.

"From a broader perspective, today's subprime problems are occurring against a backdrop of cyclically low mortgage rates and a growing, healthy economy. Jobs and liquidity are plentiful in the marketplace, suggesting that the subprime problems may be a manageable problem within our $10 trillion-plus economy," said Lereah in a commentary distributed to NAR members recently.

Long Beach

Second Largest in Population

Just a quick note: The West and the South are the two fastest growing areas, and the only region with more people than Los Angeles County is New York, according to the Census Bureau. Supply vs. demand seems to dictate a constant need for housing in these highly populated areas well into the future, especially in California, since Riverside area is the fifth-largest growing area in the U.S. in population.


Long Beach

California and Subprime Loans

If the only thing you've done is turn on the television, you've heard over and over about "subprime" loans. Many people are unfamiliar with a lot of loan terms, and that includes those working in the real estate industry, but just know that because you're shopping for a loan now doesn't mean you're automatically going to get a "subprime" loan, because there are many loan choices. The individuals who've experienced trouble, so often the subject of the news media, are those whose credit scores were lower, so they were offered loans not at the prime market interest rates, but at higher rates with other conditions which led to them not being able to afford their payment when it reached the "fully indexed" level, meaning loan plus margin (the lender's set profit zone). These loans contained terms and condition not understood by the buyers, who for instance thought a 2-month or a 12-month 1% start rate was the actual interest rate, and did not understand what the annual increases would be on their loan, or what that would mean to their payment.

Before you read further, if you're a buyer currently searching for a loan and you have good credit with a strong mid-score over 680 (you knew there are 3 FICO scores, right?), you are not this kind of borrower.

Thus, the following excerpt from California's Department of Real Estate Bulletin, Spring 2007 where a borrower has a 1% start rate, payments increase annually while the deferred interest is added to the loan principal, and after 5 years go to the full payment level, while the loan principal has increased:

We have analyzed the impact on a buyer who takes a $300,000 payment option ARM and makes the minimum payments of $965.00 per month. The analysis is based on an actual adjustable rate note from a national lender. The note provides for first year payments based on a 1% interest rate, annual payment increases of no more than 7 ½% of the previous payment for 5 years after which full payments must be made to amortize the loan over the remaining term. Interest is adjustable monthly beginning after the first month based on the Twelve-Month Average of monthly yields on actively traded United States Treasury Securities adjusted to a constant maturity of one year as published by the Federal Reserve Statistical Release entitled “Selected Interest Rates (h-15)," otherwise known as the MTA. The margin is 3.10. Maximum deferred interest (negative amortization) is 115% of the original principal balance. There is no cap on the monthly rate increases and the life cap is 9.95%. As of the date this article was written, the index value for the Monthly Treasury Average was 4.88 making the fully indexed interest rate 8.0% after rounding. Let’s assume that there are no increases in the index for the first 5 years (a very conservative and unrealistic assumption). The loan term is 360 months.

After year one the balance has increased, because of negative amortization, from the original $300,000 to $312,814; after year 2, $325,787; and after year 3, $338,861. After the 43rd month, the deferred interest maximum is met ($345,328). Since there have been payment increases of 7 ½% each year, the monthly payment of $1,199.00 after year 3, would increase to $2,604.00 per month (the fully amortizing payment over the remaining 317 months) – an increase of $1,405.00 monthly barring any interest rate increases for the life of the loan. Considering that the one-year Treasury Security index value has increased almost 400% since January 2004, even though interest rate increases have slowed recently, the likelihood that this loan would achieve its maximum interest rate of 9.95% is very good. If that were the case after 43 months, the monthly payments would have ballooned to $3,063, a 317% increase from the original payment of $965.00.00 per month. Unless the buyers have planned for the payment increases by either expected increases in income, setting aside all or part of the monthly payment differentials, or some other financial plan to meet the increased debt service, the financial impact could be severe.

Some lenders are now doing the logical thing by making the buyer qualify not just at the initial rate, but the full payment level to avoid this situation, and the Department of Real Estate in the same article now states the real estate agent is to review loan document terms and conditions with the buyer.
NOTE: In a revised statement released on April 12, 2007, the DRE clarified that it "is the fiduciary duty of each licensee who represents the borrower in obtaining a loan to completely explain the terms and discuss the relative merits and risks of these loan products well before the point of signing loan documents." Buyers really must understand the basic terms they are agreeing to.

Long Beach