The Scottsdale Blog

New Century files for Bankruptcy

by John O'Leary

Less than 60 days after disclosing problems with their loan portfolio, New Century has filed for Chapter 11 Bankruptcy.  The company is based in Irvine, California, and has fired 3,200 employees and will sell their assets through the bankruptcy process. 

The reason for the bankruptcy is that New Century was the largest lender to people with poor credit and the term for their loans was "sub-prime".  New Century was forced to repurchase these loans from larger lenders and was unable to do so and stay liquid.

Here is a quote from their web site:

"New Century Mortgage Corporation and Home123 Corporation are unable to continue the origination or funding of mortgage loans, and no new loans are being accepted. We are committed to helping borrowers who have been affected by this. We are in the process of contacting customers and brokers to inform them that we're returning their loan applications, and to assist them in obtaining funding for pending loans."

No Crunch in Credit Yet

by John O'Leary

Banks aren't forced to tighten credit yet according to Glenn Reynolds who is the chief executive of CreditSights in New York.  He stated that "there is no credit crunch even for leveraged companies." This in spite of the recent drop in stock prices and the increasing concern about future foreclosures in the subprime mortgage market.

Reynolds went on to say that "Before we even get to a discussion about a credit crunch, we need to see a meaningful re-pricing of risk, and frankly, we haven't really had that."

It should be pointed out that the 1.5 to 2 million homes that may default represent less than 2 percent of the homes in America.

Market for Mortgages

by John O'Leary

The potential New Century bankrukptcy is all over the news today.  Gretchen Morgenson has a very lengthy News Analysis that is certainly worth a read if you are interested in the financial underpinnings of the housing market.

Here is a teaser:

"Investment manias are nothing new, of course. But the demise of this one has been broadly viewed as troubling, as it involves the nation’s $6.5 trillion mortgage securities market, which is larger even than the United States treasury market."

You can find Gretchen's analysis at the NY Times website here »

Countrywide ends no down-payment lending

by John O'Leary

Credit has been fairly easy to get over the last few years but forces are at work now that are tightening things up considerably.  For example, Reuters just ran an article about Countrywide Financial Corporation's notice to their brokers to

"stop offering borrowers the option of no-money-down home loans"

One factor to consider if you examine the credit tightening and the sub-prime lenders going broke is that there will be a smaller pool of eligible buyers.  The number of sub-prime borrowers (read as 'buyers with poor credit records') that bought homes over the last few years was substantial.  And a number of houses were bought with interest-only loans or 100% financing.  Those who own interest-only loans will see their monthly payments dramatically increase at the end of the interest-only period.  Of course, the intent when they bought was to sell before then and take advantage of the escalating value of the home to make a profit.  If the home's price doesn't escalate, however, or if they can't sell their property in that time frame, it will tend to drive up the number of foreclosures dramatically.  This in turn will dampen prices even further as those homes come back on the market at discounted prices.

Read the Reuters article here »

Borrowers Hit by Tight Standards, Soft Prices

Source: USA Today, Noelle Knox 03/05/07

More and more borrowers in markets where home prices are declining are finding themselves facing foreclosure — unable to pay their mortgage, sell their property, and refinance their loan because their income and credit scores no longer qualify them.

The trend accelerated last week after federal regulators proposed stricter guidelines for banks that make subprime adjustable-rate mortgages. The move followed Freddie Mac’s decision to drastically raise the criteria for the subprime ARMs it would buy and to require better proof of a borrower’s finances.

Nearly two dozen subprime lenders have already shutdown or been purchased, and another dozen are in trouble, according a report by Credit Suisse.

In 23 metropolitan areas where home prices fell 4 percent or more at the end of last year, at least half the subprime ARMs will reset to higher rates this year or next, according to an analysis by First American Loan Performance.

1. Sarasota/Bradenton, Fla., down 18 percent
2. Palm Bay/Melbourne/Titusville, Fla., down 17 percent>
3. Cape Coral/Fort Myers, Fla., down 12 percent
4. Springfield, Ill., down 10 percent
5. New Orleans,down 9 percent
6. Reno, Nev., down 9 percent
7. Barnstable/Yarmouth, Mass., down 8 percent
8. Youngstown/Warren, Ohio, down 8 percent

Is Now a Good Time to Invest?

by Blanche Evans
3/01/07
Realtor Magazine Online

The housing market may have slowed, but being a real estate investor can still be profitable — if you readjust your strategies.

High prices, rising inventories, and skittish buyers have driven several speculators from the marketplace. But some investors aren’t going anywhere. Only if you’ve been listening to policymakers such as Federal Reserve Chief Ben Bernanke and David Berson, chief economist for Fannie Mae, you might be hearing otherwise. They predict that investor involvement in housing will continue to recede, causing the housing market to soften further.

True, it's no longer possible in most of today’s markets to flip a home to another buyer at a substantial premium, but investors can still make money in real estate. For investors who love the challenge, you’re in luck — it can still be a good time to buy a home, improve it, and sell it at a profit.

The reasons for my optimism?

• Homes in move-in shape are always in demand by home buyers who wish to take advantage of tax benefits, neighborhood amenities, and the other joys of owning their home.

• Investors can target their investments in burgeoning, up-and-coming markets such as Austin, Texas, which could be the next Silicon Valley.

• While the outlook for existing-home sales, new-home sales, and housing starts will likely fall slightly this year, a gradual rebound is expected and the market looks promising in 2008, according to NAR statistics.

Read more »

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Considering investing in Scottsdale real estate?  Consider using a Realtor with years of experience in the Scottsdale market.  Call Mike Bodeen or John O'Leary at 480-473-9999.

30-year mortgage rates fall

Rates on 30-year mortgages fell to the lowest level since mid-December as investors scrambled to the safety of bonds following last week's stock market turmoil.

Mortgage giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages averaged 6.14 percent this week, down from 6.18 percent last week.

The Freddie Mac survey showed that other types of mortgage rates hit their lowest points for the year as well.  Rates on 15-year, fixed-rate mortgages fell to 5.86 percent, down from 5.92 percent last week.

Five-year adjustable rate mortgages edged down to 5.90 percent and one-year ARMs dipped to 5.47 percent.

The rates do not include add-on fees.  Thirty-year mortgages, 15-year and 5-year mortgages all carried a nationwide average fee of 0.5 point, while 1-year mortgages had an average fee of 0.6 point.