Negative amortization was always controversial. Option ARMS (Pick-a-pay) always have had a negative amortization feature. In fact this loan has always been World Savings bread and butter. For the financially savvy person this loan makes complete sense. It has features which allows you to lower your taxable income, decrease your cost of funds over the long term and if used with a carefully calibrated investment strategy allows you to maximize returns to the max. Within this context negative amortization is a well accounted for risk and balanced by high returns. Even if on a short term basis you ended up with some negative amortization, over the long term, you would come out ahead.

The problem is the average consumer is not tremendously financially savvy. And therein lies the problem. When option arms were marketed to the average Joe as a financial vehicle, loan originators who themselves are not tremendously financially savvy saw an opportunity to sell more house for lower monthly payment. I’m not trying to put the onus solely on the originator here either. I am of the opinion that the head of every bank in the United States fully knew what they were selling to the average borrower.

I remember a borrower a few years ago who insisted beyond any reasonable persuasion that he wanted to be in such a loan. He said that the payment on the 5/1 ARM I was proposing was to high and he wouldn’t’ be able to afford the house after a few years. However, with the option ARM a different lender had proposed he would be “comfortable”, so if I didn’t give him a similar option he was going to go with the other lender.

This borrower had no business being in an option ARM. Not only was he relatively financially unstable, he was trying to live way beyond his means, counting on future income and future equity to compensate for the short term loss. This was never the market for the option ARM and these types of borrower had no business being in this type of loan. In fact I wrote a post back in 2005 warning borrowers about the dangers of the option ARM. I wanted to remind folks that despite how things were being advertised as a borrower you are still obligated to pay back the full loan amount with any accumulated interest.

And it is because of stories of such borrowers over the past few years that today we sit where we are. Today, Wachovia, one of the largest underwriters of option ARM’s pulled the plug on these negative amortization loans. Here is the news clip from Fortune magazine:

Wachovia (nyse: WB - news - people ) announced Monday that it is pulling the plug on it’s Pick-a-Pay program. The pay-what-you-will exotic loan offerings weren’t exactly subprime –the borrowers were a bit better-heeled Alt-A types– but the default rates on the loans have been much higher than expected and have been driving the lender’s losses.

The loans gave borrowers the option of paying several amounts each month, including low payments that led to an increase in the principal amount of the loans.

Not only did they stop the program they also have said they’ll waive the prepayment penalties on these loans as well. Most option ARM included three year hard pre-payment penalties. So whether you sold or refinanced the loan within the first three years you had to pay a prepayment penalty. With the fall in home prices adding to negative amortization more than they had figured things are not looking good that the banks can make money on these. So, Wachovoia took a long hard look and decided to cut their losses. According to Housing Wire:

Wachovia also said it will waive all prepayment fees for borrowers looking to refinance out of an option ARM, a clear indication of the stress borrowers in such loans are now facing; the bank recently hired Goldman Sachs Group Inc. (GS: 174.90, +0.19%) in an effort to help it figure out what it should do with the Option ARM loans on its books.

As you can tell it’s not just the consumer who is in pain here, Wachovia is hurting too.

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Categories: Arizona, Congress and Government, Humor and Fun, Interest Rate, Mortgage Roundup, Mortgages, Real Estate
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Many thanks to all the Windemere agents who attended the Blogging 101 class yesterday (on Thunderbird and 101). I sure enjoyed teaching the class. I owe this opportunity to Chris Mattix, my newest Facebook friend! So, thank you Chris for having me.

As promised here is a link to the Powerpoint presentation from yesterday. Additionally, I have posted the video of a class I did on setting up a Wordpress blog at the Arizona RE Bloggers Network meeting last month.

Arizona Real Estate Bloggers Network Meeting - May 2008 from phoenixrealestatelive on Vimeo.

I do mortgages on the side to support my blogging habit, so please feel free to refer any clients who may be in the market and need a good quality lender! If you browse through this blog you’ll realize that Aimee and I certainly know what we’re doing and we have a history of providing 100% customer satisfaction!

Just a friendly reminder

Post Updated Monday June 16th. Here is the powerpoint slide from my presentation via SlideShare:

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Tags: arizona, bloggers, blogging, phoenix, Real Estate
Categories: Arizona, Bloggers, Blogging, Phoenix, Uncategorized
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If you’re like me and don’t have time for cable T.V. then you probably won’t be able to see these commercials. This is the Ghimire families first performance debut in a commercial. I think my bride and daughter look stunning. Not sure about the guy in the blue shirt next to them though!

If you’re wondering about Homewerx - its owned by Scott Hubbard and Shannon Hubbard. They’re both very prolific bloggers! Also, we would be interested in any future opportunities, so if you’re making a commercial and need some good actors, well you know who to call!

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Tags: commerical, home inspectoion
Categories: Arizona, Gilbert, Phoenix
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Over the past month or so Fannie Mae and Freddie Mac have made a few announcements regarding maximum loan levels. For some odd reason I didn’t post these changes as they were announced. Perhaps I was distracted by other things going on. So, I want to share with you some of the major changes which have been announced recently and how it could affect your situation for obtaining a home mortgage loan.

The really major change is regarding declining markets. As you may or may not be aware the term declining markets entered our lexicon late last year. In fact I even wrote a post suggesting that while “subprime” may have been the word of the year for 2007, “declining markets” has a good chance of being the word of the year for 2008. The reason being that because Fannie and Freddie (along with mortgage insurance companies) announced that they would be automatically cutting 5% off the the maximum loan to value on any property determined to be in a declining market. Now Arizona has been deemed a declining market, so it affects all loans in this great state of ours.

What does this mean to you? Well all Fannie and Freddie loans cap out at 95% which means the borrower needs to put 5% down from his/her own funds. This maximum loan amount was cut back to 90% in declining markets. Which meant the borrower no had to put 10% down for the same loan.

Recently Fannie and Freddie have made some changes stating that they would allow 95% loans again. The problem is finding mortgage insurance companies willing to insure mortgages up to that high of a loan to value. We have developed a relationship with such a mortgage insurance company. Hence, moving forward we are able to do loans upto 95% under the following conditions:

• Fixed rate programs only (fully amortizing)
• $417K max loan size
• Primary residence only
• Purchase or rate and term refinance (no cash out refinances allowed)
• 680 minimum credit score

This is only part of the full set of guidelines, therefore it is important to review this completely with your lender. So I will forewarn you that not all will qualify for this new higher loan to value. Additionally this is a lender specific policy, different lenders have different risk tolerance and relationships with different mortgage insurance providers. Do not take this as an industry wide guideline.

The other changes announced are regarding loan to value for investment properties and cash out transactions. But due to the fact that the Phoenix market is designated a declining market, the changes do not really affect anything for loans here. Meaning our terms are already more strict and we are required to follow the more stringent guidelines when making an underwriting decision.

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Tags: declining markets, fannie mae, freddie mac, Mortgages
Categories: Arizona, Mortgages, Phoenix, Real Estate
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The week just flew by. Hello. Its Friday night already.

The highlight of the week for me was of course Thursday. I was the substitute presenter at the Arizona RE EV Blogging Networks monthly gathering. Jay Thompson, The Phoenix Real Estate Guy, was not able to do the kick off Wordpress training and so I had the honor of stepping in. It was a lot of fun actually. I want to thank everyone for showing up and for your enthusiasm. It is always a pleasure to talk about blogging.

My presentation was a very basic over view of how to set up a Wordpress blog and all that good stuff. It went well for the most part, but the area where I felt I was weak was in actually getting people to start a blog. A few people did end up setting up blogs, but many seemed to just want to listen and take notes. Which is fine. As promised I have uploaded my powerpoint presentation.

A lot of folks out there are hungry to learn about blogs and how to blog. If you have questions and concerns, why don’t you leave a comment on this post and I’ll try to answer it - or someone else could and that way we build a repository of information for agents and lenders eager to learn about blogging. You can still write to me directly if you wish too.

Some of the usual suspects were there - like Christoph, Nick and Doreen. Many thanks to Candace and Shelli for all their hard work in putting this meeting together. Also the our sponsors. Thank you all. See you next month.

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Tags: arizona, bloggers, blogging, phoenix
Categories: Arizona, Bloggers, Blogging, Uncategorized
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Warning: it’s kind of cheesy, but it’s different and novel. That’s what I like about it. It was featured on Fox News last night!

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Tags: listing, phoenix, Real Estate
Categories: Arizona, Phoenix, Real Estate
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Zillow published some stunning numbers yesterday regarding the US housing market. According to their analysis they believe “one out of two homeowners who purchased during the national market peak in 2006 are currently “underwater” on their mortgage”. This is a lot of people, and it does not appear to let up too much in 2007 either, because they claim “45% of homeowners who purchased last year (2007) are already underwater on their mortgages”.

This is not good news. However, is this a reason to walk away from your home, like so many are doing? In my opinion - NO! In order to put things in perspective I ran a hypothetical scenario to see how long it would take to recoup the equity. If you bought in 2006 with no down on a mortgage of $200,000 and experienced a 25% decline since. Then your home would be valued at $150,000 today. Now at the historically average appreciate rate of 6%, it would take you five years (from today) to be back at 2006 home price levels. (Side note: I sincerely believe we’ve hit bottom.)

Certainly not something you may have hoped for, but it’s not as dire as you may think. Five years isn’t too long of a time, it goes by pretty fast. Even if you purchased on a five year ARM - you’re almost covered. Also, remember ARM’s can reset lower too - if the index is falling. Even if rates go up when it adjusts, I’ve run situations for clients where the saving they received against a 30-year mortgage pretty much covers the increased payment for about a year or so (assuming its a five year ARM of course). More importantly you have five years to figure something out -maybe you make extra payment so increase your equity? Maybe you save some more. What ever the case you have five years to make a plan. The situation is completely different of course if you are in any kind of negative equity loan program.

Now, that I may have assured you a bit, let me share the rest of the bad news. Phoenix is cited in Zillow’s report as one of the hardest hit markets. I share with you some of the charts they have for Phoenix. To read the full report head on over to the ZillowBlog.

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Tags: market analysis, phoenix, zillow report
Categories: Arizona, Phoenix, Real Estate
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This mornings inaugural AZ EV RE Bloggers Network meeting was fantastic and I personally enjoyed it tremendously. Agents from around the valley (and Tucson) attended and participated in this sharing of the minds event. I want to personally thank agent Candace Robinson (HomeSmart) and Shelli Bates for organizing the first of what is hoped to be many blogging forum.

I apologize for the lack of pictures, but I didn’t take my camera with me and so don’t have any to share right now. But I’m sure Candace will send some over and I’ll be sure to put it up once I have a few. In fact the whole program was taped - so hopefully we’ll be able to have that available soon.

Just to recap, all the speakers shared some great information - from tips and tricks to how much increase they have seen in their business since they started blogging. I learned a lot - so thank you for sharing. For me it was a pleasure to finally meet the Lady in Red, Teri Ellis, Paul Slaybaugh and Mike Jones from Tucson. Jay Thompson (our local celebrity) was the keynote speaker and he spilled the beans on the key to his blogging success! It’s always a pleasure to hear him speak - so thank you!

As promised I have uploaded and made available my PowerPoint presentation for those interested. It is from my blogging 101 seminar from last year and is a bit outdated (that is how fast the blogging world is evolving). Click below to download:

The organizers and sponsors are discussing the possibility of holding these kind of get together events on a monthly basis and in a more central location. Please contact them directly if you are interested in attending the next event.

Thank you to Shelli Bates of Land America Title and Ron Kohatsu of Win Gateway (Home Inspection) for sponsoring this event.

4.29 pm update: Teri has posted pictures on her blog.

Friday AM update - some pictures courtesy of Teri:

The captive audience (there were a lot more people than what can be seen here)

Friday (4/25) PM update: Paul Slaybaugh has a complete re-cap with a whole new set of pictures!

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Tags: arizona, bloggers, blogging, phoenix
Categories: Arizona, Bloggers, Blogging
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So everyone is talking about the lights that appeared over the Phoenix sky last night. The strange thing is the lights hung in the sky for a while and didn’t appear to be moving. AZCentral has a sideshow of pictures and a video of the lights for those interested.

Talk radio is abuzz with those who saw it. I personally didn’t see it but here are some eyewitness reports form the local radio KTAR:

“From my position, it looked like they were just hanging, not moving at all,” said one man, who called 92-3’s “Gaydos After Dark.” He said he “absolutely” saw something.

A woman caller said, “It looked like four red tower lights, but it was pretty high up in the air. I called my husband and he said, `Get home, what’s wrong with you?’”

A man in north Phoenix told CBS-5: “They were about 3,000 feet high, approximately. They looked as though they were kind of hovering or floating from west to east, very slowly. They were up there for 15 or 20 minutes.”

Those who saw them said the lights were visible about 13 minutes before moving off to the east.

I’m not a conspiracy theory type person. Nor am I one to think that we have been visited - yet. But, this is kind of strange. However, if these are indeed alien visitors, I want to welcome them and make peace with them so we can live together in harmony! Maybe they are interested in buying some of our real estate? That to me is great news!

However, we currently do not have an alien loan program. Despite this, the Phoenix market does offer some excellent deals for buyers who can make cash offers. Once you establish some degree of US credit, we can certainly look into refinancing you into a suitable loan program, and help you leverage your assets with this debt to build long term wealth. Unless of course all you want to do is just enslave us and take over our planet.

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Tags: aliens, arizona, lights over phoenix
Categories: Arizona, Humor and Fun, Phoenix
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The Arizona East Valley Real Estate Bloggers Network, the brainchild of agent Candace Robinson (HomeSmart) is organizing its first blogging forum. The goal is to have a monthly get together for agents to come and learn more about creating an online presence through blogging. The purpose of the forum is expressed in its motto: “Reach Your Dreams While Helping Others Reach Theirs”. The first meeting is scheduled for April 24th at 9AM in Gilbert at the new San Tan Village Mall at the Paradise Bakery . This forum is officially titled “What, Why and How To Blog & Get Started!!”

The idea of a bloggers network is very relevant considering how many in the industry are curious to learn and grow in this medium. The blogging seminars I have organized has always received a great response and I’m glad that Candace is now creating a regular forum to address the issue. I am personally looking forward to finally meeting some of the people I’ve gotten to know through blogging but never actually have met in flesh and blood. So, that is truly a great excuse for you to come as well.

I am honored that Candace asked me to be on the panel of speakers. She has put together an all star line up of local real estate bloggers which includes Teri Ellis, Broker, ABR,CRS,GRI,ePRO,MRE, Homes Arizona Real Estate LLC and Paul Slaybaugh with Realty Executives and I am truly honored to be a part of the group.

There is time for networking before and after the meeting - so plan to come early and leave late. Coffee and snacks are being provided by Shelli Bates of Land America Title and Ron Kohatsu of Win Gateway (Home Inspection).

BTW: Jay T - this is your official notification and invitation.

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Tags: arizona, blogging network, Real Estate
Categories: Arizona, Bloggers, Blogging
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