Everyone wants to know how much their home is worth currently, but few people are prepared to hear that their home is worth less than they think. Most people think they are somehow immune from the nationwide real estate collapse. When most homeowners have an appraisal done to re-finance their home and the value comes in at much lower than they were hoping, they first challenge the appraisal for value and then usually try to attack the appraiser saying they did not do the proper job. In all cases so far the homeowners have no actual sales data to back up their claims of a higher value.
We in the puget sound are luckier than most when it comes to real estate values. This are had big run-ups in value during the 1990's and all the way up to the summer of 2007. It appears from the research that I have done that most home values in the area have dropped to about 2005 levels. In most cases this means that the value of the average home here has dropped by approximately 20 to 30 percent from the 2007 summer highs.
It should be noted that the reports you hear on the news about real estate values are from Realtor statistics for their own sales and do not take into account any private sales that did not use a realtor or foreclosures and forced sales or some short sales. This means that any talk of values on the news is not including a large number of transactions that do have a dramatic effect on the values of homes in different markets and even neighborhood to neighborhood within those markets.
It does appear that, in most neighborhoods in the greater Seattle area at least, that the values of most homes and neighborhoods have quit dropping and some , most within the city limits, have actually strengthened a little bit from their lows. Sales of homes are still slow and employment is also still slow which will put a damper on any short term future appreciation for homes. But at least they have quit dropping in value for the most part.
Thursday, January 7, 2010
Friday, December 18, 2009
Wamu End game
It should be noted that the appraisal company that I work for quit doing appraisals for Washington Mutual prior to when I started with the company in 2002. It appears that they were putting pressure on appraisers even then.
In their effort to grow the bank very fast they cut a lot of corners and ignored what had been standard, good bank practice for most of their history. Instead , their new business model called for them to initiate as many loans as possible, push the values of the homes they are loaning money on so they can charge higher loan fees and lower standards by which they will loan money to people. They embraced so-called liar loans were potential borrowers simply stated the amount of money they made and it was not verified.
Most of these loans could be sold to the new mortgage backed derivative markets that were packaging large numbers of loans and selling them all around the world. The bank also hung onto many of the highest margin loans for their own portfolio. these loans paid the highest interest but were also the most risky since they included a great number of the liar loans the bank initiated.
As could of and should have been predicted, this business model could not continue for an extended time until bad things started to happen. There came a time starting in about 2007 were the amounts the bank set aside for loan losses was far less than the actual amount of money they were losing on all the loans they were holding. The borrowers that gladly accepted this money just 1 to 3 years earlier had quit making payments in very large numbers. Incredibly, the banks solution for this crisis was to generate more fees by writing even more liar loans. As we all know by now , this strategy did not work and during its last year of existance even an infusion of seven billion dollars from ptivate investors could not save the bank from itself.
It seems incedible that such reckless business practices could go on for so long without someone saying - wait a minute, this is not only not going to work but it will destroy the bank. During the early years of this decade there was a lot of that kind of business practice going around, how else could the global economy have been effected so badly.
Next: home values, were to now?
In their effort to grow the bank very fast they cut a lot of corners and ignored what had been standard, good bank practice for most of their history. Instead , their new business model called for them to initiate as many loans as possible, push the values of the homes they are loaning money on so they can charge higher loan fees and lower standards by which they will loan money to people. They embraced so-called liar loans were potential borrowers simply stated the amount of money they made and it was not verified.
Most of these loans could be sold to the new mortgage backed derivative markets that were packaging large numbers of loans and selling them all around the world. The bank also hung onto many of the highest margin loans for their own portfolio. these loans paid the highest interest but were also the most risky since they included a great number of the liar loans the bank initiated.
As could of and should have been predicted, this business model could not continue for an extended time until bad things started to happen. There came a time starting in about 2007 were the amounts the bank set aside for loan losses was far less than the actual amount of money they were losing on all the loans they were holding. The borrowers that gladly accepted this money just 1 to 3 years earlier had quit making payments in very large numbers. Incredibly, the banks solution for this crisis was to generate more fees by writing even more liar loans. As we all know by now , this strategy did not work and during its last year of existance even an infusion of seven billion dollars from ptivate investors could not save the bank from itself.
It seems incedible that such reckless business practices could go on for so long without someone saying - wait a minute, this is not only not going to work but it will destroy the bank. During the early years of this decade there was a lot of that kind of business practice going around, how else could the global economy have been effected so badly.
Next: home values, were to now?
Saturday, December 12, 2009
One Banks story
The old adage say's that when it comes to real estate its all about location, location, location. That statement has not been true for a very long time. the new adage about real estate should read that when it comes to real estate it all about money, money, money. Easy to get mortgage money, that is what has driven real estate for the last ten plus years.
When I was in grade school I opened up a savings account in my neighborhood bank. the bank was called Washington Mutual Savings Bank and had been around for a very long time. Their slogan was "the friend of the family" and they had a very good reputation for making loans to homeowners and small businesses alike. This business model had worked successfully for many years.
New management took over the board of directors and the top management spots in the mid 1990's. This new management had a new vision for the direction of the bank. The bank grew dramatically via acquisitions of banks all over the county, they changed their name to WAMU and started being the most aggressive bank in the country when it came to mortgage loans.
Banks, including WAMU were writing more loans than they could handle so most of the loans that were written were sold to Fannie Mae and Freddy Mac the large government created loan servicers. Fannie and Freddy had certain standards that loans needed to adhere to before they would accept the loan from a bank. During this time many banks and mortgage lenders such as Countrywide created loans that would not fit into the standards set up by Fanny and Freddy. These loans included many Jumbo loans, Interest only loans and Multiple payment option loans were one of the options is to make a payment that does not even cover that months interest thus adding to the overall amount owed on the home each time this payment choice was made.
Next: Banks "solution"
When I was in grade school I opened up a savings account in my neighborhood bank. the bank was called Washington Mutual Savings Bank and had been around for a very long time. Their slogan was "the friend of the family" and they had a very good reputation for making loans to homeowners and small businesses alike. This business model had worked successfully for many years.
New management took over the board of directors and the top management spots in the mid 1990's. This new management had a new vision for the direction of the bank. The bank grew dramatically via acquisitions of banks all over the county, they changed their name to WAMU and started being the most aggressive bank in the country when it came to mortgage loans.
Banks, including WAMU were writing more loans than they could handle so most of the loans that were written were sold to Fannie Mae and Freddy Mac the large government created loan servicers. Fannie and Freddy had certain standards that loans needed to adhere to before they would accept the loan from a bank. During this time many banks and mortgage lenders such as Countrywide created loans that would not fit into the standards set up by Fanny and Freddy. These loans included many Jumbo loans, Interest only loans and Multiple payment option loans were one of the options is to make a payment that does not even cover that months interest thus adding to the overall amount owed on the home each time this payment choice was made.
Next: Banks "solution"
Thursday, December 10, 2009
Where did all my money go?
Real Estate from the perspective of a certified real estate appraiser.
Has anyone explained to you exactly why your home is worth as much as one half less in value than it was just two short years ago.
To understand where we currently are lets look back on where we came from.
Just two years ago, at what turned out to be the top of the Real Estate market, many homes in the areas of western Washington were I work were selling for well above their asking or listing price. The reason was that soon after a home came on the market, there were a number of buyers all ready, willing and able to buy the home and many of these buyers were willing to pay above the list price for the home. This kind of frenzied market activity over a period of years caused the value of everyones homes to explode to the upside for a period of many years.
As the value of homes rose to these record valuations , many homeowners took advantage of their good fortune and re-financed their homes and pocketed the money.
Next: So what happened?
Has anyone explained to you exactly why your home is worth as much as one half less in value than it was just two short years ago.
To understand where we currently are lets look back on where we came from.
Just two years ago, at what turned out to be the top of the Real Estate market, many homes in the areas of western Washington were I work were selling for well above their asking or listing price. The reason was that soon after a home came on the market, there were a number of buyers all ready, willing and able to buy the home and many of these buyers were willing to pay above the list price for the home. This kind of frenzied market activity over a period of years caused the value of everyones homes to explode to the upside for a period of many years.
As the value of homes rose to these record valuations , many homeowners took advantage of their good fortune and re-financed their homes and pocketed the money.
Next: So what happened?
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