IndyMac sells $590 million in Alt-A MBS
Says it's a sign that 'modest liquidity' is returning
Tuesday, August 28, 2007
IndyMac Bank last week sold $590 million in bonds backed by prime jumbo loans, the company said Monday -- the first bonds the lender has traded since July 19, when "fear-induced illiquidity" froze the market.
In a statement posted on the official company blog, IndyMac communications director Grove Nichols said the bonds traded Friday sold at prices below "historical ranges" but at smaller discounts than "fire sale" trades conducted by other lenders in recent weeks.
IndyMac traded $240 million of AAA bonds backed by prime jumbo fixed-rate mortgage loans and $350 million of AAA bonds backed by prime jumbo adjustable-rate mortgage (ARM) loans
"We are encouraged by these sales as they represent the first small sign that the ice is beginning to melt, and some modest liquidity is beginning to return to the private-label mortgage market," the statement said. "It appears as though, given the current historically wide spreads, significant tightening of underwriting standards by lenders, and the updated rating agency models requiring stronger subordination levels, investors are beginning to recognize that private mortgage-backed bonds may offer strong risk-adjusted returns."
The lack of demand for mortgage-backed securities (MBS) had forced IndyMac to stop offering jumbo loans. On Wednesday, the company announced it had resumed originating prime, single-family residential, full-documentation jumbo loans.
The loans, including 5/1 ARMs, 7/1 ARMs, and 15- and 30-year fixed-rate products, are available only to borrowers providing full documentation.
Borrowers with FICO scores of 680 and above and a 25 percent down payment are eligible for a loan of up to $2 million, or up to $1 million with 20 percent equity. A borrower with a FICO score of 700 or better, a 15 percent down payment and mortgage insurance is eligible for a loan of up to $750,000.
In its last quarterly earnings report, IndyMac said it laid off 400 employees as a cost-cutting measure and had been forced to repurchase $443 million in loans in the first six months of the year.
Tuesday, August 28, 2007
SCV Residential Rehab Program
Residents in the City of Santa Clarita are being encouraged to improve their homes through the City’s Residential Rehabilitation Program and Property Rehabilitation Program.
The program assists qualified residents in keeping their homes up to the standards of their communities by providing grants for mobile homes, condominiums, or single family homes.
Over $50,000 in grants is still available to residents who own a home in Santa Clarita and use it as their primary residence. The annual household income must be at or below 80 percent of the median household income for Los Angeles County in order for the resident to apply for assistance.
Repairs include include interior and exterior painting, roof repairs or replacement, plumbing and electrical work, heating and air conditioning repair, flooring and window repairs as well as disabled access modifications.
City’s Housing Program Administrator Erin Moore-Lay says, “The City of Santa Clarita is very happy to have the funds to help more people this year. Being lower income does not mean a family has to live with faulty electrical systems, leaking pipes, a non-working furnace, or broken gates. These programs are here to improve the quality of life for our lower income residents and maintain the community standards throughout the City.”
Homeowners who wish to take advantage of the grants have until June 30, 2008 to apply.
The City can be reached at (661) 286-4156.
The program assists qualified residents in keeping their homes up to the standards of their communities by providing grants for mobile homes, condominiums, or single family homes.
Over $50,000 in grants is still available to residents who own a home in Santa Clarita and use it as their primary residence. The annual household income must be at or below 80 percent of the median household income for Los Angeles County in order for the resident to apply for assistance.
Repairs include include interior and exterior painting, roof repairs or replacement, plumbing and electrical work, heating and air conditioning repair, flooring and window repairs as well as disabled access modifications.
City’s Housing Program Administrator Erin Moore-Lay says, “The City of Santa Clarita is very happy to have the funds to help more people this year. Being lower income does not mean a family has to live with faulty electrical systems, leaking pipes, a non-working furnace, or broken gates. These programs are here to improve the quality of life for our lower income residents and maintain the community standards throughout the City.”
Homeowners who wish to take advantage of the grants have until June 30, 2008 to apply.
The City can be reached at (661) 286-4156.
Monday, August 27, 2007
10 Projects With the Biggest Payback
Want that dream kitchen or sunroom addition? Even if you've decided to move forward, it makes sense to consider your return on investment (ROI). Not all home improvement projects are created equally, with some adding more value than others when it comes time to sell.
The 2006 Cost vs. Value Report (a combined effort by Remodeling magazine and REALTOR® Magazine) explains which home improvements pay off when you sell your home - and which don't.
10 Projects With the Biggest Payback
The 2006 Cost vs. Value Report (a combined effort by Remodeling magazine and REALTOR® Magazine) explains which home improvements pay off when you sell your home - and which don't.
10 Projects With the Biggest Payback
Thursday, August 23, 2007
Median Price Increase in a Declining Market
It’s not the first time that California has been home to some anomalous social phenomenon that lacks a ready explanation. But this time, because it has to do with real estate, the topic may be of general interest.
The oddity is this: On the one hand, the real estate market is, to say the least, a bit slow. The inventory of homes for sale is at all time highs, while the numbers of sales are at the lowest point in decades. On the other hand, the median price in much of the state is at or near record highs. Statewide, the median price of a single-family home is most recently reported as $591,180, barely off the highest ever. In our area, the median price of a residential dwelling is a record high around $600,000.
Now, this seems to fly in the face of whatever we might have learned in Economics 101. If supply is high, and demand is low, prices should be declining. How is it that the median price keeps climbing?
Not only does the increasing median price counter our expectations, it also doesn’t square with the experience of real estate practitioners. I have personally spoken with dozens of local Santa Clarita, San Fernando, and Antelope Valley Realtors® who say that they see prices decreasing in the neighborhoods where they do business. So, how can the median price keep rising?
First of all, we need to remind ourselves of what the median is. It is the mid-point. In any given period, the median sales price represents that price where an equal number of sales were below it and above it. It is not the average. For example, in the series of numbers 1,2,5,10, and 12, the median is 5, whereas the average would be 6.
How can the median mislead us? Imagine a marketplace where eleven homes sold, with the lowest being $200,000, and each other selling for $100,000 more than the one that preceded it. Next, imagine the same marketplace a year later, where each house sold is at a price 10% less than it was the year before, and the two lowest-priced houses don’t sell at all. Respective tables of these markets would look like the following:
Year One Year Two
$200,000 No Sale
$300,000 No Sale
$400,000 $360,000
$500,000 $450,000
$600,000 $540,000
$700,000 $630,000
$800,000 $720,000
$900,000 $810,000
$1,000,000 $900,000
$1,100,000 $990,000
$1,200,000 $1,080,000
In the first year, the median price is $700,000, with five sales below it and five sales above it. In year two, the median price is $720,000, with four sales below it and four sales above it. The second year median is $20,000 higher than the first year, even though values in the second year had decreased by 10% across the board.
Some suspect that the same thing is going on in the southern California market right now, and perhaps across the whole state.
It is no wonder that what might be called “entry-level” sales have dropped. For one thing, as many have observed for the past years, the price of entry had just become too high. The only thing that enabled entry into the market was the use of those now-infamous sub-prime and exotic loan products, including 100% financing and no-doc loans. Now, those are pretty much gone.
Along with the disappearance of the E-Z loans comes a drop in the sale of lower-priced homes, which ripples right up the entire housing market. And the ironic by-product? An increase in median prices, even while values go down.
Changes in the mix of housing in the local area can also skew the median price. For example, in the last few years homes were built that were generally higher-priced than the average price of the existing housing composition. As those homes have gone to a re-sale status, the median price sold for all homes in the area goes up.
This confusion about what the median sales price really means has given many sellers empty confidence in holding onto higher than market price list prices, which as the market makes a dive to the bottom, can significantly hurt them when their home does sell for much lower than they could have gotten at the beginning of the listing period.
Nobody wants to 'give your house away', but without exception I hear that phrase from sellers. As your listing agent, I do want to get absolutely the highest price possible given the market. It is a very competitive market environment, and I do closely watch market trends. Take my advice... you will end up netting a higher price if you do.
The oddity is this: On the one hand, the real estate market is, to say the least, a bit slow. The inventory of homes for sale is at all time highs, while the numbers of sales are at the lowest point in decades. On the other hand, the median price in much of the state is at or near record highs. Statewide, the median price of a single-family home is most recently reported as $591,180, barely off the highest ever. In our area, the median price of a residential dwelling is a record high around $600,000.
Now, this seems to fly in the face of whatever we might have learned in Economics 101. If supply is high, and demand is low, prices should be declining. How is it that the median price keeps climbing?
Not only does the increasing median price counter our expectations, it also doesn’t square with the experience of real estate practitioners. I have personally spoken with dozens of local Santa Clarita, San Fernando, and Antelope Valley Realtors® who say that they see prices decreasing in the neighborhoods where they do business. So, how can the median price keep rising?
First of all, we need to remind ourselves of what the median is. It is the mid-point. In any given period, the median sales price represents that price where an equal number of sales were below it and above it. It is not the average. For example, in the series of numbers 1,2,5,10, and 12, the median is 5, whereas the average would be 6.
How can the median mislead us? Imagine a marketplace where eleven homes sold, with the lowest being $200,000, and each other selling for $100,000 more than the one that preceded it. Next, imagine the same marketplace a year later, where each house sold is at a price 10% less than it was the year before, and the two lowest-priced houses don’t sell at all. Respective tables of these markets would look like the following:
Year One Year Two
$200,000 No Sale
$300,000 No Sale
$400,000 $360,000
$500,000 $450,000
$600,000 $540,000
$700,000 $630,000
$800,000 $720,000
$900,000 $810,000
$1,000,000 $900,000
$1,100,000 $990,000
$1,200,000 $1,080,000
In the first year, the median price is $700,000, with five sales below it and five sales above it. In year two, the median price is $720,000, with four sales below it and four sales above it. The second year median is $20,000 higher than the first year, even though values in the second year had decreased by 10% across the board.
Some suspect that the same thing is going on in the southern California market right now, and perhaps across the whole state.
It is no wonder that what might be called “entry-level” sales have dropped. For one thing, as many have observed for the past years, the price of entry had just become too high. The only thing that enabled entry into the market was the use of those now-infamous sub-prime and exotic loan products, including 100% financing and no-doc loans. Now, those are pretty much gone.
Along with the disappearance of the E-Z loans comes a drop in the sale of lower-priced homes, which ripples right up the entire housing market. And the ironic by-product? An increase in median prices, even while values go down.
Changes in the mix of housing in the local area can also skew the median price. For example, in the last few years homes were built that were generally higher-priced than the average price of the existing housing composition. As those homes have gone to a re-sale status, the median price sold for all homes in the area goes up.
This confusion about what the median sales price really means has given many sellers empty confidence in holding onto higher than market price list prices, which as the market makes a dive to the bottom, can significantly hurt them when their home does sell for much lower than they could have gotten at the beginning of the listing period.
Nobody wants to 'give your house away', but without exception I hear that phrase from sellers. As your listing agent, I do want to get absolutely the highest price possible given the market. It is a very competitive market environment, and I do closely watch market trends. Take my advice... you will end up netting a higher price if you do.
Friday, August 17, 2007
Market Volatility Directly Tied to Housing Market
The opening bell of this morning's stock market brought a continuation of a high degreee of volatility, first since this was an options expiration day where many began positions to heavily short the market, then with the news that the Federal Reserve was cutting the overnight discount rate half a percentage point. This move by the Fed portends an easing of interest rates at the September and October meetings.
What does this mean for the housing market? Both Countrywide Financial and Washington Mutual were in serious danger of declaring bankruptcy over the next week. For those not in the housing market CFC is the number one mortgage originator in the country by volume. Wamu is I think #3 or 4. Should these two have gone under the country would have quickly followed into a full recession. This Fed action frees up a lot of liquidity between financial institutions, and access to credit is the grease in the wheels that help make this whole system run.
Fed Chairman Bernanke and company have really taken an extraordinary step at a time when the stock market was facing a day of unprecedented danger of falling an all-time record in terms of point drop along with record-setting volume. It doesn't mean that everyone is out of the woods and we can all party once again. It does mean that the financial environment is in a precarious position and that volatility will be the watchword for quite a while.
If I have said it once, I have said it a thousand times over the past three years. You cannot have 20% plus appreciation in housing prices each year for three years and more running without building excess into the market, and the unwinding of the excesses will take years, not days, months, or a season. The sub-prime and Alt-A mortgage markets brought many people into home purchases, where now that interest rates are adjusting many loan payments are going beyond the financial capacity of the home owners. As these people stop making their loan payments and go into foreclosure, the securitized financial products that these loans became a part of turn to junk, and nobody wants to buy them. This restricts the credit market big time. Hence, the market crisis.
That said, it is always a great housing market in California... but not for everybody at the same time. If you are in my local market area, give me a call and let's talk about how you can profit from this market environment.
You can depend on us to give you the straight scoop here in the Blog, and when you work with us as either a Buyer or Seller of real estate.
What does this mean for the housing market? Both Countrywide Financial and Washington Mutual were in serious danger of declaring bankruptcy over the next week. For those not in the housing market CFC is the number one mortgage originator in the country by volume. Wamu is I think #3 or 4. Should these two have gone under the country would have quickly followed into a full recession. This Fed action frees up a lot of liquidity between financial institutions, and access to credit is the grease in the wheels that help make this whole system run.
Fed Chairman Bernanke and company have really taken an extraordinary step at a time when the stock market was facing a day of unprecedented danger of falling an all-time record in terms of point drop along with record-setting volume. It doesn't mean that everyone is out of the woods and we can all party once again. It does mean that the financial environment is in a precarious position and that volatility will be the watchword for quite a while.
If I have said it once, I have said it a thousand times over the past three years. You cannot have 20% plus appreciation in housing prices each year for three years and more running without building excess into the market, and the unwinding of the excesses will take years, not days, months, or a season. The sub-prime and Alt-A mortgage markets brought many people into home purchases, where now that interest rates are adjusting many loan payments are going beyond the financial capacity of the home owners. As these people stop making their loan payments and go into foreclosure, the securitized financial products that these loans became a part of turn to junk, and nobody wants to buy them. This restricts the credit market big time. Hence, the market crisis.
That said, it is always a great housing market in California... but not for everybody at the same time. If you are in my local market area, give me a call and let's talk about how you can profit from this market environment.
You can depend on us to give you the straight scoop here in the Blog, and when you work with us as either a Buyer or Seller of real estate.
Wednesday, August 15, 2007
What Kind of Concessions Can Buyers Expect?
On Top of Buyer’s Closing Costs, Perks and Price Cuts Become More Lavish
With the housing market looking increasingly frail, home builders and home sellers are going to new extremes to attract buyers, dangling lavish incentives and slashing prices.
In a recent Wall Street Journal article, examples of some concessions include:
In Boca Raton, Fla., Gordon Homes is offering to pay two years of property taxes and insurance -- worth as much as $150,000 on houses priced as high as $2.5 million -- for buyers of completed homes at its upscale Azura development. In Richmond, Va., Orleans Homebuilders Inc. is offering "Sizzling Summer Sale Savings" that include as much as $100,000 off the cost of upgrades ranging from granite countertops to a conservatory. And in Medford, Ore., Diane Adams, a real-estate agent, is offering to pay four months of mortgage payments on the $975,000 house she and her home-builder husband constructed on 20 acres near Crater Lake. "I'd also negotiate a lower price, too," says Ms. Adams, an agent with Re/Max International Inc. "I just want this house off our books."
Across the country, the theme is the same: Home builders and home sellers are juicing their efforts to unload single-family homes. Among other things, they are offering buyers cash discounts of as much as 20%, throwing in a pool and agreeing to finish basements, garages and other spaces at a cost of several thousand dollars -- incentives much richer than builders were offering as recently as six months ago, when the downturn didn't look as bleak.
The full article can be found at http://online.wsj.com/article_email/SB118661750287092393-lMyQjAxMDE3ODA2OTYwMTk3Wj.html
So what is happening locally??
Price concessions are rampant in the market, as motivated to sell homeowners continue what I have termed ‘the dive to the bottom’. Unmotivated sellers may be sticking to their price, but their numbers of showings decline and disappear as buyers look for deals elsewhere. Increasingly, sellers are offering to pay buyers’ closing costs, which is a nod to the already well-established de facto practice when an offer to purchase comes in for review. All buyers have already caught on to this perk. They ask: What else?
I’ve had sellers offer to include TVs, refrigerators, washers and dryers, gym setups, other furniture, cars, and all sorts of personal property as incentive to buyers. While these things are nice, it doesn’t swing the deal. More important to buyers can be financing terms such as buydowns, where the seller pre-pays interest on new loans. Increasingly buyers are asking sellers to carry a second mortgage of 5% or 10% (or even more!) for those sellers who have a lot of equity in the home.
For some sellers, a monthly payment on a second mortgage can be more important than all the cash in hand at once. A common arrangement for the seller carrying a note would be at 10% interest, amortized over 30 years and all due in 5 years.
Other concessions that buyers are asking for (and sometimes getting) would be pre-paid property taxes and insurance, homeowners association fees, Mello-Roos fees, and other recurring fees of that kind. Pre-payment terms can be six months, a year, or even more.
Motivated sellers who want their homes sold can get pretty innovative, given their particular circumstance.
If the property needs repairs or updating and the sellers can’t financially handle it prior to close, credits can be given to be applied to this type of work to be performed after close of escrow. Usually the lender will require these funds to be held in a special account to ensure that the work gets done and the buyer doesn’t just pocket it at close, but I’ve also seen some cash backs to buyers. Examples of work needed in a home for sale: new roof, re-piping, painting, carpets and flooring, landscaping, updating kitchens and baths, and miscellaneous repairs.
The home builders are another matter. Lennar, KBhomes, KHov, and the other builders active in the area have various incentives that are available to buyers, and some additional incentives if home buyers take a Realtor along on their first visit to the sales office. While buyers, as usual, overestimate their negotiating prowess when dealing with home builders, often choosing to ‘go it alone’ without the assistance of a Realtor, they end up unrepresented in the transaction and lose big time in the end. But that’s the psychology and ignorance of the new home buyer at work. God luv ‘em!
New home builders employ a sales staff to work in the builder’s interests, not to just smile and give away the store! Think about it the next time you go to a new home development. Then call me at 661-287-9164 and I will go with you, but remember, it must be on first visit when you register. Otherwise, I cannot help you get the best deal possible.
Builders generally try to avoid outright price markdowns, in part because it angers prior home buyers who don't want prices in their subdivisions forced down. These days, though, builders increasingly resort to price cuts because it's all about avoiding bankruptcy for some.
Builders are increasingly willing to pay agents substantially larger commissions -- as much as 4% or locally, even 5% of the home's sales price, up from 1.5% or less -- to help unload inventory homes. This trend is reflected in the re-sale market, where discount brokers are having a tough time with many going out of business, and the 6% commission as the standard for listing a home has returned to the market. Lower commissions just don’t work in a market where the average time on market is well over 90 days and there are few buyers. Incentivizing the listing agent to fully explore marketing outlets is important, and bringing the buyers in the door involves offering a competitive (and higher) commission to the selling agents. With as many homes on the market as there are, the selling agent has many many choices of homes to show a prospective buyer. One way to get that buyer in is to increase the Realtor’s commission. What many home sellers often don’t understand is that keeping a buyer involved through the escrow period is just as important, and the offering of a competitive commission is a critical aspect of that process.
This trend toward more-generous incentives is "likely to intensify," says Mark Zandi, chief economist at Moody's Economy.com, citing a growing inventory of new homes, an oversupply of pre-owned homes on the market and "a glut of homes that are a year or two old that investors bought as rental property that have never been lived in, and those investors are now trying to sell, too."
The best deals go to those who are ready to buy and can close within 30 days and who have no contingencies in their contracts, such as the need to sell another house or find financing. Those buyers get the highest concessions. Also, have a preapproval letter in hand, which indicates that a lender is ready to fund your mortgage immediately up to a certain amount, is an essential part of the offer. After all, an offer and a contract is only the beginning, closing the escrow is the real deal.
With the housing market looking increasingly frail, home builders and home sellers are going to new extremes to attract buyers, dangling lavish incentives and slashing prices.
In a recent Wall Street Journal article, examples of some concessions include:
In Boca Raton, Fla., Gordon Homes is offering to pay two years of property taxes and insurance -- worth as much as $150,000 on houses priced as high as $2.5 million -- for buyers of completed homes at its upscale Azura development. In Richmond, Va., Orleans Homebuilders Inc. is offering "Sizzling Summer Sale Savings" that include as much as $100,000 off the cost of upgrades ranging from granite countertops to a conservatory. And in Medford, Ore., Diane Adams, a real-estate agent, is offering to pay four months of mortgage payments on the $975,000 house she and her home-builder husband constructed on 20 acres near Crater Lake. "I'd also negotiate a lower price, too," says Ms. Adams, an agent with Re/Max International Inc. "I just want this house off our books."
Across the country, the theme is the same: Home builders and home sellers are juicing their efforts to unload single-family homes. Among other things, they are offering buyers cash discounts of as much as 20%, throwing in a pool and agreeing to finish basements, garages and other spaces at a cost of several thousand dollars -- incentives much richer than builders were offering as recently as six months ago, when the downturn didn't look as bleak.
The full article can be found at http://online.wsj.com/article_email/SB118661750287092393-lMyQjAxMDE3ODA2OTYwMTk3Wj.html
So what is happening locally??
Price concessions are rampant in the market, as motivated to sell homeowners continue what I have termed ‘the dive to the bottom’. Unmotivated sellers may be sticking to their price, but their numbers of showings decline and disappear as buyers look for deals elsewhere. Increasingly, sellers are offering to pay buyers’ closing costs, which is a nod to the already well-established de facto practice when an offer to purchase comes in for review. All buyers have already caught on to this perk. They ask: What else?
I’ve had sellers offer to include TVs, refrigerators, washers and dryers, gym setups, other furniture, cars, and all sorts of personal property as incentive to buyers. While these things are nice, it doesn’t swing the deal. More important to buyers can be financing terms such as buydowns, where the seller pre-pays interest on new loans. Increasingly buyers are asking sellers to carry a second mortgage of 5% or 10% (or even more!) for those sellers who have a lot of equity in the home.
For some sellers, a monthly payment on a second mortgage can be more important than all the cash in hand at once. A common arrangement for the seller carrying a note would be at 10% interest, amortized over 30 years and all due in 5 years.
Other concessions that buyers are asking for (and sometimes getting) would be pre-paid property taxes and insurance, homeowners association fees, Mello-Roos fees, and other recurring fees of that kind. Pre-payment terms can be six months, a year, or even more.
Motivated sellers who want their homes sold can get pretty innovative, given their particular circumstance.
If the property needs repairs or updating and the sellers can’t financially handle it prior to close, credits can be given to be applied to this type of work to be performed after close of escrow. Usually the lender will require these funds to be held in a special account to ensure that the work gets done and the buyer doesn’t just pocket it at close, but I’ve also seen some cash backs to buyers. Examples of work needed in a home for sale: new roof, re-piping, painting, carpets and flooring, landscaping, updating kitchens and baths, and miscellaneous repairs.
The home builders are another matter. Lennar, KBhomes, KHov, and the other builders active in the area have various incentives that are available to buyers, and some additional incentives if home buyers take a Realtor along on their first visit to the sales office. While buyers, as usual, overestimate their negotiating prowess when dealing with home builders, often choosing to ‘go it alone’ without the assistance of a Realtor, they end up unrepresented in the transaction and lose big time in the end. But that’s the psychology and ignorance of the new home buyer at work. God luv ‘em!
New home builders employ a sales staff to work in the builder’s interests, not to just smile and give away the store! Think about it the next time you go to a new home development. Then call me at 661-287-9164 and I will go with you, but remember, it must be on first visit when you register. Otherwise, I cannot help you get the best deal possible.
Builders generally try to avoid outright price markdowns, in part because it angers prior home buyers who don't want prices in their subdivisions forced down. These days, though, builders increasingly resort to price cuts because it's all about avoiding bankruptcy for some.
Builders are increasingly willing to pay agents substantially larger commissions -- as much as 4% or locally, even 5% of the home's sales price, up from 1.5% or less -- to help unload inventory homes. This trend is reflected in the re-sale market, where discount brokers are having a tough time with many going out of business, and the 6% commission as the standard for listing a home has returned to the market. Lower commissions just don’t work in a market where the average time on market is well over 90 days and there are few buyers. Incentivizing the listing agent to fully explore marketing outlets is important, and bringing the buyers in the door involves offering a competitive (and higher) commission to the selling agents. With as many homes on the market as there are, the selling agent has many many choices of homes to show a prospective buyer. One way to get that buyer in is to increase the Realtor’s commission. What many home sellers often don’t understand is that keeping a buyer involved through the escrow period is just as important, and the offering of a competitive commission is a critical aspect of that process.
This trend toward more-generous incentives is "likely to intensify," says Mark Zandi, chief economist at Moody's Economy.com, citing a growing inventory of new homes, an oversupply of pre-owned homes on the market and "a glut of homes that are a year or two old that investors bought as rental property that have never been lived in, and those investors are now trying to sell, too."
The best deals go to those who are ready to buy and can close within 30 days and who have no contingencies in their contracts, such as the need to sell another house or find financing. Those buyers get the highest concessions. Also, have a preapproval letter in hand, which indicates that a lender is ready to fund your mortgage immediately up to a certain amount, is an essential part of the offer. After all, an offer and a contract is only the beginning, closing the escrow is the real deal.
Tuesday, August 14, 2007
Impact of Mortgage Crisis Spreads Beyond Housing
Impact of Mortgage Crisis Spreads
Dow Tumbles 2.8%
As Fallout Intensifies; Moves by Central Banks
By GREGORY ZUCKERMAN, JAMES R. HAGERTY and DAVID GAUTHIER-VILLARS
August 10, 2007; Page A1
Fallout from the intensifying credit crisis stretched from a French bank to the largest home-mortgage lender in the U.S., triggering unusual central-bank interventions and driving the Dow Jones Industrial Average to its second-worst drop this year.
The troubles demonstrated both the global reach of the crisis and its impact on a widening circle of markets and companies. The first jolt came from French bank BNP Paribas, which said early in the day that it was freezing three investment funds once worth a combined $2.17 billion because of losses related to U.S. housing loans. That prompted the U.S. and European central banks to inject cash into money markets to keep interest rates down.
The unease accelerated in the U.S. with news that several hedge funds were in the red and selling off assets. Apartment and condominium builder Tarragon Corp. raised doubts about its ability to remain in business amid weak demand and an inability to raise new financing. After markets closed, mortgage-lender Countrywide Financial Corp. said "unprecedented disruptions" in credit markets could affect its financial condition.
The stock market, which on Wednesday had risen sharply on hopes credit problems were being contained, swooned as hedge funds, many of which borrowed increasing amounts of money in recent years to boost returns amid placid markets, scrambled to sell holdings and cut their borrowings. The Dow Jones Industrial Average ended down 387.18 points, or 2.8%, at 13270.68.
Meanwhile, Countrywide, of Calabasas, Calif., said in a Securities and Exchange Commission filing that it was shoring up its finances and had "adequate funding liquidity." But the company, the nation's largest home-mortgage lender in terms of volume, warned that "the situation is rapidly evolving and the impact on the company is unknown." Reduced demand from investors is prompting Countrywide to retain more of its loans rather than selling them.
The statement could send shivers through financial markets today. It came just a week after Bear Stearns Cos., the Wall Street trading giant, had to reassure investors that it had ample cash on hand amid concern that it faced funding problems because of deteriorating credit-market conditions and the implosion of two of its hedge funds.
On Friday, markets in Asia tumbled in early trading. After the Nikkei 225 index fell more than 2%, Japan's central bank injected $8.39 billion into money markets. That followed actions Thursday by the European Central Bank, which provided more than $130 billion to money markets, and the U.S. Federal Reserve, which added $24 billion in reserves to the U.S. banking system.
What started late last year as worry over a sharp rise in defaults on subprime mortgages has mushroomed into a crisis for the entire home-loan industry and investors world-wide. By March, late payments were reaching worrisome levels on Alt-A mortgages, a category between prime and subprime that includes many loans for which borrowers "state" rather than verify their incomes. Most prime loans continue to perform well, but Countrywide has reported a rapid rise in delinquent payments on certain prime home-equity loans that were used by people stretching themselves to buy homes with little or no money down.
Payments were at least 30 days late on about 20% of "nonprime" mortgages serviced by Countrywide as of June 30, up from 14% a year earlier, the company said. Nonprime includes loans to people with weak credit records and high debt in relation to their income, as well as to people who don't document their income or assets. On prime home-equity loans, the delinquency rate was 3.7%, up from 1.5% a year before. For all loans, the rate was 5%, up from 3.9%.
In a sign of the growing difficulty in selling loans, Countrywide said that it transferred $1 billion of nonprime mortgages from its "held for sale" category to "held for investment" in the first half -- meaning they will stay on the books instead of being sold. Countrywide marked the value of those loans down to $800 million. Despite its current woes, the company argues that it is well-placed to gain market share from weaker rivals.
Rattled by a constant stream of bad news, investors in recent days have been shunning nearly all mortgages except for those that can be sold to Fannie Mae and Freddie Mac, the government-sponsored investors that guarantee payments on loans that "conform" to their standards. That has prompted lenders to boost rates on prime "jumbo" loans -- those totaling $417,000 or more, too big to be guaranteed by Fannie or Freddie -- to as much as 7.25% or 8%. Usually, such loans cost only about a quarter percentage point more than "conforming" mortgages, but the gap has ballooned to as much as 0.8 point during the past week.
In financial markets, several entities thought to be insulated from the subprime meltdown now turn out to be affected, leading investors to wonder who might be next. For instance, BNP just last week had said the three funds were conducting business as usual. But Europe's sixth-largest bank by stock-market value said yesterday that it had been forced to suspend the funds on Tuesday because of a sudden and unexpected dearth of buyers and sellers.
"The market for the assets has just disappeared," said Alain Papiasse, head of BNP Paribas's asset-management-services division. "Since the start of this week, there are no prices for instruments that carry, directly or indirectly, some types of U.S. assets."
In the U.S. the latest crop of hedge funds to be hit hard by the market's turmoil includes those that focus on "market-neutral" strategies, or strategies that seek to do as well in both falling and rising markets. The strategy has been embraced by some of the biggest names in hedge funds, in part because it's popular with institutional investors who hunger for gains in any kind of market.
Many market-neutral funds have been wagering on high-quality stocks, or stocks that trade at low valuations based on various metrics, and betting against stocks that look expensive. Because this stance is seen as relatively conservative, the funds felt comfortable borrowing money to boost returns.
But as banks began getting worried about their hedge-fund clients in recent weeks, some hedge funds were asked to put up more collateral to back the loans, or anticipated these requests. The funds sold some of their holdings of high-quality stocks to raise the cash, and closed out "short" trades, or bets against companies, by buying back shares of companies seen as expensive. Others sold positions simply to become more conservative, in a rocky market.
Since market-neutral funds often are guided by similar computer models and share similar holdings, the actions magnified moves in asset prices. The last week has been the worst on record for many large hedge funds focusing on this strategy, worrying traders across Wall Street, many of whom look to these firms for signs of stability in difficult markets.
During the past several days, a number of other quantitative funds have also been hard-hit. These funds generally operate by building computer models of market behavior and then allowing computer programs to dictate trading. With the recent trouble in financial markets, many lenders, funds and brokerages were following statistical models that grossly underestimated how risky the environment had become.
--Kate Kelly, Alex Frangos, Henny Sender, Anita Raghavan and Ian McDonald contributed to this article.
Write to Gregory Zuckerman at gregory.zuckerman@wsj.com, James R. Hagerty at bob.hagerty@wsj.com and David Gauthier-Villars at David.Gauthier-Villars@dowjones.com
Dow Tumbles 2.8%
As Fallout Intensifies; Moves by Central Banks
By GREGORY ZUCKERMAN, JAMES R. HAGERTY and DAVID GAUTHIER-VILLARS
August 10, 2007; Page A1
Fallout from the intensifying credit crisis stretched from a French bank to the largest home-mortgage lender in the U.S., triggering unusual central-bank interventions and driving the Dow Jones Industrial Average to its second-worst drop this year.
The troubles demonstrated both the global reach of the crisis and its impact on a widening circle of markets and companies. The first jolt came from French bank BNP Paribas, which said early in the day that it was freezing three investment funds once worth a combined $2.17 billion because of losses related to U.S. housing loans. That prompted the U.S. and European central banks to inject cash into money markets to keep interest rates down.
The unease accelerated in the U.S. with news that several hedge funds were in the red and selling off assets. Apartment and condominium builder Tarragon Corp. raised doubts about its ability to remain in business amid weak demand and an inability to raise new financing. After markets closed, mortgage-lender Countrywide Financial Corp. said "unprecedented disruptions" in credit markets could affect its financial condition.
The stock market, which on Wednesday had risen sharply on hopes credit problems were being contained, swooned as hedge funds, many of which borrowed increasing amounts of money in recent years to boost returns amid placid markets, scrambled to sell holdings and cut their borrowings. The Dow Jones Industrial Average ended down 387.18 points, or 2.8%, at 13270.68.
Meanwhile, Countrywide, of Calabasas, Calif., said in a Securities and Exchange Commission filing that it was shoring up its finances and had "adequate funding liquidity." But the company, the nation's largest home-mortgage lender in terms of volume, warned that "the situation is rapidly evolving and the impact on the company is unknown." Reduced demand from investors is prompting Countrywide to retain more of its loans rather than selling them.
The statement could send shivers through financial markets today. It came just a week after Bear Stearns Cos., the Wall Street trading giant, had to reassure investors that it had ample cash on hand amid concern that it faced funding problems because of deteriorating credit-market conditions and the implosion of two of its hedge funds.
On Friday, markets in Asia tumbled in early trading. After the Nikkei 225 index fell more than 2%, Japan's central bank injected $8.39 billion into money markets. That followed actions Thursday by the European Central Bank, which provided more than $130 billion to money markets, and the U.S. Federal Reserve, which added $24 billion in reserves to the U.S. banking system.
What started late last year as worry over a sharp rise in defaults on subprime mortgages has mushroomed into a crisis for the entire home-loan industry and investors world-wide. By March, late payments were reaching worrisome levels on Alt-A mortgages, a category between prime and subprime that includes many loans for which borrowers "state" rather than verify their incomes. Most prime loans continue to perform well, but Countrywide has reported a rapid rise in delinquent payments on certain prime home-equity loans that were used by people stretching themselves to buy homes with little or no money down.
Payments were at least 30 days late on about 20% of "nonprime" mortgages serviced by Countrywide as of June 30, up from 14% a year earlier, the company said. Nonprime includes loans to people with weak credit records and high debt in relation to their income, as well as to people who don't document their income or assets. On prime home-equity loans, the delinquency rate was 3.7%, up from 1.5% a year before. For all loans, the rate was 5%, up from 3.9%.
In a sign of the growing difficulty in selling loans, Countrywide said that it transferred $1 billion of nonprime mortgages from its "held for sale" category to "held for investment" in the first half -- meaning they will stay on the books instead of being sold. Countrywide marked the value of those loans down to $800 million. Despite its current woes, the company argues that it is well-placed to gain market share from weaker rivals.
Rattled by a constant stream of bad news, investors in recent days have been shunning nearly all mortgages except for those that can be sold to Fannie Mae and Freddie Mac, the government-sponsored investors that guarantee payments on loans that "conform" to their standards. That has prompted lenders to boost rates on prime "jumbo" loans -- those totaling $417,000 or more, too big to be guaranteed by Fannie or Freddie -- to as much as 7.25% or 8%. Usually, such loans cost only about a quarter percentage point more than "conforming" mortgages, but the gap has ballooned to as much as 0.8 point during the past week.
In financial markets, several entities thought to be insulated from the subprime meltdown now turn out to be affected, leading investors to wonder who might be next. For instance, BNP just last week had said the three funds were conducting business as usual. But Europe's sixth-largest bank by stock-market value said yesterday that it had been forced to suspend the funds on Tuesday because of a sudden and unexpected dearth of buyers and sellers.
"The market for the assets has just disappeared," said Alain Papiasse, head of BNP Paribas's asset-management-services division. "Since the start of this week, there are no prices for instruments that carry, directly or indirectly, some types of U.S. assets."
In the U.S. the latest crop of hedge funds to be hit hard by the market's turmoil includes those that focus on "market-neutral" strategies, or strategies that seek to do as well in both falling and rising markets. The strategy has been embraced by some of the biggest names in hedge funds, in part because it's popular with institutional investors who hunger for gains in any kind of market.
Many market-neutral funds have been wagering on high-quality stocks, or stocks that trade at low valuations based on various metrics, and betting against stocks that look expensive. Because this stance is seen as relatively conservative, the funds felt comfortable borrowing money to boost returns.
But as banks began getting worried about their hedge-fund clients in recent weeks, some hedge funds were asked to put up more collateral to back the loans, or anticipated these requests. The funds sold some of their holdings of high-quality stocks to raise the cash, and closed out "short" trades, or bets against companies, by buying back shares of companies seen as expensive. Others sold positions simply to become more conservative, in a rocky market.
Since market-neutral funds often are guided by similar computer models and share similar holdings, the actions magnified moves in asset prices. The last week has been the worst on record for many large hedge funds focusing on this strategy, worrying traders across Wall Street, many of whom look to these firms for signs of stability in difficult markets.
During the past several days, a number of other quantitative funds have also been hard-hit. These funds generally operate by building computer models of market behavior and then allowing computer programs to dictate trading. With the recent trouble in financial markets, many lenders, funds and brokerages were following statistical models that grossly underestimated how risky the environment had become.
--Kate Kelly, Alex Frangos, Henny Sender, Anita Raghavan and Ian McDonald contributed to this article.
Write to Gregory Zuckerman at gregory.zuckerman@wsj.com, James R. Hagerty at bob.hagerty@wsj.com and David Gauthier-Villars at David.Gauthier-Villars@dowjones.com
Countrywide Financial Hit by Credit Market Woes
Countrywide Hit by Credit Market Woes
By JAMES R. HAGERTY
August 9, 2007 8:23 p.m.
Countrywide Financial Corp. and other mortgage companies are facing "unprecedented disruptions" in debt and mortgage-finance markets that could hurt earnings and the company's financial condition, the Calabasas, Calif., lender said in a regulatory filing. (Read the SEC filing)
The statement was a supplement to the standard "risk factors" listed in Countrywide's 2006 annual report.
See the SEC filing from Countrywide Financial.The company, the largest U.S. home mortgage lender in terms of loan volume, said reduced demand from investors is prompting it to retain more of its loans rather than selling them. The company also has been shoring up its finances. "While we believe we have adequate funding liquidity," it said in a quarterly filing with the Securities and Exchange Commission, "the situation is rapidly evolving and the impact on the company is unknown."
Payments were at least 30 days late on about 20% of "nonprime" mortgages serviced by Countrywide as of June 30, up from 14% a year earlier. Nonprime includes loans to people with weak credit records and high debt in relation to their income, as well as to people who don't document their income or assets. On prime home equity loans, the delinquency rate was 3.7%, up from 1.5% a year before. For all loans, the rate was 5%, up from 3.9%.
In a sign of the growing difficulty in selling loans, Countrywide said that it transferred $1 billion of nonprime mortgages from its "held for sale" category to "held for investment" in the first half. Countrywide marked the value of those loans down to $800 million. It also decided to retain as investments, rather than sell, $700 million of prime home equity loans, marking them down to $600 million. Countrywide has said many of those home equity loans were second-lien mortgages used by people who put little or no money down in buying a house.
Write to James R. Hagerty at bob.hagerty@wsj.com
By JAMES R. HAGERTY
August 9, 2007 8:23 p.m.
Countrywide Financial Corp. and other mortgage companies are facing "unprecedented disruptions" in debt and mortgage-finance markets that could hurt earnings and the company's financial condition, the Calabasas, Calif., lender said in a regulatory filing. (Read the SEC filing)
The statement was a supplement to the standard "risk factors" listed in Countrywide's 2006 annual report.
See the SEC filing from Countrywide Financial.The company, the largest U.S. home mortgage lender in terms of loan volume, said reduced demand from investors is prompting it to retain more of its loans rather than selling them. The company also has been shoring up its finances. "While we believe we have adequate funding liquidity," it said in a quarterly filing with the Securities and Exchange Commission, "the situation is rapidly evolving and the impact on the company is unknown."
Payments were at least 30 days late on about 20% of "nonprime" mortgages serviced by Countrywide as of June 30, up from 14% a year earlier. Nonprime includes loans to people with weak credit records and high debt in relation to their income, as well as to people who don't document their income or assets. On prime home equity loans, the delinquency rate was 3.7%, up from 1.5% a year before. For all loans, the rate was 5%, up from 3.9%.
In a sign of the growing difficulty in selling loans, Countrywide said that it transferred $1 billion of nonprime mortgages from its "held for sale" category to "held for investment" in the first half. Countrywide marked the value of those loans down to $800 million. It also decided to retain as investments, rather than sell, $700 million of prime home equity loans, marking them down to $600 million. Countrywide has said many of those home equity loans were second-lien mortgages used by people who put little or no money down in buying a house.
Write to James R. Hagerty at bob.hagerty@wsj.com
Saturday, August 11, 2007
The Mania for Sellers is Out. The Mania for Buyers is In.
Mania.
Fixation. Madness.
Also: abberation, compulsion, craving, craze, craziness, delirium, dementia, derangement, desire, disorder, enthusiasm, fad, fancy, fascination, fetish, fixed idea, frenzy, furor, hang-up, infatuation, insanity, lunacy, obsession, passion, preoccupation, rage, thing.
That what Roget's Thesaurus comes up with as related words.
It is now conventional wisdom that a few years ago, during the 'seller's market', that excesses were introduced into the housing market that are now being worked out. Back then, lots of liquidity poured into the housing market, with low interest loans, teaser loans, option ARMs, no document/no verification loans, and other 'exotics' that got more and more people into home purchasing and 'flipping' for profit. Every month home prices went up, year-to-year appreciation registered 20% or more for three years running, and the adjoining years weren't far off the pace. If you didn't buy RIGHT NOW, you were thought a complete idiot. Sellers asked for the moon, and got it. Appraisers and lenders went along. A lot of Realtors did too. Easy money bought the American Dream, and people from all over the world flocked to the party. Want a new car? Refinance at a lower (initial) rate, no costs, and pull money out. Get a HELOC and don't worry about it... price appreciation and low interest rates will finance your new lifestyle. And don't worry about the future... this is the New Reality. The party will go on forever!
Yes, I heard exactly these lines from sellers and mortgage brokers and Realtors and all kinds of people. Homes came on the market and were sold within days or even hours, seemingly no matter what the price was. It was a Mania, especially for Sellers but one that infected the entire market.
The party is over. At least for sellers.
Homes are now undergoing a re-valuation, and this time, it is the Buyer who is setting the price. [In reality, the Buyer always sets the price. That is a basic market mechanism.] Those sellers who got used to 20% and more appreciation per year bemoan the fact that they have to now 'give the home away'. Nevermind that a 20% appreciation on a home with a zero or 5% equity position has a pretty nice annual rate of return on investment, as long as you sell. Nowhere else in the market can you make that kind of money. But I digress...
Sellers aren't giving away their homes, and the family down the street who actually sold and closed their home sale last week isn't destroying your home's value. Home prices go up, home prices go down. If you thought that home prices were on the unending up escalator forever, well, all I can say is welcome to reality. Your fever may have broken and your sanity may be returning. The mania for sellers is over. Catch up with the facts, deal with the New New Reality.
So what is the New New Reality? I have had some people who self-describe themselves as serious buyers tell me that all homes on the market are foreclosures, or will soon be in foreclosures. They look at the local newspapers and see that there are notices of default on $600,000 or more homes on notes worth $7 or $10,000, and want to know how they can buy these homes for the defaulted note amounts or less. Some have gone on RealtyTrac.com and one told me she wanted the kind of deal she read about: a 4500 square foot home valued at $1.7 million dollars, for $350,000. She said she was prepared to buy that kind of deal TODAY!
Yeah, who isn't?
Of course she didn't have an address or any other information that at all indicated that she could or anyone else was getting that kind of deal. But people tell me 'those deals are out there... find one for me.' Of course they are ever so reluctant to even meet and seriously talk about their finances, enter a buyer's broker agreement, or do anything else that would at all justify the considerable amount of legwork required for what? Missed appointments, unanswered emails and a load of hot air? Don't get me wrong... serious buyers get serious service. But money talks. Bullshit walks. When we work together, I will respect your time and you will respect mine. Just because somebody might say they are a serious buyer doesn't mean they will buy in my lifetime, or through me. That last part is really operative if someone wants to work with me. They will buy through me without games or guile. Work with me, otherwise, why waste my time?
Are there deals out there? There are!! And I would be very happy to get you into one! But don't expect sellers to just give you the keys. It doesn't work that way. And don't expect to get a deal at fifteen cents on the dollar. If that is your expectation, you will need to work with someone else. It is fantasyland that you are living in. I live in Reality. It's the New New Reality, minus the mania.
If you are a serious buyer, let's get together. Call me at 661-287-9164 and we will set a time to meet.
Fixation. Madness.
Also: abberation, compulsion, craving, craze, craziness, delirium, dementia, derangement, desire, disorder, enthusiasm, fad, fancy, fascination, fetish, fixed idea, frenzy, furor, hang-up, infatuation, insanity, lunacy, obsession, passion, preoccupation, rage, thing.
That what Roget's Thesaurus comes up with as related words.
It is now conventional wisdom that a few years ago, during the 'seller's market', that excesses were introduced into the housing market that are now being worked out. Back then, lots of liquidity poured into the housing market, with low interest loans, teaser loans, option ARMs, no document/no verification loans, and other 'exotics' that got more and more people into home purchasing and 'flipping' for profit. Every month home prices went up, year-to-year appreciation registered 20% or more for three years running, and the adjoining years weren't far off the pace. If you didn't buy RIGHT NOW, you were thought a complete idiot. Sellers asked for the moon, and got it. Appraisers and lenders went along. A lot of Realtors did too. Easy money bought the American Dream, and people from all over the world flocked to the party. Want a new car? Refinance at a lower (initial) rate, no costs, and pull money out. Get a HELOC and don't worry about it... price appreciation and low interest rates will finance your new lifestyle. And don't worry about the future... this is the New Reality. The party will go on forever!
Yes, I heard exactly these lines from sellers and mortgage brokers and Realtors and all kinds of people. Homes came on the market and were sold within days or even hours, seemingly no matter what the price was. It was a Mania, especially for Sellers but one that infected the entire market.
The party is over. At least for sellers.
Homes are now undergoing a re-valuation, and this time, it is the Buyer who is setting the price. [In reality, the Buyer always sets the price. That is a basic market mechanism.] Those sellers who got used to 20% and more appreciation per year bemoan the fact that they have to now 'give the home away'. Nevermind that a 20% appreciation on a home with a zero or 5% equity position has a pretty nice annual rate of return on investment, as long as you sell. Nowhere else in the market can you make that kind of money. But I digress...
Sellers aren't giving away their homes, and the family down the street who actually sold and closed their home sale last week isn't destroying your home's value. Home prices go up, home prices go down. If you thought that home prices were on the unending up escalator forever, well, all I can say is welcome to reality. Your fever may have broken and your sanity may be returning. The mania for sellers is over. Catch up with the facts, deal with the New New Reality.
So what is the New New Reality? I have had some people who self-describe themselves as serious buyers tell me that all homes on the market are foreclosures, or will soon be in foreclosures. They look at the local newspapers and see that there are notices of default on $600,000 or more homes on notes worth $7 or $10,000, and want to know how they can buy these homes for the defaulted note amounts or less. Some have gone on RealtyTrac.com and one told me she wanted the kind of deal she read about: a 4500 square foot home valued at $1.7 million dollars, for $350,000. She said she was prepared to buy that kind of deal TODAY!
Yeah, who isn't?
Of course she didn't have an address or any other information that at all indicated that she could or anyone else was getting that kind of deal. But people tell me 'those deals are out there... find one for me.' Of course they are ever so reluctant to even meet and seriously talk about their finances, enter a buyer's broker agreement, or do anything else that would at all justify the considerable amount of legwork required for what? Missed appointments, unanswered emails and a load of hot air? Don't get me wrong... serious buyers get serious service. But money talks. Bullshit walks. When we work together, I will respect your time and you will respect mine. Just because somebody might say they are a serious buyer doesn't mean they will buy in my lifetime, or through me. That last part is really operative if someone wants to work with me. They will buy through me without games or guile. Work with me, otherwise, why waste my time?
Are there deals out there? There are!! And I would be very happy to get you into one! But don't expect sellers to just give you the keys. It doesn't work that way. And don't expect to get a deal at fifteen cents on the dollar. If that is your expectation, you will need to work with someone else. It is fantasyland that you are living in. I live in Reality. It's the New New Reality, minus the mania.
If you are a serious buyer, let's get together. Call me at 661-287-9164 and we will set a time to meet.
Monday, August 06, 2007
What's Going On in Mortgage Financing?
It's all over the news, but what does it mean???
Sub-prime mortgage woes, including American Home Mortgage (the nation's #10 lender) going out of business, bad news with Countrywide, Novastar stock going down to junk status... could mean something... or nothing to you. It depends on where you are.
Let's take a brief random walk around some definitions and details, so that you will be able to understand what is really going on, and can differentiate truth from hype, and gauge the screaming headlines without the filter of fear.
Over the past several years, many loans were made to homeowners with what is euphamisticly called 'non-traditional' or 'non-conforming' situations. These borrowers had a poor credit history, an inability to document income, or any number of factors that made them less than prime candidates for a loan. There is a reason these types of loans are called 'Sub-Prime' and their slightly more credit worthy cousin, 'Alt-A'. They are risky loans and not up to the standards of A credit, prime, or traditional loans. The low interest and lots of money floating around, there were a lot of loans made to people who should not have been able to get the loans, but the loans were made because after holding the loan for some short period of time (called seasoning), the loan could be sold off to the secondary market for these loans, which were then bundled into what is called tranches, assigned a risk rating, and sold to investors both here in the US and around the world. In fact, over 1/3 of these bundled tranches were sold in the European and Chinese markets.
Another type of non-conforming loan is the jumbo loan, which has a loan amount higher than $417,000, which is the current maximum loan amount that can be done from government-backed mortgage giants Fannie Mae (FNMA) and Freddie Mac (FHLMC). Loan amounts higher than this maximum come from private institutions.
In the last week, most non-conforming loan product rate rocketed significantly higher.
Default and foreclosure rates are on the rise, and the rising rates are a natural re-pricing of risk. In fact on Friday Wells Fargo announced jumbo loans would have an interest rate of 8%. That's not a typo. Yes, 8%. Other major lenders raised rates, not to that level, but as much as 1% over the course of the week. What is happening is lenders are not able to sell these loans on the secondary market unless there is a much higher interest rate attached to them. In Wells Fargo's case, I think that they just shut the jumbo loan window until the market settles out and incorporates a revised risk structure into rates. Of course there are numerous other details and implications involved here, but I am trying to outline the basics so my readers know what is going on. To continue...
The end investor for sub-prime and Alt-A loans have charged a premium for taking on a pool of these loans because they knew that they have a higher rate of default and delinquent payments. But the rating agencies (those rating the risk of these loans) may have substantially underestimated the risk of default. This is the crus of the credit crunch. These private investors, not having accurate assessments of the risks of the tranches or packages of loans that they were buying, now aren't so eager to buy. So this paper is discounted, so instead of paying $101K for a $100K loan that will bear interest, they may be willing to pay $95K for that mortgage to account for that risk. Or lower. Substantially lower in some cases. In fact, the pool of buyers for these tranches has dried up, and discounts of up to 30% or more are not unheard of. To say that this has hit the financial and housing markets hard would be to sugar-coat it.
When you have thousands and thousands of these loans, you have millions and billions of dollars in loss for the company trying to sell the pool at a much lower price than they were expecting. This is called a 'liquidity crisis', and is exactly what happened to American Home Mortgage. They were holding too many of these loans when the music stopped, and were forced to sell at massive losses, and eventually they had to make the decision to close the doors and stop the bleeding. Novastar is following suit, with their stock price dropping from over $42 per share in January, to a little more than $6 on Friday, and today, dropping down around $4 per share before rebounding back up to $6 on news that it will continue making loans.
To take it one step further in detail...
Even when a lender is able to take some losses, they may be subject to a 'margin call'. This means that as their losses and risk premiums increase, the value of their loan portfolio decreases. [start thinking about the value of Countrywide]. As the value decreases, the credit lines that are secured by those portfolios begin to issue margin calls as the value of the asset they are secured on is now diminished. This is exactly like margin calls in the stock market. If you have a loan against a stock that is losing value, you will get a 'margin call' and need to pay down the loan, as the underlying stock is losing too much value to be considered adequate collateral any longer. So for the big lenders, as their portfolio is losing value due to increased risk premiums and losses... the margin calls start coming in, and they are required to pay down their balances. In turn, this means that they have less availability to fund their new loans, and they themselves have decreased ability to obtain money on the market that they can then loan out. It all spirals down to a credit crisis, which is how the current situation is described.
In response to seeing this situation play out in the fall of American Home Mortgage, lenders of other non-conforming loan products increased their interest rates dramatically almost overnight to be better prepared for increased risk premiums in the future.
What's Next?
This is not a problem that is going to settle out overnight. There are too many bad loans out there that should not have been made as a result of an easy credit mania that went on for too long. Easy money with low interest rates, too many lenders giving money to too many people with little or no documentation and bad credit history, led to the too-fast rise in home prices. In Southern California and in our local area of Santa Clarita, home price appreciation was over 20% per year for what, four years running? That's insane, and totally not sustainable.
The credit market is tightening. Loans to people with bad credit are disappearing, 100% financing is disappearing, qualification is being made on the adjusted rate, not the initial rate, on adjustable rate mortgages. Negative amortization loans, where the loan balance goes up every month, don't make any sense in a depreciating environment. But all of these things will tend to dry up the pool of potential buyers, thus slowing down an already slowing housing market.
The Federal government threatens to bail out people and companies affected by what is essentially, a re-evaluation of risk. This is exactly the wrong thing to do. An accurate evaluation of risk in an orderly and transparent market is how this whole ball of wax works! To have the Fed step in is to distort the market, rewarding those who have made bad decisions, and penalizing the American taxpayer, who if the government does take action, will end up footing the bill.
What should you do now?
First, even if you are not presently in the market for a home loan of any type, work to perfect your credit.
If you are in the midst of getting a home loan, work on the credit, and now is not the time to be nickel and diming out the costs. Get the loan. Get it funded. Get it done.
My Team and I are available for counseling with a limited number of people. The real estate market is great, just not for everyone at the same time. If you think you will be making a move in the next year in the Santa Clarita area, give me a call today at 661-287-9164.
Sub-prime mortgage woes, including American Home Mortgage (the nation's #10 lender) going out of business, bad news with Countrywide, Novastar stock going down to junk status... could mean something... or nothing to you. It depends on where you are.
Let's take a brief random walk around some definitions and details, so that you will be able to understand what is really going on, and can differentiate truth from hype, and gauge the screaming headlines without the filter of fear.
Over the past several years, many loans were made to homeowners with what is euphamisticly called 'non-traditional' or 'non-conforming' situations. These borrowers had a poor credit history, an inability to document income, or any number of factors that made them less than prime candidates for a loan. There is a reason these types of loans are called 'Sub-Prime' and their slightly more credit worthy cousin, 'Alt-A'. They are risky loans and not up to the standards of A credit, prime, or traditional loans. The low interest and lots of money floating around, there were a lot of loans made to people who should not have been able to get the loans, but the loans were made because after holding the loan for some short period of time (called seasoning), the loan could be sold off to the secondary market for these loans, which were then bundled into what is called tranches, assigned a risk rating, and sold to investors both here in the US and around the world. In fact, over 1/3 of these bundled tranches were sold in the European and Chinese markets.
Another type of non-conforming loan is the jumbo loan, which has a loan amount higher than $417,000, which is the current maximum loan amount that can be done from government-backed mortgage giants Fannie Mae (FNMA) and Freddie Mac (FHLMC). Loan amounts higher than this maximum come from private institutions.
In the last week, most non-conforming loan product rate rocketed significantly higher.
Default and foreclosure rates are on the rise, and the rising rates are a natural re-pricing of risk. In fact on Friday Wells Fargo announced jumbo loans would have an interest rate of 8%. That's not a typo. Yes, 8%. Other major lenders raised rates, not to that level, but as much as 1% over the course of the week. What is happening is lenders are not able to sell these loans on the secondary market unless there is a much higher interest rate attached to them. In Wells Fargo's case, I think that they just shut the jumbo loan window until the market settles out and incorporates a revised risk structure into rates. Of course there are numerous other details and implications involved here, but I am trying to outline the basics so my readers know what is going on. To continue...
The end investor for sub-prime and Alt-A loans have charged a premium for taking on a pool of these loans because they knew that they have a higher rate of default and delinquent payments. But the rating agencies (those rating the risk of these loans) may have substantially underestimated the risk of default. This is the crus of the credit crunch. These private investors, not having accurate assessments of the risks of the tranches or packages of loans that they were buying, now aren't so eager to buy. So this paper is discounted, so instead of paying $101K for a $100K loan that will bear interest, they may be willing to pay $95K for that mortgage to account for that risk. Or lower. Substantially lower in some cases. In fact, the pool of buyers for these tranches has dried up, and discounts of up to 30% or more are not unheard of. To say that this has hit the financial and housing markets hard would be to sugar-coat it.
When you have thousands and thousands of these loans, you have millions and billions of dollars in loss for the company trying to sell the pool at a much lower price than they were expecting. This is called a 'liquidity crisis', and is exactly what happened to American Home Mortgage. They were holding too many of these loans when the music stopped, and were forced to sell at massive losses, and eventually they had to make the decision to close the doors and stop the bleeding. Novastar is following suit, with their stock price dropping from over $42 per share in January, to a little more than $6 on Friday, and today, dropping down around $4 per share before rebounding back up to $6 on news that it will continue making loans.
To take it one step further in detail...
Even when a lender is able to take some losses, they may be subject to a 'margin call'. This means that as their losses and risk premiums increase, the value of their loan portfolio decreases. [start thinking about the value of Countrywide]. As the value decreases, the credit lines that are secured by those portfolios begin to issue margin calls as the value of the asset they are secured on is now diminished. This is exactly like margin calls in the stock market. If you have a loan against a stock that is losing value, you will get a 'margin call' and need to pay down the loan, as the underlying stock is losing too much value to be considered adequate collateral any longer. So for the big lenders, as their portfolio is losing value due to increased risk premiums and losses... the margin calls start coming in, and they are required to pay down their balances. In turn, this means that they have less availability to fund their new loans, and they themselves have decreased ability to obtain money on the market that they can then loan out. It all spirals down to a credit crisis, which is how the current situation is described.
In response to seeing this situation play out in the fall of American Home Mortgage, lenders of other non-conforming loan products increased their interest rates dramatically almost overnight to be better prepared for increased risk premiums in the future.
What's Next?
This is not a problem that is going to settle out overnight. There are too many bad loans out there that should not have been made as a result of an easy credit mania that went on for too long. Easy money with low interest rates, too many lenders giving money to too many people with little or no documentation and bad credit history, led to the too-fast rise in home prices. In Southern California and in our local area of Santa Clarita, home price appreciation was over 20% per year for what, four years running? That's insane, and totally not sustainable.
The credit market is tightening. Loans to people with bad credit are disappearing, 100% financing is disappearing, qualification is being made on the adjusted rate, not the initial rate, on adjustable rate mortgages. Negative amortization loans, where the loan balance goes up every month, don't make any sense in a depreciating environment. But all of these things will tend to dry up the pool of potential buyers, thus slowing down an already slowing housing market.
The Federal government threatens to bail out people and companies affected by what is essentially, a re-evaluation of risk. This is exactly the wrong thing to do. An accurate evaluation of risk in an orderly and transparent market is how this whole ball of wax works! To have the Fed step in is to distort the market, rewarding those who have made bad decisions, and penalizing the American taxpayer, who if the government does take action, will end up footing the bill.
What should you do now?
First, even if you are not presently in the market for a home loan of any type, work to perfect your credit.
If you are in the midst of getting a home loan, work on the credit, and now is not the time to be nickel and diming out the costs. Get the loan. Get it funded. Get it done.
My Team and I are available for counseling with a limited number of people. The real estate market is great, just not for everyone at the same time. If you think you will be making a move in the next year in the Santa Clarita area, give me a call today at 661-287-9164.
Friday, August 03, 2007
Sub-Prime Mortgage Meltdown Spreads
Yes, the news is full of it.
The sub-prime loan market with its 100% financing and option ARMs and no-document loans is having a tough time these days, and the problems are spreading into the sub-A and prime markets. In a report on CNBC today, Wells Fargo announced that it was raising jumbo rates to 8%, an increase of 1% since just last week. Other major lenders are following suit with increases, albeit at not taking the full leap that WF has taken. Today also, in a long-anticipated move, American Home Mortgages closed its doors, laying off more than 7,000 employees. A major player in the sub-prime market, AHM may be just the latest casualty in this correction in the housing market. The stock markets, largely in reaction to renewed focus on housing market woes, dropped again today. The Dow Jones Industrial mark dropped nearly 300 points, much of it in late and pre-weekend trading.
I will have more commentary on the housing market next week, but my readers should be aware the we think its always a great housing market, but not for everybody at the same time. For those in position to take advantage of current market conditions, this is a wonderful market. If you are in the Santa Clarita area, give us a call at 661-287-9164 and let's get started.
We start from wherever we are. Let's go!
The sub-prime loan market with its 100% financing and option ARMs and no-document loans is having a tough time these days, and the problems are spreading into the sub-A and prime markets. In a report on CNBC today, Wells Fargo announced that it was raising jumbo rates to 8%, an increase of 1% since just last week. Other major lenders are following suit with increases, albeit at not taking the full leap that WF has taken. Today also, in a long-anticipated move, American Home Mortgages closed its doors, laying off more than 7,000 employees. A major player in the sub-prime market, AHM may be just the latest casualty in this correction in the housing market. The stock markets, largely in reaction to renewed focus on housing market woes, dropped again today. The Dow Jones Industrial mark dropped nearly 300 points, much of it in late and pre-weekend trading.
I will have more commentary on the housing market next week, but my readers should be aware the we think its always a great housing market, but not for everybody at the same time. For those in position to take advantage of current market conditions, this is a wonderful market. If you are in the Santa Clarita area, give us a call at 661-287-9164 and let's get started.
We start from wherever we are. Let's go!
The SCV Home Team Supports Evan the Warrior
Hello everyone!
First of all we would like to thank you for caring about Evan. He is doing well. He is fighting for his cure like a champ. You can keep updated on his website that he and mom maintain at www.carepages.com sitename: evanthewarrior He loves receiving messages.
Second, wow! We are thrilled to have so many of you. Please know that we will do our best to keep everyone updated on our Fundraising efforts for Evan. We have been dubbed Evan's Warrior Women. We have begun fundraising efforts already and we have some really exciting events planned. You can keep up with the fundraising efforts at www.evanthewarrior.com also, if you ever have any questions you can email us at evanswarriorwomen@gmail.com We promise to do our best to answer and be prompt. Please be patient if it takes a while though.
Tomorrow, we are holding our last Recycling day for the summer. We will be continuing this monthly. For those of you that have been participating thank you! Please collect all your CRV beverage containers and bring them to Highlands tomorrow, Saturday, August 4th from 9-11 a.m. We will come to you, so if you like you don't even need to get out of your car! This has been a great way of raising funds for Evan and his family.
Evan, his mom Kimberly, and big brother Ryan are looking to move back to Santa Clarita this month. They need our help in finding a rental in the Tesoro Del Valle area. They need to be close enough to Rio del Norte for Ryan to walk to and from in the times that Kimberly is with Evan at appointments. Realtor Ray at http://www.scvhometeam.com/ has been working extremely hard for Evan's family. He needs our help in finding available rentals for a 2 year lease for Kimberly. If you know of anything, please contact Realtor Ray through his website. The sooner we can help Evan get back to his comfort zone, the better he'll do.
Also, since this is our first mass mailing, please let us know if you are on the list more than once or there is a better email to contact you at.
Hopefully, we'll see a bunch of you on Saturday. In the meanwhile, keep drinking your bottled water, sodas, and those beverages that come in glass containers. Save those CRV beverage containers for Evan. It saves the environment and helps Evan.
Check the Warrior Women website on Sunday for our brand new fundraising effort. It is a fashion must. Your children will not want to start school without our Evan's newest fashion accessory! Check it out at www.evanthewarrior.com You can also make a donation via PayPal by clicking on the tip jar. Also, while you're visiting our site, please take a moment to click on the ads in the sidebar. Evan gets paid per click through. This is a way for you to donate to Evan and his family for free. It takes just minutes from your day. Please do this daily even if we've not yet updated our site! Thanks.
If you would like to make a direct donation to Evan at Washington Mutual, his account number is: 395-173464-5. You can also mail a check directly at the address below. Thank you sincerely!
Also, Evan loves getting snail mail. You and your children can write him letters, draw pictures, etc. and mail them to:
Evan the Warrior Hutchison
P.O. Box 800883
Santa Clarita, CA
91380
www.carepages.com evanthewarrior
Thank you, with our most abundant graciousness. Please know that Kimberly, Evan, and Ryan are profoundly grateful for all the support and care they've received. My daughter said the other day, "Mom, it's good to know there are still good people in this world." She's right it is. We have proof that there are at least 300 really good people involved with Evan. Not to mention the countless strangers who stop at his site everyday and cheer our warrior on.
Evan's Warrior Women and The Hutchison Family.
Betsy Tobon
Sarah Eaton
Kathy Hare
Lori Rosales
Athena Styers
Alisa Doucette
Kimberly Hutchison
Evan's Warrior Women
www.evanthewarrior.com
Beating ALL one nasty cell at a time
First of all we would like to thank you for caring about Evan. He is doing well. He is fighting for his cure like a champ. You can keep updated on his website that he and mom maintain at www.carepages.com sitename: evanthewarrior He loves receiving messages.
Second, wow! We are thrilled to have so many of you. Please know that we will do our best to keep everyone updated on our Fundraising efforts for Evan. We have been dubbed Evan's Warrior Women. We have begun fundraising efforts already and we have some really exciting events planned. You can keep up with the fundraising efforts at www.evanthewarrior.com also, if you ever have any questions you can email us at evanswarriorwomen@gmail.com We promise to do our best to answer and be prompt. Please be patient if it takes a while though.
Tomorrow, we are holding our last Recycling day for the summer. We will be continuing this monthly. For those of you that have been participating thank you! Please collect all your CRV beverage containers and bring them to Highlands tomorrow, Saturday, August 4th from 9-11 a.m. We will come to you, so if you like you don't even need to get out of your car! This has been a great way of raising funds for Evan and his family.
Evan, his mom Kimberly, and big brother Ryan are looking to move back to Santa Clarita this month. They need our help in finding a rental in the Tesoro Del Valle area. They need to be close enough to Rio del Norte for Ryan to walk to and from in the times that Kimberly is with Evan at appointments. Realtor Ray at http://www.scvhometeam.com/ has been working extremely hard for Evan's family. He needs our help in finding available rentals for a 2 year lease for Kimberly. If you know of anything, please contact Realtor Ray through his website. The sooner we can help Evan get back to his comfort zone, the better he'll do.
Also, since this is our first mass mailing, please let us know if you are on the list more than once or there is a better email to contact you at.
Hopefully, we'll see a bunch of you on Saturday. In the meanwhile, keep drinking your bottled water, sodas, and those beverages that come in glass containers. Save those CRV beverage containers for Evan. It saves the environment and helps Evan.
Check the Warrior Women website on Sunday for our brand new fundraising effort. It is a fashion must. Your children will not want to start school without our Evan's newest fashion accessory! Check it out at www.evanthewarrior.com You can also make a donation via PayPal by clicking on the tip jar. Also, while you're visiting our site, please take a moment to click on the ads in the sidebar. Evan gets paid per click through. This is a way for you to donate to Evan and his family for free. It takes just minutes from your day. Please do this daily even if we've not yet updated our site! Thanks.
If you would like to make a direct donation to Evan at Washington Mutual, his account number is: 395-173464-5. You can also mail a check directly at the address below. Thank you sincerely!
Also, Evan loves getting snail mail. You and your children can write him letters, draw pictures, etc. and mail them to:
Evan the Warrior Hutchison
P.O. Box 800883
Santa Clarita, CA
91380
www.carepages.com evanthewarrior
Thank you, with our most abundant graciousness. Please know that Kimberly, Evan, and Ryan are profoundly grateful for all the support and care they've received. My daughter said the other day, "Mom, it's good to know there are still good people in this world." She's right it is. We have proof that there are at least 300 really good people involved with Evan. Not to mention the countless strangers who stop at his site everyday and cheer our warrior on.
Evan's Warrior Women and The Hutchison Family.
Betsy Tobon
Sarah Eaton
Kathy Hare
Lori Rosales
Athena Styers
Alisa Doucette
Kimberly Hutchison
Evan's Warrior Women
www.evanthewarrior.com
Beating ALL one nasty cell at a time
Wednesday, August 01, 2007
SoCalMLS Participates in New Mega-Data Sharing Group
Anaheim, CA (August 1, 2007) – In an unprecedented cooperative effort, Southern California MLS (SoCalMLS) has signed a joint data sharing agreement with nine other MLS organizations in California, forming the California MLSAlliance.
This new MLS gateway provides agents and brokers with a single source for accessing real estate information throughout much of California. Members of SoCalMLS, the nation’s second largest MLS, will now have increased exposure to more buyers for their listings, and they will be able to provide detailed listing information from a larger geographic area and increase the pool of real estate experts to whom they can refer customers.
Combining information from ten MLSs into one database, the new California MLSAlliance system was launched today and is now available to over 150,000 brokers and agents, providing access to more than 2.5 million active listings and off-market properties throughout the state. The system is developed and managed by real estate technology provider eNeighborhoods, a Dominion Enterprises company.
In California’s progressive real estate market, brokers and agents conduct business throughout the state, often across the traditional MLS boundaries. With the new MLSAlliance system, brokers and agents who belong to one of the 45 local real estate associations serviced by the ten participating MLSs can now search one system to find listings spanning across the state. The joint data access agreement between the MLSs extends a blanket offer of compensation and cooperation to all authorized participants within the California MLSAlliance.
“With an increased focus on super regionalization, statewide and national databases, the California MLSAlliance is a great demonstration of the willingness and ability of MLSs to work together for the common good,” said Russ Bergeron, CEO of Southern California MLS. “With a little work on our part, and the development efforts of our partners at eNeighborhoods, we have opened up access to millions of listings for our combined membership. That's what cooperation is all about.”
“These ten MLSs deserve praise for the decisive and progressive steps they have taken to improve access to real estate information in California”, said Andy Woolley, vice president of eNeighborhoods. “They’re not just talking about it, they’ve made it happen, delivering to their customers the largest compilation of MLS data anywhere in the world.”
In addition to SoCalMLS, the other participants include the Bay Area Real Estate Information Services, Inc. (BAREIS MLS®), Combined L.A./Westside MLS (CLAW), CRISNet Regional MLS, East Bay Regional Data (EBRD), Greater South Bay Regional MLS, iTech MLS, MetroList Services, Multi-Regional MLS (MRMLS), and San Francisco Association of REALTORS®. The MLSAlliance now unites Alameda and Contra Costa counties, San Francisco, across the Golden Gate Bridge to Marin and on to the wine country, the Sacramento metropolitan area and Orange, Los Angeles, Riverside and San Bernardino Counties in Southern California.
“This is just the first step in increasing the scope and breadth of coverage of MLS services throughout the state” added Bergeron, “allowing our customers to better serve the buyers and sellers who rely on real estate professionals to guide them through this most important transaction.”
This new MLS gateway provides agents and brokers with a single source for accessing real estate information throughout much of California. Members of SoCalMLS, the nation’s second largest MLS, will now have increased exposure to more buyers for their listings, and they will be able to provide detailed listing information from a larger geographic area and increase the pool of real estate experts to whom they can refer customers.
Combining information from ten MLSs into one database, the new California MLSAlliance system was launched today and is now available to over 150,000 brokers and agents, providing access to more than 2.5 million active listings and off-market properties throughout the state. The system is developed and managed by real estate technology provider eNeighborhoods, a Dominion Enterprises company.
In California’s progressive real estate market, brokers and agents conduct business throughout the state, often across the traditional MLS boundaries. With the new MLSAlliance system, brokers and agents who belong to one of the 45 local real estate associations serviced by the ten participating MLSs can now search one system to find listings spanning across the state. The joint data access agreement between the MLSs extends a blanket offer of compensation and cooperation to all authorized participants within the California MLSAlliance.
“With an increased focus on super regionalization, statewide and national databases, the California MLSAlliance is a great demonstration of the willingness and ability of MLSs to work together for the common good,” said Russ Bergeron, CEO of Southern California MLS. “With a little work on our part, and the development efforts of our partners at eNeighborhoods, we have opened up access to millions of listings for our combined membership. That's what cooperation is all about.”
“These ten MLSs deserve praise for the decisive and progressive steps they have taken to improve access to real estate information in California”, said Andy Woolley, vice president of eNeighborhoods. “They’re not just talking about it, they’ve made it happen, delivering to their customers the largest compilation of MLS data anywhere in the world.”
In addition to SoCalMLS, the other participants include the Bay Area Real Estate Information Services, Inc. (BAREIS MLS®), Combined L.A./Westside MLS (CLAW), CRISNet Regional MLS, East Bay Regional Data (EBRD), Greater South Bay Regional MLS, iTech MLS, MetroList Services, Multi-Regional MLS (MRMLS), and San Francisco Association of REALTORS®. The MLSAlliance now unites Alameda and Contra Costa counties, San Francisco, across the Golden Gate Bridge to Marin and on to the wine country, the Sacramento metropolitan area and Orange, Los Angeles, Riverside and San Bernardino Counties in Southern California.
“This is just the first step in increasing the scope and breadth of coverage of MLS services throughout the state” added Bergeron, “allowing our customers to better serve the buyers and sellers who rely on real estate professionals to guide them through this most important transaction.”
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