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Posts Tagged ‘home appraisals’

Fannie Mae Plays “Let’s Make a Deal”

Posted by Larry Doyle on March 5th, 2010 12:38 PM |

“Let’s see, do you want to go for the prize behind Door #1 or take a chance on what’s in the big box?”

“Well Monty, I’m playing with your money so it doesn’t really matter now, does it?”

1970’s vintage TV may have been entertaining, but is the current deal-making used by Fannie Mae to liquidate housing inventory truly the way to develop a healthy and robust housing market?

Just what is Fannie Mae doing? (more…)

Cash Strapped Seniors Beware!!

Posted by Larry Doyle on October 6th, 2009 2:53 PM |

Tapping home equity was a prime driver in leading us into our current economic crisis. The same dynamic with an added twist may very well be setting the table for another round of fraud and accompanying problems.

I refer to the housing finance product known as a reverse mortgage. This product is targeted primarily at our senior citizens who are cash strapped. Rest assured many a mortgage banker who is currently hard pressed to generate fees and earnings will attempt to take Grandma and Grandpa ‘to the hoop’ with this product.

While many quality professionals within the mortgage industry will work to highlight the potential pitfalls with reverse mortgages, do not think for a second that those messages will make their way to every customer.

Bloomberg highlights that our legal profession is starting to take notice of this ‘racket’ and writes, Reverse Mortgages May Be ‘Subprime Revisited’:

Reverse mortgages may be the next subprime crisis, according to the National Consumer Law Center.

Some of the same U.S. lenders that helped drive the real estate boom with loans to home buyers who couldn’t afford the payments are now targeting seniors, the center said. Brokers, who are given financial incentives to sell the loans, may be making misleading claims to potential customers, according to a report released today by the Boston-based NCLC.

“This market is designed to serve seniors, so when we find abuses cropping up and migrating from the subprime market to the senior market, that sounds an especially loud warning bell,” said Rick Jurgens, an advocate at the National Consumer Law Center, who contributed to the report.

Reverse mortgages enable people aged 62 and over who are looking for extra cash to use the equity in their homes and receive lump-sum payments, periodic checks, a line of credit, or a combination of the three. Lenders are repaid from the sale of the home when the borrowers die or move.

The former maximum payout for reverse mortgages backed by the Federal Housing Administration was $417,000. That limit was increased temporarily to $625,500 in February. Origination fees are capped at $6,000. In 2008, more than 100,000 seniors used reverse mortgages to tap over $17 billion in home equity, according to the Housing and Urban Development Department.

I implore anybody who reads this commentary to fully explore the implied mortgage rate and home appraisal values utilized with reverse mortgages.

Any questions, please do not hesitate to ask or to utilize the mortgage primers (in the left sidebar) here at Sense on Cents to learn more about this product.


Is the Market Ever Wrong?

Posted by Larry Doyle on June 24th, 2009 8:00 AM |

The market is often wrong, right?

Human psychology, being what it is, drives individuals to believe they are always right, or at least most often right. What highlights this instinct? The fear of  an actual loss. What do I mean?

Most individuals do not want to readily admit that they may be wrong, especially when it comes to money and finance. This human frailty leads individuals to make financial decisions which are often not in their best interest. Let’s navigate and address this psychological aspect of trading and investments.

During my trading career on Wall Street, I often encountered traders who were paralyzed by the market price action. This paralysis occurred during periods of significant volatility. Often, I would hear these individuals utter 4 simple words which should never enter the lexicon of finance: “the market is wrong.”

In response to that statement, I would ask them “if the market is wrong, then why aren’t you either buying or selling it to capture the difference in value between the market’s ‘wrong’ level and the ‘right’ level?” Those conversations were often short lived. Most traders would voice their opinion about the market — while not acting on it — in order to defend their ‘marks,’ that is, the price at which they were carrying trading positions/investments.

Nobody likes booking a loss or actually recognizing a loss. However, the reality of life is that many times we are faced with that unpleasant phenomena. The last two years provides a wealth of evidence on this front. I am reminded of it again this morning in a Bloomberg story, Home-Price Recovery in U.S. May Be Undermined by Appraisals:

There may be another culprit scuttling a U.S. housing recovery: low home appraisals.

Flawed appraisals are derailing real estate sales and depressing values across the U.S., the National Association of Realtors said yesterday as it reported that existing home prices declined 17 percent in May from a year earlier.

“It’s pointing to thousands of delayed or canceled transactions,” Lawrence Yun, chief economist of the Chicago- based Realtors group, said in an interview. “We’ve had a massive inundation from members saying this is a big problem.”

In so many words, Mr. Yun is ‘talking his position’ and indicating that the market is ‘wrong.’ A market may be deemed to be ‘oversold,’ ‘overbought,’ or otherwise ‘mispriced.’ However, those assessments are opinions and not fact. Very simply, a market is never wrong.

When home values come in below the sales price, that’s not the appraiser’s fault, it’s a reflection of the market, the Appraisal Institute, a Chicago-based professional group that represents more than 25,000 appraisers, said in a statement yesterday.

“We take offense with the notion that an appraisal is only good if it happens to come in at the sales price,” the group said. “That mentality helped cause the mortgage meltdown to begin with.”

Let’s look at this phenomena from the opposite standpoint, that being a rising market. Is the market right? Are you, the investor, as smart as you may think? Never confuse brains with a bull market.

As difficult as it may be, individuals should eliminate human emotion and psychology from financial decisions. The market is neither ‘wrong’ nor ‘right.’ The ‘market is the market.’


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