Mortgage Financing Blog

After 5 long years of a bullish seller’s market, and a year of giant pause a framiliar creature is emerging from it’s hiding place and beginning to circle once again . . . . . .

The Vultures are Back!

Yes, with real estate sales lagging after a Bullish 6 year run, the market is starting to turn to liquidators, especially in the mid to high end markets where large groups of investors bought pre-construction in speculative fashion. These self named “Condo Vultures” are hitting the real estate news headlines with a greater frequency as new buildings are finally hitting the market.

From what I have seen, absorption rates are far better than expected in some regards, however, this refers to overall occupancy - rentals and owner occupants- and in the latter, lies the market difficulties. While there are persons who bought into the high rise new construction condominiums, at present they make up an overall minority of buyers to date.

This article by Newsweek, via MSNBC discusses the phenomenon that your favorite blogger has been noticing in Miami, Florida’s real estate market. Right now there is a real dichotomy between Internationally populated, metropolitan cities, and primarily domestic markets. The business centers are maintaining recent gains from boom times, and even continuing to grow against expectations, especially in market segments that are in high demand and fixed supply.

The suburban markets have shifted from moderate to high wealth areas into the fastest growing and largest residential areas for poverty stricken Americans! Right now, we are seeing a dramatic rise in foreclosure rates in Broward County (Fort Lauderdale and surrounding suburbs) and that the foreclosure rates in West Palm Beach are still above those in Miami-Dade County. This is a direct result of the primarily suburban character of the Broward Area, as it serves the Metropolitan areas to the east and south, as well as the urban east corridor to the north in Boca Raton and West Palm Beach. What it means to the real estate investor is that the Broward market is now lined with pitfalls! Prices didn’t even move as high as those in Miami-Dade, and all of my appraisal reports indicate dropping prices, up to 20%!

Usually, we would recommend a buy when there is that type of bargain in the area, but unfortunately, we don’t see the rise of rents to be strong enough to offset the property expenses. Partly, this negative outlook is due to Broward County’s “tax em to the penny” property tax appraiser’s office (their figures are usually up to the penny of market, or even higher than True Market Value sometimes), which is comparatively agressive compared to surrounding area’s assessments of value, which typically lag by 10-20% of TMV to account for depreciation. The other negative for Broward’s and the less metropolitan sub-region’s outlook is the vast open spaces in West Palm Beach county which are still cheap enough to get newer housing stock, and were previously not desirable, that are now being occupied. We are seeing commuters from places like Greenacres, Fl. (yes, it’s the place to be, I guess) and other small Turnpike towns in remote locations that were previously shunned as too far from the action. That housing stock availability is the factor that kept Miami-Dade’s prices in the dumps for a 20 year period preceding the recent boom and re-making of Miami as a truly international city. Broward will stabilize eventually, but won’t see price appreciation unless interest rates fall sharply, and gas prices as well . . . . . .

That leads us to this months ratings with changes in red, this time, we will revise to include a Miami-Dade County Update and Regional:

Miami-Dade County:

Commercial/Industrial: Buy (Investor and Owner Occupied)
Commercial Multi-Family: Strong Buy (Investor and Owner Occupied)
Commercial Office Condominium: Buy (Owner Occupied) Neutral (Investor)
Residential Single Family Homes (under $500,000): Buy (Owner Occupied) Buy (Investor)
Residential Single Family Homes (over $500,000): Hold/Improving (Investor and Owner Occupied)
Low-Rise/Micro-Condo (under 20 units): Buy (Owner Occupied) Hold/Neutral (Investor)
Mid to High Rise Condo / Large Low Rise Condominium Projects: Hold/Negative New Buying (Investor) Buy Low from Investors Dumping, if you can . . . . (Owner Occupied)

Regional:

Commercial/Industrial: Buy (Investor and Owner Occupied)
Commercial Multi-Family: Strong Buy (Investor and Owner Occupied)
Commercial Office Condominium: Buy (Owner Occupied) Neutral (Investor)
Residential Single Family Homes (under $500,000): Hold (Owner Occupied) Weak Buy / Sell with minor sales concessions (Investor)
Residential Single Family Homes (over $500,000): Hold (Investor and Owner Occupied)
Low-Rise/Micro-Condo (under 20 units): Buy (Owner Occupied) Buy with Positive Cash Flow (Investor)
Mid to High Rise Condo / Large Low Rise Condominium Projects: Buy (Second Homes or Owner Occupied) Sell (Investor)

(Insert Shameless Plug Below)

Hey Readers!

Would love if you take a look at the new and improved Morningside Mortgage Corporation and Stern Capital, LLC websites. Any comments on the design would be most welcome. The Morningside Mortgage Corporation is mostly filled in, and the Stern Capital, LLC website is not filled with fresh content yet. Still, would love for my loyal readers out there to take a look and comment on the new design
Have a great weekend and don’t take any stated alcohol margaritas! Fully document those pours
Thanks Guys!

PS. Joke for industry professionals to follow:

Q: What do you call a century that only lasts seven years??

A: A New Century!

“Are you ready, are you ready for this
Are you hanging on the edge of your seat
Out of the doorway the bullets rip
To the sound of the beat
Another one bites the dust”

“Another One Bites The Dust, Queen”

Well folks, I think the sound of the beat is compliance and performance and right now, it is a machine gun. News that the #5 sub-prime wholesale mortgage lender in the country (as of 2Q 2006) has been closed by the FDIC came out after close of business this past friday. This announcement stating the shutdown of the Freemont Investment & Loan is a major shot across the bow for any subprime lender who was Sales Account Executive driven into shoddy loans. Speaking as someone who knew all about their programs, knew their account reps and culture, and never closed a single loan with Freemont, I can tell you that their reps were the source of this collapse of a major sub-prime lender.

Their banking operations and commercial division will continue to operate, and the Freemont General Corporation, the parent bank holding company does expect to survive this disaster, but in what form, nobody knows. They are trying to sell their origination platform, but who wants a winner like that!

Stay tuned boys and girls. It won’t be long before another industry stalwart folds their shop, and it’s starting to get ugly. This market report wouldn’t be complete without mentioning that so called “program hard equity” lending is beginning a major upswing in the wholesale marketplace driven by lenders such as Quality Home Loans and others, who are selling junk grade loans, probably with greatly reduced reps and warrants to investors regarding default and other loan guarantees present in B paper loans.

Also, for those who care about these things, our new Morningside Mortgage Corporation has been posted and is in the final tuning and review stages. Not all of it works, but any comments on the site would be welcome too
On the flip side . .. . . . . .

For those of you following the markets and interest rates, of especial importance is the place in the mortgage market of B paper lenders. These are the loans that have been actually most favored in the last few years by investment bond traders and the securitizers of Mortgage Backed Securities.

The wave of bad news for these lenders has reached tidal proportions and sweeping tightening of credit is evident throughout the marketplace at this time. Wholesale investors are shutting down, such as Wells Fargo sub-prime correspondent lending and wholesale mortgage lenders, the banks and financial companies that support Mortgage Brokers and institutions who are “table funding” (the definition is in the first 2 paragraphs, read on for insane 15 page detail), loans are dropping sub-prime programs with many of the major players in the field facing rising costs to borrow short term credit with which to make loans or even forced “purchase options” to sell themselves in exchange for short term credit!!