Good afternoon,
Markets
Bonds slumped today after the
better than expected jobs data where employers added 165K workers in April,
above the 155K expected while revisions for February and March were revised
higher by 114K. In addition, the Unemployment Rate fell to 7.5% as the Labor
Force Participation Rate remained at 63.3.
The MBS hit a 5 month high
Wednesday (price up = rate down), but had a horrible day today, exceeded only
by the horrible day Treasuries had, but closed sitting on support from the 200
day moving average. That is usually some tough technical resistance. If it
breaks through next week hold on to your hat. The last few times it has busted
through, and then snapped back.
The Dow closed at a record high
rising by 142.38 points to 14,973.96, versus last week’s 14,712.
The Nasdaq gained 38.01 to
3,378.63 while S&P 500 settled at a record high of 1,614.42 up 16.83
The 10 year treasury closed at
1.75% up from 1.66%.
Oil was last seen at $95.44/barrel
up $1.43.
The dollar held steady.
The attached rates are up or flat.
Secondary markets
There was a report that Redwood
Trust, a lender we work with, sold $2.2Billion in non-agency securities in Q1.
So what? What you have there is a
company selling mortgage backed securities to someone other than the
government. That is some pretty good news, don’t you think? It’s not quite as
good as the government getting out of the way, but it’s a start towards maybe
someday having a more reasonable lending environment.
I can’t remember how much we’ve talked
about it, but the new quality loan regulations going into effect over the next
year or so basically will make it possible for borrowers to sue lenders for
lending to them if the borrowers default and the lender hasn’t met the rather
strict government lending guidelines. That will keep lending tight. (If you are
inclined to quote this paragraph, be careful. It’s a very complicated issue
that I am over-simplifying. You might want to do more homework and feel free to
ask us about it.)
PMI
Another report stated that MGIC
did 55% more business in Q1 2013 than Q1 2012. No big surprise, but it is
another example of how the lending world is moving away from FHA.
Appraisals
I think you are all aware that since the financial crisis
lenders have become concerned with unpermitted aspects of homes.
As in tear it out and return to permitted, or get permits,
or take it somewhere else.
Many of you have commented that makes no sense since it
increases the value. A logical opinion.
However, as I have said before, when you dig lenders always
have a reason. Might not be an obvious reason, you might not like the reason,
but there is a reason.
An example unrelated to the topic I was thinking of this
week, again, is many of the migraines we get today have to do with the fact
that some people are idiots (and some are crooks). We are now required to
protect idiots from themselves (and from the crooks).
Since idiots (and crooks) don’t raise their hands and
identify themselves, we have to treat everyone like they’re an idiot (and a
crook). It’s condescending and not fun for anyone (especially lenders, who are
also treated like crooks), but we have to do it. Kind of like Stevie
Wonder and Barbara Bush getting searched at airport security when they fly
commercial. No one thinks they are going to blow up a plane, but it wouldn’t be
right NOT to search them while searching someone else, would it?
Anyway, in the not too distant past communities needed
housing. You may recall we had basically run out. And they liked the revenue
from the increased value.
Therefore, when people added space without permits they
tended to look the other way. So, lenders merely asked appraisers to comment
that the work was done in a workman-like fashion and away we went.
When the recession came and funds got tight, cities began
looking for revenue to replace lost revenue. Lo and behold they discovered many
homes had been improved without paying for the permits.
Meanwhile, people began sending the keys to their houses to
their lenders. These lenders then had to sell these properties, and the cities
wouldn’t let them until they had either spent thousands of dollars and lots of
time getting permits for unpermitted improvements or spend thousands of dollars
and lots of time restoring them to permitted status.
Small wonder then when lenders looked at properties with
unpermitted improvements and projected ahead to the day they had to foreclose
on them and sell them, and decided they didn’t want to lend on them. “You take
care of it and then we’ll accept it as collateral.”
The bigger the lender the more they had been burned and the
more adamant they were.
Things are starting to turn around and lenders are
lightening up a little, but it’s something to still be aware of.
We have plenty of stories about a permit turning a
transaction on its head. Be aware. Know your property.
Along those lines, I have attached a cheat sheet to look at
before an appraiser makes a trip out to your subject property.
What can you do if you find your listing doesn’t match
county records? Should you try and hide this? That is probably not a good idea.
The opposite is usually going to be the better course.
For example, many of you have probably encountered property
that is exactly as it was built. And not exactly like the county records. I
know I have. You’ll want to bring this up with the appraiser. Perhaps provide
him with something documenting how it was built. Or maybe you can show him the
county records and while he is there he can look for himself and see that the
property has not been modified, that the county records are in error. Maybe let
him know when he calls to schedule the appointment of the situation and he
might have it worked out in advance. The appraiser can be your friend.
Definitely let your loan officer know what is up, early.
Sean talked last week about kitchens. That is a separate
issue, because if a home has two kitchens then the lender might decide it is a
duplex. Same goes for rooms with their own external entrance. An appraiser was
telling me about a $2.5M property he appraised with an outside stairway to the
upstairs. The lender wanted to call it a duplex. The appraiser fought with them
and eventually prevailed by providing more documentation with the help of the
RE agents, but it was big problem.
More fun with Appraisals
While I’m on the topic of appraisers, have you encountered
some pedant who didn’t want to talk to you or hear about your comps?
California state law gives you (not us LO’s, though) the
right to communicate things you deem to be relevant to the value of the
property, including comps. You can’t try and coerce them into bringing in a
value, but you can tell them about the home about to close and not on the MLS,
schools, that George Washington once slept there, and that the place next door
is a bad comp because someone died there from a meth lab accident caused by
black mold. And so on.
State law explicitly allows it. I don’t happen to have the
statute handy, but I’ve read it. So, stand your ground if they push back.
And let me emphasize, the time to make the appraiser aware
is BEFORE he turns in the appraisal.
The appraisal appeals process has a very low success rate.
Some of the big lenders your clients love do not allow appeals, ever. Period.
And don’t assume the appraisal will come in.
I had one recently where the agents thought there would be
no problem with value, don’t even need to talk to the guy. Done deal.
Well, he had a problem. Thankfully, it was one of our guys
and he called the agent and they worked it out.
Wine
It’s hot. Time to break out the refreshing summer sippers.
2012 Les Vignerons de Fontès "Prieuré
Saint-Hippolyte" Languedoc Rosé ($11.99 @ K&L, their best selling rose
)
“It's back! This fresh and balanced rosé comes from one of
our favorite co-ops in the south of France. It's a blend of Syrah and Grenache
planted to volcanic soils in the heart of the Languedoc. With aromas and
flavors of ripe strawberries and raspberries, this crisp, medium-bodied rose is
an ideal complement to spring green salads, light cheeses, or just sitting in
the sun.”
2012 Ameztoi "Rubentis" Rosé Getariako Txakolina -
$19.99 @ K & L Wines – Frizzante and refreshing. I haven’t had a Txakolina
I haven’t liked. They aren’t all fizzy, but most of the ones you find in the US
are. They tend to be dry, as opposed to the Italian Moscato d’Asti I am also
fond of during the summer.
“ Ameztoi produces some of the tastiest, most representative
and classic txakoli: the delicious, bright, slightly petillant (fizzy), low
alcohol wines which are consumed like water in Spanish Euskadi (Basque
Country). Vineyards are a stone's throw from the ocean, full of verdant, green
cover throughout the year. This rosé is super limited, with something of a cult
following in the Bay Area, New York City and beyond. Get some before it
disappears. Yes, it's every bit as delicious as you have heard. Some white wine
grapes (Hondarribi Zuri) are fermented and then blended in with the red grapes
(Hondarribi Beltza), which explains the precise flavors and beautiful pale pink
color.”
2012 Xavier Clua "El Sola d'en Pol" Rosado Terra
Alta - $10.99 @ K&L Wines -
“ If southern Catalunya'sTerra Alta D.O. is increasingly on
the map for producing some of Spain's best values, then Xavier Clua would have
to be on my short list of producers in this region who really hit the $15 and
under price point with some emphatic values. This is our first time working
with the rosado, a blend of Garnacha and Syrah. Given the beautiful, relatively
paler pink color and fresh flavor profile, it would seem that the maceration is
on the shorter side for this rosé, emphasizing juicy red fruit flavors and
hints of watermelon. Though the fruit is tasty and up front, this wine finishes
nicely dry and would give most any more expensive French rosé from similar
grapes a real run for the money!” (Joe Manekin, K&L Spanish wine buyer).
2011 Scaia (Tenuta Sant' Antonio) 100% Corvina, Veneto -
$9.99 @ Wine Club – This is red, not a chilled white.
“Is this the most incredible value of the year? Quite
possibly!
Here is a wine from a noted Amarone house that gives most
Ripassos, and even the occasional Amarone, a qualitative run for their money,
and it's only $10! Very ripe, 100% Corvina, with dried cherries, plum, and
blackberries. Excellent depth, and expansive, sweet fruit on the mid-palate.
This is neither heavy nor ponderous, but super-modern, with fresh, bright,
joyous fruit that is balanced by Corvina's structure and characteristic
bitterness. All in all, this is decidedly big. Oh, all that, and no
oak. This is a wine that breaks all the rules and comes out on
top. Awesome for the grill, the patio, good times. How can you ask
for more than that?
Dean Alexander, Wine Buyer, San Jose”
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