History of Home Value chart
Check this out, it's fascinating!
http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
What goes up, must come down. Ouch!
http://graphics8.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
What goes up, must come down. Ouch!
Comments
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Interesting ideas, but points off for having the chart start at 60 instead of 0, which makes the spike look larger, percentage-wise, than it really is.
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Interesting ideas, but points off for having the chart start at 60 instead of 0, which makes the spike look larger, percentage-wise, than it really is.
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On a similar note, check out this article about people who take out mortgages that allows them to not even pay the full interest amount every month, so that some of the interest gets tacked on to the principal. Maybe there should be some kind of Darwin Awards-Homeowner's League starting up soon...
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On a similar note, check out this article about people who take out mortgages that allows them to not even pay the full interest amount every month, so that some of the interest gets tacked on to the principal. Maybe there should be some kind of Darwin Awards-Homeowner's League starting up soon...
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EmilyM wrote: Interesting ideas, but points off for having the chart start at 60 instead of 0, which makes the spike look larger, percentage-wise, than it really is.
Good point. Straight out of one of my favorite books, "How To Lie With Statistics."
I wish there were a chart like that specifically for the New York housing market, because I'm certain it would look way different than the national one. -
and, of course, as good ole dr. tufte was saying last week - spiky charts are hard to read and don't provide good data and can be signs of cherry picking! so there! and hey ... they're both from yale ...
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alafairnadia wrote: and, of course, as good ole dr. tufte was saying last week - spiky charts are hard to read and don't provide good data and can be signs of cherry picking! so there! and hey ... they're both from yale ...
Well, yes, I've been reading the books that dennisobell brought back from the Tufte conference last week...I knew you'd recognize it! -
EmilyM wrote: On a similar note, check out this article about people who take out mortgages that allows them to not even pay the full interest amount every month, so that some of the interest gets tacked on to the principal. Maybe there should be some kind of Darwin Awards-Homeowner's League starting up soon...
Yeah, some people are seduced by the low-low-low payment (and some people are out-right lied to about the amortization) but the Pay Option ARMs tend not to be the best loan for 99.9% of the people out there... then again, a 30 year fixed tends not the be the best loan for 99.9% of the people out there, but at least you can't get in too much trouble with one. -
Yes, it seems like about 1% of the people who get those mortgages are taking a gamble and hoping their home increases in value enough to pay for whatever extra expense the mortgage incurs them. But the other 99% seem to be falling victim to lenders who just won't tell them "you can't afford that" but rather come up with this insane way to finance it. I feel sort of bad for the people whose payments are going to double, but not as bad as a feel for victims of subprime lenders...
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I wish that it were that easy to point the finger at subprime banks, but it's just not... As an industry, there's no one saying, 'stick that minority with a higher rate!' It basically comes down to the individual loan officers and what they think they can get away with... I'm not defending the actions of anyone, but what ever happened to 'buyer beware'? Maybe some minorities just don't know that there are tons of options out there, and they're just going with whomever gets to them first... I don't know, but it's about the only explanation that I can think of for discrepancy.
Subprime banks can and do provide a good service - giving people that have made a mess of their finances a chance to straighten themselves out. The most basic test that all loans must pass is what's known as a "Net Tangible Benefit." Are their total monthly payments going down (debt-to-income)? Are they going to pay less over the period of the loan (lower rate/shorter term)? Going from an adjustable to a fixed? Something good has to come out of the loan of it or any Underwriter will put the kibosh on it, pronto. (Cash out is also considered a benefit, and it is... but unfortunately, abuse of this is what's most likely to get people in trouble).
Yes, there are sleazebags out there, but they're lookin' to take everybody for a ride - black, white or green...
In the interest of full disclosure, it should be noted that I was a part of the banking industry, but as of today, I no longer am... woo hoo!!!
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WhyFi wrote: In the interest of full disclosure, it should be noted that I was a part of the banking industry, but as of today, I no longer am... woo hoo!!!
Leaving the banking industry has got to be good karma! :twisted: -
okay i have been wondering about this for a while.
i bought my small 1 bedroom coop a little over 2 years ago
i got a 30 year fixed rate at 6.3 %
im not sure how long im going to be in my place could be 2 more years could be 10.
my friend kept on telling me get a 30 year fixed get a 30 year fixed so i did.
but sometimes i think i could have gotten a better deal. i can afford the payments and i guess its nice to know my monthly bill will never change. but i sure wouldnt mind paying say $300 less a month to live in the same place. -
For most people, a 5/1 ARM is the best loan out there... Interest Only or not, your choice. (Although IO options aren't available if your loan-to-value is too high, in other words, if you don't have enough equity in your home.)
My favorite loan (for someone that thinks they'll stay in their home for the rest of their life), is one that's seen some resurgence in the last year or so - the 30-year IO. Fixed rate for the duration of the loan, the first 5 or 10 years have an interest only option. After that period, the loan will re-amortize based on the remaining balance and the remainder of the term - essentially it becomes a 20 or 25-year fixed based on the remaining balance. -
WhyFi wrote: For most people, a 5/1 ARM is the best loan out there... Interest Only or not, your choice. (Although IO options aren't available if your loan-to-value is too high, in other words, if you don't have enough equity in your home.)
I've never worked in a bank, and have no particular financial expertise, but interest only loans have always seemed to me to be about living beyond your means. If there's a downturn in the market and you have an interest only loan because that's the most you can pay, you'll be totally screwed at the end of the arm.
My favorite loan (for someone that thinks they'll stay in their home for the rest of their life), is one that's seen some resurgence in the last year or so - the 30-year IO. Fixed rate for the duration of the loan, the first 5 or 10 years have an interest only option. After that period, the loan will re-amortize based on the remaining balance and the remainder of the term - essentially it becomes a 20 or 25-year fixed based on the remaining balance. -
Carnivore wrote:
This is my gut feeling too. It just feels like a bad idea.
I've never worked in a bank, and have no particular financial expertise, but interest only loans have always seemed to me to be about living beyond your means. -
alafairnadia wrote: and, of course, as good ole dr. tufte was saying last week - spiky charts are hard to read and don't provide good data and can be signs of cherry picking! so there! and hey ... they're both from yale ...
Slightly off topic, but is anyone here a Tufte fan? He's got a seminar next month in CT that I'm contemplated, but it's $360 (but, it does include 4 of his beautiful books).
Has anyone here ever been to one of Tufte's events? -
alafairnadia and my husband (dennisobell) both went to the NYC one he had last week (on different days, though). I think dennisobell thought it was worthwhile but his work paid for it so that puts the value in a rather different perspective. I'll let alafairnadia answer for herself...
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jgregorie wrote: okay i have been wondering about this for a while.
This is the same deal I have. I just thought any other type of mortgage was just too much of a gamble for the only investment I have.
i bought my small 1 bedroom coop a little over 2 years ago
i got a 30 year fixed rate at 6.3 %
im not sure how long im going to be in my place could be 2 more years could be 10.
my friend kept on telling me get a 30 year fixed get a 30 year fixed so i did.
but sometimes i think i could have gotten a better deal. i can afford the payments and i guess its nice to know my monthly bill will never change. but i sure wouldnt mind paying say $300 less a month to live in the same place. -
Carnivore wrote: I've never worked in a bank, and have no particular financial expertise, but interest only loans have always seemed to me to be about living beyond your means. If there's a downturn in the market and you have an interest only loan because that's the most you can pay, you'll be totally screwed at the end of the arm.
First not all IOs are ARMs, so we should be clear about that distinction.
As far as it living beyond one's means - sure, it happens, but that isn't the reason that it's there. To be honest, it's rare that a someone qualifies for an IO but not the fully amortized (as dictated by debt-to-income, etc). It's there for flexibility, and that's the main factor for most people that go with it. For others, they're simply not concerned with building equity by paying down principle - maybe they'll only be there for a short period of time (very little is applied to the principle within the first 10 years of a 30, as many of you homeowners know). Self Employed people (and their accountants) love IOs because you maximize the write-off while investing what would normally go towards principle in their own business. There are a ton of valid reasons.
Also, re: downturn in the market - I'm assuming that you're talking about the real estate market, but that's why you have to have some equity in the home to qualify for an IO.
And on to my favorite loan, the 30-year IO. Again, it's fixed, so it's not hard to determine the worst case scenario, on the flip-side, there can be a great benefit. Here's the situation - you're in the home that you think you'll die in, you're in your money making prime but you'll be retiring before your mortgage is paid off and you feel that rates will do nothing but go up. Perfect. 1) Locks you in for the duration of the loan at a rate typically .125 - .25 % higher than a regular 30yr fixed. 2) Gives you the ability to pay off as much or as little principle as you'd like, from month-to-month. When you pay principle, your min payment goes down the next billing cycle. 3) If you hammer away at the principle before the IO period ends (and before you're on SS and pension) you can actually set yourself up for a smaller payment in your golden years than you would have had if you went with the regular 30yr fixed. Make hay while the sun shines. -
Oh, and the reason that I say that a 5/1 is the best for most people - the average family moves every 4 years or so. Bigger house, smaller house, work related, school related, fucking-hipsters-taking-over-my-neighborhood related, whatever...
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I went to the Tufte seminar about 7 years ago when I was an art director. IBM paid for it, and it was $300. then. Highly worthwhile whether you a agree with his ideas or not, there's plenty of food for thought.
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WhyFi wrote: Oh, and the reason that I say that a 5/1 is the best for most people - the average family moves every 4 years or so. Bigger house, smaller house, work related, school related, fucking-hipsters-taking-over-my-neighborhood related, whatever...
That assumes you sell when you move. I looked at the 5/1 when I was buying last year, decided I'd probably move within 5 years and still took the 30. Inverted yield curve meant there was barely 0.25% in it at the time, just like there is now. I figured it was worth the premium on the chance that rent in the area will have risen so much in five years that it will cover the total cost of ownership, and then it will make sense to keep the place after I move. Especially since most places I might move in the world are likely to be cheaper than New York. With inflation and rates on the up and up, that rate locked for 30 years denominated in greenbacks looks like cheap money I might want to hold on to, not refinance or pay off any faster than necessary.
On the other hand, I don't think anyone should pay points. That's a scam. -
doctorj wrote: That assumes you sell when you move. I looked at the 5/1 when I was buying last year, decided I'd probably move within 5 years and still took the 30. Inverted yield curve meant there was barely 0.25% in it at the time, just like there is now. I figured it was worth the premium on the chance that rent in the area will have risen so much in five years that it will cover the total cost of ownership, and then it will make sense to keep the place after I move. Especially since most places I might move in the world are likely to be cheaper than New York. With inflation and rates on the up and up, that rate locked for 30 years denominated in greenbacks looks like cheap money I might want to hold on to, not refinance or pay off any faster than necessary.
All true - right now the market is in a weird place and there's not much of a difference between the shorter and longer term rates, and if you can hold on to the property, why not? Well, unless you think that something catastrophic is going to happen to the RE market! Like the end of rent control, or something... :roll:doctorj wrote: On the other hand, I don't think anyone should pay points. That's a scam.
Meh. Everybody pays points, some more than others. I think that it's best to just pay it up front rather than take it in the rear... uh - take it in the rate. -
jgregorie wrote:
Looks like you picked the peak in May-June 2004. That was rather unfortunate timing compared with a few months before or the year afterwards. But it's a touch cheaper than what you could get for a 30-year today and slightly more expensive than a new 5/1 ARM so changing now makes no sense. No one knows what it will be like in 2009, but it could well be higher than now. I wonder how much it would have cost to refinance at 5.375% for 30 years fixed in June 2005?
i bought my small 1 bedroom coop a little over 2 years ago
i got a 30 year fixed rate at 6.3 %jgregorie wrote:
In the meantime, if you have any room to save up on the side, considering the tax break on the 6.3%, you can probably earn more investing elsewhere than paying off more on the mortgage. Since rents round here are rising faster than coop prices, maybe you can save enough for another deposit by the time you want to move (potentially with the help of a home equity loan) and let out the coop at a small profit? If your house rules allow you to let, that is. Under this scenario, in a higher rate environment than 2004, you could afford a more exotic loan knowing you can cash in the coop and refinance if you ever need to.
im not sure how long im going to be in my place could be 2 more years could be 10. -
WhyFi wrote:
Meh. Everybody pays points, some more than others. I think that it's best to just pay it up front rather than take it in the rear... uh - take it in the rate.
[quote=doctorj]On the other hand, I don't think anyone should pay points. That's a scam.
Ok, so you can't avoid the points that the bank/broker take (origination?). But as for the voluntary ones (discount?) it takes more than 5 years to break even once you count the tax break and especially the lost opportunity cost, which is a worse bet than 30 yrs vs. 5/1 ARM when people tend to move after 4 years. Might make sense in your IO 30-year scenario when you know you're staying put and want very low payments later. -
EmilyM wrote: alafairnadia and my husband (dennisobell) both went to the NYC one he had last week (on different days, though). I think dennisobell thought it was worthwhile but his work paid for it so that puts the value in a rather different perspective. I'll let alafairnadia answer for herself...
my job paid for my attendance, also. I really enjoyed it and thought it was worth it. I actually told my job I'd pay for it myself if they wouldn't but thankfully they paid.
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doctorj wrote: [quote=WhyFi]
Meh. Everybody pays points, some more than others. I think that it's best to just pay it up front rather than take it in the rear... uh - take it in the rate.
[quote=doctorj]On the other hand, I don't think anyone should pay points. That's a scam.
Ok, so you can't avoid the points that the bank/broker take (origination?). But as for the voluntary ones (discount?) it takes more than 5 years to break even once you count the tax break and especially the lost opportunity cost, which is a worse bet than 30 yrs vs. 5/1 ARM when people tend to move after 4 years. Might make sense in your IO 30-year scenario when you know you're staying put and want very low payments later.
Discount and Origination are used pretty much interchangeably at most banks, so it's not necessarily a good barometer, which is unfortunate. 'Discount' should mean that you're getting a rate lower than the rate that you actually qualify for, ie you're "buying down the rate," which would actually be a good thing if it's a long-term loan and it's a permanent (not temporary) rate buydown.
When I said that "everybody pays points," I was referring to points on the 'front' or the 'back.' Origination/discount are 'front' - you see them - you either pay out of pocket or the fees are tacked on to the loan balance (paying with equity). Points in the 'back,' is yield spread. Let's say that you qualify for 6.375 on a 30yF, but in the initial conversation, the Loan Officer determined that you didn't want to see any points anywhere... well, s/he is providing a service, and they're not doing it for free, so what they do is give you a higher rate than what you qualify for and get their points by way of yield - whoever the final investor is (portfolio, mortgage-backed securities, whatever), they'll pay the originator extra for the note because it's higher than market. In this scenario, maybe the LO only got 1 pt out of it, most likely the borrower would have gotten a rate .5% or so higher than what they qualified for. (Oh, and it's worth noting that banks, those who fund the loan with their own money, don't have to disclose yield. Brokers, who work as middle-men with borrowers and lenders MUST disclose the yield on the final settlement paperwork.) So, 'front' or 'back'... as 2Pac would say, "how do you want it?"
Here's a tip for the next time you work with a mortgage lender - if you want to pay as little as possible, find an LO that's competent and make it as easy as you can for them (if they're competent, they'll do likewise). Be prompt and organized. If they need w-2s, copy of your driver's license, 401k statement, whatever - get it to them in under 24 hours. The less hands-on time for the LO, the less hassle, the less s/he feels that they need to take you for everything you're worth because you're sucking all of their time from them. Prime examples -
A - Doctor that ran his own practice, had good credit and an organized CPA that he put me in touch with immediately after the initial conversation. CPA informed me of his 'by the books' income status and we determined goals of the loan, proper loan type and documentation type on day 1. By day 2, I had all necessary docs, from both the CPA and the client. Day 3, appraisal was completed, loan went in to processing. Day 5, Underwriter wanted one more piece of documentation, client got it to me the same day. Day 7, client signs the final paperwork. THIS is a 1pt loan - up front, and the client got the best rate that he qualified for without buying it down.
B - Client calls, wants to purchase the home that he lives in from his siblings - their father was the owner and he died without a will, leaving them all with equal claim to the home. Client has zero money to buy the home, but if we can demonstrate an ownership interest, we can do a cash-out refi and tap in to enough equity to buy out the other parties, BUT we also have to consolidate all debts and settle outstanding judgements at the same time to make the loan work. After 2 months of chasing down lawyers (for both the client and siblings) for paperwork, working on pay-off requests for judgements and collection accounts, chasing down the clients for income docs, etc, etc, etc, we end up with the 4+pt loan, max allowable by law in that particular state. If everyone involved had been on the ball, it still would have been a very difficult loan and still would have been in the 3pt range. If they would have been in FL, I would have charged them 7. :evil: -
WhyFi wrote:
I think you can't have it both ways: you can't recommend people take a 5/1 ARM since famililes move about that often, but then recommend people buy down the rate permanently when it takes more than five years to break even in the best case. You would only buy down the rate if you're really sure you're staying put for a decade+ and perhaps you don't expect your income to keep pace with inflation (e.g. due to retirement) and you don't want to put the money to better use in the meantime like renovation or another type of investment to reduce your exposure to real-estate.
Discount and Origination are used pretty much interchangeably at most banks, so it's not necessarily a good barometer, which is unfortunate. 'Discount' should mean that you're getting a rate lower than the rate that you actually qualify for, ie you're "buying down the rate," which would actually be a good thing if it's a long-term loan and it's a permanent (not temporary) rate buydown.WhyFi wrote:
Thanks for the detailed explanation.
When I said that "everybody pays points," I was referring to points on the 'front' or the 'back.' Origination/discount are 'front' - you see them - you either pay out of pocket or the fees are tacked on to the loan balance (paying with equity). Points in the 'back,' is yield spread. Let's say that you qualify for 6.375 on a 30yF, but in the initial conversation, the Loan Officer determined that you didn't want to see any points anywhere... well, s/he is providing a service, and they're not doing it for free, so what they do is give you a higher rate than what you qualify for and get their points by way of yield - whoever the final investor is (portfolio, mortgage-backed securities, whatever), they'll pay the originator extra for the note because it's higher than market. In this scenario, maybe the LO only got 1 pt out of it, most likely the borrower would have gotten a rate .5% or so higher than what they qualified for.
When I approached the bank, they were offering about 5.75% for 30-year fixed if you walked in off the street. My mortgage broker got it down to 5.5% with exactly the same bank. The bank payed him at closing what looks like 1.01% of what I loaned. The week I locked, Bankrate said rates were down around 5.1-5.2%, which presumably has to do with Fmae/Fmac and the secondary market. So I got a little better than the 0.5% spread you mention, unless the Bankrate numbers are higher than secondary market and lower than retail. I take it then that:
* working directly with a bank means highway robbery.
* working with a broker meant the broker got 1 pt, your scenario A, and the bank's profit was about 1-2 pts, before they sold the note, depending on exactly what a point is worth (0.125 to 0.25%?).
* is there any way (other than shelling out points yourself) to cut out either of the middle men and get your interest rate down closer to what the note is actually worth on the secondary market? -
Check this out, it's fascinating!
http://graphics8.nytimes.com/i......large.gif
What goes up, must come down. Ouch!
Interesting - especially for Norhteastern US and NY/NJ....we're special.
But who knows.
http://www.fdic.gov/bank/analytical/fyi/2005/021005fyi_table1.pdf -
doctorj wrote: I think you can't have it both ways: you can't recommend people take a 5/1 ARM since famililes move about that often, but then recommend people buy down the rate permanently when it takes more than five years to break even in the best case. You would only buy down the rate if you're really sure you're staying put for a decade+...
Sorry for the confusion - you're exactly right, and this is what I meant by "if it's a long-term loan." I guess that I kinda slipped and forgot who my audience was - I wouldn't consider a 5/1 (or any ARM) a long-term loan, even if it is scheduled to amortize over the course of 30 years. I was referring to the "I'm gonna die in this home"-type loans - 15yF, 20yF, 25yF, 30yF, 30 IO, etc.doctorj wrote: Thanks for the detailed explanation.
I wish that I could offer some solid advice on who to look for when you next need a loan, but I can't. There are simply too many players out there - let me clarify - too many types of players out there. You have bankers, you have brokers - that's the easiest distinction to make - either they have the money to fund your loan or they don't. After that, it gets a little more dicey - a corresponding lender is a bank that underwrites your loan to another (larger) lender's guidelines, with the intent of selling the note to that lender (typically before your first payment is due). Portfolio lenders are a very rare beast - they actually hold on to your loan (they never sell it) in addition to servicing your loan. Many of the very large banks with familiar names simply service loans (send you bills and take your payments) - once the loan is funded, it's bundled together with other similar loans and sold to investors (mortgage-backed securities, sometimes private, but mostly through the Gov't). Typically loans end up in one of a handful of places. Sometimes you pick a place closer to the final destination, some times you don't. If your entry point is further from the destination, typically volume discounts are passed upstream because, essentially, not much work is done by anybody down the line - it's pretty much free money for them when it passes through their hands.
When I approached the bank, they were offering about 5.75% for 30-year fixed if you walked in off the street. My mortgage broker got it down to 5.5% with exactly the same bank. The bank payed him at closing what looks like 1.01% of what I loaned. The week I locked, Bankrate said rates were down around 5.1-5.2%, which presumably has to do with Fmae/Fmac and the secondary market. So I got a little better than the 0.5% spread you mention, unless the Bankrate numbers are higher than secondary market and lower than retail. I take it then that:
* working directly with a bank means highway robbery.
* working with a broker meant the broker got 1 pt, your scenario A, and the bank's profit was about 1-2 pts, before they sold the note, depending on exactly what a point is worth (0.125 to 0.25%?).
* is there any way (other than shelling out points yourself) to cut out either of the middle men and get your interest rate down closer to what the note is actually worth on the secondary market?
Long and short is - if everybody is on the level with you, (and you're price shopping on the same day for the same loan for the same documentation type for the same lock-in period - ugh! - etc, etc, etc) you shouldn't see much more than an 1/8 in rate variance - anything additional means someone is seeing big dollar signs when they look at you. Banker or broker, go with someone in that 1/8 ballpark that you feel good about - someone with your goals in mind, someone that is readily available by phone or email, someone that paints a clear, realistic picture of how things are going to go and then has the follow-though to make it happen (don't confuse this with someone that's telling you what you want to hear).
(also, my .5% for 1pt yield was an example - yields change daily and differ from loan program to loan program, just as the rates do - sometimes .125 gets them 1, sometimes 1 gets them 1, but much of the time, it's not far from that .5)
doctorj, I think that we've run everybody else out of this thread... hear those crickets chirping?
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