No Credit - Run For The Hills!

Today I spent some time reconnecting with a few friends in the retail mortgage business. My idea was to determine the reality of the current lending climate and just what the latest mortgage lending guidelines require. And more importantly, is anyone funding loans out there?

A number of comments really jumped out at me, including:

• Until this week, Fannie Mae was still accepting "stated" or "liar" loans, however, Freddie Mac is still allowing them.
• The Federal Housing Administration is filling much of the gap, and in some cases, providing financing up to 97% loan-to-value ("LTV"). For example, even if you have a really low credit score in the 500's, but you are able to show consistent payment history in the past 12 months, then you may qualify for up to 97% financing.
• Foreign National financing has been drastically cut back to a maximum LTV of 60%, however, these loans still require minimal documentation. 
• A few banks are still accepting "stated" assets, therefore no sourcing or seasoning of reserves or downpayment is required.
• Mortgage insurers, excluding PMI, are no longer providing mortgage insurance on condominiums in Miami-Dade County and/or the state of Florida, therefore, max loan-to-value ratios on a condo are capped at 80% of purchase price or appraised value.
• A borrower with an 800 credit score, 18% debt-to-income ratio, could not obtain mortgage insurance to cover his 85% LTV, rate and term refinance, on his condo in Miami Beach.

In order to verify the information provided to me by my resources, I actually looked at the current FHA guidelines posted by Senderra Fuding. You may be quite surprised to read that "The Minimum FICO score for an Approve/Accept is 500", and "Property Seller Contributions can not exceed 6%", just to quote a couple of the guidelines. For more detailed information on FHA guidelines, please downloand FHA at a glance.

I hear that Countrywide, Bank of America, ING, Senderra Funding, AmTrust and several other banks all funded loans in south Florida this week. And 97% financing from the FHA with poor credit, no wonder why they are calling it the "new subprime!"

As far as running for the hills, please!

Bricks and Mortar

There is so much talk, spin, fear and anticipation coming out of the "Big Bailout." 

Investors are buying call options on financials and banks. KB Homes, one of the nation's largest homebuilders that just reported a 2nd quarter earnings of -$3.30 per share, saw its stock price up by 4.13% today following a recommendation by Jim Cramer. I have also read that Wall Street is looking to provide a new way around the short-sell ban, which according to CNBC.com, involves the use of derivatives. Oh yes, you know those creative "financial instruments" that Wall Street is so desperate to get rid of. Today, I also read that financial institutions, GSE's and investors have a combined total of $11.3 trillion in outstanding residential mortgages, of which $1.15 trillion are non-performing or in process of foreclosure. So is $700 billion really going to be a magical "fix"?

Credit relief. Credit crisis. Credit crunch. Frozen credit. Credit rescue. Big bailout. Call it what you like, but here are some facts to consider. 

In the past week, with all the talk of unclogging the frozen financial system, interest rates on the average 30-year mortgage increased from 5.78% to 6.09%, while the 5 year ARM increased by 30 bps as well. Employers cut an additional 88,736 jobs in August, which puts us on pace to lose over ONE MILLION jobs this year, of which, only one in six jobs lost have been in the financial sector. So where is the rescue and relief that everyone is talking about?

Personally, I remain partial to investing in bricks and mortar. Buy smart, buy low and invest for the long term. Avoid over-leveraging, say "no" to all that easy money, and above all else, live within your means.

Miami Beach Monthly - August 2008

 

The data used to generate this chart is gathered from the Multiple Listing Service ("MLS"). The data in the MLS is deemed reliable but not guaranteed. This data is for August 2008 for single family homes, unless otherwise indicated as condominiums.

Homes that are pending sales have had offers made on them, and those offers have been accepted by the seller, however the sale has not yet closed. The prices are the actual sales prices of all single family or condos that closed during the month of August. Please note that the areas that have the most foreclosures and distressed sellers, also have the largest disparity between asking and sale prices.

Privatize Losses. Socialize Gains.

Following the close of another miserable day for traders and equity markets, Bob Pisani noted in his comments on CNBC.com, that due to "Less Business, Less Pay and Less Reward", that Wall Streeters are thinking about getting out altogether.

So here is is what I am reading into this whole mess. Wall Street wants to offload all those worthless and toxic debt instruments that they created to Main Street, and are now concerned over dramatically limited compensation for executives and management! Oh, and did I mention that the two remaining investment banks, Goldman Sachs and Morgan Stanley, now want to convert from an investment bank to a commercial bank.

I think that the smartest comment that I have heard in the past 72 hours came from Tom Barrack, Chairman and CEO of Colony Capital. Today I caught his short interview on CNBC.  He talked about how Colony Capital was formed in 1991 to acquire commercial real estate assets from the Resolution Trust Corporation. He commented that "we need to privatize losses, and socialize gains" and not "privatize gains, and socialize losses." 

I could not agree more.

Miami Spin Cycle

For most people today, the Miami real estate market is much like a spin cycle. Many talk as if they have been wiped out and got worked until they do not know which way is up. And yes, some have been wiped out, but really only due to their own greed.

So let's look at a few notable deals in the Miami Beach area that closed in the past month.  We start with the luxury segment of the real estate market and North Bay Road. The magnificent old-world Mediterranean estate located at 5396 N Bay Road, with 6,977 square foot of living area and 79 feet of water frontage on the bay, traded for a price of $6.8 million. The buyer out of New York paid a handsome $975 per square foot and took out a $3.8 million mortgage from Bank of America for a property that last traded in July of 2005 for $5.0 million.

In Miami Beach, we also had three impressive waterfront land deals this past month.  The three properties located at 1339 N Biscayne Point Road, 3370 Chase Avenue and 4567 Pinetree Drive, each traded hands for $98, $102 and $99 per square foot respectively.  The sale of 4567 Pinetree Drive for $12.1 million, an unusually large 3-acres vacant parcel, with about 300 feet on the water, really stands out. This property was purchased by Seth Gerszberg, founder of hip hop T-shirt company Ecko, for $9 million or $74 per square foot, at practically the peak of the market in July 2004. 

This supports our previous findings that while the luxury segment has seen some lack of demand and stagnant prices, that there are still buyers out there that recognize the value, uniqueness and potential in Miami Beach waterfront property.  Alternatively, by looking just a little further north up Collins Avenue, to the quiet seaside village of Surfside, we find a very different story. 

My analysis of three recent sales of single family homes, all with identical size lots, and similar in age and size, revealed that all three traded at an average decrease in value of 37% of the most recent sale, of which two traded in mid-2006 and one in mid-2005.  The sale prices ranged from $239 to $281 per square foot, or $335,000 to $450,000.  I recognize that for many of you that you may consider that a hefty price tag, but one has to consider that many of these homes sold for almost double that amount just a few years ago.

Now I don't know about you, but I think it's beginning to smell like opportunity around here!

First Time Buyer On Meridian

LIST PRICE: $185,000  SOLD PRICE: $185,000

Description | Fantastic location, with only two blocks to Lincoln Road Mall and in a quiet and secluded area in South Beach. A classic art deco building, fully renovated and available for a steal. This unit is perfect for a first time homebuyer looking for something new, chic and affordable.

Address | 1800 Meridian Ave #6

Property Type | Condominium
Year Built | 1956
Living Area | 800
Bedrooms | 1
Bathrooms | 1
Waterfront | N

Download a full description (PDF):

1800 Meridian Ave #6 (Right click, and choose "Save link as")

A Grande Life at Murano

LIST PRICE: $2,560,000

Description | When you mix Italian design with the best stone and wood in the world then have it inserted on the 29th floor of one of the most exclusive buildings in South Beach, you get a Grande Life at the Murano.  Too good to be true...but it is.

Address | 400 Alton Road #2903

Property Type | Highrise Condominium
Year Built | 2003
Living Area | 3,058
Bedrooms | 3
Bathrooms | 3
Waterfront | Y

Download a full description (PDF):

Murano Grand Portofino #2903 (Right click, and choose "Save link as")

Continually Amazed; Continuum

LIST PRICE: $1,575,000

Description | Does it get any better than this?  The continuum is a clear genius.  With breathtaking views from every room and a lagoon-like pool, you'll definitely be living in the clouds.

Address | 100 S Pointe Drive #3402

Property Type | Highrise Condominium
Year Built | 2002
Living Area | 1,735
Bedrooms | 2
Bathrooms | 2
Waterfront | Y

Download a full description (PDF):

100 S Pointe Drive #3402 (Right click, and choose "Save link as")

Idolized at Icon

LIST PRICE: $1,570,000

Description | This renowned Phillipe Stark designed building is considered by many Sobe idols as the place to live and play. With stunning day or night time views, huge wraparound balconies, and a quick stroll to all the action, paradise is here! The seller of this property spared no expense and dug deep to bring this pad to celeb status.

Address | 450 Alton Rd #1702

Property Type | Highrise Condominium
Year Built | 2005
Living Area | 1,933
Bedrooms | 2
Bathrooms | 2.5
Waterfront | Y

Download a full description (PDF):

 450 Alton Rd #1702 (Right click, and choose "Save link as")

Born to be Floridian

LIST PRICE: $350,000

Description | The Floridian on West Avenue has some of most amazing views of Hibiscus and Star Island, downtown Miami, Fisher Island and South Beach. This community has fantastic amenities, pool area and tennis court. Here is an opportunity to purchase a pre-foreclosure, two bedroom unit, for only $309 per square foot!

Address | 650 West Ave #712

Property Type | Highrise Condominium
Year Built | 1997
Living Area | 1,147
Bedrooms | 2
Bathrooms | 2
Waterfront | Y

 Download a full description (PDF):

 brochure-floridian-712 (Right click, and choose "Save link as")

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