Mortgage pros assess the North Bay’s housing market
Pluto has been downgraded to dwarf-planet status, but the constellations carry on as they always have. The Fed chilled the housing market by raising interest rates 17 times straight, but people across America still thrill at the thought of owning their own home. So do you think the North Bay’s housing market is going south anytime soon? Not likely, according to leading residential mortgage bankers and brokers north of the Golden Gate.
Across the board, the pros in the North Bay who match homebuyers to funding enjoy making a good living, sure. But what really motivates them is helping people realize what is, for many, the biggest financial endeavor of their lives. That’s what gets them up in the morning—whether it’s a buyers’ or sellers’ market and whether interest rates are hovering at 5 or 10 percent
It’s a great business all the time
“I’ve been in the mortgage and real estate industry for more than 30 years, and I have to tell you, I’ve always loved my job,” says Noel Hanson, senior vice president for the Cal Bay Mortgage Group, a mid-size mortgage banking company headquartered in Petaluma. “For many years, I worked with first-time homebuyers exclusively. It was so rewarding to see their faces when they closed their loan and had the keys to their first home in their hands.”
Stevens Manning agrees. He’s the owner of Manning Mortgage Associates, a boutique firm employing seven associates in San Rafael. “It’s always exciting to know every day is a new adventure,” he says. “You don’t know who’s going to call, and you have the pleasant surprise of being able to make their dreams a reality.”
True, the market is no longer red-hot. Homes are taking months rather than weeks to sell, and offers are trickling in, often under the asking price, rather than flooding in at thousands above it. But the mortgage industry has always been cyclical, and we’re currently in what some refer to as a pause or a return to normalcy. “I’ve been doing home loans since 1994, and I’ve seen this market before,” says Rob Penrose, vice president/mortgage broker for Western Pacific Loans, an 11-member financing team based in Santa Rosa. “Generally what happens is, the Fed will raise rates to keep inflation in check. But, the Fed usually raises rates too high, and once it realizes that, it’ll begin to lower them. If this happens, applications will begin to increase due to the drop.”
Mike Brouse, a certified mortgage planner and sales trainer for CTX Mortgage, points out that two main things determine home values: housing supply and demand and jobs. A Fortune 500 company that’s a division of Centex Homes, CTX has local offices in Santa Rosa, Novato and Napa. “They’re not making any more land in Sonoma County, and there’ll always be more demand than supply because it’s such a desirable place to live,” he says. “And Sonoma County is unique from a job market perspective because we have tourism, tech and agriculture. If one sector is failing, one of the others will usually be strong. Based on data we have now, I think rates will begin to go down again in the second quarter of 2007. Without fail, interest rates in the past have been cut within seven months after a consecutive rate hike campaign.”
Manning understands the greater Bay Area’s diversified employment options tend to buffer the region from double-digit unemployment historically experienced in less economically diverse areas of the country. For example, in Washington state, before Microsoft set up shop there, if Boeing’s aeronautics and federal defense contracting took a dive, unemployment skyrocketed and people were forced to leave the state to seek other jobs.
A good time to buy
So, with a strong economy and interest rates that are still historically low, why is the market sluggish? Penrose points out that people can be priced out of the market when rates go up. Some people were “qualified for a maximum loan at a certain rate,” he says. “Once the rates went up, they could only qualify for a lower loan amount.”
Others are just being cautious. “Most potential buyers have adopted a wait-and-see attitude because they’re uncertain where the housing market is headed,” observes Fiona Van Dyke, a real estate finance specialist for Cal Bay. “Let’s face it. If you think prices may drop more and rates won’t go up much, why wouldn’t you wait?”
Rich Abazia, president of Cypress Financial Mortgage and Investment in Santa Rosa, thinks now is a great time to purchase a home. “Prices are reasonable; rates are great. It’s not the 50-year low, not the 40-year low. It’s the 30-year low, and there’s nothing wrong with that,” he says. “So, I tell folks, don’t get greedy. Stay within your means. Don’t get married to the house. Real estate’s a great investment but don’t get in over your head unless you can play in the big leagues.”
So is there a bubble? “We have seen home prices adjust downward, but I’m not buying into the housing bubble bust,” says Dennis Harter, president of Sequoia Pacific Mortgage Company in Santa Rosa. “How much will they adjust? I have no crystal ball, but my guess would be 10 percent lower than August 2005. I think this is a healthy thing, and it may provide opportunities to some first-time homebuyers who were priced out of our market.
“Homeowners have experienced between a 10 to 15 percent annual return on their investment for at least the past five years. I don’t think current homeowners should worry. After prices level off, maybe we’ll see 3 to 5 percent annually, but that’s not bad.”
Michael Madsen is a senior loan consultant in the Madsen-Shaw Home Loans Group, a mortgage-originating partnership within Washington Mutual that he heads with Ron Shaw. He notes that price moderation in the North Bay has created some “good opportunities for folks to buy a home. Interest rates aren’t going up that much, and with rates probably coming down in the next six to 12 months, many buyers who are looking to move will climb down off the fence and make a purchase.”
Cal Bay’s Hanson thinks a “great many people would love to buy right now. However, there’s been so much negative press on the ‘housing bubble’ that many are sitting and waiting to see where home prices land. I think we’re close to the end of price declines, and people are again seeing value in the market. And rates have begun to come down slightly.”
Foreclosures aren’t foregone
According to Stacy DesJardins, a Santa Rosa-based mortgage planner for First Priority Financial, which is headquartered in Fairfield, mortgage rates are affected by many factors—economy reports, consumer confidence, production reports, oil prices, war, bond sales and prime rate movement. She says they’ve been on the decline recently.
Dennis Harter thinks people who have interest rate adjustments coming due should consider refinancing into a fixed-rate product. “Those who can’t afford a fixed principal and interest payment should consider fixed-rate mortgages that allow interest-only payments for a period of time, such as 10 years,” he suggests. “Many of today’s loan products could provide a solution to borrowers’ concerns about increases in their adjustable rate mortgage. If borrowers can’t afford the monthly payment, they should consider selling their property before it goes into foreclosure—and while they still have some equity.”
Western Pacific’s Rob Penrose often finds the people who fall into foreclosure have lost jobs. “Most people have enough equity in their houses to hold on and be able to make their payments,” he says. “I try not to put a client into a loan where foreclosure is a possibility. If the foreclosure rate begins to rise, I would hope lenders would ease up underwriting guidelines and have loan programs that will avoid this issue. The lenders don’t want to take a home back; they’d rather work something out with the homeowner.”
Van Dyke believes job loss in this slower housing market is more problematic than it has been previously. “When someone lost their job in the recent past, they could simply list their home and sell in a matter of days with multiple, over-asking-price offers. Now we’re in a buyer’s market, and a home may languish on the market for months. This is the type of situation that will cause foreclosures, not a rising interest rate or payment on their current mortgage.”
Invest wisely
For experienced investors, this may be a great time to enhance a real estate portfolio. “The folks facing foreclosure are going to do whatever they can to fire-sale their home before they’re foreclosed upon. This presents a good opportunity for savvy investors to acquire real estate at some attractive prices,” Madsen notes.
For newbies, however, this may not be the best time to look for investment property. “Right now the investment market is pretty tough to get into,” Penrose says. “You have to put down a pretty big chunk of change to break even because rents are fairly low for this market.”
Van Dyke agrees that cash flow for investment properties can be a problem without a good-sized down payment. Plus, she says, “If you’re a first-time investor without two years’ of landlord experience, an underwriter will ‘hit’ you with the entire mortgage payment, including one-twelfth of the property taxes and one-twelfth of the hazard insurance. For example, if a person investing in rental property for the first time wants to purchase a house for $550,000, puts the typical 25 percent down, gets a loan for $412,500 with the current 30-year fixed rate on investment property at 6.5 percent, the investor will be expected to make a mortgage payment of $3,249, including taxes and insurance. This may put investment property out of reach, unless an investor has sufficient income to cover that much debt.”
If someone has a documented, two-year history of owning rental property, she adds, “It becomes much easier to qualify because the underwriter will use 75 percent of the gross rents on the proposed purchase as income.” Using the same example, this means underwriters assume, if income from the rental is expected to be $1,700 per month, then $1,275 would be available to apply to the property’s monthly mortgage, insurance and tax obligations. In this case, there’s still a negative cash flow of $1,974 monthly. This also may show why so many investors prefer adjustable rate loans, even negatively amortizing loans, as the cash flow is so much better. They’ve worked well during periods of rapid property appreciation.
Many ways to help buyers
There are distinctions between mortgage brokers and mortgage bankers. “A mortgage banker usually has limits on programs and where the loan can be done; a broker has access to many different lenders and programs,” observes Stacy DesJardins. Basically, a mortgage broker shops a loan to several different sources whereas a mortgage banker has its own money.
Madsen says his loan-origination partnership provides a “loan process that’s highly streamlined and extremely efficient. Our clients value our services because we fund their loans at a great rate, with minimal paperwork and very low lender costs.” And, of course, he offers the top-notch customer care expected of an industry leader.
While each business model has its advantages, CTX’s Michael Brouse aptly says, “I’m not going to say if it’s better to be a banker or broker because it all boils down to the person you’re working with.” There’s wide agreement among the pros on that point. Yet, each has different interests and a unique way of doing business.
Brouse, for example, emphasizes education. “I’ve been on a crusade to educate people about money,” he says. “The statistics bear out that America is financially illiterate. We have 24/7 news programs that profile the best financial information available, and we have the Internet to research any topic in the world. But even with all those resources available, we’re a nation that buys now and tries to pay later.
My strategy is to help people integrate the largest debt of their life [a mortgage] into their overall long- and short-term financial goals. If people would realize every one of their spending decisions determines whether they’re going to eat spam or steak in their retirement years, things would be a lot different.”
Rich Abazia has an astute, customer-centric approach. “People shopping for mortgage brokers need to get a feel for the person they’re dealing with. Does the broker really care about them? Does the broker care about their future? Or are they just looking to close a transaction and move on? We’re long-term thinkers here. So homeowners need to decide if they want an advocate on their side or if they’re just looking for the absolute Internet rock-bottom price. If they want a trusted adviser, someone who cares about them as a person and about their best interest, someone who’s accountable, this is the place to come. There are other very, very good mortgage brokers who share this philosophy.”
Only the enterprising need apply
Opinions are mixed as to whether now is a good time to enter the mortgage business. “I’d feel like this isn’t a good time to just be getting into the business,” Hanson weighs in. “The mortgage business, like most business, is built on relationships, referrals and repeat customers. If you aren’t in a position to have this already established, your market share would be very minimal.”
Madsen, on the other hand, thinks the mortgage business always has room for high-quality salespeople. “What I’ve seen lately is too many people coming into the business thinking it’s easy money from day one. They don’t realize if they don’t work hard to nurture and grow their business, they’ll never make it. The success comes from hard work. When I started doing loans 13 years ago, I made a whopping $12,000 in my first year.”
Manning urges those who want to enter the profession now to seek employment with a lending institution. “A bank could give them a limited salary and effectively pay for their training. And when the market gets busy again, they can broaden their exposure—though it may be difficult to find such jobs today while the housing market is slowing down,” he says.
And when it comes to all those unbelievably low, fixed-rate mortgage loan offers filling your mailbox, the experts agree as they always have: If it sounds too good to be true, it probably is.
