Norada Real Estate Investments

History Repeats Itself

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Back in 1999, Fannie Mae introduced a pilot program that lowered the credit requirements on loans that it would purchase from banks and lending institutions.  The program was is intended, in part, to increase the number of minority and low income home owners who tend to have lower credit ratings than non-Hispanic whites.

The pilot program started with 24 banks in 15 markets and expanded nationwide in less than one year.  However, even back in September 1999 there was concern that Fannie Mae, a government-subsidized corporation, could run into trouble in an economic downturn.  And if that happened it would prompt a government rescue similar to that of the savings and loan industry in the 1980's.

With the recent problems in the financial markets and the government’s proposed $700 Billion bailout package, it looks like history may be repeating itself like it did with the savings and loan crisis of the 80's.

What can you do as a real estate investor today?  Well, if you have good credit and the funds to invest, now is a good time to find all kinds of great real estate deals coupled with low interest rate financing.  If you’ve been sitting on the fence then take action today.

Last Weeks Impact on the Housing Market

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If you stop and think about it, it was the housing market collapse that pulled these large financial institutions down over the last several weeks.

Fannie Mae and Freddie Mac owned or guaranteed one-half of the $12 Trillion mortgage market.  Lehman Brothers had over $60 Billion in mortgage related assets on its books.

This has all led to a credit bubble burst in the shadow of the housing “bubble”.  So what happens if credit tightens even more because money isn’t available to the financial system?  Simply put, we may see house prices fall even further in most parts of the country because those who want to buy won't be able to.

If the housing market doesn’t stabilize, then the financial market won't either.  Are we talking a year or two from now?  There is strong evidence that the worst hasn’t even happened yet – particularly in states like California and Florida.  You can expect to see banks taking back and unloading a lot of inventory over the next twelve months or more.

In the meantime, focus your real estate investing in markets that have strong economic fundamentals to maximize your short and long term appreciation and overall return on investment.

Will We Survive These Tough Economic Times?

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In just the past week the US experienced the largest bankruptcy filing in history, the stock market fell over 500 points, the largest drop since the markets reopened after September 11, 2001, and recovered almost as much with the government’s announcement for a federal bailout.

Lehman Brothers, a company that has been around for over 100 years and survived the Great Depression, is one of the latest in a series of unprecedented implosions in the financial sector.  The magnitude of the Lehman Brothers collapse dwarfs the combined failure of WorldCom and Enron by several times.

Other casualties include IndyMac, Bear Stearns, the Freddie Mac & Fannie Mae bail out by the federal government, CountryWide’s likely buyout by Bank of America, and now Merrill Lynch which may layoff up to half of its 60,000 employees. [Read more…]

Your Next Mortgage May Be Risk Adjusted

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Your next mortgage may be risk adjusted!

Up until now your mortgage rate was based on the type of mortgage you chose and your credit profile.  But lenders have already started to assess up-front fees based on an individual’s credit score, and in the future this change may begin to resemble pricing similar to homeowners insurance factoring in many more variables.

If your credit score is under 720, you may be paying anywhere from a half point (0.5%) to as much as 2.75% in extra fees as your score gets lower according to Freddie Mac.  While some lenders assess a higher interest rate on your mortgage instead of charging you upfront fees.

The good news for those with exceptional credit may be lower than average rates and better loan terms.  The bad news is that those with below average credit score will be paying more for their loans than previously before.

In addition, shopping for a loan may become more time consuming because these risk adjusting fees may vary widely among lenders and mortgage brokers.

In the future, spending more time shopping for your mortgage loan will be time well spent.

Do Higher Gas Prices Mean Lower Consumer Spending?

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The short answer is “extremely unlikely”.  The reason is that a small increase in some costs (like gas) only creates a marginal shift towards other costs (not a decrease in those costs).

One of the most important commodities in a first world economy such as ours is gas and other energy sources.  If there is a rapid rise in energy costs, it could lead to a significant increase in overall prices – this is known as inflation.

The question now becomes: Is the rise in gasoline prices strong enough to create an inflationary trend that will stall growth in consumer spending?

While millions of households feel the pinch of decreasing discretionary income due to higher gas prices, the fact of the matter is that this will only be a hiccup in the U.S. economy.  Overall spending and consumption will continue at a similar pace.

At the end of the day, if we walk away with long term gains in energy efficiency then the next generation of households will benefit from their own increase in discretionary income.

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Norada Real Estate Investments 30251 Golden Lantern, Suite E-261 Laguna Niguel, CA 92677

(949) 218-6668
(800) 611-3060
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