Ed's Blog

Don’t you love clichés? And hate them too? They say everything and nothing at the same time! They’re kind of an everyman’s or everywoman’s version of the Oracles of Delphi. So, I’m going to lay them on today!

Let’s start with, “There are two sides to every coin.” It just happens to be a great depiction of the current mortgage climate.

Consider the mortgage market to be the “coin.” On one side you find the subprime market which is frankly, still in shambles. On the flip side, however, you have the prime market, which is faring quite well. In fact, that’s an understatement. The prime market is holding up remarkably well.

Unfortunately, that message doesn’t appear to be getting across to first time buyers, and home owners with decent credit, verifiable income and money put aside for a down payment. That is, many people who fall into the “Prime” or “A-Paper” category, seem to have accepted the media’s portrayal of the mortgage market (“Freefall!” Mortgage Meltdown!” “Take Cover, The Sky is Falling!”) as financial gospel.

The reality is that there is still a great deal of money in the mortgage industry. Wall Street has not bailed out on buying loans from A Paper clients. Fixed rate mortgages for this large portion of the marketplace remain in the low 6% range for conforming loans. Even in the jumbo market –loans above 417K- interest rates are leveling out in the 7% range for 30 year fixed rate loans.

So, pardon yet another cliché, but I have to recommend that we all take the media’s portrayal of the mortgage climate with a “grain of salt.” After all, you can’t lose on heads AND tails can you?

Recently, I was interviewed by the San Francisco Chronicle about new loan products, and in particular, a very interesting one called the Home Ownership Accelerator. I have to say that even though it's not for everyone, this is one cool loan! And that for the right borrower, we're very partial to it around here. In fact, my wife liked it so much that she signed up for one, and has been enjoying it for the past year and a half.

It's a very clever way to manage your cash flow and your mortgage in such a way that you can pay your mortgage off faster and save lots of money. But only if you want to! You see, you could choose to pay interest only, or make no payments at all (if your credit line is higher than your current loan balance), or use the balance of your credit line for things like a new roof, new deck, kitchen remodel, etc.

To get more details, give us a call or send an e-mail. In the meantime, we have a bunch of info on our website. Take a look at the navigation tabs on the left side of this page. Near the bottom, third one up, you'll see “Home Ownership Accelerator.” Click on that. Voila! You can read about it, watch a movie about it, and even interact with a calculator to see how much money you might save. A word of caution: the calculator can be a bit tricky, so don’t be discouraged if it takes you a while to get results that make sense to you.

Depending on how good a saver you are, and how interest rates behave, you might be able to pay your loan off in 10 to 15 years faster without changing your spending habits just by using this loan. Not bad!

I don't know about you, but Alan Greenspan is making me nervous. In his interviews for his new book, Times of Turbulence, he keeps saying that we have somewhere between a one-third and one-half chance of a recession. Scary!

He also has said that he thinks housing prices are still in for a “major correction”. In other words, they're still going down. By a lot! Ouch. Is he kidding? In many markets, people will be asking how much more can they possibly go down.

When Alan Greenspan talks, we listen. But I have to say, as much as I liked how he handled Fed policy when he was in charge, I wish he'd let “Big Ben” Bernanke run the show. Bernanke and the Fed have their hands full right now trying to beat back the sub prime storm and the ensuing credit crisis. Let's hope they make the right moves to help keep us out of major problems.

No matter what happens in the short run, one thing I'm confident of is this: In the long run, this housing downturn will end and home values will recover. Our population will grow and incomes will rise. Eventually, demand for housing will recover and prices along with it.

In fact, I'm so confident in the long term values of California real estate that I'm recommending that people who want to buy a home or investment property, and who can afford it and tolerate some risk, take advantage of today's lower prices.