I always like Jeff Dowler's markets analyses.  As you can see, someone can own a condo property in Dal Mar for as little as $2000/month. 

"Wall Street, can you read me?"

"Yeah, go ahead DC, we read you five by five"

"We have a problem."

Wall Street may be overconfident of a debt-ceiling hike deal and that overconfidence is priced into the market. 

In Washington, it can be tough to understand why New York is so sure of itself. While Wall Street is brimming with confidence that a deal will be struck, many Washington officials say the dynamics of this stalemate are different from any other they have encountered. And that means New York traders could be in for a big surprise in early August.

With less than two weeks to go before the Aug. 2 deadline, no deficit-reduction plan offered by the Senate or House has gained a significant amount of momentum. The House GOP’s “cut, cap and balance” proposal is dead on arrival in the Senate, which has yet to move its own budget. 

This means that a failure to extend the federal borrowing limit will catch markets by surprise; we could conceivably see La Jolla jumbo mortgage rates rise 1-1.5% overnight, in early August.

I've worked with mortgage-backed securities traders and I'm amazed at the huge gamble they're taking.  The culture of government bailouts is so pervasive in the financial community that the bankers are willing to ignore this risk.

Could La Jolla jumbo mortgage rates go lower?   I suppose they could but there is clear and present risk right now.  If you CAN, lock your mortgage rate to avoid this risk. 

Jumbo mortgage rates for July 21, 2011

Remember when I told you that jumbo mortgage capital, for La Jolla homebuyers, was becoming more readily available?  I spent the better part of the first and second quarters, searching for jumbo mortgage purchasers in the secondary mortgage market.  That project was rewarded in late May:

I thought I was the lone capitalist voice in a market dominated by Wall Street welfare queens.  Naturally, Randazzo's work inspired me to action.   Yesterday, World Wide Credit Corporation  organized a division to provide "capitalist solutions" to the California mortgage market and we named it Jumbo Mortgage Capital.  We've identified non-traditional lending sources, normally eschewed by most local lenders, and can offer the following products to California home buyers and owners:

• fixed-term ARMs, for loan amounts up to $4,000,000 (fixed terms range from 3 years to 10 years)
• 30-year fixed-rate loans for loan amounts up to $4,000,000
• stated-income jumbo mortgage loans for loan amounts up to $2,000,000
• stand-alone Home Equity Lines of Credit up to $500,000
• jumbo mortgage solutions, with just 10% down payment, up to $1,000,000

I talked about this in the Wall Street Journal last week.  While most of the people interviewed were expressing tenuous fear, about the government pull back, I explained that private money sources were ready, willing, and able to lend:

Investors and some academics say the government needs to shrink its footprint if private markets are to re-emerge, and that big loans for pricey homes are a reasonable place to start. "Credit unions, small banks, and hedge funds are all eager to buy these loans," said Brian Brady, a mortgage banker at World Wide Credit Corp. in San Diego.

While I was right about the trend, I was wrong about the size; the jumbo mortgage product is explosion is taking off with the intensity of the final space shuttle.  In today's Wall Street Journal, there is evidence that supports the claim I made, in the same publication, just ten days ago.  Yet, even the Wall Street Journal is focused on the agency-jumbo products rather than the capitalist-inspired private lenders. 

We are making jumbo mortgage loans in La Jolla.  Should you need to borrrow up to $4,000,000, call me and I'll try to help you find the money.

Why are jumbo mortgage loans so much more expensive today than they were last Monday?  Greece struck a deal with the European Union to get emergency loans.  That action reassured golbal financial markets that a Greece default would be stayed.  Money flowed into equities and out of the safe haven of US Government securities.  Mortgage bond investors demanded higher yields from mortgage originators which was passed onto the retial borrower.

In which direction will jumbo mortgage rates head this summer?  I believe rates will be stable through Labor Day with some erratic movements upwards.  The federal Reserve bank has halted its quantitative easing plan.  While this should pressure jumbo mortgage rates higher, Greece is but the first of many sovereign default crises bubbling beneath the surface of a calm Mediterranean Sea.  I expect those threats of crises will hold the upwards pressure in check. 

If you can, lock a jumbo mortgage rate under 5%.  If higher than 5% is offered, you might pause to read what's happening in Europe.  Another one of these crises could afford you that rate under 5%.

Jumbo Mortgage Rate Indications, as of June 6, 2011:

• 5/1 ARM----------4.000%/4.210% APR
• 7/1 ARM----------4.375%/4.571%APR
• 10/1 ARM---------4.625%/4.807%APR
• 30 Yr Fix----------5.125%?5.557%APR

Jumbo mortgage rates quoted are for loan amounts from $700,000 to $2,000,000.  1% origination fee applicable. Credit, down payment, and income restrictions apply.  Not all will qualify.  Equal Opportunity Lender.  NMLS ID 339261

Get a customized rate quote here

Apply online for a mortgage here.

I really enjoyed Jason Sardi's libertarian thoughts.  As I was reading the comments, I saw this from Deb Brooks:

My question is, Why can't we just rewind to the era of Industrialism? Oh yeah, it's because our Unions have strangled the US Industries to make them go overseas. Our jobs are dropping like flies because the government wants to own everything. OMG, I could really rant here but I'm going to try not to...okay, I did a little. But, you are right and I am right and what's going on in our government is NOT right. How can we change it? I feel helpless, insignificant, and demoralized.

I emboldened the last sentence to illustrate just how insidious gangster government is.  It's not just that it seizes economic opportunity, from competent entrepreneurs, it demoralizes (Deb's fine choice of wording.)  I might have some thoughts about Deb's pining for the Industrial Age, and why it isn't necessary anymore, and I definitely want to share thoughts about the emboldened statement.

For now, I'll just offer Deb this advice about government; supplant it

Two analysts I follow have diverging opinions about residential housing finance.

PIMCO's Scott Simon, who predicted the housing collapse back in 2006, thinks the government backstops in housing should operate more like a utility (a government-sanctioned monopoly).:

If we ended government support in all forms, mortgage rates could rise significantly, because home loan investors would need to be compensated for greater credit risk, and loan availability could decline. Higher rates and less mortgage availability would put downward pressure on home values, with potentially negative consequences for the market and also for the economy as a result of wealth destruction and consumer confidence declining.

Guarantees degrade underwriting standards over time. Historically, a primary justification for guarantees has been to increase the availability of finance to politically important groups with higher credit risks. It is inevitable that this will continue to happen, requiring the government to lower underwriting standards, and resulting in more risky mortgages.

Government guarantees always underprice risk. All federal guarantees underprice risk in order to provide a subsidy for lending. That is their purpose. And taxpayers will be exposed to losses in the future, as those risks materialize.

Guarantees inflate housing prices by distorting the allocation of capital investments. The artificially increased capital flow will make mortgages cheaper, boosting demand for housing and pushing up prices, ultimately creating another bubble.

This is the most dangerous unintended consequence of government subsidies.  Two examples, unrelated to housing, are health care and education.  Since the inception of Medicare, health care costs have risen by 2.5 to 3 times the inflation rate, to the point where the only solution to a government-engineered industry was a complete government takeover of the industry (which willl distort costs even more).  In education, the expansion of Pell Grants and student loan guarantees created so much "monopoly money", that education costs rose at twice the annual inflation rate.  The solution to that government engineering was a complete takeover of the education finance industry.

Maybe Randazzo is wrong and Simon is correct.  Perhaps housing IS too important an industry to trust to the free market. In that case, housing  can be rationed by the needs of the population rather than economic forces.  Certain people are probably more important than others to the State.  Their value to the State's agenda could be rewarded with subsidies while others, who don't contribute to the State's agenda, can just pay more.

We're in the middle of a vortex right now.  I think that lower housing prices are the most egalitarian affordable housing program available because it sufficiently matches supply and demand but, then again, I'm not a member of a favored political class.  I still cling to the notion that competition is the best way to organize society.

I sure did.  I sold a property, back in 2003, and wanted it closed in in thirty days.  I was uprooting my family to move to a different state and knew I was going to need cash quickly.  At that time, I was "real estate rich", cash-poor, and jonesin' to buy in my new area.  I knew I'd need to move some real estate quickly so I "bribed" the buyer's agent with a higher than normal co-brokerage fee.

I had three "non-negotiable points":  

1. I wouldn't accept anything less than the listed price
2. The escrow had to close within 30 days,
3. All  contingencies had to be removed within 10 calendar days.

I listed the property on a Thursday and asked my agent to hold it open on Saturday and Sunday.  The property was vacant and I had just repainted it so I knew it would show well.  I priced it competitively so I expected offers quickly. 

Monday morning, my agent presented me four offers:  two were below the listed price and two were above it.  What stood out about the one I accepted (which was not the highest offer), was that the offer waived the appraisal contingency.  This was 2003 and lenders were using automatic valuation models (AVMs) for home buyers with at least 20% down payment. 

I accepted the buyer's offer.  Now, all I had to do was to get through the contingency period.  Typically, the buyer's agent submits a request for repairs for the seller to accept, reject, or amend.  I received that request on day nine.

I was kind of sweating a bit at this point.  The request for repairs was a laundry list of items, which I calculated to be 1% of the sales price.  I relied on my "bribe" to make this deal happen quickly and denied the request for repairs.  I basically said " take the deal or walk"

The contingency was removed and the seller closed a week early.  I don't know if my "bribe" to the buyer's agent did it but my house sold...early and for the price I wanted.

Pretty icky, huh?  At this point, you might think I'm a real sleaze ball for "bribing" the buyer's agent with a bonus but, I want you to ask yourself these questions:

• What was my role in the transaction?  What was my job?
  
• Who was supposed to be protecting the buyer's interests?
• Would you care if your agent earned more than the average co-brokerage fee if you got the home for the price you wanted?
• How could you prevent such a thing from happening to you?

This is a real estate website so expect a bunch of real estate agents to comment that my post offends them.  Some might even say that this practice NEVER happens and threaten that I did something illegal or unethical (I didn't; I was selling a property and I represented nobody).

A few might just answer the question in your mind right now (which is, most likely, the fourth question I asked you to ask yourself).  Those are the smart agents.

How do I know you ask those questions?  Consumers like you ask me them all of the time.  After all, I've been involved in over 600 real estate transactions.  Here is an example of questions I get.  Read what (sandycat) asks right here:

Does a buyer's agent have to disclose that they would receive a bonus if they sell a particular house? We signed our contract and now our agent said that she just found out that she gets a bonus for selling that house to us. Had we known that the seller was giving a bonus to the agent, we feel as if we could have had more negotiating power. Are there any disclosure laws about this??

This San Antonio agent (kevcrawford) answered her question reasonably:

99% of the time, the bonus being offered is out of the listing agent's commission, not from the seller, so you probably wouldn't have had any more negotiation power. I know that if I have a listing in a slow area that's priced correctly and we're just not getting many showings because the area is slow, I'll tack on a 4% buyer agent commission or bonus and I'll cut my take way down. This is a pretty standard practice in most places.

As far as disclosure, every state is different.   I have a feeling that you were happy with the house and felt you got a good deal until you found out your agent got a bonus. You wouldn't have bought the house otherwise. Enjoy your new house and thank your agent for finding you a great home for a deal that you obviously were happy with, because you closed.

At least I thought it was a reasonable explanation, until I read the customer's follow-up comment:

Yes, we feel like we got a good deal. But like I said before, if we would have known that the seller is willing to dish out all this extra money, we could have negotiated a little more aggressively. We are talking large sums of money, OUR money. Also, with a house transaction, we would expect full disclosure. I understand that real estate people buy and sell houses all the time, but we are average people who, at most, will buy and sell a few times in our lifetime. We rely on the experience and honesty of you guys to help us through this sometimes confusing and legalistic process.

Do I feel like we should get a piece of the bonus? No. I say good for her and Merry Christmas for getting a bonus right before the holiday. But we felt as if we were sideswiped and it doesn't feel right.

Ugh, that's not a big vote of confidence for her agent.  Let's see if she relaxed.  Nope, it gnawed at her:

I'm totally not upset that she got a bonus. And she didn't lead us to this house, we asked to see it. I really have to believe that she didn't know until later. I really think in the end we got a good deal, I guess it felt a little "shady".

Finally, we see that the customer's husband tells all the agents that incentives DO matter:

There is still another perspective and this goes to all realtors. It is about the fact when a professional is to represent the buyer's side and professional advice is requested. Any extra incentive will have some impact on the agents motivation

You want to know as a buyer if there is a special motivation to sell that specific property. Especially when the agent is asked about specific matters you want to trust in their judgement. By not disclosing the extra bonus there is a lot of room for second guessing...

...Honesty still matters and once the deal turns sour it's a lose lose situation for everybody. For the realtor side is about losing recommendations or even worse, reputation.

Smart agents will address this and will advise you to negotiate the fee you expect your buyer's agent to receive before you look at homes.    As I've always said, most real estate agents are good and honest business people.  Most loan agents are, too.  The compensation structure for loan agents and the compensation structure for real estate agents, is broken, though.  The REALLY good agents will acknowledge this and want to help you answer all those nagging questions, about the appearance of impropriety,  before, during, and after the transaction.

Hire one of them.

More advice for consumers, to augment the premise that a buyer should negotiate the commission prior to seeing homes.  The author, Bill Archambault, is a man I met some five years ago.  he is a published author (and I've read his book "One House At A Time"), has brokered real estate, and been a lender, 

Should you pick a (a) bank, (b) non-depository lending correspondent (direct lender), or (c) mortgage broker to secure mortgage financing when you purchase your new home?

The answer is (d) all of the above if you want to shop for a mortgage.

The mortgage lending industry has been, for all practical purposes, nationalized at this point in time.  Massive regulatory efforts like the Dodd-Frank Act were enacted  to "prevent consumers from 'abusive' practices" regarding loan originator compensation,  In practice, this Act actually penalizes the SMART consumers and buttresses the profits of the banking cartel.  One of the most anti-competition regulations just took effect and you, the smart consumer, can get really rooked; I'm going to show you how to beat these guys at their own game.

The Federal Reserve Bank (the Fed) , under the authority given it through the Dodd-Frank Act, specifically outllawed the ability of a consumer to negotiate individually with a loan originator.   The Fed demands that all borrowers be treated equally, by each loan originator (regardless whether he works for a bank. lender, or brokerage), when that originator charges for his or her services.

Sounds fair, doesn't it?  I mean, everyone wants to be treated equally, right?

Except, lending  terms, like life, isn't supposed to be about equality of outcome.  Each borrower is unique, with her own set of strengths and challenges.  Those can present certain risks to lenders (and loan originators).  If you are a well-heeled borrower, meaning you manage your credit well, have ample income to service the mortgage payment, and have saved a healthy down payment, you have been lumped into the same category as the sketchy-paying, pie-in-the-sky dreamer, who wants to buy the biggest house for the least amount down, regardless of his financial status.

Stated differently, we could offer flinty, prudent, educated consumers, a discount, for being well-prepared for the loan process, prior to April 1, 2011.  Today, we have to charge you as much as the haphazard loan applicant.  In a sense, you are being penalized for your hard work and dliigence.

I'll show you how to get around that by employing a process I call the shotgun application.  I'll catch some heat for letting you in on this secret.  This is a real estate industry website, which allows comments from lenders.  They will hate that I'm telling you how to negotiate, by pitting the banks, direct lenders, and mortgage brokers against one another, so that YOU get smokin' mortgage terms. Watch how they act in the comments section below.

The real estate agents may go so far as to suggest that you should use only a lender whom they know , or that you should only use one of the government-subsidized banks ( the ones the taxpayers had to bail out because they couldn't manage risk).  Ask yourself why they give such advice.

This game has been rigged against you, by the Federal Reserve Bank, at the behest of the bailed-out-by-the-taxpayers banking cartel.  The Fed regulation which prohibits you from negotiating with the loan originator was designed to penalize the more nimble loan correspondents and mortgage brokers BUT...

...as with all government regulation, it's filled with loopholes.  I'll show you those loopholes, so that you can play the game by your rules , and win.

I expect this series to be about 4-5 articles so keep checking back.  I'll provide links to each article at the bottom of the page.