Improvement in Lending

JuiceMan, nice to see you're still beating that very same drum. Too bad it has a hole in it.

What drum is that steve? The accuracy drum? Where is the hole exactly? Does it upset you that I just got a significant reduction of my monthly payment or is it that you just can't stand when there is something positive to say?

He wishes it had a hole in it!!

JuiceMan, Can you give me some ideas where you currently see rates on jumbos? Thanks.

"Does it upset you that I just got a significant reduction of my monthly payment"

Why would that upset me?

"or is it that you just can't stand when there is something positive to say?"

Yes, that's it. I JUST CAN'T STAND IT!

Please, JuiceMan, did you read the thread on open houses? Did you look at inventory just shy of 11,000 units? Do you see that prices are still, on the whole, twice what rents indicate they should be? Did you notice that finance and advertising, two of Manhattan's biggest industries, are dying?

They could give you a loan at 0% interest, and it would STILL be cheaper to rent. A lot cheaper. A $1 million 30-year loan at 0% interest would give you monthly payments of $2,777. Add $1,500 in property taxes and $1,000 in maintenance, and you're better off renting the same thing at $5,000 a month, saving your down payment and not risk being seriously underwater and wind up OWING the bank money when you sell in 5 years' time.

So stop the bullcrap. Positive news is fine. When it really is. But you insist on beating the dead drum of Manhattan real estate, which still by ALL measures is not affordable.

Wait! I remember the last time JuiceMan had "positive news," and accused me of the same thing: it was on the fall in LIBOR rates.

Well, JuiceMan, that positive tidbit died a death, as well: overnight LIBOR rates are 0.31%. They should be 0.01%. You claimed it was positive news at about 0.15%.

Or half what it is today.

LMAO.

I think in the "Idiot's Thread" you claimed you were a dentist. I don't know if it's true or not, but given all the real estate predictions that you've made over the past year, you should stick to root canals. It would be less painful for us all.

"They could give you a loan at 0% interest, and it would STILL be cheaper to rent."

For many overpriced properties, sure, but most people are interested in buying one apartment. Seems JuiceMan is talking about this mostly in regards to refinancing.

"But you insist on beating the dead drum of Manhattan real estate, which still by ALL measures is not affordable."

Poor old over dramatic steve. Can't admit when there is positive news even when it is obvious to everyone else. All I said was the banks are easing a bit on jumbos (which is undeniable) but steve will spin it how he wants.

uppereast, 30yr fixed are still tough but with good credit and 65%-70% LTV you should see ~5% for 7/1's and ~4.75 for 5/1's. Some portfolio lenders require higher LTV’s but will drop those rates even further if you qualify.

"Can't admit when there is positive news even when it is obvious to everyone else."

What is that positive news? That you still insist on pushing ARM's when interest rates have nowhere to go but up, and fail to recognize the risk inherent in them?

Long-term assets are financed with long-term financing. You yourself said it: "30yr fixed are still tough."

Tougher in a building that's not 70% sold.

"~5% for 7/1's and ~4.75 for 5/1's."

Then what happens? Property prices fall 50%, you get reset to 7%, can't afford your mortgage and can't afford to sell.

You must be a dentist - you seem to know nothing about risk.

"steve will spin it how he wants."

No. I used your figures, + a dose of reality.

What do you have against dentists?

Same old tired story from steve about ARM's. People shouldn't use ARM's that can't afford the reset (that game has been played remember?). Regardless, banks won't let you do that stuff anymore. If you can't afford it, you won't qualify. If you can, you get great rates. So what I am saying is that the spreads for jumbos and conforming ARM's are narrowing for people that can afford it. Exactly how it should be and that is positive movement in the market.

Funny how you have such bad things to say about ARM's yet I seem to remember you had a 5/1 yourself at one point. Don't be such a hypocrite.

JuiceMan, JuiceMan, JuiceMan!

MEREDITH WHITNEY: I really believe the longer we wait, the longer we head down this path -- well, the math is the worst is ahead of us. And...

CHARLIE ROSE: So the end of 2009 or beyond?

MEREDITH WHITNEY: At least the end of 2009. Look, you have credit continuing being pulled from the system, and until it stabilizes, there is nowhere to go but down. And from an unemployment perspective, no one is pricing in low, mid teens unemployment in any of their assumptions. So it is just a question of not if the banks need to raise capital, it’s when, and, you know, let’s get some capital back in the system by looking at who can provide it, like the local banks. We will go back to a time that was and not try to preserve a system that is and -- or was more recently and will never be again.

You are throwing good money down black holes ...

oops missed the opening question
CHARLIE ROSE: Listen, you saw this early certainly in terms of the banks, and you got a lot of credit for that. Have we not seen the worst? Is the worst still to come, or have we passed some point of beginning to understand and just waiting for the plan to get us back on track?
MEREDITH WHITNEY: I really believe the longer we wait, the longer we head down this path -- well, the math is the worst is ahead of us. And...

CHARLIE ROSE: So the end of 2009 or beyond?

MEREDITH WHITNEY: At least the end of 2009. Look, you have credit continuing being pulled from the system, and until it stabilizes, there is nowhere to go but down. And from an unemployment perspective, no one is pricing in low, mid teens unemployment in any of their assumptions. So it is just a question of not if the banks need to raise capital, it’s when, and, you know, let’s get some capital back in the system by looking at who can provide it, like the local banks. We will go back to a time that was and not try to preserve a system that is and -- or was more recently and will never be again.

You are throwing good money down black holes ...

"They could give you a loan at 0% interest, and it would STILL be cheaper to rent. A lot cheaper. A $1 million 30-year loan at 0% interest would give you monthly payments of $2,777. Add $1,500 in property taxes and $1,000 in maintenance, and you're better off renting the same thing at $5,000 a month"

For a guy who holds everyone else to a pretty tight standard when it comes to accuracy, this is just a ridiculous example. Why? Okay, what if the tax is $800/month and the maintenance another $800/month then your numbers are way off. I bring this up because my numbers are more realistic than yours.

I understand your pov, but this example is a straw-man and takes away from what you are trying to communicate.

JM - I am more concerned right now with the credit markets still being frozen for businesses. They must loosen this or there will be more layoffs and businesses that will go under.

ah, waverly! THE TAX BENEFIT!

ah, Stevejhx! EXAGGERATED NUMBERS!

Okay, waverly, do the math: $1,600 a month * 50% tax bracket = $800 monthly tax benefit = $9,600 annual tax benefit.

$1,000,000 property loses 50% of its value = $500,000 loss / $9,600 = > 52 years to recover that loss through the tax "benefit."

Still better to rent. It's not possible to recover from a 50% fall in prices in anything but the very long-term.

Ask Tokyo.

Okay, Steve, what makes you think that if someone bought a $1 million apartment tomorrow (with this magical 0% interest loan of course) that it would proceed to lose 50% of the value? It's one thing if I bought a new construction condo a year ago, but that's not what you proposed.

I still say your example is so flawed it doesn't help your argument at all. You have taken too many liberties to make your esample fit the end result that you want that it dilutes your argument.

steve, your numbers would be more credible if you used $10,000 for property taxes and a $35,432 monthly maintenance. Compare that to renting a 2/2 in the UWS for $4 a month.

WOW! It WOULD be much cheaper to rent! Silly me!

"that it would proceed to lose 50% of the value?"

You think what you think, I think what I think.

"It's one thing if I bought a new construction condo a year ago, but that's not what you proposed."

Who said?

"steve, your numbers would be more credible if you used $10,000 for property taxes and a $35,432 monthly maintenance. Compare that to renting a 2/2 in the UWS for $4 a month."

And I make up numbers?

I picked relatively easy to prove market rentals, & waverly's tax example.

Sorry, JuiceMan - but if you think that real estate is such a great bargain right now what with the low rates on 5/1 ARM's if you put down 40%, go right ahead and buy yourself a few. Money where mouth....

waverly, I don't disagree but I was talking about improvements in home lending which steve denies.

I hear you, JM, thanks.

BTW, Steve, off-topic for a minute. A guy I work with may have a project or two in the 2nd quarter for someone with the ability to translate Spanish and proofread documents. If it happens, I will let you know in case you might be interested.

"improvements in home lending which steve denies."

I deny it's an "improvement" in home lending

a) if there is no improvement on the real lending rate, which is the traditional 30-year fixed (and there's not by your own admission); and

b) if you have to put down more than the traditional 20% down payment, which is the traditional down payment (and you do, by your own admission); and

c) if you don't adjust for the additional risk of taking on a riskier mortgage - ARM vs. fixed, 20% down vs. 40% down - and you don't;

d) if you don't show evidence of what is required to get such a mortgage approved (and you don't);

e) if you don't take into account that banks are requiring 70% of units be presold before issuing a mortgage (and you don't);

f) if you don't take into account the likelihood that property prices will fall, leaving you underwater after a number of years (and you don't), which is why banks are requiring such a high LTV;

g) if you don't take into account that despite the fall in interest rates, the premium on nonconforming jumbos over conforming loans is still historically high (and you don't).

So except for those defects in your "theory" (much like your defective LIBOR theory) I fully agree with you. There might have been a slight decrease in jumbo nonconforming rates. However, in the macro sense, that is meaningless.

"a) if there is no improvement on the real lending rate, which is the traditional 30-year fixed (and there's not by your own admission); and "

Actually steve the 30yr fxd rates are ~6.5% which is also a huge improvement from 6 months ago. This 30yr fxd jumbo to conforming spread has dropped significantly, for people that can afford them. Much as it should be. I guess that's not positive either. My comment was that in relation to ARM's, 30yr fxd are not as good but 30yr fx rates (and conforming spreads) have improved dramatically over the last six months.
Sorry, but your argument just got pee-peed on.

b) I disagree. I think the higher down payment requirements are good for lending. More trust in the system. This I would categorize as an improvement

c) Yes steve, ARM's are more risky if you plan to out stay your ARM period. What if you don't?

d) More restrictive which is good for the lending environment. More trust in the system. Improvement

e) New devs are a different ballgame, don't lump them into the rest of the market (which you always do)

f) Depends on the price you get now and the term of your stay. You believe what you believe, I don't agree

g) huh? That is exactly my point. This premium is easing, did you forget what you were arguing already?

You are a funny boy steve. I love that fact that I can cut my monthly payment by 20%+ and you call it meaningless.

based on the 3-4 banks i call every month or so, i think that credit availability is a bit worse than it was a month ago and probably as bad as ever. After TARP, there were a few TARP banks that started printing jumbos with 70-75% LTVs (even had a friend who closed a 900k mortgage at 20% ltv), but they seem to be pulling back. The bank that lent to my friend said that they now required 500k in liquid assets after close with a 70% ltv. i know for a fact that policy was institued in the past month or so.
with jumbo mortgages trading at 80 or below in the secondary market, why would banks be jumping to print more at par?

i admit that i have only spoken to a few lenders that i know are lending, so please let me know if you have real data on other banks that are lending on manhattan (loan of $1-1.5m). 5/1 or 7/1 is fine with me.

JuiceMan, here are the national overnight rates according to bankrate.com:

NATIONAL OVERNIGHT AVERAGES
30 yr fixed mtg 5.15%
15 yr fixed mtg 4.71%
5/1 ARM 4.78%
30 yr fixed jumbo mtg 6.89%
5/1 jumbo ARM 5.40%

So you're looking at a 170-basis point spread between jumbos and conforming loans. Normally the spread is about 25 basis points.

And that's good news? And my argument got "peed on"?

I never denied that interest rates are below where they were 6 months ago. So is everything else. Lets you forget that the Fed adopted ZIRP after the Lehman fiasco.

Then on your other ridiculous points:

b) Only you can twist higher LTV ratios as a "good" thing. People were hailing 0% down before. The more you have to put down, the less credit is actually available.

c) If you don't plan on staying for the period of the ARM, why buy at all? Weren't you the one who claimed that buying real estate makes no sense if you don't plan on owning it for at least 7 years?

d) "More restrictive which is good for the lending environment."

That is a real LMAO. Everyone in the world agrees that the problem today is that lending is too tight, which is strangling the economy. Everybody but you, that is.

e) New dev is part of the market just like everything else. It's not me who tries to segment the market to get the result I want - obviously, it's you. I remember you posted a thread about the difference in prices between co-ops and condos, which by mere statistics I proved was a bunch of BS.

f) "You believe what you believe, I don't agree."

Don't agree. I believe what the experts are saying. You believe what you want to believe.

g) See above.

"I love that fact that I can cut my monthly payment by 20%+ and you call it meaningless."

Are you talking about refinancing, or about new purchases? Because refinancing does nothing for the economy (and BTW, you have to amortize the closing costs which radically changes that figure). What matters is new purchase, which apparently, judging by inventory levels, aren't budging.

Do us a favor - stick to dentistry.

stevejhx - please tell when you are going to go long on stock. I bought FRE, FNM, C, BAC & AIG last week following your dire ranting about the Dow Jones. Thanks a lot. You are good. No, you are great as a failed economist.

"I bought FRE, FNM, C, BAC & AIG last week following your dire ranting about the Dow Jones"

Did I recommend them?

That said, I almost did buy $100k of C when it was $1.50. I'm kind of pissed I didn't, since it has tripled since then.

I too, almost had balls for GE.

Interesting steve, I would have thought that you would be supportive of tougher lending standards and higher down payments. There is some short term pain, but it is much better for the system overall. I guess you would like to go back to 3/1 no verification loans? Would that be an improvement?

As for the 30yr fixed, you are spinning once again. I never said the jumbo and conforming spread is back to where it was pre bust, but it has narrowed. So, all of your bankrate.com research is for nothing, because you are now arguing with yourself (surprise).

You should stick to dubbing Billy Mays commercials. At least it's funny.

"Because refinancing does nothing for the economy (and BTW, you have to amortize the closing costs which radically changes that figure). What matters is new purchase, which apparently, judging by inventory levels, aren't budging."

My comment in the OP was that refinancing helps to offset downward pressure on rents. So if rents are down 15% and I can refinance and cut my payment by 20%, guess what? As for closing costs, these are minimal compared to the savings with current rates.

Do you have a dental fetish?

"I would have thought that you would be supportive of tougher lending standards and higher down payments."

I am supportive of a normal lending environment for 30-year fixed rate loans. I have always said that long-term assets are financed with long-term financing, and the 30-year fixed approximates the depreciation scale for fixed real assets.

"I never said the jumbo and conforming spread is back to where it was pre bust, but it has narrowed."

Not materially.

"So, all of your bankrate.com research is for nothing, because you are now arguing with yourself (surprise)."

How so? The spread is still abnormally high - as it is between long-term bond yields and mortgage rates - and that is what the Fed is trying to fix by buying agency paper.

You really, really don't understand economics or finance, do you?

"My comment in the OP was that refinancing helps to offset downward pressure on rents."

No it doesn't, not even a little bit. The CHOICE - the opportunity cost - is between buying and renting. If you have already purchased you have capitalized your rent. The choice is, then, not between refinancing or selling your home and renting instead. The opportunity cost is not between refinancing or selling - selling and renting is not the "next best option" after refinancing. The choice is made at the time you decide to buy or rent - do you hedge future rent increases by capitalizing your rent today and amortizing it over time? The opportunity cost for refinancing is how much you will save by refinancing versus how much the refinancing will cost you.

No, I don't have a dental fetish. I do, however, think you should stick to dentistry since your grasp of the basic principles of economics and finance is tenuous at best.

LMAO. So if rents go down the rent vs. buy spread gets larger but if you refinance you keep the same rent vs. buy spread. HAHAHAHAHAHAHAHAHHAAHHA. Nice one steve. It is all about cash out, you have said so yourself. Stop being silly

"your grasp of the basic principles of economics and finance is tenuous at best. "

steve, you couldn't carry my bag, it would be way too heavy. Maybe you should have gone to "dental" school instead of studying Spanish.

Steve is a like Chuck Norris: a self made man. http://chucknorrisfacts.com/

"So if rents go down the rent vs. buy spread gets larger but if you refinance you keep the same rent vs. buy spread."

What?

"HAHAHAHAHAHAHAHAHHAAHHA. Nice one steve. It is all about cash out, you have said so yourself."

I've never said anything about cash out. I don't think I've ever even used the term.

The opportunity cost is between buying and renting, not between renting and refinancing. Your current payments on a property you purchased in the past DO NOT affect today's real estate market. They simply don't. Today's real estate market is affected by today's rents and today's purchase prices. What about your refinancing changes either of those?

Nothing.

"The opportunity cost is between buying and renting"

Exactly. So if I rent for 10 years and I think it will cost $50k. I would then compare it to the cost of owning for 10 years let’s say $51k. If I am able to refinance during those 10 years and lower my cost of ownership to $45k, according to your brilliant theory, that doesn't matter. So much for being an economist, maybe we can call you the Sesame Street Economist?

"Today's real estate market is affected by today's rents and today's purchase prices. What about your refinancing changes either of those?"

Absolutely nothing, however it does change how much I pay per month on a loan which makes my cost of ownership much lower. So as rents drop, current owners can equalize the impact with a refinance (by impact I’m talking about the impact to the rent vs. buy spread which figures into the cost of owning vs. the cost of renting which honestly most people don’t give a shit about but we beat this horse on streeteasy all the time). There is no relationship with rents and rates dropping at the same time, but in today’s environment (much to steve’s chagrin) this is absolutely true. How does steve fit this bit of real life into is little theories? Well, steve doesn’t like real life examples only stuff that is written in white papers by economists about Albany. How would the white paper deal with this little tidbit of real life?

JuiceMan, you never cease to amaze me. You argue both sides of the argument, and seem oblivious to the contradiction:

Me: "The opportunity cost is between buying and renting"

You: "Exactly. So if I rent for 10 years and I think it will cost $50k. I would then compare it to the cost of owning for 10 years let’s say $51k. If I am able to refinance during those 10 years and lower my cost of ownership to $45k, according to your brilliant theory, that doesn't matter."

Me: "Today's real estate market is affected by today's rents and today's purchase prices. What about your refinancing changes either of those?"

You: "Absolutely nothing."

So on the one hand you argue that it changes today's real estate market, and on the other hand you argue that it doesn't. It's not even worth going on!

Good try steve, I know I'm correct and you can't figure out how to refute what I'm saying. Real life examples have always been hard for you.

stevejhx, aren't you clouding the issue here a bit? Lowering your monthly costs of ownership would tilt the rent-buy balance towards buy a bit. This is a good thing for owners.

Owning vs Renting is such a non-discussion. Owning is such a clear winner and renting is such a clear loser. The constitution itself was written to benefit property owners. That is still the case. Opportunity cost for the downpayment?? Who says you won't lose the whole downpayment in the equity market? Please stevejhx, you cannot win this argument.

"I know I'm correct"

I know you know you're correct, which is what makes it so funny.

"Lowering your monthly costs of ownership would tilt the rent-buy balance towards buy a bit."

For new purchases, yes, but not for refinancing, which is what JuiceMan posted. If you've already decided to capitalize your rent by purchasing, the opportunity cost is not between renting or refinancing, it's between what the refinancing costs vs. what it saves you, and what you would otherwise spend the cost of refinancing on. Renting is not that.

Lower interest rates do in the short-term make properties more affordable, until prices rise to offset the decline in rates. The correlation is between carrying costs / rents, and incomes. Prices fluctuate depending on interest rates until they fall in line with carrying costs equaling rent equaling a multiple of incomes.

As the thread on falling bonuses clearly spells out, the decline in incomes will have a far greater effect on prices than slightly falling - and still abnormally high as a function of long-term bond yields - interest rates.

"If you've already decided to capitalize your rent by purchasing, the opportunity cost is not between renting or refinancing, it's between what the refinancing costs vs. what it saves you, and what you would otherwise spend the cost of refinancing on. Renting is not that."

This is exactly why all of your theories and formulas are wrong, because you only look at things at a given point of time. On the day of purchase the opportunity cost is renting. I agree. However, if I own over a ten year period rents and mortgage payments can fluctuate. The only way I can tell you if my 10 year purchase was better than 10 years of renting is to wait till the end of the 10 years and add up the costs (and hopefully gains). If I'm able to refinance to a lower rate within those ten years I would have improved my cost of ownership. This is undeniable unless you subscribe to Sesame Street Economics.

You can try and change the subject and confuse the topic all you want steve, but this is fact, and what I said in the OP.

"This is exactly why all of your theories and formulas are wrong, because you only look at things at a given point of time."

I see. That, then, is why all balance sheets and income statements and cash-flow statements and mark-to-market accounting are wrong: because they only look at things at a given point in time.

"The only way I can tell you if my 10 year purchase was better than 10 years of renting is to wait till the end of the 10 years and add up the costs (and hopefully gains)."

And that, somehow, is not "looking at things at a given point [in] time"? I.E., a posteriori, as opposed to a priori.

By your theory, it is NEVER possible to make a prediction.

JuiceMan, there is no need to change the topic or confound it. Your "point" is ridiculous. Opportunity cost is at a particular moment in time, based on all the information available at that time. That information may be right or wrong, properly or improperly interpreted, and it is subject to change. OF COURSE you can change your payment flow if you refinance. No one doubts that. What is just plain dumb is your claim that a) that affects the current real estate market (which it can't, as you're refinancing a price from the past); and b) that the opportunity cost of refinancing is "cashing out" and renting, when the opportunity cost is what you would otherwise spend the cost of refinancing on. It wouldn't be on renting, because the difference saved is not enough to cover rent.

What's the opportunuity right now?
T Notes? Stocks?

"OF COURSE you can change your payment flow if you refinance. No one doubts that. "

Yes steve and it lowers the total cost of ownership over the life of the loan which you can then compare to the total cost of renting over that same time period. Why is that so hard for you to understand?

"What is just plain dumb is your claim that a) that affects the current real estate market (which it can't, as you're refinancing a price from the past); and b) that the opportunity cost of refinancing is "cashing out" and renting, when the opportunity cost is what you would otherwise spend the cost of refinancing on."

What's just plain dumb is that I never said either of these things. You are delusional and for what ever reason, like to make up things and claim that I said them.

What does a cheaper $2 mil mortgage mean when your salary just got cut to $250k?

"Yes steve and it lowers the total cost of ownership over the life of the loan which you can then compare to the total cost of renting over that same time period. Why is that so hard for you to understand?"

And what good does that do in retrospect, JuiceMan?

None.

Nevertheless, your OP says, "Makes that rent vs. buy spread a lot more palatable. Without a doubt, an improvement over the past few months."

Now you're arguing that it makes it palatable in the past?

Please.

What is says is what you're denying it now says:

"a) that affects the current real estate market (which it can't, as you're refinancing a price from the past); and b) that the opportunity cost of refinancing is "cashing out" and renting, when the opportunity cost is what you would otherwise spend the cost of refinancing on."

"You are delusional and for what ever reason, like to make up things and claim that I said them."

But JuiceMan, there it is, in your own words: "Makes that rent vs. buy spread a lot more palatable. Without a doubt, an improvement over the past few months."

Does it, or doesn't it?

Think of it this way steve. If I were to leave NYC and rent my place out would I be happy that I refinanced so that my monthly payment is closer to / better than current rents or not? I would, because I have a better chance of being cash flow positive with the refinanced payment. No different that if I stay in NYC long term and sell my place at a later date. If I refinance now, my monthly payment is now closer to / better than monthly rents so that when I do sell there is a better chance that my "investment" was a good one.

So I'll say it again one more time, low rates and the ability to refinance makes the rent vs. buy spread a lot more palatable for the reasons above.

It’s all really simple steve, not complicated. You try and make it complicated because you are looking for ways to confuse and distract, but it is exactly how I said it in the OP.

Yes JuiceMan, again change your premise. You start with "Makes that rent vs. buy spread a lot more palatable." Now you're moving and renting the place out.

But no, your refinancing makes ABSOLUTELY NO DIFFERENCE because

a) you are still refinancing at a historic price, not at current market prices; and

b) how much you pay to maintain a dwelling bears no correspondence to how much you can get to rent it out. Inputs do not determine market prices; output value does.

"It’s all really simple steve, not complicated."

Then how come you keep on changing it? And your argument still suffers from what you claimed was the fatal defect in mind: that you "you only look at things at a given point of time."

Please.