Death of the Mortgage Broker

OK, we've been lead down the garden path for the last time. No more dealing with mortgage brokers and especially no more "lender slash agents". The mortgage industry is in turmoil, and mortgage brokers are one of the casualties.

Here's what's going on - a mortgage broker is someone that does not work for one of the big lenders, like Countrywide, BofA, Wells Fargo, IndyMac or WaMu. Instead, he or she packages a loan and takes it to the wholesale department of a bank. In theory, the mortgage broker can offer a better deal, because he can take what he is paid by the bank and use some of that to get a better rate for the buyer. Also, he can shop the different banks and see who has the best deal. So for the last 19 years, this was not a bad way to go.

Fast forward to today. Most of the sub-prime abuses have come through mortgage brokers, so banks are now very leery of loans brought in by brokers. They will be at the bottom of the pile. They will get extra scrutiny and require all kinds of weird documentation from the borrower that we've never seen before. And once you get final loan approval with all conditions met, the bank may decide to send the package to a SECOND underwriter or require a SECOND appraisal just to make darn sure. So forget about a 30 day closing when using a mortgage broker. Try 60 to 90 days, and that's if it ever closes at all bacause banks are tightening the requirements every week.

How do I know this? From the school of hard knocks.

Some mortgage brokers I know have given up being independent brokers and have opened a Countrywide office. Doing what they have to do to survive.

Whether the mortgage brokerage industry will come back when things settle down, or whether they will be gone for good, or whether they will evolve into something different that we have not yet seen, I don't know. But I do know we are witnessing a major change, and there will be a lot of people that don't make it.

For now, all I can do to protect my clients is to make sure that any buyer is pre-approved with one of the big banks. A pre-approval letter from a mortgage broker is worthless. Sometimes the certainty of closing is worth more than saving an eighth of a point on a loan.

Affordability on the rise

Of course we all know about the rising marketing times, declining number of homes sold, and declining prices. The buyers are sitting on their hands, and even if they do want to buy, the banks won't give them a loan. A gloomy picture indeed. When will it end?

Remember, this too shall pass. As prices drop, affordability rises, meaning more and more people can afford to buy who couldn't before. Look at it this way - when prices were at their peak, only 8% of households could afford the median priced home in North San Diego County. So everyone who could afford to buy already had, and the pool of buyers started to dry up.

So if salaries stay the same or increase, and home prices decrease, the affordability goes up, meaning more can afford to buy. Add to that the fact the rents are on the rise here, and sooner or later, it looks a lot better to own than to rent. So the homebuyer who was priced out of the market in 2005 can now afford to buy in 2008.

Eventually the pendulum swings the other way, and the current oversupply of homes will be absorbed, and since very few are being built, there will once again be a shortage.

Here's a list of affordability rates throughout the North County.

• Rancho Santa Fe (92067, 92091), Del Mar (92014), Carmel Valley (92130),
Solana Beach (92075), Rancho Bernardo (92127), and Cardiff (92007) were the
least affordable areas in North San Diego County with affordability levels of five
percent or below.

• Encinitas (92024), Carlsbad (92008, 92009, 92010, 92011), Escondido (92025,
92029), and Rancho Penasquitos (92129) had affordability levels ranging between
six and nine percent.

• Bonsall (92003), Oceanside (92054, 92057), Vista (92081, 92084), Fallbrook
(92028), Valley Center (92082), Poway (92064), Ramona (92065), and Rancho
Bernardo (92128) reported affordability levels between 12 and 19 percent. Vista
(92083), Oceanside (92056), and Escondido (92026, 92027) were the most
affordable areas ranging between 21 and 23 percent.

Normal Market?

Follow the red line and you'll see the number of sales in San Diego County is trending lower. Our market has a seasonality, which you can see in this graph. The most sales are in the summer, the least in winter. Since 2006, the high summer mark is roughly equal to the low winter mark of the year before, a bearish trend.

These days, it takes an iron will to keep escorws together, and we are seeing 10 year veterans throwing in the towel. It's tough to get buyers and sellers together, and when we do, the lenders can't get a loan done. Our last 3 escrows have all closed weeks late, and there is nothing anyone can do about it. Without the loan, there is no transaction. Sometimes we have to sell a house two or three times to find a buyer that can actually qualify. This is not a normal market.

The good news is, I am a 20 year veteran! That means I've been through tough markets before, and I'll get though this one too. And not just get through, but come out even stronger. I'm not normal!

Did you know that many agents have given up? Their bodies show up but mentally they are someplace else. I know because I have to work with them on the other side of transactions! They are just not there! They don't push to make things happen, they don't make any effort, because they are resigned that the deal probably won't work anyway. This is not a normal market.

That means buyers are having a field day, right? Not if you can't get a loan you aren't. Our last two transactions fell apart because the buyers, who were pre-approved, were not qualified when it came down to the underwriter's desk. Why? Because the lenders can change the rules mid-stream if they want, and they are very skitterish right now. Even 20% down doesn't mean you're golden, because some lenders believe the market might fall 20% and so they are still taking a big risk on you. So good income, good down payment, and good credit doesn't mean you'll get the loan. This is not a normal market.

My advice? If you're looking to buy or sell real estate in San Diego, make sure you don't just get a normal agent, because this is not a normal market.

Lake Tahoe

One of the great things about living on the West Coast is that you are within a day's drive of so many fantastic places! For instance, San Diego is about an 8 hour drive from Lake Tahoe, the second deepest lake in the United States at 1645 foot deep. Lake Tahoe is 12 miles wide and 22 miles long, and there are many other smaller lakes in the area. Crystal and I went on many hikes, and I brought you back a few pictures!

A frozen river in the Desolation Wilderness.

Beautiful scenery in Lake Tahoe's Emerald Bay.

Plenty of granite hiking in the High Sierras.

The sun going down on Lake Tahoe creates a turquoise light.

From a small beach on the Rubicon Trail.

This is the Cascade Falls Trail, showing Cascade Lake and Lake Tahoe in the distance.

The day is ending at Fannette Island.

A stormy day at Fallen Leaf Lake.

An uprooted tree points to 9,735 foot Mount Tallac in the distance.