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Today’s question:  Risk of mortgages or 2nd mortgages being taken out and creating instability in the housing market? 

Bottom Line:  Today’s question comes from a couple that heard me discuss the large amount of cash that’s being used to purchase local real-estate (most recently 50% of all property transactions have been paid for with cash in PBC).  They’re wondering if the local real-estate market could fall victim to the boom / bust scenario all over again as a result of home equity lines of credit or 2nd mortgages.  It’s a good question.  Let’s evaluate the risk.

During the housing boom the following types of products were available:

  • Negative amortization loans
  • Stated or no income based loans
  • 2nd mortgages and home equity lines of credit of up to 125% of appraised value

Additionally many appraisers in the market were playing fast and loose with their appraisals and often were cherry picked by the borrowers to “get the number” they were looking for.

Today here’s an update on the loan products available:

  • Negative amortization loans aren’t legal
  • Stated income loans aren’t allowed – you must prove income and meet debt to income ratios
  • In my surveying of the biggest banks no bank offers a home equity line of credit or 2nd mortgage of 100% - in fact all big banks capped the borrowing on those products at 85% of appraised value
  • The appraisal process has been overhauled.  You can no longer cherry pick an appraiser

So based on those factors alone the risk of the same situation playing out isn’t possible and the likelihood of instability of any sort based on home equity lines of credit or 2nd mortgages is quite low.  But there is another reason that it’s highly unlikely that situation would occur.


The majority of cash buyers locally are investors and international buyers.  Neither group is interested in taking out loans on the property they are buying.  Investors are comprised of two groups: 

  • Those who buy, fix-up and flip
  • Those who buy, fix-up and rent

Increasingly investors are building portfolios of rental properties to create income streams.  This is occurring in a greater way these days as investors are looking for options to earn yield on their money.  Because of the poor fixed income options, bond yields and no other real options outside of dividends, rental portfolios are actually among the best ways to obtain yield.  These investors won’t obtain loans on these properties because it would be counter to their investment purpose.

If you have a question you’d like me to address on-air & online. 

 

Smartphone habits that could cause you to have your ID stolen:

Bottom Line:  Credit.com put together a timely and informative list of ways were are potentially setting ourselves up to be compromised when using our smart phones.  A few of these are topics we’ve covered but several are likely mistakes we make as a matter of routine.  Click the link below for the complete list but let me tackle a few of the most important flaws.

  • Not setting a security password
  • Auto enabling Wi-Fi connections if available
  • Not logging out of apps once you’re done with them

The first point is quite clear.  If you lose your phone or leave it somewhere, you and everyone in your contact list can be compromised.

The biggie that most are guilty of is the second.  The auto enabling of Wi-Fi connections.  We may do this because it will save us data if our phone can use Wi-Fi instead.  Here’s the danger.  Your phone may be connecting to unsecure networks that hackers are actively scanning.  As you use your phone they’re tracking your info.  So passwords, contacts, etc.  are all potentially compromised and can lead to your ID being stolen.  This is the fastest growing ID theft tactic with regard to mobile device use today.

http://finance.yahoo.com/news/10-dumbest-risks-people-smartphones-110029209.html

 

Facebook’s new twist on social gift cards:

Bottom Line:  Here’s something that’s kind of cool if you buy gift cards for friends (that are also friends on Facebook).  Facebook has a self-branded gift card that you can send to your friends.  So why would you want to send a Facebook gift card to your friends?  Well it’s not for Facebook.


Have book has several companies that have signed up for a universal gift card service (including Target).  The Facebook card will be kept like a debit or credit card and money can be loaded and re-loaded for multiple vendors all on one card.  No longer do you need to carry around 5 different gift cards.  Plus you can check the balance on each card online.  Pretty cool.

http://www.engadget.com/2013/01/31/facebook-introduces-new-gift-card/