Blog with MAE Capital


By now you may have heard that things are changing in the Real Estate world with regards to commissions.   In a landmark decision, the National Association of Realtors (NAR) has lost a lawsuit that stated that Real Estate Buyers should be able to negotiate commissions with their agent and or Seller.  The lawsuit further states that Real Estate Buyers have the right to negotiate how their agent is paid and by whom.  We will discuss some of the pros and cons of this landmark case and how it will affect buying and selling real estate in the future.

Currently, Real Estate commissions have been paid by the seller of a property and is negotiated upfront prior to their property hitting the open market.  The traditional commission structure has been 5-6% of the sales price and if another Agent other than the agent who procured the listing called the buyer's agent generally splits that amount with the listing agent.  For example, if you are selling a home with a 5% commission in the listing agreement when another Agent brings a buyer to the home the commission to that buyer’s Agent has already been negotiated with the seller and that has traditionally been half of the total amount and in this case, it would be 2.5% to the Buyer’s Agent and 2.5% to the Listing Agent.  With the new ruling against the Real Estate industry, it now states that the buyer will have to pay for the commission when represented by an independent Agent.  It still can be asked that the seller pay this amount but now the Buyer has to be notified that it is their responsibility to pay their Agent.

One should know Real Estate law states that any Agent in a Real Estate transaction must take the seller’s best interests into account during the Real Estate transaction.  The exception is that if a Buyer contracts with an outside Agent to represent them their Agent can look after their best interests, not the seller's.   This is done with a contract between the Agent and the Buyers they choose to represent them, this is called a Buyer Broker Agreement and from this day forward this form will become mandatory for all Agents that represent home buyers.    Although this may seem like just another disclosure form in the already sea of forms a home buyer and seller must sign it and it has far-reaching consequences for the Buyer notwithstanding the cost of representation.  A potential home buyer may be forced to come out of pocket to pay for representation similar to an attorney-client relationship with a contract upfront stating how they will be paid to represent them.  If a potential home buyer chooses to use the listing Agent that buyer will not have the same representation as the Listing Agent has to look after the seller’s best interest before that of any potential home buyer.  This type of representation in California is called Duel Agency where the listing Agent represents both the buyer and the seller.  This is not legal in a lot of states so it will leave home buyers having to contract with another Agent.

The intent of the lawsuit other than the enrichment of attorneys was to allow potential home buyers to negotiate the commissions in the transaction.  This ruling missed the mark for home buyers as now they may have to come out of pocket with money for representation where before the seller has paid the buyer’s Agent.  In typical fashion, something that was spun to help home buyers will end up hurting them in the long run as it could dramatically raise the cost of buying a home.   A potential Home Buyer could now end up paying more for a home to get their Agent paid so they don’t have to come out of pocket to pay them.  If they go directly to the Agent who has the listing on the house and try to negotiate without an Agent representing them they too could pay more for the house without representation.  

All is not lost however, here at MAE Capital Real Estate and Loan, we have a solution to the problem of buyer representation.  We have been using this method to help our Home Buyers over the years and have been very successful and that is where we represent the home buyer and do the mortgage for them.   Yes, our Agents are licensed for both Real Estate and Mortgage which allows our Agent to negotiate with a home Seller for a commission which we also give a portion back to the Home Buyer for their mortgage.  In this scenario a home Buyer will not only get representation on their purchase, but they will get representation on the mortgage at the same time.  This method has proved to be far more convenient for a Home Buyer as they only have to make one call to their Agent to get information on the home as well as the progress of their mortgage as opposed to having to make 2 calls one to their Agent and One their Loan Officer.  Not only will this save them time it will also save them thousands in having to pay the new Buyer Broker it will save them on their costs of the mortgage and in some cases our Buyers get a lower interest rate as we have successfully negotiated all the fees to be paid by the Seller and we contribute some of the commission on the sale to the new loan.   In some other cases we have helped our clients Sell a home and Buy another home and we do their mortgage for them, in this case, we negotiate a far lower commission for our Seller and when they buy our contribution saves them  now on both brokerage fees as well as mortgage fees.  If you are considering Selling and buying another home this way will save you thousands and thousands of dollars when you work with MAE Capital Real Estate and Loan.  We call this service bundling which is similar to the way insurance companies work when you give them the opportunity to cover your house and cars.  Bundling Services in Real Estate now makes more sense than ever.  If you are looking for the best way save look no further than Mae Capital Real Estate and Loan.

Posted by Gregg Mower on March 21st, 2024 3:25 PM

 

Today’s topic might be a bit confusing to some, but rest assured if you know, you can make the right decisions with your money.  We are all seeing a tightening of money lately due to inflation which is where prices of goods and services go up faster than income does.  Inflation is the worst possible economic effect on any society as the people who are affected by inflation have less disposable income left over after they pay for housing, food, gas, and services.  In America, there is a significant amount of people that live paycheck to paycheck meaning that they spend every dollar they make on housing, food, fuel, and services every month.  When these prices go up and their income does not follow then people have to go to other sources to make those essential payments such as credit cards and this puts the average American in a deficit.  Although this is not good for the average American it is also not good for the banking system as the banks rely on the deposits of Americans so they can lend out that money to keep the banks in an income stream.  

This brings us to the banking system itself and most see the system as confusing and have no idea how banks actually work.  In America and other Western countries, the banking system is what is called a Fractionalized Banking system.  That is a big word that means that the banks can lend out most or all of the depositor’s money.  For example, if a bank has $100,000 in deposits from 5 customers ($20,000 each) and it pays 3% interest to those customers the bank then can lend out a good portion of that money at higher interest rates.  Remember that the banks have to keep cash on hand in case their customers need cash and in the past banks have held back about 10% of that money for cash.  The other 90% is lent out at a higher rate than they are paying the customers that have savings in their bank.  In our example, there is $100,000 from 5 people paying them a 3% return to keep their money in the bank.  The bank can lend out $90,000 and only keep $10,000 for cash reserves and when they lend out the money they collect say 6% on the money they lend out.  This process should leave the bank positive in income and has throughout the history of fractionalized banking.

Here is the problem with the system.  Banks currently have no reserve requirements meaning that in my example the banks can legally lend out every dollar of your savings.  This should not happen, and most banks will not lend out 100% of their customers’ deposits as they want to stay open in case there is a day when there is a heavy amount of withdrawal money.  Banks are in charge of regulating themselves based on their lending models and most banks do a good job of regulating this.  Here is the biggest problem facing the banking system today and that is inflation.  As we talked about earlier when prices go up faster than incomes the bank’s customers are spending more than they make and they do this with credit cards and equity loans.  There will come a point where the average American can no longer pay their debt due to inflation.  Human nature is to make sure they have food on the table first and foremost.  When the consumer can no longer pay their debt, they default.  This means that if Americans can’t pay their credit cards they go into default and the bank receives no money.  This holds for mortgages as well.   

This is where things start to get crazy so hang on.  Remember, that Banks will lend out around 90% of depositor’s money and if those loans start to go bad there is only 10% of cash left for banks to operate.  So, a bank’s reserves may get eaten up quickly if there is a high default rate.  Banks lend out money for Credit Cards, Residential Mortgages, and Commercial Real Estate loans and lend to other banks.  When customers start to default on their loans the income stream to the bank is greatly diminished and they still have to pay interest on the deposits they have for their customers.  If the bank has not held enough in reserves to account for this then the bank will fail.   Or as we saw in 2008 when this started to occur the government stepped in to save the larger banks not through the use of the Federal Deposit Insurance Corporation (FDIC) but actually printing money to put back into the system.  The smaller banks were bought up by the bigger banks.  In 2008 we had other factors going on to bail out the system as we were not in an inflationary time it was more of a recession meaning the economy was retracting with no inflation.  Real Estate values during this time went down the stock market sold back and there was high unemployment due to the recession.   Interest rates went down during this recession as there was no real inflation so with lower interest rates those who had the means bought homes and commercial real estate as the cost of money was cheap and this brought the economy back.  

Fast forward to 2020 when the COVID crisis hits.  This was a forced recession by the government telling people they could not work.  We had never seen anything like this in American history and the result was that the Government and the Banking system were faced with something they had never dealt with before.  The mistakes that were made have led us to where we are today.   The biggest mistake was to shut everything down that was not essential.  The next mistake was that the government did not take into consideration where we were in the business cycle with a healthy economy at the time before they shut the economy down.  The Government printed and sent out money to every American and it may have helped some in the short run the long run is what we are paying for today.   The Government also lowered interest rates to stimulate the economy and it sure did with people buying houses and freeing up equity to buy more stuff.    The money was flowing through the economy and people were buying things at a crazy rate until inflation hit people had to slow their buying habits and in addition to that the Federal Reserve saw the inflation and the only tool they had to slow inflation was to raise interest rates and they did.

Today all that stimulus money is gone, however, the government has continued to spend money by sending it overseas and starting foreign wars.  I can guess that the reason for the wars is to get the economy moving again as war requires a lot of money to flow.  We could go into the problems of this all day long, but this is not the forum for now.  The problem is, currently with the high interest rates and high inflation the more the government spends the less the dollar is worth on the world stage.   That coupled with the BRICS system that threatens to remove the Petrodollar on the world stage is further devaluing the dollar.  The banks are starting to see their default rate climb with inflation and this is diminishing the bank’s liquidity as this continues to happen, we see a tightening of the availability of money.  Today March 11, 2024, the Bank Term Funding Program (BTFP) which is a way for banks to secure funding from the Federal Reserve will be ending.  This will force the banks to go to the discount window to borrow short-term funds.   This will lead to money being tougher to borrow.  We are also beginning to see defaults start to rise and that coupled with the already tight money supply for Americans high interest rates and rising inflation it is a wonder why this is being done.  Is it being done so deliberately?  You can’t help but think there is some master plan to change the monetary system in America or to create a global currency minus Russia China, Brazil, India, South America, and countries in the Middle East (the BRICS nations).  But why?

I am beginning to think that all this stuff we have never seen before such as wide-open borders, money being sent to some foreign war nobody seems to want, money given to illegals, civil disruption, and propaganda being spread all over, is all part of a plan to make America weak.  The reason is to change the monetary system and move to more globalization that not many Americans want.  I see the UN helping in this destruction of America in that they are funding the illegal migration and to make it worse the US is the largest supporter of the UN.  I mention this not to scare you but to open your eyes to the great sellout of America and a move to the International Monetary Fund or something else, instead of the Central Banking system we currently use and enjoy independently of the rest of the world.  Before this can happen the Banking system in the US must collapse and it appears from someone who has watched and studied this for the last 45 years that this is what is happening.  I don’t want to scare people and I might be stating the obvious, but things are changing fast.  I am not holding out much hope for the Federal Reserve to lower interest rates any time soon as we still have inflation, and this is known not by the numbers the government feeds us but by simply going to the grocery store and filling up my car.  The mortgage business is the slowest I have ever seen, even worse than 2008.  This is also true for the Real Estate market and as things get tighter we should start to see more inventory hit the market as people are having a tough time paying their mortgages even if they have a 2 or 3% mortgage.  I am also seeing more people defaulting on their mortgages creating a higher foreclosure rate.  We as Americans can only do one thing to fix this crisis and that is to vote correctly, although I live in California and the system has been corrupt for decades it’s all we have to save our Constitutional Republic.  

Posted by Gregg Mower on March 15th, 2024 11:01 AM

What is going on with Real Estate and Interest rates?  This is a question that many are asking right now, including myself.  I started in the mortgage business while I was in college in the early 1980s, so I have seen a lot about the industry.  My father was in the mortgage business before me so you could say I grew up in the business.  I received my bachelor’s degree in economics and started full-time in the mortgage industry in 1986.  Things have changed over the years in the business, but the core of the business has remained the same.  When I started in the business there were no computers and everything that is now printed by a computer was hand typed and there were no fax machines or cell phones at that time either.  From a technological standpoint, there have been many changes but the way we qualify a potential home buyer for a home loan has not changed.   The Stock Market’s DOW Industrial average was around 2500 in the early 1980’s so things have changed there as we are over 38,000 today.  I have observed many changes, some for the good and some not so good but overall up to this point in my life I can say the business cycles have been pretty consistent.

What I am seeing now is something I have never seen, nor did I think I would see in my lifetime.  Like I said above the business cycles have been pretty consistent over the decades until now.   With all the economic data I see and more importantly, what I am observing is happening right now is scary.  I have always trusted the economic numbers that have been spoon-fed to us from the government until now.  Yes, I have lost confidence in the system I helped create throughout the years.  When the executive branch of our government stands in the public eye and lies directly to us I have to believe that everything that doesn’t fit their agenda is a lie and that is very sad for America.   When I hear the powers at be say that Bidenomics is working and America is thriving I have to call B.S.  We all know that things cost more than ever at the store, at the gas pump, and with housing so why is it that the powers at be say otherwise?  I try my hardest not to get into politics on this blog but is has gotten to the point that I have to bring it into the conversation as this is why the Real Estate markets are sluggish and interest rates remain high.  

My observations in the Real estate markets are that people want to buy but with prices so high and interest rates that are too high, they can’t buy.  Inflation has made the cost of everything go up and the value of the dollar goes down.  So, when prices of Real Estate should have gone down with higher interest rates and lower demand, we have seen Real Estate values stay the same and, in some markets, continue to go up.  The reason for this is that inflation has caused the dollar to go down so much that housing prices have stayed the same which means that they have gone down as inflation has eaten away the buying power of consumers.  To put in in other words as inflation makes the price of things increase it also devalues them in that fewer people can afford to buy them.   What higher interest rates should have done without inflation is to cause fewer people to be able to afford housing thus slowing the demand and making sellers of real estate have to lower prices in order to sell.  As we have observed with the higher interest rates over the last 2+ years Real Estate prices have not reduced as they should have or were intended to do.   They have stayed steady or have gone up and this is due to the inflation or the devaluing of the dollar which is the same thing.  

What is going on here, you ask?  It is pretty simple from my standpoint, but I am not sure our education system is actually teaching these concepts for the younger generation to fully understand.   To be clear, how the dollar devalues is simple economics.  The government is spending more money than ever, thus putting more dollars into the world economy.  When you have an oversupply of anything the value of that item will go down and that is what we are seeing with our US Dollar.  The national debt has risen over the last 3 years from $30 trillion to north of $34 trillion consumer debt (Revolving debt credit cards) has risen to historic highs of over $1 trillion in the US alone.  This means that every Citizen of the US bears the liability of government spending.  When we send Billions and Billions of US dollars overseas this becomes a double whammy in that there more dollars are in circulation but no benefit to the American Citizen.  Ironically a lot of the money the US is sending overseas is to protect the borders of other countries while our borders are wide open.  This poses many problems for our economy, the most obvious problem is that as more dollars are pumped into circulation the value will continue to decline, thus inflation.  You may have heard that” core inflation” has come down which we all know to be a lie, however, core inflation is the price of those goods that exclude energy (gas and fuel) and food prices which is what most middle-class Americans use the most.   When your cost of living goes up so high that you can only afford food and housing you have lost wealth and wealth potential.  

How do we get out of this cycle of lies and deception from those we used to trust to give us the truth and who are constantly lying to us?  I would say vote them out and start over, however, deception, lies, and corruption have taken over the media, social media, and the voting booth.  You see when the average citizen loses confidence in the voting system, we have lost our constitutional Republic.  When you hear that the United States is a democracy it is not, it is a Constitutional Republic, that is the kind of rhetoric we are hearing that is either a lie or something they want you to believe.  I am tired of people blindly believing everything they are told; we need some real changes quickly or our way of life we grew up with will be gone forever.  We as a nation are as close to a tipping point as ever before in our history and my fear is that with spending for foreign wars, out-of-control illegal immigration, and corrupt leadership we are very close to something we all should fear.   What we need to do is to come together to see what is happening right before our eyes and collectively do something about it.  If we don’t stand united, we will fall divided.  

To conclude, the Real Estate and Mortgage Markets are being drastically affected by the ridiculous monetary policies put forth by the current administration.  With out-of-control spending outside of our own country, cutting oil production in our country, and starting foreign wars we stand to be in this type of crazy economy for a long time without some significant changes.  My next big concern will be a crash of the stock market due to American companies not being able to profit like they have been able to in the past.  We must also watch the emergence of the BRICS monetary system that Russia and China are spearheading this could cause further inflation by the devaluing of the dollar on the world stage and if the BRICS system replaces the US Dollar as the world’s reserve currency, then we have more problems than I can write here.   This has not been covered in the media and is one of the biggest threats to the US Dollar in our lifetime.  This could also be one of the underlying reasons it seems we are marching into World War 3 to prop up the dollar.  To think how many people will die in a war so the US Dollar is protected when other moves could have been to avert this situation.   This is a very pivotal time in our history, and it seems that our media is more concerned about who’s feelings are getting hurt rather than the hard-hitting stuff we all know is going on and we should be concerned about.  So, if you are reading this I hope you understand the magnitude of what I have written and I pray it doesn’t get censored in our so-called free society.  

 

PS

I fear we may have gone too far with out-of-control corruption to the point where the economy as a whole is suffering from incompetent leadership.  If we don’t get immigration under control we will have too many people trying to get the same jobs and the same housing that American-born people need.   As it is those same immigrants are getting government checks or taxpayer money to compete with natural Americans for housing, food, goods, and services not to mention that these people have not been investigated properly at the border so there may be bad people that could hurt Americans or damage property or worse we don’t know.  This is causing a higher demand for housing and the longer it goes on the more it will hurt the American people.  Crime is also rising in the cities where these migrants have gone and is getting worse every day.  

Posted by Gregg Mower on January 26th, 2024 3:14 PM

2024 has started off with a bang with earthquakes and Tsunamis.  On the first business day of 2024, the bond market gave back some gains from the last couple weeks and the Stock market was flat but still positive.   If the first few days of 2024 are any indication of the year we will be in for some turbulent times.  2024 is also an election year so prepare yourself for a political ride that we have never seen before in history except for possibly in 1861-1865 (the Civil War).  

This year will start off with a slow economy, and a slow Real Estate market as interest rates are still too high for the average person to afford to buy a home, especially in California.  The Federal Reserve  (The Fed) has vowed to lower interest rates if they see the economy start to decline.  The Federal Reserve's Chief, Jeremy Powell, stated that there could be 3 times they consider lowering interest rates in 2024.  This would be a great thing for Real Estate as more people could afford to buy a home.  If the Federal Reserve does lower interest rates and you did buy a house in the last 2.5 years you would have an opportunity to refinance and lower your monthly mortgage payment.  If you have a $500,000 mortgage at 7.5% and the rates move down to 6.5% this could save you $336 a month in your mortgage payment and for most families every penny counts in this economy.  

Watch the election antics as this will also drive interest rates.  If it looks like people will be electing more of the same types of people to Congress and the Senate and the Presidency be prepared for more oddities like we have seen since the current administration has taken office.  We the people in the Real Estate and Mortgage industries know what has been done to the Real Estate Market over the last few years due to inflation caused by giving away taxpayer funds to other countries and stimulus checks and the general devaluing of the US Dollar.  You will not hear the truth on your TV or radio about what has really happened to the economy, so I am glad you found this article to see what has been done to the Real Estate Industry due to the mismanagement of the monetary system by our government.  This election will probably be the most pivotal election of your lifetime to determine the direction of the United States States.  I am not going to tell you who to vote for as I still believe people have the right to choose but some don’t as you see playing out in current news.  

One giant issue that is failing to make the news that is affecting the dollar is the advent of the BRICS money system which has vowed to take the US dollar out of being the world’s reserve currency.  BRICS is Brazil, Russia, India, China, South Africa, and now many other nations have joined this movement powered by China and the Yuan (Chinese money) to become the new world’s reserve currency.  This is slowly gaining traction as most countries are tired of Americans running the show and flexing their power all over the globe.  The BRICS system is poised to bring the US Petrodollar down which is how all oil has been forced to be purchased over the last almost century.   This means that until now all other countries had to convert their currency to the dollar to purchase oil which has made the dollar dominate and has allowed America to thrive over the years.  This is also a major reason why our military is in the Middle East currently and could spark World War 3, which is another topic that could have strong implications for the US economy.   If the BRICS money takes over as the world's reserve currency the US will be forced to convert the dollar to the Yuan to buy oil which could further devalue the dollar causing even more inflation for the U.S..

This is one reason why with the high interest rates we have seen we have not seen Real Estate values crash as inflation or the devaluing of the US dollar is keeping Real Estate values high.  We should also be aware of the debt the country has accumulated as America has over $33 Trillion in debt and until now it has not been a big issue as the US has controlled the world markets, if that changes then the dollar will be further devalued and we will have more inflation and with inflation comes higher interest rates.  Some would argue that America just needs to print more money and if that happened it would further devalue the dollar and cause even more inflation and more inflation means higher interest rates.  At this point in American economics, we are at a tipping point, and with the current path we seem to be on a collision course with monetary disaster unless we get spending and money giveaways under control, if not we could run into serious economic problems that I don’t want to get into in this piece.   

The economy is going to be the biggest issue of 2024 and that will directly affect the Real Estate markets if it is not managed properly.  Real Estate values will be in line with inflation this year and interest rates will have little effect on Real Estate values as inflation drives interest rates.  Interest rates are the Federal Reserve’s only way to combat inflation.  The theory is that as inflation increases the Fed will increase interest rates to slow consumer and business spending and thus slow the demand for goods and services.  What is not being addressed is the devaluing of the US dollar by other countries which makes all the goods we get from other countries more expensive, especially oil.   To conclude, I believe that 2024 will be a very volatile year for Real Estate and we can pray rates come down enough to get more first-time home buyers into homes.  

Posted by Gregg Mower on January 3rd, 2024 10:54 AM


What is an assumable mortgage?  It is a mortgage that another person can pay the difference in the current equity position and assume the underlying mortgage.  In this piece, we discuss the advantages, disadvantages, the process, and how to get it done efficiently.  This is not for everyone but if you are having to sell your home and you have one of those nice home loans with interest rates in the 3's or 2’s your home is more marketable than someone that may not have that available to them.  

To define what happens when someone assumes your home loan you need to be armed with the right information.  Realtors that have been in the business less than 10 years will probably have never had to deal with an assumable mortgage but those who understand how to market it for their sellers can end up getting the Seller more money on the sale of the house.  An example of an assumable mortgage in a Real Estate transaction would look similar to this:   Take someone who wants to sell their home and have an assumable FHA loan. They Owe $490,000 and the market is selling homes in that neighborhood for $550,000 to $600,000 and the potential seller has an assumable FHA loan with an interest rate of 3.5%.  A potential home buyer will have to put down the difference in the sales price and the amount owed on the mortgage.   Being able to offer an interest rate in the 3’s will make this home more marketable, but it is not for everyone as you need to be able to put the difference down in cash.  So in this example, the house sells on the higher end of the market because of the 3.5% mortgage for $600,000 and the potential home buyer has to come up with $110,000 for a down payment the difference between the $600,000 agreed on sale price and the amount owed of $490,000.  

Once a contract is negotiated between the new Home Buyer and the Seller the process begins.  If you have a good Real Estate Agent, like an MAE Capital Agent, they would have done the leg work before the house went on the market to make sure the existing home loan is assumable and get the paperwork for when a potential home buyer does come knocking it will be ready for them.   The process to get an assumption started is to complete the entire Residential Mortgage Application from the existing lender and provide them with all of your Income documentation, your banking info, and your credit report with a minimum credit score of 620, however, this may vary from lender to lender.  You will be applying for the existing mortgage payment, balance, and remaining term.  You will need to be able to show enough income to qualify for the existing mortgage by being able to prove that the mortgage payment and your existing monthly bills are no greater than 49.99% of your income.  This is done by providing pay stubs tax returns and W2s.  

Once you have gathered all the documents that the existing lender needs to issue an approval by analyzing all the documents provided such as pay stubs, bank statements, retirement statements, tax returns, W2s, and any other supporting documentation they require.   If you are involved in an assumption transaction you should be prepared to wait as lenders are just getting the message that this is a viable way to sell a house, they have not fully ramped their assumption departments so it could take a bit, up to 30 days once they have the documentation.  This is why you need a Real Estate professional on both ends that understands the process.  At MAE Capital Real Estate and Loan, most of our Agents hold both a Real Estate license as well as an NMLS mortgage license so they can help talk the talk with lenders with trying to get an assumption accomplished.  Knowing how the process works and being able to understand what the existing lender is saying is invaluable as this could save the transaction from falling through or taking longer than it should.    Also when you bundle your services with MAE Capital Real Estate and Loan you will save money on the sale of your home and the purchase of your next home.  

As a seller, you may not know if your loan is assumable without talking to your existing mortgage holder.  If you know you have an FHA or VA loan you know those can be assumed.  If you are a Veteran, you should know that if you allow your VA home loan to be assumed by a non-veteran you will not be able to use your VA benefit to buy a home again until that home loan has been paid in full.  So, if you are a Veteran you may want to look at this more carefully especially if you are planning on using the VA home loan on your next home purchase.    If this is a process that you are interested in please contact one of our Realtor/ Agents today as you will have a pro on your side.  

Posted by Gregg Mower on September 26th, 2023 10:35 AM

FHA Loans were born during the great depression in 1933.  The idea of the government insuring a Real Estate loan, at the time, was groundbreaking.   In today’s world, we expect the government to step in and try to fix things when the economy is sluggish or depressed.  In 1933 our government was far less a part of the ordinary citizen’s life and it did not financially take care of its citizens like they try to do today.  So when the private sector was approached by the government to insure mortgages that were traditionally insured privately by large down payments was a groundbreaking concept.  At the time Banks and Brokers were the only way to get a home loan and they required that a potential home buyer put 25-50% or more down to buy a home.  So when the government said they would insure mortgages up to 95% of the value of the home, you can imagine how this changed the way Real Estate Loans were originated.   It was designed to stimulate housing growth to get the country out of the grips of the Great Depression.  It worked, along with a whole new age of people relying on the government to help them when things were tough.  Out of the Great Depression, we also got a welfare system, unemployment insurance that the government collected from employers to help with displaced workers and a whole litany of other programs that expanded the scope of the Government.  The Federal Housing Administration (FHA) was designed to be a short-term way to get the housing markets stimulated to get America out of the Depression.  The program still exists today, and you can take full advantage of it and you can get a mortgage up to 96.5% of the purchase of a home.  

Today FHA loans are still alive and well and are used still today to get people into homes with a small down payment.  FHA loans are still viable loans for those who have a small amount of money to purchase a home.  The way an FHA loan works is very similar to Conventional Loans in that a potential borrower must qualify for the loan with their income and a current credit score.  When we say qualify there are several factors that a lender must review in order for a client to “qualify” for any loan.  These factors are but not limited to having shown the ability to handle credit or in today’s world, have a credit score that meets the criteria of an FHA loan (550 or better).  Generally speaking, FHA loans are more liberal when it comes to having a good credit score than that of its Conventional counterpart that requires a 640 score or better.  If a borrower has a low credit score due to circumstances out of his or her control and has shown that they are trying to take care of it and that is the only factor with regards to their financial situation they generally can get approved for a FHA Loan.  There are several other factors that must fall into line before that can happen, however.  For instance, a borrower’s house payment combined with their monthly bills should not exceed 43% of their gross monthly income.  This brings us to verifying income and what is required by FHA.   First, a potential borrower must have a two-year history of working which could be multiple jobs or a combination of school and a job, and must be able to show that their income will be stable enough to maintain the mortgage payment. Next, a borrower has to be able to prove they have enough money for the 3.5% down payment.  This money can come from savings or can be a gift from a relative a close family member or friend, or an approved Down Payment Assistance Program.   

We talk about FHA loans being federally insured loans, but what exactly does that mean when you have to pay the mortgage insurance on an FHA loan? Simply put there are two payments to the insurance fund a borrower will have to make; One the upfront insurance is 1.75% of the loan amount (Sales Price minus the 3.5% down payment requirement) this is actually added to the loan so you don’t have to come out of pocket for this; Two the monthly payment of the mortgage insurance is a small percentage of the Loan amount every month.  These insurance payments go into pools that are designed to protect the lender’s yield on the loan if there is a foreclosure.  This insurance makes FHA loans more appealing to lenders and thus lenders have more flexible underwriting guidelines and can get more people into homes utilizing the FHA Loan.  

Talking about flexible Underwriting guidelines your eyes probably just rolled to the back of your head as this may sound confusing.  Not to worry I am here to help break it down to simple bullet points that you may not have heard of before.  Being evaluated for loan approval seems daunting but that is why we have a team of folks to walk you through the whole process.  Our highly qualified loan originators will walk you through the process.   The Loan Officer will gather your pay stubs, tax returns, bank statements, and W2s and they will do the analysis for you.  Your loan officer will check your credit, check your debt-to-income ratio, and make sure you have enough money verified to close the transaction.  The loan officer’s job is to paint your financial picture with your financial information and present it to the underwriter, who will approve your loan.  Our Loan Officers do this every day, multiple times, so they are experts at what it takes to get an FHA loan approved, so When you are looking for expert advice and guidance please let us walk you through this process.  

The benefits of using an FHA Loan are:

  1. You Only need 3.5% for a down payment and that can come from your savings, a gift from a family member or an employer, a government institution, or an approved down payment assistance program.
  2. Your Credit Score can be as low as 550.
  3. Your Debt-to-Income Ratio can be as high as 50%
  4. Interest Rates are Lower
  5. You can take cash out of your home up to 85% of the value of the house.
  6. You can finance 1-4 units utilizing FHA when owner-occupied.
  7. You can buy a house 2 years out of bankruptcy.
  8. You don't have to be a perfect person to qualify for an FHA Home Loan
  9.  Utilize a co-borrower to qualify in today's world of higher interest rates.
  10.  Finance your closing costs with FHA, and ask your loan officer how.

Now that we have explored the history and the benefits of using an FHA loan you may ask:  “How do I apply for an FHA Loan?”  At MAE Capital Mortgage Inc., we have over 38 years of experience working with FHA loans, so we should be your logical choice, not to mention our interest rates are better than the rest.  Simply click on this link and you can start the process or call us at 916-672-6130 and we can do it for you over the phone.     

 

Posted by Gregg Mower on August 29th, 2023 10:08 AM

A Loan Officer is Licensed by the National Mortgage Licensing System (NMLS).  This holds true across our great nation.  A Loan Officer can do multiple things but our discussion today will be for first-time home buyers and move-up buyers looking for their primary residence to live in.  This type of home loan is called a Qualified Mortgage and certain rules have to be followed by your loan officer to stay in compliance with the law.  If you are looking for an investment property you are not a qualified mortgage home buyer as under the law and you are not protected under the same rules as a primary home buyer.  When finding a Loan Officer you should know these basic facts of the law so it can benefit you.  If your Loan Officer doesn’t even understand these basic rules of the industry then you might need to find one that does.  Of course, there are many factors that we will be covering to pick the right Loan Officer for you.

 So how do you know what Loan Officer or Company to pick when shopping for a new Mortgage?  The first thing everyone should know is you have to feel comfortable with the loan officer.   You have that little voice in the back of your head and if it is screaming at you to not trust the person on the other end of the phone that is your first sign.  A little knowledge of what a Loan Officer actually does goes a long way.  Trust your intuition with the person on the other end of the phone as we are in a mortgage market right now where every deal is important to have as it is so slow and interest rates are on the rise.  Loan Officers are having to compete like no other time in the industry so some of the things that they will say are misleading or bait and switch.

I know this as I have clients telling me daily that they have been quoted interest rates far below where the actual market is.  For example, you are shopping for interest rates for a home you will be living in, or as we stated above a Qualified Mortgage.  You are getting quoted consistently in the low to mid 7’s for interest rates based on your credit qualifications.  When you call and talk to a Loan Officer that tells you that the interest rates are in the mid to high 6s anybody’s first reaction would be to think they have found the perfect deal.  The trap here is that you have been fooled but you don’t know it yet.  So you gather all your documents, complete the loan application and deliver it to the loan officer you talked with earlier.  Then you wait for all the inspections to be done on the house you are in contract on to see what might be wrong with the house and you become distracted with the house and not the financing.  A loan officer understands how this process works so about this time when the inspections start to come in, the Loan Officer sends out the disclosures, required by law, and you realize that the terms are not what you were told on the phone.  So you call the Loan Officer and he or she tells you that things have changed and that this is your interest rate which happens to be in the low to mid 7’s.   So you think “Oh well I don’t want to have to go through delivering all that paperwork to another lender so I will just stay here.”

If this happens to you, you should run as fast as you can to one of the Loan Officers you talked to that you felt comfortable with as if they lied to you in the beginning to get your business what will stop them from lying more and possibly getting your loan declined because they were untruthful to the processor and the underwriter.  Because the actual people who are working on your loan may not trust that loan officer because they know they are not a truthful person.  This kind of deception is called the Bait-and-Switch sales technique which is highly unethical, but people will do it to get the business in the door.  

When shopping for a Mortgage you should always go with the Loan Officer who you are comfortable with and although they can’t match that low rate that was told to you by the untruthful Loan Officer, you can trust that they will get the job done for you with an interest rate that is real.  This brings me to the fact that if you are a home buyer, with good credit and you are looking for a home to live in you are not only protected by the law but you now know that all Lenders and Mortgage Brokers have to get the interest rates from all the same sources like the Federal National Mortgage Association (FNMA or Fannie Mae) or the Federal Home Loan Mortgage Corporation, FHLMC, or Freddie Mac.   So if you are being told something different be very suspect as all Lenders that are dealing with FNMA and FHLMC will be in the same basic interest rate range.  Some lenders or Mortgage Brokers can be slightly better in interest rates only because they may have less overhead but there should only be at the most a .5% difference in interest rates between all lenders and Brokers on any given day and that may be high.  

The moral of the story here is that if it is too good to be true it usually is.  Your Loan Officer should be your advocate through the process.   Your Loan Officer will be integral in helping your loan get through the process as fast and efficiently as possible.   You will be in contact with your loan officer once you have found a house almost every day so you should have a good working relationship with them.  I also would be looking for energy in my Loan Officer as it takes a lot of energy to get your file through the system fast and efficiently.  Your Loan officer should have a working knowledge of how your Realtor does his or her job, in fact, if your Loan Officer also holds a Real Estate License you will know that he or she has an advanced knowledge of how the Real Estate Process works.  At MAE Capital Real Estate and Loan, all of our Loan Officers will have both a Real Estate License and an NMLS license.  Be careful of Credit Unions and Banks as they are not under the same rules that we are so they generally have slower turn times and Loan Officers that do not hold Real Estate Licenses and in some cases, you may be talking with someone at a bank or credit union that doesn’t hold any license.  We are here to help and we will not mislead you in the process of buying a home in fact we don’t even get paid until we close your transaction so it is in all our best interests to get your transaction closed as quickly and efficiently as possible.       

Posted by Gregg Mower on July 26th, 2023 2:14 PM

Here we are in the middle of 2023, had to believe.  This year has been one of the slowest Real Estate Markets we have seen since 2009.   We are experiencing record inflation for the 21st century of the like we have not seen since the early 1970s.  This tells us that the cost of goods and services has risen faster than most people’s income streams have.  What does this mean for Real Estate now and into the second half of 2023?

Based on the history of inflation you see the Stock markets go up due to the fact that the valuations of companies tend to go higher with inflation.  We have seen this throughout history and this time is no exception.   What you must be cautious of is when companies’ costs rise so high and the demand for those goods or services decreases thus income for those companies will also decline.  After this companies will have to lay off salary-based employees to keep up with the rising costs and when this starts to happen you will see the economy fall into a recession or worse depression.   

Inflation is such a killer of economies in many ways not just with the higher costs of goods and services but also with the availability of money with higher interest rates.  Over the last year and a half now we have seen interest rates move from historic lows for 30-year fixed-rate mortgages from the 2%-3% range to now a 7%-8% range.  What this has done is cut out a whole segment of the population’s ability to qualify for a new home loan.  In California, we have starter home prices hovering around $500,000 on average for the state.  What the higher interest rates have done is cut the people that could have qualified for this house.  For example, the payment on a $500,000 house with 5% down at a 3% interest rate is $2002.62 principal and interest at 7.5% Interest rate the payment would be $3,321.27.   At the 3% rate, an average borrower would have to make right about $7,000 a month to qualify for the mortgage.  At 7.5% the borrower will have to show around $11,500 a month.  This shows you the power of interest rates and buying power.  

That said you would assume that Real Estate prices would have to come down to accommodate the higher interest rates.  We saw this occur in some markets but not nearly enough to make up the difference. Today we see Real Estate prices staying relatively steady.  The reason for this is interesting.  Since so many people refinanced or purchased their homes with lower interest rates, they are reluctant to sell their homes as the can’t qualify for a move-up home, and in some cases, people couldn’t afford the house they are living in if they had to do it all over again.  So, we are seeing people holding on to the lower interest rates and not selling their homes as they would have to qualify for a new home under the higher interest rates.  With people not selling their homes, we are experiencing a supply shortage of homes on the market and with that low supply of available housing prices have remained steady even with the higher interest rates.  

The next hammer to fall, unfortunately, is going to be employment layoffs.  This is going to happen due to inflation and government spending that fuels inflation with an oversupply of money.  In the second half of 2023, I see consumers holding on to their hard-earned money as the average consumer feels that something is going to happen, they just don’t know what.  There are many factors that could fuel inflation, but the biggest unreported issue will be the worldwide devaluation of the dollar.  When the world drops the US Dollar as the worldwide reserve currency, all the goods we buy from overseas will cost more and more.  This is something that no generation of Americans has ever seen, the closest we got to this was the great depression.  The way America got out of that was World War 2 by producing Ships, Planes, Autos, Guns, Ammunition, and such.   The largest difference between then and now is that we produce very little in the US, we outsource to China and other countries.   History tends to repeat itself, so shouldn’t be preparing for a war?  If you are paying attention to the world and not preoccupied with all the social issues going on in our country, you will see how close we are to this prophecy coming true.  

I don’t like to be negative, and I truly believe in America and the American way of life, however, I must be a realist with what I know and have seen with history.   As the US Dollar becomes less valuable in the world markets this will cause further inflationary pressures on our economy.   The only way out of this at this point is to figure out a way to re-set America’s debt to the Central Bank or get rid of the Central Reserve Banking system altogether and start with something new.  How this could be done I would not know, but I do know it will be a very painful process to every American.  With the BRICS nations and a new world reserve currency on the horizon, America is going to have to do something fast, very fast as that is supposed to launch in August of this year, and over half of the world’s nations have agreed to sign on this new asset-backed currency.  Our central Bank is going to try and compete with this with a new Central Bank Digital Currency (CBDC).  The problem with this is that even our own citizens don’t like the idea of this as Americans don’t like the idea of being watched or controlled in the name of some made-up government issue like climate control.  For more on this please I urge you to do research on this as this CBDC is supposed to come out in July of 2023.

What will a CBDC do to interest rates, housing, and inflation?  This is something that remains to be seen but rest assured it will be a rocky ride going into the end of the year.  I always say if you can own Real Estate do so as Real Estate will have value.  I believe that once people see the changes happening there will be a flight to quality investments like real estate.  I will bet the Stock Markets will struggle, to say the least.  Interest rates will be dependent on how much inflation we have as interest rates will rise as inflation rises.  So, if you are looking for advice as to when to buy Real Estate my advice would be to buy as much as you can now, if you can find it, and hold those properties that you hold currently.  Keep an eye on the world and what is going on, and research other sources other than your mainstream media that most of us have grown up on as we are not being told the truth to keep the masses under control for as long as they can.   Not that one individual can do anything, but the power of the masses can make changes.  

Posted by Gregg Mower on June 1st, 2023 11:02 AM

By now you have heard about the banks that have failed.  But what does this mean for mortgage rates and Real Estate?  The banks that have failed have been bailed in by the Federal Government.  Bailed In is different from bailed out in that a bailout keeps the bank doors open and Bailed In only gives deposits back to the depositors.  To be clear if you had stock in those failed institutions it is now worth nothing but if you had a checking or savings account in one of these institutions you will be whole courtesy of the Federal Government.   This is good for individuals who had deposits in those institutions but those who held stock in those institutions have lost their entire investment.    So what does this tell an economist that is looking towards the future of all banks and monetary policy moving forward and what will happen with Interest rates and Real Estate?  

What is next and what are the consequences of these banks failing, of the government bailing in depositors, inflation, and interest rates?   This goes deep and you may have figured out some of what is going on but the underlying issues you may want to put your seatbelt on for the ride.  You see knowing why these banks failed you may have heard on your favorite media source that told you that rising interest rates and poor asset management is what you have heard.  Meaning that when interest rates have risen the banks had assets that were purchased in a low-interest rate environment and now that rates have risen to more than double what they were when the assets were purchased thus devaluing the held assets.  When the customers came in to take money out of the bank it did not have enough assets set aside to cover the demand for the money so they failed.  That is the rhetoric we are hearing and some of it is true, however, we should be looking at what has happened to the dollar's value lately and why.  The dollar has lost a significant amount of value in the world marketplace and this has played a role in these collapses due to inflation and social economic factors in the world.  

Here is the problem I see as a follower of economics.  Inflation, we all know has been a problem with the high price of fuel and groceries, and consumer goods.  We also know that the Federal Reserve will raise interest rates to fight inflation, to slow the economy down.  Inflation is caused by a few things; One where the demand for goods and services exceeds the supply of goods and services; Two, when the value of money declines; Three when there is an oversupply of money in the economy; Fourth, and one that nobody wants to talk about and that is when people and other nations do not value the dollar as they used to and have lost some of their belief in the dollar.  The last one there is the biggest problem that no one is talking about as it goes against everything we have always been taught and that is that the US government and the US dollar issued by the Central bank is no longer favorable to trade for goods and services on the world stage.  This will be a topic for future blogs.

The problem with the government bailing in depositors is the Government will be infusing more dollars into the economy and that will further dilute the supply of money and create more inflation.   What you may not have heard or understood is that the average deposit in the Silicon Valley Bank was or is $2 million dollars and the Federal Deposit Insurance Corporation (FDIC) only insures deposits up to $250,000.  Yesterday, Biden told the world that the Federal Government would make up the difference to all depositors.  This was an attempt to calm the public from taking their money out of the banks and causing a complete failure of the banking and the Federal Reserve system.  You see, if you and I stop believing in the US dollar as a means of trade for goods and services then the dollar is useless and all US citizens have lost everything they have worked for.  This is a simplified view however, the US dollar is backed by debt, not by gold, or silver, oil, or anything of tangible value.  It has always been said that the dollar is supported by the good faith and full backing of the federal government.  The same government is $31 Trillion in debt.

Our world has now become more confusing than ever, if interest rates rise to combat inflation, then the economy will slow further, more jobs will be lost and the potential for more bank failures will loom if they have been holding low-interest rate assets as reserves.  If the Federal Reserve halts its interest rate march upward then we will continue to have higher inflation.  Another issue we all should be watching as citizens is the introduction of the BRICS monetary system that is supposed to go into effect in August of this year.  If you are not aware of what this is you should know that it stands for Brazil Russia India China South Africa and it is where these counties have got together to create a new currency to replace the US Dollar as the world's reserve currency.  Since its announcement Saudi Arabia, Egypt, Iran, Iraq, and many other countries and most recently Mexico is joining this new currency and denouncing the US dollar.  What this could mean to the US dollar could be staggering so stay tuned on this.  

What does all this mean to the Real Estate business? It will all depend on how people view this current situation.  Will investors look to real estate as a stable investment no matter what interest rates are at or will they stay on the sidelines in the current interest rate environment?  This question might be answered by looking at the super-wealthy and what they are doing with their investments.  Some of these whales or super investors are looking to real estate as an investment so in the short-term, this could be good.   Myself having been in this business for almost 40 years, I have never seen anything quite like this and pray it turns around as housing is the foundation of America as it supports all aspects of American life.  I have to stay positive as I believe we all have to and when investors come back into the Real Estate game we will be here for them with open arms.  MAE Capital Real Estate and Loan is here for all of your Real Estate needs.   

Posted by Gregg Mower on March 14th, 2023 12:02 PM
Posted by Gregg Mower on March 1st, 2023 2:52 PM

The title says it all if you know what you are looking at. A little history first then we will dive into the relationships between BRICS, the Dollar and Interest Rates and it will wake you up if you haven’t been watching the world.  BRICS is the formation of a new currency based on precious metals formed to take on the dollar as the world’s new reserve currency, we will get more into that in a minute.  The Dollar is our currency in the United States and is the current world reserve currency.  Then how do interest rates play into this equation you ask?  Interest rates may not react now to both of these currencies now but they will very soon.

BRICS stands for Brazil, Russia, China, and South America, they were the original nations that signed on to use this new currency.   Since the formation of BRICS, Several other countries have signed on to use this currency,  countries such as Saudi Arabia, Syria, Afghanistan, and several others countries.  What this means is that these countries will use the BRICS currency as their reserve currency, not the US Dollar.  This has not materialized yet but it is in the works.   If this new currency catches on and becomes the world’s reserve currency and not the dollar that could have to reach economic consequences for the Dollar.  If you are paying attention to what is happening in Ukraine right now you have to understand that this conflict is not about Ukraine’s sovereignty from Russia it is about money.  Money has driven almost all wars in history and this one is no different.  

The Dollar has been the world’s reserve currency since World War 2 and before that, it was the Pound Sterling (British Currency).  The Dollar was originally backed by Gold and Silver.  When the US was limited to gold and silver it could not expand as fast as those that held the gold and silver wanted it to so it moved from a currency that could be backed by precious metals to the Federal Reserve Note we have today.  That transition happened in 1971 under President Nixon.  The US moved to what some call a “Petrol Dollar” which is a dollar backed by oil.  Again, we have seen wars fought over oil now, why? Money.  Today’s Dollar is really only backed by debt and that is why the world sees the dollar as a dead currency where the debt has exceeded what a normal mind can grasp.  $33 trillion dollars is a number that is not quantifiable to a regular person, numbers like that are for mathematicians.   The dollar has been the great magical vehicle for decades with people believing it has actual worth and that belief has allowed the US to become the largest superpower in the world.  

Interest Rates, how does it play into the currency game?  This one will take a history lesson as well.  Interest Rates, by definition, are the cost of money.  Interest Rates in the US have been controlled by the Federal Reserve and the Federal Reserve also controls the Money Supply.  We can now see the relationship as the Federal Reserve controls both the supply of Dollars and the cost of the Dollar.  The Federal Reserve system has been under fire lately with the way they have managed this relationship as we have seen interest rates soar over the last few years.  With the dollar as the world’s reserve currency for so long the Federal Reserve Bank has been lucky that countries like China and other countries that hold a large stake in the US debt have not called it due.  If the world moves away from the Dollar as a reserve currency you will see the devaluation of the dollar worldwide and those still using the dollar will see it be devalued on the world stage.   A devalued dollar will create inflation and the cost of the money will have to go up to offset this.  The cost of money is interest rates.  

This is just a quick view of those things to come and can also explain what is going on in the world today. If you connect the dots you can see why BRICS has come to fruition.  War in today’s world is being fought on the economic front not so much on the battlefield.  If the BRICS currency takes over, the dollar will devalue and the cost of things in the US will skyrocket.  If we have high inflation we will have high-interest rates.  When you look at the conflict in Ukraine understand it is not about Ukraine at all, in fact, if you look at Ukraine you will find that their government has been corrupt for decades.  If you research President Zelenskyy you will see he started off in life as a comedian and actor and worked for a TV station prior to being “elected” President of Ukraine in 2019.  Zelenskyy’s net worth is estimated to be between $20 and 50 million US dollars, and some estimate it far greater than that.   Meanwhile, the US has recently sent Ukraine over $120 Billion in aid.  These are facts; you can even google it and see that the search engine has not yet closed the door on this information.  It is on top of this administration’s list to keep the dollar as the world reserve currency to keep America the strongest and richest country in the world.  When you are watching or listening to the news, however, you find your information, keep money in mind when watching as that is the underlying cause for almost every conflict in the world is money.   I tried to keep this to facts that we know, but I think if you peel the onion back a bit more you will see things and understand things that you may not want to have knowledge of.  There is a lot more to this that I can’t possibly go into for this short blog post so keep your eyes and mind open.  

Posted by Gregg Mower on February 27th, 2023 1:40 PM

If you are in the Mortgage or Real Estate business currently you are experiencing slow times and you are working harder than ever.  I am here to tell you that these slow times are all part of the business cycle that has been disrupted over the last 20 years or so.  With all the disruptions to the economy over the last 20 years starting with the rise and fall of the sub-prime era of the early 2000s and the recession that followed the recovery and then the pandemic the U.S. economy has been put the challenge.  The Real Estate Industry followed right along with the economic rollercoaster.  Having seen the type of market we are in for the first 20 years of my career I almost feel comforted by the normal slowdown of the Real Estate industry after the boom we just came through.  In the late 1900s, the cycle for booms and busts was on an almost predictable 10-year cycle, and normal slowdowns during the months of November, December, January, and February (the winter months) were predictable.  The change began when we should have had a slowdown in the early 2000s instead the Government came out pushing the Community Reinvestment Act of 1977 in an effort to get low-income folks into housing.  Thus, beginning the “Sub-Prime” era of lending with little or no oversight over lending and financial institutions.  By 2008 the economy was pushed past the adjustment period it should have had and coupled with financial institutions failing made for a perfect storm.

We know what followed, the crash of 2008, and in a lot of ways it is still affecting the ways we do business in the aftermath of no oversight to the new age of total oversight.     Fast forward to today, we are coming off one of the hottest real estate markets since the “Sub-Prime “ era where money was flowing, and this time money was flowing with low-interest rates.  So, it is perfectly normal for the economy to take a deep breath.  During these adjustment times or slowdowns, you will typically see a consolidation of Financial institutions and Real Estate firms it is a time for the well-positioned companies to gobble up the companies that couldn’t see the change coming.  We are seeing both Realtors and Loan Originators depart the business for a steady paycheck.  This is normal, and so will be a sagging stock market as the Real Estate Industry is one of the largest manufacturing sectors of our economy and drives so many other industries like construction, home improvement stores, home furnishings stores, and so on.  Technology is also affected when the housing industry slows as fewer people are investing in new technology when the old tech is working fine for time being.

This economy is normal but if the politicians see it as problematic for their future, they will do stupid things to try and stimulate the economy.  The biggest mistake the government has done over the last few years, pandemic and post-pandemic were to issue “Stimulus Checks”.  Putting more money into the economy does 2 detrimental things to the economy down the road, it devalues the dollar and creates inflation.  This is where we are at today.  As a follower of the economy with a degree in economics, it is not too hard to see the effects of Government intervention in the economy.   Unfortunately, there is another way the government can stimulate a sagging economy and I don’t want even to bring this up, however, in light of recent events it must be said.  War is a way to stimulate an economy and to keep power.   

Ukraine is going to be the war our government will get us into if “We the People” don’t stand up to it.   The reasons for this conflict are crystal clear from my standpoint.  One: The formation of BRICS (Brazil, Russia, India, and China) is the formation of those countries denouncing the US Dollar and creating a new currency built on a precious metals standard.  Since its formation, Saudi Arabia, and South Africa have joined.  This could very well mean the end of the US dollar’s dominance as a world reserve currency.  Second, is the United Nations, the World Economic Forum, and the World Health Organization and its push for global governance where the BRICS nations are not on board with this agenda, and quite frankly we should not be involved either.   Third: Oil and the flow of this resource or more so the control of the flow of oil is what is going to turn out to be a part of this global conflict.  I am not a doomsday kind of person, so I am praying that I am terribly wrong and the world turns to peace and unity rather than conflict.   

Not to ignore the elephant in the room, but I prefer to stay positive and to look at this time in our economy as a normal economy taking a breath after a very busy and robust time.   Going back to the crash of 1929 and the Depression that followed the nation's economy has seen this speed up and slow down pretty consistently.  At the beginning of 1941, we were still in the depression but the recovery was well underway, but the end of 1941 December 7th to be exact is when we were officially out of the depression, and in 1945 when the war ended the economy was in full swing and returning Veterans had jobs to come home to and homes where being built and an extreme pace.  Things slowed a bit by the end of the 1940s and we entered into the Korean war and things pick up again.  The 1950s were a time of peace and prosperity. In 1960-1961 there was a recession caused by the Federal Reserve raising interest rates, then recovery.  Then in the early 1970s was another recession caused by “the oil crisis” which also caused the stock market to crash as well.   Then we had recovery and in the early 1980s  we had the “crisis with Iran” again over oil and there was a recession.  Recovery then followed and in the early 1990s due to the stock market crash of 1989, we again were in a recession.  The early 2000s had a slowdown but not as much as it should have spurred on by the ease of obtaining money and the creation of the "Subprime Mortgage" era.  This led to 2008 which as we know was the worst recession since the 1930s.   By 2011 we, as a nation were in recovery mode again.  Then in early 2020, COVID threw the country into an economic lockdown to a degree our nation has never seen.  To get us out of this recession the Federal Reserve lowered Interest rates to the lowest levels in history and so began the last housing boom.  Now we are resting and if we let our economy follow the normal cycle, we should be out of this by the end of the year 2023 or the beginning of 2024.  

Invest and buy real estate now while the economy is resting for if you think that interest rates will return to the historic lows of 2000-2021 you would be drastically wrong.   We are close to the equilibrium point with higher mortgage interest rates the economy will do far worse any lower we will have higher inflation.  It is all guesswork on Federal Reserve’s policy with interest rates and they hope they get it right with respect to inflation.  As a Real Estate and Mortgage Professional all I can tell others out there is to stay the course or if you can’t get out and find a steady paycheck.  Those that can weather the storm will end up at the top of the food chain when this comes back around and it will, it always has.  You see people always need housing and money so those of us that stick it out will be there first when it comes back.  So don’t despair get everything in place for the next housing boom and when it comes you will be ready.  Those consumers looking for housing now will find what they want a price that they can afford with a payment they can afford.  

 

 

Posted by Gregg Mower on February 21st, 2023 12:14 PM

As I sit here and write this article I can’t help to reflect on the state of our great nation and quite possibly the whole world.  America has always been the country people look up to across the world and the world’s economic leader.  In the last 2 years, we have suffered through the fear of COVID and been basically forced to get vaccinated, we have opened our borders to everyone including criminals, and we have elected a man that can barely remember where he is at any given time who believes that his administration can spend their way out of the inflation they caused by giving away our money.  The same President has strong ties to Ukraine in ways we should have known about before he was elected and since his election, he has paid closer attention to their borders than our own.  This is the same President that closed the Keystone pipeline and canceled leases for domestic oil production and sent oil prices to all-time highs further deepening the inflation.    Then we find out recently that the CIA actually killed JFK and we get no response from the American people.  Elon Musk exposes that the government suppressed Americans’ freedom of speech ( the first amendment) and no one seems to care.  We know the mainstream media is controlled by the government and suppresses stories that Americans should know about, and again no one seems to care.  We know, for sure, that Hunter Biden brokered deals to China, Ukraine, and other countries for monetary gains to both him and his dad Joe Biden and yet no traction, no one seems to care. These same people are fleecing Americans' and bad-mouthing, impeaching, shaming, canceling, and more to those that have opposing views and we are supposed to be alright with that.  So as I write this I wonder who really is going to care about an economy they have helped to create.  I know that some of you that will read this are on the same page as the author who is fed up with the failed social experiment.   I can only write from what I see and I don’t sugarcoat anything to protect your feelings the facts are the facts from a 40-year view point in the Real Estate and Mortgage industry.

So here it is, Real Estate for 2023 is going to be a buyer’s market, meaning that it is going be tough to find home buyers as interest rates are at 20-year highs.  The outlook for interest rates is that the will continue to rise as inflation will not slow down with the government continuing to spend taxpayers money frivolously.   Oil prices will remain high as domestic production will remain low and foreign dependence will continue to grow.  The government will also be implementing tax hikes to help offset their spending.  The previous congress just passed a budget that is larger than the current income the government is receiving from taxpayers thus we will have a significant gain to the national debt.  This will not slow inflation, in fact, it will do the opposite.     As inflation numbers stay around double digits the Federal Reserve will continue to raise interest rates until the economy is firmly in a recession.

Unfortunately, with higher interest rates less people will be able to afford the current prices of housing so the demand for people to sell and move up will be greatly diminished.   First-time homebuyers will still be priced out of the market last year by high prices this year by high interest rates and inflation.  There will be Real Estate buyers out there that will persevere in buying a home but that number will be significantly lower than the last several years.  I see home prices coming down 10-20% from the highs of March of 2022.  This will be good for potential home buyers, however, sellers will be a little less apt to sell their homes  There will be a lower amount of people doing home improvements in 2023 as they probably did it during the COVID years of 2020 and 2021 when interest rates were lower.   Home builders will have to lower prices on their new builds as demand has dropped off so significantly.  So if you are in the market to buy a home in 2023 you will have many choices and you will get the best of everything available to you to keep your business, at least at MAE Capital we will treat you like Royalty.   

In 2023 potential home sellers will have to be prepared to fix their property up before they sell, to get the high end of the market and or be prepared to make concessions like paying for a buyer’s closing costs and buydowns, and being flexible on the price.   For those home buyers that can’t afford to fix up their property they should be prepared to be on the low end of the market, meaning that if the same house fixed up sells for one price the fixer house will be significantly lower than the ones that have been fixed up.   This will bring opportunity for investor to come into the market for fix and flips again.  In fact, this segment of the market, Fix and Flip, will start making a come back in 2023 with money being tight.  Generally, when the market shifts to slower investors can again find opportunities when homeowners become distressed they tend to sell off their property to live and investors can step in a make big gains if done properly.  So, a shining light in 2023 could very well be investors getting back in the game.  At MAE Capital Mortgage we have all the investor programs needed to be successful with our Private Money division.  

The outlook of the Real Estate market for 2023 is not a real good one but for those that can find the opportunities amidst the adversity will be successful.  If you are in the Real Estate industry you will have to be working harder than ever to get the good word out to consumers.  The people on the mortgage side of the industry will have to be working extra hard and will have to diversify or die.  There will be consolidation in the mortgage industry so you will see companies go out of business or merge with other companies.  There will be a whole lot less mortgage Loan Officers as they go on to different jobs to survive.   As a whole with Realtors, Loan Officers, and Title companies there will be a consolidation and a shrinking of those employed in the industry.  As this happens we begin to see all the peripheral businesses also laying off and consolidating.  This will bring the whole economy down and probably a recession if we are not in one currently as write this.  A Recession by definition is a dropping Gross Domestic Product (GDP) in 2 consecutive quarters.  Since Real Estate and Tech has driven the economy since America has outsourced most of our manufacturing, both industries are not thriving currently so the effects on other industries will be felt soon.  I do not want to be negative, in fact I would much prefer to stay on the positive but when talking about the economy and all the indicators I can’t help but to see negative, however, it won’t last forever. We all must pay closer attention to the economy and stay away from social issues in 2023.  We have to work harder, we have to be advocates for our economy not other countries and believe that our economy is the most important economy in the world.  We will make it through this as we always do so be patient and kind and work hard and help others when you can.  Most of all remember MAE Capital Real Estate and Loan is here for all of your Real Estate and mortgage needs saving our clients money in every transaction.   

Posted by Gregg Mower on January 11th, 2023 10:13 AM

By now you probably have heard that interest rates have risen to a 20-year high, but how exactly is this affecting Real Estate sales and prices?  The Federal Reserve (the Fed) raises interest rates to slow demand for goods and services as with higher interest rates things cost more over time.   The Federal Reserve does not directly affect mortgage rates as the rates the Fed control are only the rates that banks borrow from the Fed.  This makes the cost of money to banks cost more so Banks raise their rates to the consumer to cover the increased costs to them.  Since consumers get loans from Banks to buy cars, homes, consumer goods, and services the costs for all of it go up.  In the mortgage arena, we have seen rates go from the low 3’s in January of 2022 to the low 7’s currently.

It should be obvious that a consumer will be able to buy less of a home in a high-interest rate environment, but home buyers don’t really understand how much it actually affects their buying power.  An example would be a couple who has been making an income of $100,000 combined with a normal debt load of a car payment of $500 a month and student loans of $250 a month.  This couple could afford a house with a 3% mortgage rate and 5% down at $561,000 sale price.  At a 7% interest rate the same couple can now only afford a house priced at $356,000.  This a $205,000 difference that has occurred in less than a year.  This will hold true when qualifying for  auto payments, business loans, and all loans to buy goods and services.  

So with the diminished buying power of potential home buyers, you would think that Real Estate values will go down to accommodate the higher interest rates.  You would be right in your assumption.  This holds especially true in the higher priced homes where the people that were qualifying for a million-dollar mortgage can now only qualify for a $700,000 mortgage.   Home sellers are having to come to grips with the fact that their home is not sellable at the same price it would have been a year ago.   With older folks looking to retire in the next 5-10 years they are seeing the value of their Real Estate portfolio go down, and this may hold off their plans for retirement and holding on to their long-term jobs not making room for younger folks to fill the gap.  Furthermore, the older generation has seen this before so they will be extra cautious with their money going into retirement and possibly not selling their family home to downsize for retirement as they may have originally planned.

The higher interest rates are pushing Real Estate values lower and this is making investors worried to the point they are holding back investing in Real Estate taking out a whole segment of Real Estate Buyers.  As prices decrease you will be seeing appraisals come in lower-than-expected making selling a house more challenging when the sale depends on an appraisal.  Those particular sales may fall through if sellers are not willing to lower their prices and eventually, if they need to sell, they will have to sell at a lower price.  If interest rates continue to go up, and it is looking like this will be the trend, prices will have to continue to go down to accommodate those that can no longer afford to buy in the same price range as the lower interest rates would have allowed them to.   The higher rates thin out the potential pool of home buyers as their buying power has diminished and those folks looking to move up by selling their existing home and buying a bigger one have dried up as well.  

From a lending aspect, as rates rise, lenders know that the home values will be decreasing so the appraisal is going to be a much more important part of the transaction.  FNMA and FHLMC will be cracking down in different markets where they know the prices are softening faster than other parts of the country, typically in higher-cost areas like California.  Since MAE Capital Mortgage also does Private Money lending, we are seeing private individual investors who actually lend their own money to others, tighten up their requirements as well.  This means less available funding for fix and flip programs, After Repair Value (ARV) programs, investor buy and hold programs, commercial funding, and more.  Talking about commercial funding where that market has been killed essentially by COVID and Amazon coming in to fill the gap, has gotten even worse.  As investors see the rates go up, they are less likely to buy or lend their money for Real Estate of any kind.  

To conclude, higher interest rates make it more difficult for home buyers to buy homes that fit their needs.  High-interest rates make home values have to come down to be able to sell their homes.   Higher interest rates make the desire to invest in Real Estate and Real Estate Notes and Deeds a whole lot less.   Higher interest rates make commercial lending even worse and make commercial values continue to decline.  So, all in all. higher interest rates are not good for Real Estate values, resales, investments, and rehabilitation of real estate.   If you are a potential buyer of Real Estate, you need to make sure your offer is a bit lower than the current market supports as prices will continue to fall as rates rise.  If you are a potential seller of Real Estate, do it now before rates go even higher and be flexible in looking at lower offers, if you are not flexible you will not be able to sell your property in this crazy Real Estate market.   On the bright side if you are well qualified first-time home buyer it should not matter to you what rates are so long as you can afford the payment associated with the house you want to buy.  As a first-time homebuyer, you now have more inventory to choose from and if you buy now and interest rates continue to go up you have a low mortgage and an affordable payment, when interest rates go down in the future you can always refinance to the lower rate.  So don't be afraid of rising interest rates as there is no perfect time to buy real estate but what I have seen over the long run owning is far better than renting so do it now and join the club of home ownership and let MAE Capital help you with buying your home and financing it as when you bundle with us you get perks like money for closing costs and an easier experience.  

Posted by Gregg Mower on November 18th, 2022 10:10 AM

We know the state of our economy is the worst it has been since the financial collapse of 2008.  We know we are having record inflation with no end in sight, and we also know that interest rates are being raised to combat the high inflation with no end in sight.  What we are not being told is how to fix this, which I find as odd as the answers are all right in front of us, but it seems like it is taboo to talk about the right way to fix things. We know that gas prices are the highest in history which affects the delivery costs of goods and services.  So why is it so hard for our elected leaders to figure out how to solve this problem in these modern times?

We need to explore the reasons why we have record inflation, high gas prices, and high interest rates.   We know that the Federal Reserve has only one tool to fight inflation, and that is to raise interest rates.  But the big question is why is inflation so high?   This can be answered by analyzing where the inflation is coming from and how to fix it.  We know that over the last several years since the pandemic started, the government has shut down the economy and paid it’s citizens to basically stay home.  All this extra money that has flooded into the economy has devalued the dollar and that has caused some inflation.  We also know that Americans have been at the mercy of other countries to deliver goods, pharmaceuticals, computer chips, and oil.  This dependency on foreign suppliers has been a challenge as other countries were also under shutdown orders and some far longer than the US.   We have all heard about the “supply chain” issues, which is really the big issue that is not being addressed by our elected officials.    

We know that when there is a low supply of goods with the same amount of people trying to get these goods that the price of the goods will rise and we have seen this occur in 2022.   To compound this issue when the United States slows its domestic production of oil this causes a decrease in the domestic supply of oil and more dependency on foreign oil and when foreign suppliers of oil slow their delivery of oil to the U.S. prices have to go up to slow demand of oil that is not there.  With oil prices going to the highest in history this dramatically affects the cost of diesel that is used by the trucking industry to deliver goods to stores for Americans.  With higher delivery costs you see higher prices on the shelf for consumer goods and commercial goods.  In addition, farmers will have higher costs to run their machines to get the seeds in the ground and when then harvest the food for Americans.  Thus, high prices for food as a result of higher costs to produce and deliver our food. Higher fuel prices also affect the individual consumer’s monthly budget as with high gas prices Americans have less money to spend on other goods and services that have raised due to the above.

Knowing this you would think you would have heard more about fixing the underlying problems with the supply of oil, and foreign goods that we are dependent on.  It seems all we hear about is how oil use is bad for “climate change” and the Government’s desire to fix this.  Granted the Earth is going through changes, but it has been going through changes from the beginning of time. To think that mankind has any control over it is just stupid and is a good excuse for globalists to try and control the masses with control over our basic needs.  The proof, for those that live in a city and rarely go out into the world, would be to look at the Grand Canyon and there you can see firsthand how that climate has been changing long before mankind was even present.  But I digress for the purpose of proving my point about the control of the masses and this is exactly why Russia and China formed BRICS to stay independent of Globalist's agenda, a topic for others to debate, but the “supply chain” is dramatically affected by all of this.

The way to fix our current economic dilemma is multi-faceted but the overall idea is to focus on the supply side of the economy and not so much on the demand side.  The reason for not focusing primarily on demand, like the current administration is, is simply because there will always be a certain amount of demand for basic goods and services, and we are currently really close to a basic demand market.  You see the Federal Reserve trying to curve demand by raising interest rates only can go so far then the high interest rates kill the entire market as capital is not readily available for expansion or even normal business activities putting the whole economy into a recession or worse a depression.  If the supply side of the economy was being addressed properly, we would see more investment into the expansion of US supplies and farmers.   Yes, we must stop being as dependent on foreign goods and oil.  We should bring computer chip manufacturing back to the US and we should bring manufacturing back to the US most importantly we need to open up new oil exploration and pipelines to deliver oil more efficiently.  We need to look to Hydrogen (the most plentiful element on the planet) as an alternate fuel source and explore other technologies that will curve our oil dependency.  Electric cars are good for the short term, but long term they create as much waste as fossil-fueled vehicles.  Investing in America and American engineering will be the key moving forward and education of our youth must be paramount for the US to stay independent and take the indoctrination to a certain set of beliefs out of our education system and focus on productivity not emotions as emotions don’t pay the bills.  If the supply side of the economy is not focused on the economy will continue to spiral out of control with higher and higher prices for everything.  

Posted by Gregg Mower on November 9th, 2022 3:57 PM

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