Month: March 2007

Home ownership is the “American Dream”. It creates stable neighborhoods and families, and help build wealth. It’s a good thing for most people to own a home. But for some, it’s a bad idea. Get ready to start seeing a lot more news, like the CNN article I’ve posted below, about the fallout heading our way as a result of too many subprime loans being given to home purchasers who, just several years ago, would have had to remain renters.

American Dream or not, for many Americans, renting a home is a much better option than owning. It use to be that one had to save at least 5% for downpayment. The downpayment represented somewhat of an “entry fee” into home ownership. Those unable to save a 5% downpayment could not become home owners, and I think that’s the way it should be. Too many young couples with small kids receive a door flyer or postcard from a Realtor or Mortgage company promising that they too can own a home, “for “Zero Down”. If you are a renter – even one with marginal credit – you’ve no doubt received these offers.

As stated in the CNN article below, “One watchdog group, the Center for Responsible Lending, forecast recently that 19 percent of subprime mortgages originated during the past two years will end in foreclosure. This rate … exceeds the worst foreclosure experience in the modern mortgage market, which occurred during the ‘Oil Patch’ disaster of the 1980s”.

The other 80% of borrows may avoid foreclosure, but many have homes they can’t afford to maintain, and have other financial consequences resulting from buying a home before they were financially prepared to do so.

Read below to see the cumulative result of this practice and the effect it may have on our economy.

Subprime woes: How far, how wide?
Problems loans to home buyers with less than top credit has become a big threat to the markets – and the economy.
CNNMoney.com March 5 2007

NEW YORK (CNNMoney.com) — Lending to homeowners and buyers without good credit has suddenly become a very bad business – and possibly a very big problem for the U.S. economy as a whole.

The sector is known as subprime mortgages, which pumped $640 billion into the economy through facilitating home purchases and refinancings in 2006, according to trade publication Inside B&C Lending. That’s nearly twice the level of this kind of lending seen as recently as 2003.

Read more

The article below is in this morning’s Austin Statesman. It outlines the frustration some new home owners are having in a subdivision in Hutto, with their less-than-one-year-old homes. The problem in this case, stems from the use of prefab roof trusses. But there are a couple of other issues which I am reminded of, and of which I believe every new home buyer should be aware.

First, ALWAYS, ALWAYS have your new home inspected by your own third party inspector.
I wrote about this in an August 2005 blog article. Hire a good inspector and have it inspected at the three major phases of completion. If you are buying a completed new home, have a regular inspection performed as you would any other home.

Second, don’t trust the Texas Residential Contruction Commission process to bring remedy to any probelms you may have.
I personally cancelled a project with a builder last month because the builder, among other things, wanted the warranty and mediation process, should it be needed, to be entirely controlled by the TRCC process and refused to change the language in the construction contract to accomodate my concerns. I said “no way” and we walked. For more information about the consumer rippoff that is the so-called consumer TRCC consumer protection laws, read this article.

Finally, don’t buy cheap starter homes in outskirt areas of Austin. I say this over and over again in this blog and to buyers we deal with, mostly because I think those homes are poor investments. But it’s also the case that any product mass produced quickly, whether it’s a home or a car or anything else, is likely to have a higher percentage of problems. Be very careful purchasing mass produced homes built fast by cheap labor.

The article is below.

New homes create headaches for homeowners
Several homes in Williamson County have defects. Builder is making repairs, but homeowners say that’s not enough.

AMERICAN-STATESMAN STAFF
Monday, March 05, 2007

HUTTO — Problems with Sean Bourke’s new home started with what he calls “small stuff.” Pools of water gathered in the driveway. Chunks of limestone broke off the outside walls. Heat stopped flowing to the upstairs bedrooms.

Read more