Mortgage Meltdown

The so-called sub-prime mortgage market has been taking a beating and dragging down a number of very good companies. But I'm not convinced that recent "solutions" proposed by politicians will do anything to alleviate the situation; in fact, I believe they will only make things worse. One suggestion floating around is to ban variable interest rate loans. That's not going to help anyone who already has one and it ignores recent history, when rates went down, not up. Variable rates were a good deal for a long time, now they aren't. Such is life. The late Harvard libertarian philosopher Robert Nozick, author of "Anarchy, State and Utopia" liked to commend "acts of capitalism between consenting adults" and that's what variable rate loans were; they allowed folks to buy houses who otherwise couldn't. Same with the "no-documentation" loans. I recall when, 20 years back, we wanted to add onto our house to accommodate the arrival of our third child. While my income as a lowly lawyer didn't meet the precise standards of a conventional 30-year mortgage, I was confident I could handle the payments and Green Point Mortgage, looking at a requested $100,000 loan on a $1,000,000 property, took the chance. We got the house rebuilt, Green Pont got repaid and everyone was happy. But last week, Green Point was shut down, not because its loans were going bad but because the panic infecting Wall Street spread to it.

I suppose that my point here is that flexible terms and rates – even interest-only loans - weren't and aren't all bad. I'm reading now about poor homeowners who swear that they didn't know their rates could go up and about mortgage brokers playing fast and loose with income statements but all in all, I think it would be a mistake to switch the whole system back to the standard 20% down, 30 year mortgage model. It will only deprive a lot of people the opportunity to own their own house. And if some of those people dive in over their head and lose what they tried to buy? Well, that's a shame, but depriving the 80-90% of their peers who can handle it the chance to buy a house seems like overkill.

Mortgage Contingencies
They're back! Not so long ago, sellers were refusing to allow mortgage contingencies into their contracts and buyers were forced to go without this protection. The shoe's on the other foot now and buyers who need a mortgage (not every Greenwich resident does, naturally) can usually insist that their deposit be returned if they can't obtain financing. But be warned: the days of overnight mortgage approvals are over, at least for now, because there are fewer lenders making loans and those that are are insisting on far more documentation than before. Two weeks is probably the minimum contingency date you should ask for and if you can get the seller to agree to three weeks, all the better. Sellers, cheer up: these things all go in cycles, and you'll be back in the catbird seat, one of these days.

Yet another apples to apples comparison
16 Stanwich Lane listed at $2,250,000 back in November of 2005 sold that month in a bidding war for $2,466,000. It was returned to the market this year and my brother Gideon (Cleveland, Duble & Arnold), representing the new buyer, got it for $2,350,000 last week. On average, Greenwich prices are holding firm but, as I pointed out last week, we're seeing more of these losing propositions. As always, the advice is to hope that you don't buy in a heated market and have to sell in a soft one. No one's ever done badly in Greenwich real estate in the long run but if you can't hold out for the long run, hang onto your wallet and cry.

Nice while it lasted
Schools are back open, traffic's back. But that means the buyers are, too, I hope. Next year, I think I'll spend August in Montana.

Dog Days
Contrary to rumor, Leona Helmsly's last will and testament did not demand that her little dog, Trouble, be sent off to be trained by Michael Vick. Amazing the mean things people say about the dead