Friday, January 29, 2016

15 Things you should know about the mortgage meltdown before watching the movie, The Big Short.

Have you seen the movie, The Big Short? Released in December of 2015, the film is based on the book by the same name by author Michael Lewis – who also wrote The Blind Side. The Big Short is a true life retelling of four outsiders who saw the 2008 mortgage meltdown and financial collapse coming – and bet big on its failure against incomprehensible odds.

The movie has gotten nods for Oscar nominations, with an all-star cast including Steve Carell, Brad Pitt, Christian Bale, Ryan Gosling, Marisa Tomei, and others. But far from just an entertaining movie, The Big Short is the best two hour layman’s summary of the unfathomable circumstances and happenings in the U.S. financial markets during the boom years, and the greed, oversight, and bad decisions that were so prevalent, they are far stranger than fiction.

Filled with simple explanations for terms like “Mortgage-Backed Securities,” “Credit Default Swaps,” and “Collateralized Debt Obligations,” the movie is a great primer on the financial crash and subsequent Great Recession in the U.S. – as well as a stern warning why history may repeat itself.

We could easily fill a book (or volumes of books!) - not a blog - on the mortgage meltdown and financial crash. You’ll learn all of the essential definitions, concepts, and events about the mortgage meltdown when you watch the movie, but today we’ll do offer something far better than popcorn to chew on while recline in your cinema seat:

Here are 15 statistics about the mortgage meltdown and financial crash that you should know before watching the movie, The Big Short.

1. Before it was called a Great Recession, banking collapse, or financial crash, many people referred to the economic event as a mortgage meltdown. In fact, the proportion of low-grade subprime mortgage originations climbed from a historical average of 8% to over 20% between 2004 and 2006. About 90% of those subprime mortgages had adjustable-rates.

2. Despite the increase in real estate values and a booming economy, Americans didn’t accumulate wealth or savings but took on more debt than ever before. Our ratio of debt to personal income rose from 77% in 1990 to 127% by the end of 2007, most of it due to huge mortgages.

3. How steep of a cliff did our economy fall off? By 2009, U.S. housing prices had dropped nearly 30% and the stock market had lost about 50% of its value compared to only two years earlier.

4. Between 2007 and 2009, The U.S. economy lost nearly 9 million jobs, about 6% of the entire workforce, and saw 40% of our gross domestic product disappear.

5. Emboldened by seemingly never-ending rising home prices, a flood of easy home equity and cash-out loans, and, let’s face it, greed, U.S. consumers treated their homes like “ATMs” for the first time. In fact, home equity extraction doubled from $627 billion in 2001 to $1,428 billion in 2005, a figure that equaled a shocking 11.5% of our entire GDP!

6. Between 1994 and 2004, the U.S. homeownership rate increased from 65.4% - the typical historical rate – to an all-time high of 69.2%.

7. U.S. home prices fell by over 20% between mid-2006 and September 2008. By 2012, they had fallen by almost 40%.

8. With decreasing real estate prices and over-burdened mortgage debt, more U.S. homeowners were underwater on their homes. In fact, by 2010, 23% of all U.S. homes were worth less than the mortgages on them.

9. Foreclosures soon reached epidemic proportions across the country, with 4 million completed foreclosures between 2008 and 2012. In September 2012, 3.3% of all homes with a mortgage were in some stage of foreclosure.

10. During the real estate boom, the average American homeowner had multiple properties at unprecedented levels as they looked to cash in on rising equity. In 2006, 22% of all homes purchased were for investments (rentals) and another 14% were second or vacation homes. That means at least 40% of all homes bought during that year (and there were far more bought as owner-occupied homes but never lived in) were not primary residences.

11. By 2009, more than 40% of all subprime adjustable rate mortgages were past due or in foreclosure.

12. In 1995, only 5% of all mortgage loans were of the subprime variety, totaling $35 billion. But by 2006, 20$ of all loans were subprime, adding up to $600 billion.

13. In addition to standard subprime loans, many “alternative-A” lending products allowed interest-only, no money down, no income verification, and even negative equity (option arm) loans. In the heart of the real estate and lending boom, the typical home buyer invested only a 2% down payment (compared to the standard 20%) and 43% of all buyers put no money down at all!

14. During this period, about 25% of all loans were interest-only, one-third were short term adjustable rate mortgages (ARMs) and one in ten new mortgages were option ARMs. A jaw-dropping 68% of option ARM loans originated by Countrywide Financial and Washington Mutual had low- or no-documentation requirements!

15. The rate of mortgage fraud grew by about twenty fold between 1996 and 2005 – and then DOUBLED between 2005 and 2009, causing an estimated $250 billion in losses during that period.

These are shocking statistics, but still just scratch the surface of the magnitude and impact of the financial crisis, more of which had to do with Wall Street than Main Street. We promise to post another blog soon with more facts and stats about the banking collapse, until then thought to be “Too big to fail.” 

Highlights from Mayor Kevin Johnson's state of Sacramento address

This past Thursday, Sacramento Mayor Kevin Johnson took the stage and delivered his highly anticipated state of the city address for 2016. In front of a packed crowd at the Crest Theater in downtown Sacramento, Johnson talked about what goals he’s achieved, progress that was made, and also a few challenges that are still a work in progress under his tenure.

This will be Mayor Johnson’s last state of the city address after serving seven years as mayor already, as he’s on record as saying he won’t run again to seek a third term in October, stepping down for a newly elected mayor.

The event had the tones of a celebration more than a drab political address, thanks to a performance by the local band Hip Service and some optimistic sentiments by Johnson, himself.

“We can’t just be a city for basketball fans, government officials and tech giants,” said Mayor Kevin Johnson. “We also have to be a city for families, college students and young professionals. We have to be a city for the homeless, the less fortunate and the underemployed. We have to be a city that works for everyone.”

So how is the city he helped govern measuring up these days? Here are some high points of Mayor Kevin Johnson’s state of the city address:

Starting with his first few days in office seven years ago, Johnson always spoke about easing our dependence on jobs in the government and real estate sectors and diversifying into new major employment sectors. A good part of Johnson’s speech at the Crest Theater addressed that same issue:

Mayor Johnson announced that two tech firms were moving to Sacramento within the next couple years, creating hundreds of quality job openings for residents.

AnPac Bio-Medical Science Co., a medical-diagnostics company in China, is looking to relocate to Sacramento and hire about 250 local workers within two years. AnPac’s founder and Chief Executive, Chris Yu, said that the company could eventually hire up to 1,000 workers in Sacramento.

And Flippbox, an innovative tech company that now resides in Tampa, Fla., is buying the historic Eastern Star building at 27th and K Streets. Once renovations are complete, the building will be home to their Sacramento operations with 25 new hires this year and up to 100 more in 2017.

Flippbox’s parent company, tech investment firm Silicon Bay Partners, is looking to move their operations to Sacramento as well.

Reportedly, some of these firms had serious interest in moving to the Bay Area, but after taking a good look at what Sacramento had to offer, decided that the lower cost of business, highly educated workforce, and accessibility to the Bay Area swayed them to the capital city.

To continue the movement to attract new diversified businesses to Sacramento and create more jobs, Johnson also proposed a plan to invest $1 million of a new city “innovation fund” to attract startup companies, $500,000 for small grants to organizations that train entrepreneurs, and partnerships with firms like 500 Startups, who is looking to aid at least 10 new companies in the city.

There is no denying that a good part of Mayor Johnson’s legacy will be his effort to keep the Kings in Sacramento, and spearhead the downtown redevelopment plan with the under-construction $507 million Golden 1 Center as its jewel.

Looking at a snapshot of Sacramento’s downtown seven years ago compared to today definitely displays the fruits of Johnson’s efforts. The eyesore K Street mall has seen steady progress under Johnson’s leadership, and new restaurants, shopping, condos, and apartments are popping up downtown.

But there is still work to do in order to surround the Golden 1 Center with new hotels, high-end restaurants, and other businesses that are vital to turning the downtown into a landmark that rivals the other major cities in California.

Keeping the Kings in Sacramento was just part of Johnson’s efforts to attract pro sports entertainment to the region, as he also announced plans for the city to build a 25,000-seat soccer stadium that would be home to a Major League Soccer team. In his state of the city address, Johnson predicted that 2016 would be the year that MLS officially came to Sacramento.

Although Johnson stuck to big picture themes and didn’t cover his controversial 2015 in depth, he did speak about his initiative to attract 10,000 housing units in Sacramento over the next decade, the stability of the city’s economy now that the recession is the in the rear view mirror, and renewed support for the arts.

Johnson also recapped his endorsement of a task force that recommended an increase in the minimum wage in Sacramento, which was accepted by the City Council despite some dissention.

Mayor Kevin Johnson also covered the issue of homelessness in his state of the city address, a hot button issue when the city’s anti-camping ordinance drew mass protests at City Hall.

Although the topic is still in need of resolution, Johnson did express optimism that a solution would be found, and shared the good news that Sutter Health has pledged $5 million to identify permanent housing for the homeless population in Sacramento.

Saturday, January 23, 2016

20 Things you probably didn't know about The Sacramento Bee newspaper.

The Sacramento Bee daily newspaper is synonymous with the history of the capital city and the region, itself. For those of us who live in Sacramento or surrounding areas, the presence of the Bee is so familiar that we might not give it a second thought anymore. But in fact, The Sacramento Bee is one of the nation’s most venerable, prolific, and trusted news publications. As a tip of our cap to say “thank you” for many decades of service, here are 20 things you probably didn't know about our beloved Sacramento Bee!

1. The Sacramento Bee was founded way back in 1857, amid the Gold Rush and California’s first widespread settling.

2. It was originally called “The Daily Bee” when the first issue was published on February 3, 1857.

3. But the paper that we now know as the paper that dominates Sacramento had some stiff competition from the start. In fact, the Sacramento Union was the established paper in town, founded six years earlier in 1851. The Union and the Bee competed for Sacramento readers until 1994, when the Union closed its doors.

4. The Sacramento Bee is now the largest newspaper in Sacramento, the fifth largest in California, and the 27th largest newspaper in the United States.

5. The Bee has a daily readership of about 553,192 and 666,458 on Sundays. Between the printed and online editions, The Bee reaches 39.5% of adults in the Sacramento region every day and 45.9% of all adults each Sunday.

6. It now has a circulation that covers from the northern Sacramento valley south to Stockton, north to Redding, east to Reno, and west to the Bay Area, spanning about 12,000 square miles!

7. An editorial in that first edition stated, “The object of this newspaper is not only independence, but permanence." After more than 150 years of publication, we can safely assume they’ve achieved both. In fact, the Bee hasn’t missed a single scheduled edition in those 150+ years of circulation!

8. The Daily Bee made a big splash on the Sacramento scene very quickly. Only four days into its inception, the paper exposed a scandal when they discovered that $200,000 in state funds was missing, leading to the impeachment of the California state treasurer.

9. An Irish immigrant named James McClatchy made his mark on The Daily Bee after coming west to California to look for gold in 1949, instead becoming the paper’s chief writer and editor and eventually owning up to half of the company.

10. James McClatchy passed away in 1883, but his two sons, (C.K.) and Valentine Stuart (V.S.) McClatchy picked up the reins to continue the family newspaper business, becoming respected journalists and owners.

11. So why is it called ‘The Bee?’ Basically, the paper promised to be as busy as a bee in working to report the news. An editorial in the very first edition read, "The name of The Bee has been adopted as being different from that of any other paper in the state and as also being emblematic of the industry which is to prevail in its every department."

Original Bee newspaperman James McClatchy used a picture of a bee on his business stationary, and in 1901, his son ordered a tile mosaic of the a bee put up in the lobby of their office at 911 Seventh St.

12. The Sacramento bee is the most prevalent publication in the stable of 30 daily and 50 non-daily papers owned by The McClatchy Company, the third largest newspaper company in the U.S. with more than 3.2 million papers hot off the presses each day.

13. Over the many decades of service, The McClatchy Company’s papers have won 73 highly esteemed Pulitzer Prizes among hundreds of other awards.

14. The Sacramento Bee won five of those Pulitzer Prizes. The first Pulitzer came in 1935 for Public Service when the Bee exposed political manipulation of the federal judiciary in Nevada, and the latest came in 2007 for gold medal photography. 

15. The Sacramento Bee’s logo and namesake character is a bee called Scoopy (for a newspaper “scoop”, and was actually designed by The Walt Disney Company.

16. At the time, Disney didn’t take on outside commercial work, but Eleanor McClatchy – wife of owner James McClatchy - made a special request because she wanted a logo that would "lend personality and a familiar identity to all the products" of the company.

17. The Disney Company agreed on the condition that Eleanor donate $1500 to the Army Relief Fund and created two cartoon figures that were printed in the Bee on September 4, 1943: a bee named Scoopy (for the newspaper) and one named Gaby to represent the radio station.

18. On February 3, 2007, the Bee celebrated its 150th anniversary, commemorating the milestone by including a copy of the original edition, as well as a 120-page section about its history.

19. Throughout its history, the Sacramento Bee has distinguished itself as a champion of progressive causes, such as environmental protection and advocacy, promoting free speech, transparency and right-conduct in government, pro-unionization and worker’s rights, and anti-racism.

20. Now run by Publisher and President Cheryl Dell, The Sacramento Bee offices sit at 2100 Q St. in the building that was one the Buffalo Brewery.

Monday, January 18, 2016

Which home remodeling projects will pay the best returns? The 2016 Cost vs. Value report is in!

Are you planning to do a few improvements around the house in 2016, or even embark on a larger remodel or addition? While everyone loves a fresh new paint job, new bathroom, or kitchen upgrade, most of us keep an eye on the budget as well, expecting a reasonable rate of return on the work once we go to sell or refinance the house. So which remodels will actually pay the most dividends, offering the highest Return on Investment (ROI)? 

Luckily, we can turn to a trusted resource for answers. Each year, Remodeling Magazine publishes their Cost vs. Value Report, tracking the average cost and ROI for common household fixes. The results may surprise you!

And the award for renovation project that yields the highest ROI is….the envelope, please…installing attic insulation.

Not exactly the kind of dazzling remodel you brag to neighbors about, right? But in fact, installing fiberglass insulation in the attic offered a super return of about 117%, or $1.17 for every dollar invested. The report found that the average cost to lay insulation in the attic was $1,268 nationwide, while it increased a home’s value by about $1,482 when it came time to sell or appraise, by far the highest on the list of 30 renovation projects evaluated.

Number two on the list was installing manufactured stone veneer to the exterior of a home, which offered a 92.9% ROI.

Next on the list for top returns was replacing a mid-priced garage door (91.5% ROI), replacing a steel entry door (91.1%), and replacing an upscale garage door (90.1%).

It’s interesting to note that 12 of the 15 highest ranked renovation projects were all on the outside of the house, reinforcing the notion that giving your home a face lift and improving curb appeal pay the biggest dividends.

The Cost vs. Value report also found that renovations with high price tags yielded some of the lowest ROIs and almost never paid for themselves.

For instance, even a basic kitchen remodel costs an average of $20,122 but increases the value by only 83.1% for each dollar spent. Larger projects, like adding a family room addition, cost an average of $86,615 but only increase the home’s value by 67.9% of that dollar figure.

Those paltry returns are no fluke, as the report shows a trend of the highest price projects not making dollars and sense when it comes time to sell. A midrange bathroom addition offered only a 56.2% ROI, an upscale bathroom addition 56.7%, upscale master suite remodel 57.2% ROI, and a high-end bathroom remodel yielded only 57.5% of the cost.

Four out of the five projects that cost less than $5,000 for a professional contractor to handle ranked in the top for cost recoup, but no project with a price tag of $25,000 or more ranked better than 15 out of 30 on the list.

In summary, think about simple, low-cost projects to the exterior of the house for maximum return on investment. If you are fixing up your home with the thought of improving the value with a sale or refinance in mind, concentrate on DIY renovations that spend hundreds, not thousands of dollars, as well as tangible improvements that will actually save money (attic insulation) or smaller, low-price renovations to kitchens and bathrooms.

Here is the complete list, including job cost, resale value and cost recouped – or ROI.

Wednesday, January 13, 2016

10 Signs you’re buying in a great neighborhood – and which red flags to avoid.

When buying a home, what should you look for in a neighborhood? In a recent poll by the California Association of Realtors, homebuyers rated what was important to them. The survey found that:

55% of homebuyers want to live in a place that’s away from it all
65% wanted a short commute to work
65% also wanted access to public transportation within walking distance of their home
66% looked for an established neighborhood with older homes and mature trees
66% also desired to live in a community with people at all stages of life
68% wanted easy access to a highway
69% said that walking distance to schools and shops, etc. was important
74% wanted to move into a neighborhood with high-quality public schools
80% looked for sidewalks and places they could take walks
86% desired privacy from neighbors

Those are great indicators of what to look for when buying a home or even renting in a new area. Let’s look a little closer at the top 10 factors to look for in a great neighborhood – and what red flags to avoid:

1. Matching your lifestyle
Are you outdoorsy love biking, jogging, and spending time in nearby parks? Do you prefer quiet and solitude or community events like fairs and festivals? Is a perfect Saturday night involve going out to watch live music at a local venue, or just sitting on the patio of a nice cafĂ© drinking a glass of wine with a good meal while people watching? No matter what your hobbies, pastimes, and passions, there is a neighborhood for you. But seldom is there one neighborhood that can provide everything for everybody, so before you buy a house in the vicinity, make sure to think about your lifestyle and what’s most important to you, and then find the matching ‘hood.

2. Pride in ownership
Driving around a neighborhood for the first time while shopping for houses, it may all be a blur where everything looks about the same. But slow down and take another loop around the streets, this time looking for the subtle cues that display pride of ownership. Well-maintained lawns, freshly painted homes, cleanliness, and decorated front porches, and improvements all hint that it’s the kind of neighborhood where owners and renters care about maintaining the aesthetics – and values – of their homes.

3. Low crime rate
It’s a good idea to do a little research on crime in the neighborhood you’re planning to move into. There are plenty of websites that offer detailed reports, and you can also reach out to community organizations, the neighborhood watch, and local police. While every area can be a potential target of crime, you’ll want to know if it’s just a few petty thefts going on or a pattern of more serious, violent crimes that could endanger your family.

4. Schools
The quality of public schools is one of the most significant factors for influencing future values. Why? If the schools are good, young families and concerned parents will always want to move there. Not only are those the exact neighbors you’ll want to have, but also that unwavering demand will keep the real estate values high.

5. Parks
Hand-in-hand with schools, the availability of public parks that are nice, clean, and safe always boost the home values in the area. Well-planned and pleasing parks and recreational areas act not only as focal points for recreation and healthy lifestyles, but as positive anchors for the surrounding community.

6. Mature trees
Neighborhoods with fully-grown and well-planned trees, flowerbeds, and bushes, etc. are always a good sign. Sure, there are marginal or even bad neighborhoods that are old and have mature trees, but for the most part, you’ll know exactly what you’re getting with a well-seasoned community, as the majority of neighborhoods on the down slope or in transition are less than 20 years old. Don’t forget that trees also create shade in the summer, color during the fall, attract local fauna, and offer plenty of nice views and greenery the rest of the year.

7. Improvements and infrastructure
Are the streets wide with sidewalks that are well maintained? Are speed bumps and stop signs in place to slow and regulate traffic? Are streets well lit at night? Do the sewers, drainage systems, and garbage and recycling services work as planned? These may seem like little things, but they can make a big difference in improving – or hurting – the quality of a neighborhood.

8. Amenities
Are all the necessities like grocery stores, gyms, doctor’s offices and hospitals, hair salons, banks, and gas stations in close vicinity and easily accessible? If so, the next step is to check out the availability of restaurants, pubs, cafes, coffee shops, boutiques, art galleries, and other establishments that add a lot of flavor, character, and enjoyment in a neighborhood. Mom and pop eateries and businesses, especially, are a great sign that people are fully vested in the community.

9. Walking
Some neighborhoods can best be described as urban oasis, where everyone is isolated except for the ability to get in a car and drive where they want to go. But if you see a community where people and families are out taking walks, riding bikes, and able to go eat, drink, and recreate without getting in their cars, that’s a huge indicator that it’s a quality area.

10. Commute time
We’d all love to take nice after-dinner walks with our families and play in local parks but let’s face it: come Monday morning, most of us will have to go to work. So neighborhoods that are close to public transit, main streets, and highways are always in high demand. The key with proximity is to be close to these things but not right ON them, which can bring heavy traffic and even safety issues.

Neighborhood red flags:
So now that we have ten things to look for in a good neighborhood, what are some red flags that might indicate a community is on the downturn? If you take a drive around and see vacant buildings, empty commercial spaces in shopping centers, an unusual number of For Rent and homes for sale, high lawns, trash and litter, spray paint, abandoned shopping carts, too many cars filling streets, driveways, and even yards, security doors and bars on windows, and other signs of general blight, you may want to rethink the neighborhood. 

Take a few drives around the area in the morning, afternoon, and then again at night and compare the conditions. Instead of just looking closely at the homes you consider buying, remember that you’re buying into the surrounding neighborhood, too – and that might be even more important.