Marilyn Suber - Sacramento Area Real Estate AgentMerilyn Suber - Real Estate Associates - Experience, Knowledge, Integrity
Marilyn Suber, Sacramento area Real Estate

Marilyn Suber

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Five Star ProfessionalWinner of the 2014 and 2015 Sacramento Five Star Real Estate Agent Professionals representing less than 4 percent of real estate agents in the Sacramento area who delivered outstanding service and client satisfaction.

Emotionally, it is a meaningful and feel-good sensation to pay down a mortgage, but it’s always prudent to take a close look at the ramifications of any significant financial decision and compare them to available alternatives. If a homeowner has excess cash reserves beyond funds set aside for illness, education and other savings to provide certainty and to ensure he will realize his expectations for the future (read: as his insurance), he then has the money to pay down a mortgage and the luxury of erring on the side of emotions if he feels more secure by being debt-free. He has enough liquidity in his other assets to provide cash to absorb the shocks of loss, if and when they occur.

However, “feeling good” in being debt-free by paying down a mortgage does little to help someone who loses their job and has no reserves to pay bills. That person may lose their home anyway, if they are not able to quickly liquidate the equity in their property by selling. Owners of real estate must juggle a huge — almost unacceptable — risk of loss in their decision to pay down a mortgage (unless they are suffering from the enviable position of having too much excess money in reserve), as real estate, by nature, is a long-term endeavor. To offset that huge risk, and as long as the interest rate on his mortgage is not significantly higher than what he is able to earn elsewhere on investments, the homeowner must keep his reserves liquid and his 30-year, fixed rate mortgage intact.


In a recent speech, Mortgage Bankers Association (MBA) president and chief executive officer John Courson urged homeowners to make the responsible, moral decision and keep paying on their underwater mortgages. Like many interested parties (lenders) before him, he conveniently ignored the fact that banks often make similar decisions to walk away from their poor investments. For instance, the large brokerage firm Morgan Stanley recently decided to walk away from five bay area office buildings which were no longer holding their value. Nobody blinked an eye. It was just a matter of business: privatize the profit, socialize the losses. Since 1982, lenders have learned to do it so well, and it has only gotten better for them since this financial crisis hit.

Homeowners, on the other hand, are continually excoriated for failing to “live up to their promises to pay,” as if theirs was not a monetary decision but one inherently tied into their moral worth, a theological treatment of strictly legal obligations (which in California are not given recourse status when the obligations are purchase-assist home loans). Criticisms and veiled ethical threats similar to Courson’s have been shamefully made by the media, state and federal governments to homeowners in attempts to keep them in their place — paying on dead-end loans they have no legal obligation to pay. So continues the campaign to terrorize homeowners into keeping lenders solvent and suppressive government programs “effective.”

first tuesday take: The longer this down market continues, the more hollow these calls to moral order ring. Even (incorrectly) assuming that all struggling homeowners are in dire straits due to their own financial mismanagement, they were most certainly not the only party complicit in the housing bust. Lenders loaned billions of dollars using poor underwriting standards on overvalued assets, and federal regulators failed to address (except to condone by their silence) the increasingly risky behavior of these lenders and their bond-issuing Wall Street counterparts. [For more information about failed government regulation, see the April 2009 first tuesday article Lenders vs. owners in 2000-2010: the real estate interest of each]

Why then are the homeowners the only ones being strong-armed by these so-called moral pundits? It’s simple: individuals can be shamed into doing the “right” thing. Businesses and governments, on the other hand, wield too much power and wealth to be properly shamed into anything. But as the extend-and-pretend programs continue to falter and government subsidies expire, as both will, watch as more and more homeowners, bolstered by being better-informed, start to push past their emotional responses and play the same game as lenders by walking away. Maybe this, if nothing else, will force the lenders to own up to their part in this debacle and start making real modifications to reduce outstanding debt in alignment with the value of property, called a cramdown.

Brokers and agents need to play their part in this “rights” game to get the public better informed about California’s non-recourse rules against money judgments on purchase-assist home loans as they are the gatekeepers that negotiated on behalf of these homeowners and got them into their predicament – and profited from it. Brokers and agents would be wise to return the homeowner the favor by advising them on what their options are now in dealing with lenders. This assistance will be remembered by the homeowner when they decide to purchase again.


By Connor P. Wallmark • Dec 31st, 2009 • Category: first tuesday blogs the news
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The Federal Reserve (the Fed) has taken aggressive steps during 2009 to drive mortgage rates down in order to encourage more people to buy homes and revive the real estate industry. The Fed lowers interest rates by purchasing large quantities of mortgage-backed bonds (MBBs) packaged and sold as investments by Freddie Mac and Fannie Mae (themselves taken over by the federal government in September 2008). This program, started last year, immediately pulled interest rates well below 6% and made highly advantageous financing available to well-qualified borrowers, spurring real estate activity. The steps coincided with massive buyer, builder and mortgage lender subsidies from the Treasury to clear out new homes and real estate owned (REO) inventory.

However, the Fed will start winding down its MBB purchase program early in 2010 by purchasing fewer of these MBBs. For the MBB market to continue to sell off its bonds, more private investors will need to re-enter the market since they have been largely absent due to the low rates set by the Fed purchases during 2009. The reason: private investors generally require a higher yield on their MBBs than the Fed set during 2009, which will necessarily require mortgage lenders to raise the interest rates they charge homebuyers.

An increase in interest rates will eliminate many potential homebuyers, unless sellers and their listing agents are willing to reduce the prices they demand to reflect the reduced borrowing power caused by an increase in interest rates.

first tuesday take: A quick review covering how the Fed is able to lower interest rates by purchasing MBBs may be helpful. Typically, both the Fed and private investors purchase MMBs. As the Fed temporarily purchases larger quantities of MBBs at ever lower interest rate yields (artificially creating greater demand for lenders to obtain funds for mortgage lending), the price of MBBs increases. In lock-step response to the rise in the price paid by the Fed for MBBs, yields (reflected in the form of mortgage interest rates) fall. Thus, price and yield (interest rates) always move diametrically, much like the opposing sides of a teeter-totter.

The Fed’s program to lower interest rates has been nothing but successful. However, it cannot go on indefinitely and the Fed must start easing back before consumer and asset (real estate) price inflation become a real threat. While some may object to the personal impact of increased interest rates, they should also take solace in the fact that the Fed concludes the economy will soon be healthy enough to live without life support. [For more information regarding inflationary concerns in response to the Fed’s actions, see the November 2009 first tuesday blog, The Fed to the rescue – inflationary fears assuaged; see also the October 2009 first tuesday article, Fear mongers’ inflation prediction unjustifiable.]

A tip to first tuesday students: be sure to inform the buyers and prospective refinancers you represent that rates are expected to increase as soon as March 2010. Your clients would be wise to obtain financing now when rates are artificially low – before they begin their eventual upward ascent.

Re: “Freddie sees mortgage rates hitting 6% in 2010,” from the Washington Post


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