Real Estate Fundamentals Student Blog

Subprime Mortgage Meltdown

2008-11-27T17:53:00.008-06:00

Mortgage company executives in August 2007 had to share the sentiment of “ The Poseidon Adventure” of 1972 . The struggles of the survivors of the luxury ocean liner is compared here with the mortgage lenders who went deep underwater as the tidal waves of the subprime meltdown swept them overboard and human agony knew no bounds.

What is subprime mortgage?

Subprime lending is a new feature of the mortgage market that offers legitimate credit to people with poor credit scores, low income level or falls below the minimum down payment requirements. So a subprime mortgage expands credit to that section of the population who were turned down from mortgage in the past.

What are the features?

The interest charged for subprime lending is higher than that charged for prime lending because of the risk of lending to someone with a poor credit record.

History of Home Prices

http://www.fdic.gov/bank/analytical/fyi/2005/021005fyi_table1.pdf

Why buy a house?

Homeownership is the most important source of household equity and a great deal of attention has been paid to the mortgage market and residential property is worth more than commercial property .

Was housing bubble anticipated?

Karl Case and Robert Shiller define a bubble as "a situation in which excessive public expectations for future price increases cause prices to be temporarily elevated."

Where was the subprime mortgage crisis highest?

When did it begin?

Parts of Texas, Oklahoma and Louisiana experienced large decline in house prices in the 1980’s, New England and California experienced smaller price declines between 1989 and 1995. These regions faced the after effects of recession.

For couple of years the rise in house prices toppled the growth in disposable income. By the year 2003 the total mortgage debt was $1.4 trillion. Low interest rates for mortgage repayment increased home prices far more than the increase in disposable income.

Around 2005-2006 there was a high default rate on subprime and adjustable rate mortgages (ARM) and the long trend of rising housing prices could not be maintained. People lost their main source of equity for refinancing. This led to default and foreclosures. Most mortgages in defaults were issued in 2006 and 2007 when the house prices were at its peak. Many people made either very little or no down payment so they had little equity in their houses from the beginning. In 2007 nearly 1.3 million U.S. houses were subject to foreclosure leading to a rise of 79% from 2006 and in March 2008 about 8.8 million homeowners had zero or negative equity for their homes.

The relentless slide of housing prices caused the default on mortgage payments as one in every six of U.S. homeowners mortgage debt rose far above their home value. According to Mortgage Bankers Association the delinquency rate for subprime borrowers was 14% and the data from Equifax shows a more severe figure of 26% in the second quarter of 2007.

By the end of May 2008 131,000 foreclosures were completed on subprime loans. The inventory of new homes reached a peak in January 2008 which was the highest since 1981.This excess supply of houses lowered down their prices. This decline followed the speculative borrowing concept of the Keynesian economist Hyman Minsk who pointed out speculative borrowing lead to accumulation of debt and decline in asset values.

This decline will continue until the house price reaches an equilibrium level. If this process is not fast it will push more home-owners to the risks of defaults and foreclosures. This high foreclosure rates are trickling down the housing market, mortgage market and financial markets.

What causes a subprime meltdown?

Markets which showed a considerable rise in home prices over a couple of decades had two common features:-

Large change in population and employment growth through economic changes;

Limited space for new development which restricted the supply of new housing.

Supply side and demand side factors a couple of reasons can also be responsible for a subprime meltdown—

High Risk Loans— The Ninja loans or the “No Income, No Job and No Assets “loans fall in this category. In 2005, 43% of buyers acquiring Ninja loans made no down payment. Besides this, mortgage underwriting issues including providing loans without any credentials.

The hybrid ARM’s can have a sharp jump in interest in a short time which will render the borrowers unable to pay them back.

Government Action— “ America ’s Home Ownership Challenge” made the Fannie Mae and Freddie Mac to make to make more than 5.5 million new minorities and low income mortgage loans.

The ACORN (Association for Community Organizations for Reform Now) empowered some people to demand more loans.

Securitization— According to Alan Greenspan, the securitization of home loans for people with poor credit record and not the loan itself is responsible for the current crisis.

As the house prices started to stabilize in 2006, the investors demand for collateralized mortgage securities waned and mortgages were issued continuously. The situation can be compared to the Napoleonic complex— Napoleonic indomitable cant was solely responsible for his decline.

Speculation— Financial leverage means borrowing at a lower interest rate and investing at a higher interest rate. A Diamond Dybvig model is followed in making mortgage loans —current expenditures will fructify into higher returns in the future.

Comparison with 1929

There was also a steep fall in house prices during 1929. The structure of mortgage credit was the form of short term, callable, non-amortizing loans. With the decline in home prices, the home-owners were unable to pay back their dues. To prevent this situation in the future, the federal mortgage programmed the long-term,, non callable, amortizing loans.

Effects

Trouble in the Financial Sector—

“Analyst reported the world losing $5.2 trillions as a result of global slowdown triggered by the US housing market”---------------------- BBC News

The subprime crisis spread to other credit markets. Major banks and financial institutions reported losses of US $ 435 billion as of July 2008. Most notable is the downfall of Bear Stearns, the bank which survived the Great Depression. On June 2007 the firm found its collateralized debt obligations (CDO ’s) to be worth less than their market value prompting investors to liquidate the CDO ’s followed by liquidation of similar assets in other portfolios.

Following Lehman Brothers downfall investors found out the sub-prime mortgage backed securities of AIG were priced higher than Lehman Brothers. This caused a 60% drop in AIG ’s stock prices in September followed by a downgrade of its credit rating by Moody.

The international financial scene also shared the woes.— German bank IKB Deutsche Industriebank AG was bailed out by state-owned KfW Group.

The Market In Trouble— Dow Jones index declined by 22% in its 118 year history. S&P 500 Index got its negative point in 2007.

Not only U.S. the subprime mortgage crisis contaminated the world stock markets—

In London, the main FTSE 100 index lost more than 150 points, the first time since the 9/11 terrorist attacks.

In Paris, the stock market fell 12.3% in January and was down 15.3% in the three months from November.

India’s BSE Index fell 16% , China’s stock market fell by 21.4% and Turkey suffered a loss of 22.7%.

Source:- Bloomberg

Government Actions

“If we know the price of cream and the price of skim milk, we can figure out the price of milk with 1 per cent cream, 2 per cent cream, or 4 per cent cream. There might be some money in repackaging, but not the billions that banks made by slicing and dicing sub-prime mortgages into packages whose value was much greater than their contents.”

Joseph Stiglitz

Noble Laureate ‘2001 for Economics of Information

Refinancing Options— The Federal Housing Authority's FHASecure program is offering refinancing options to move delinquent hybrid ARM borrowers into fixed-rate loans. It should help about 250,000 home owners through 2008, according to Department of Housing and Urban Development.

Freezing Lower Interest Rates – The U.S. Treasury Secretary Henry Paulson has organized a voluntary organization “ HOPE NOW” which will allow borrowers of subprime mortgages to pay a lower interest rate for a fixed period, say 5 to 7 years till they find other sources of re-financing.

A $700 billion proposal was presented to the Congress in September’2008. On 3^rd October, President George W. Bush signed the bill to help[ financial markets..

The ECB injected a €95bn (£63bn) emergency funding to prevent the US subprime mortgage slump to proliferate in the European banking systems.

Prevention is Better than Cure

On Feb’27, 2007 Freddie Mac announced tougher subprime mortgage lending standards to prevent the risk of default. Freddie Mac is developing fixed rate, hybrid ARM’s that will have reduced adjustable margins with longer fixed rate terms to prevent credit default. The company will also minimize the use of low documentation underwriting to ensure that borrowers will have necessary funds to afford their homes.

In 2007 The State Foreclosure Prevention Working Group met with the 20 largest servicers of subprime mortgage loans to discuss opportunities to prevent unnecessary foreclosures.

The Foreclosure Prevention Act is passed in 2008 – It provides a $100million additional funding is provided for housing counseling . Also to help veterans and returning soldiers to avoid foreclosures this bill has increased the time –span a lender must wait before starting foreclosures.

References:-

http://www.speculativebubble.com/videos/real-estate-roller-coaster.php

http://www.fdic.gov/bank/analytical/regional/ro20041q/na/infocus.html;

http://research.stlouisfed.org/publications/review/06/01/ChomPennCross.pdf

http://www.freddiemac.com/news/archives/corporate/2007/20070227_subprimelending.html

http://www.fdic.gov/bank/analytical/regional/ro20041q/na/infocus.html

http://en.wikipedia.org/wiki/American_International_Group

http://news.bbc.co.uk/1/hi/business/7239506.stm

http://www.financialsense.com/editorials/lee/2008/0208.html

http://money.cnn.com/2007/12/05/real_estate/FHASecure_status/index.htm?postversion=2007120512

http://www.heritage.org/research/regulation/wm1742.cfm

http://banking.senate.gov/_files/040208_ForeclosurePreventionActSummary.pdf

Congrats to Nathan!

2008-05-10T15:00:00.001-05:00

Congratulations to Nathan Calderwood. He got 9 out of 10 bonus points on the Investment Problem. High score on the Investment Problem to date!

Grades

2008-05-10T14:55:00.002-05:00

Grades have been posted on WebCT (final letter grades and final exam grades, if taken).

Still Missing a Couple TVMs

2008-05-10T12:21:00.002-05:00

Just a heads-up. If you did not turn in your TVM Tutorial, I am required to give you a "F" final course grade. My goal is to post and turn-in grades tomorrow (Sunday).

TVM Deadline

2008-04-25T09:26:00.001-05:00

Just another reminder that the TVM Tutorial deadline is this Saturday. You can bring your TVM to the Department of Finance and Real Estate office (room 434) today (Friday).

I will be on campus this Saturday. If you would like to drop off your TVM this Saturday, come by my office (room 631). If I am not in my office, just put the TVM under my door (but give it a good shove).

Final Exam / Investment Problem

2008-04-24T14:01:00.005-05:00

The final exam is scheduled for Saturday, May 10th at 10:00 AM in room 241. The final exam will be 50 to 100 multiple choice style questions. As always, please bring your photo ID, pencils, Scan-tron answer sheet, and calculator. The final is cumulative but I will give emphasis to Chapter 16 / Analyzing Income Producing Properties. The final is not mandatory as I take your three highest examination grades out of four. If you are happy with your existing three exam scores, you do not have to take the final.

As described in the syllabus, there is a bonus opportunity on the final exam. I refer to the bonus as the "Investment Problem." Here is how it works. After you complete the final exam, I will have a copy of an Investment Problem ready. You just tell me that you would like to try the Investment Problem.

An example of the "Investment Problem" is on our website near the Chapter 16 materials. The problem is a three year discounted cash flow analysis problem for a small income producing property.

After the final exam, you are given just the Investment Problem assumptions and you need to work through the problem with just your calculator and a pencil (no formulas provided!).

If you are up for a challenge, check it out. It will take some work and lots of practice. There are video clips reviewing an Investment Problem on our website, but if you would like to see me go over an investment problem in-person please come to room 241 at 8 AM this Friday morning (April 25th).

Also, don't forget that all TVM Tutorials are due this Saturday, April 26th.

Thank you Helen Moise of Cousins Properties

2008-04-23T09:35:00.003-05:00

Thank you Helen for coming to campus this morning to speak with the real estate students about property management. We enjoyed hearing about the many different aspects of property management.

Helen Moise, CPM, CCIM is Director of Property Management for Cousins Properties. She is responsible for the management of a large portfolio of commercial real estate assets located in the Metroplex. Helen is also a graduate of the UTA MSRE program (1990).

In addition to a very informative presentation, a REAE 3325 student, Rachael Garrick, won 4 tickets to a Texas Rangers game.

Buying question

2008-04-22T22:29:00.002-05:00

I once knew this guy who bought houses from people who couldn't make their payments. He filed or did some kind of paper work that allowed him to take over the payments and property so it never affected their credit. Do you know what that paper work process is called?

I have been looking for it but have either missed it or don't recognize the name.

Guest Speaker: Helen Moise, CPM

2008-04-22T15:09:00.003-05:00

Wednesday, April 23rd at 8:00 AM we have a guest speaker.

Helen Moise, CPM, CCIM
Director of Property Management
Cousins Properties

You are invited to attend.

Exam 3 Grades/Review Posted

2008-04-20T16:14:00.002-05:00

Grades for Exam 3 have been posted to WebCT and the exam review clip has been uploaded to our homepage (just see the assignments for this week).

The class average was a 75% which includes a two-question curve.

Also, don't forget that the deadline to submit the TVM tutorial is this Saturday. An updated TVM completion list has also been posted on our homepage.

Exam 3 Question

2008-04-18T15:26:00.002-05:00

Student question: "How many questions on Exam 3?"

Answer: 40 to 50 (max).

See you guys in the morning (10 AM in room 241)!

EXAM 3 in one week!

2008-04-12T10:31:00.000-05:00

EXAM 3 is Saturday, April 19th at 10 AM in Room 241. Please bring your PHOTO ID, pencils, calculator, and Scan-tron answer sheet. (TVM final deadline is the following Saturday.)

Ch 11 Appraisal

2008-04-11T11:41:00.002-05:00

Just a heads up regarding Chapter 11 Appraisal. This will be an important chapter on the next exam (which will be next Saturday!). I would definitely take a look at the extra materials and problems for this chapter (located on the website under the Chapter 11 materials).

Also, that crossword puzzle is a good tool to help with all the definitions in this chapter. It is harder than it looks!

Swearingen Job Opportunity from Greg Bennett

2008-04-08T21:24:00.001-05:00

http://realestateprogram.blogspot.com/2008/04/swearingen-job-opportunity-from-greg.html

Greg can in to speak during Business Week and now he would like to hire someone full-time starting in May. Check out this link.

Axiom 1: Location, location, location...

2008-04-02T00:33:00.005-05:00

This adage is usually expressed as a joke.

“What are the three most important real estate characteristics?”

Of course, the answer is “location, location, location.” It is certainly true that location attributes, or situs, are very important property features. As we should know by now, the spatial dimension of real estate is what makes every property different and this asset class truly unique.

Real estate and basically all other business disciplines can be thought of as branches or subsets of general economics. Do you remember a basic definition of 'economics' from you first economics class? It might go something like this, economics is the study of the allocation of scare resources. If everything was free and abundant, there would be no need for the study of economics.

Finance is a specialization developed from economics. Do you remember a definition of 'finance' from your first finance class? It might go something like this, finance is the allocation of scarce resources (i.e., money usually) over time. Time is an important dimension in finance and the reason we make such a bid deal about the time-value-of-money.

Real estate can be viewed as a specialization in finance. Do you remember a definition of 'real estate'? It might go something like this, real estate is the allocation of scare resources (i.e., real estate in this case!) over time and space. Space or geography is an important dimension of real estate and the reason why we make such a big deal about location, location, location.

Fastest Growing Area

2008-03-31T14:07:00.002-05:00

a news article that recently came out says the DFW metroplex is the fastest growing in the US.

http://www.wfaa.com/sharedcontent/dws/news/localnews/tv/stories/wfaa080327_ac_census.59a6e06.html

CREW Network Scholarship Opportunity

2008-03-25T11:02:00.000-05:00

Check out this link for a scholarship opportunity:

http://realestateprogram.blogspot.com/2008/03/crew-scholarship.html

Real Estate Axioms

2008-03-21T14:49:00.000-05:00

Every industry has its axioms and real estate is no exception. If you choose a career in real estate, you will run across the following three adages.

“Location, location, location”

“It’s a people business”

“Gut-feeling”

Although axioms can sometimes be a little annoying, they survive the test of time because they contain important nuggets of wisdom. We will examine each one in subsequent posts.

VA Loans

2008-03-15T12:40:00.002-05:00

I wanted to post a question I have recently encountered. We purchased our current home under a VA Loan and are about to purchase a second home with another VA Loan. What restrictions might come up when trying to do this?

Exam 2 Grades Posted on WebCT

2008-03-09T19:22:00.001-05:00

Exam 2 grades have been upload to WebCT. www.uta.edu/webct (login with your UTA username and password).

Exam 2 Video/Audio Clip Posted on Website

2008-03-08T15:12:00.004-06:00

The exam 2 video/audio clip review has been posted on our website. Please review the exam at your convenience. I will post grades on WebCT by Monday evening.

The class average was 78% and the highest grade was 100% and the lowest 40%. There was a one question curve (to calculate the grades I took the number of questions correct divided by 44- instead of 45, the total number of questions).

Overall a good job. Thanks once again for arriving promptly and bringing your Scan-trons, pencils, calculators, and photo IDs.

Exam 2 10 AM on Saturday March 8th

2008-03-07T10:36:00.002-06:00

Just a friendly reminder that Exam 2 will start at 10 AM and end at 11 AM on Saturday, March 8th. We will be in the same classroom, room 241 Business Building. Saturday's weather looks clear and sunny. See you tomorrow!

Fidelity Investments Job Open House

2008-03-05T11:35:00.002-06:00

Fidelity Investments is hosting a Networking Mixer for students on Wednesday, March 19th and want to invite UTA’s business students to attend. The information below spells out the details and allows students (does not specify if they are looking for undergraduate, graduate, or both) to attend via an RSVP mailbox. The Open House falls during spring break however Fidelity is hopeful that there will be plenty of students staying in town that week who may be searching for a career opportunity. Both the Personal & Workplace Investing business and the Pricing & Cash Management Services business want to hire UTA May graduates.

Have you recently graduated, or will you be graduating in 2008?Join Fidelity Investments for a networking mixer on March 19. Come meet our talented employees and managers and learn about our Personal Workplace & Investing and Pricing & Cash Management Services businesses in the southwest region.

Our beautiful Westlake campus is not to be missed!
Location: One Destiny Way, Westlake, TX
Time: 5:30 pm – 7:30 pm

Come dressed professionally and bring a resume to share.

► Reserve your spot today. Email WestlakeOpenHouse@FMR.com by March 15th

Texas Standard Sales Agreement

2008-03-03T11:00:00.002-06:00

Good question Crystal in the post below this one.

My eyes are older than most, but I did not see a home sale contingency in the text book example (pleases post a comment if anyone else sees it). Let's find another example. One of the links on our class homepage is to the Texas Real Estate Commission or TREC. TREC produces standardized contracts for licenses brokers to use in Texas. The TREC contract is most standard single family residential transactions. Download the contract at http://www.trec.state.tx.us/pdf/contracts/24-7.pdf. This contract has a good example of a "mortgage contingency" clause (Item 4) which is a contingency that the buyer puts in to make sure they can obtain a mortgage before buying the property (if the buyer cannot obtain the mortgage then the contract is voidable by the buyer). However, I do not see a seller an "Other Home Sale" clause in this contract either.

TREC has a separate addendum for the "Sale of Other Property by Buyer" which you can download here: http://www.trec.state.tx.us/pdf/contracts/10-5.pdf. If this is included in the sales agreement, the seller is asking for the right to sell their existing home at a specified price as a contingency. Many times the seller needs to sell their existing house before they can buy a new house because they cannot afford the mortgages and upkeep on two houses. When the real estate market is active with many sales, this contingency might not be a problem. However, when the market is slow, this could be a problem.

As a potential seller would you like a finance and sale of other property contingency in your offer? No. This is risk to the seller. Therefore, if you have two contracts for the same amount (or close to it) except that one contract has contingencies and the other does not, which one are you going to take. Yes, the offer without the contingencies is a stronger offer to the seller, all else equal.

Contingency Sale?

2008-03-03T08:39:00.002-06:00

When we bought our second house, we did a contingency sale. Meaning we had to sell our first house then would be free to buy the second. This was done courtesy of our realtor (for a fee of course). Does anyone know where, on the sales contract, that you would put that in? I didn't see it in those words, but would like to know where to look for it in the event we sell this one. I also want to know just in case we look at a contract from a buyer that might put it in their contract. You know, the whole knowledge is power thing... Hope you are all well. Good luck Saturday.

What is the best to study?

2008-03-02T22:34:00.002-06:00

I was hoping to get some student recommendations. I studied for the last test and even felt prepared, but I still came up short. I think there are is so much to remember (I knew nothing coming into this) that I am struggling.

So the question is, what did you find most effective to focus on in your studying? The question answer sheets? Lecture outline? Terms?

Please reply especially if you got a good grade!

Exam 2, Saturday, March 8th at 10 AM Room 241

2008-03-01T11:21:00.002-06:00

We have our second exam next Saturday. Exam 2 will cover chapters 2, 3, 4, 5, 6, and 7. The format will be 50 or fewer multiple choice questions. Please bring your photo ID, pencils, calculator, and Scan-tron answer sheet. See you live one week from today!

Property Tax Poll

2008-02-29T10:28:00.004-06:00

The votes are in and it looks like we voted New York the highest property tax area, followed by Los Angeles. Dallas and Atlanta received just a couple votes each.

Let's see how are voting compares to reality.

A local appraiser, M. Lance Coyle, MAI www.coyleadvisors.com CEO, Coyle Realty Advisors, put together an interesting study that was published in the North Texas Chapter of the Appraisal Institute's monthly newsletter (see http://www.ainorthtexas.org/newsletters/ (January issue) to see the full paper).

Mr. Coyle calculated the property tax, in dollars and as a percent of the house value ($250,000), for a $250,000 house in 12 metropolitan areas, including Dallas. See below:

Property Taxes for a $250,000 House

City Annual Tax Effective Tax Rate
Atlanta, Georgia $944.00 0.38%
Denver, Colorado $1332.27 0.53%
New York City, New York $2417.70 0.97%
Chicago, Illinois $2681.60 1.07%
Oklahoma City, Oklahoma $2750.00 1.10%
Little Rock, Arkansas $3165.00 1.27%
Albuquerque, New Mexico $3240.00 1.30%
St. Louis, Missouri $3320.39 1.33%
Miami, Florida $3699.66 1.48%
Los Angeles, California $3776.55 1.51%
Dallas, Texas $6139.44 2.46%

You can see that most major cities have a tax rate, as a percent, of around 1% and upto 1.51%, and Dallas is almost 2.5%.

What do you think about this? Is Dallas still an economical place to live and own a house?

Feel free to comment to this post.

Job Posting in Real Estate Program Blog

2008-02-29T09:09:00.001-06:00

If anyone is interested in commercial brokerage as a career, check out the posting by SCM on http://realestateprogram.blogspot.com/.

We will be covering brokerage latter in the semester.

Is this a valid contract?

2008-02-28T18:45:00.002-06:00

Instructions: Read the facts of the following (an actual, real life) case. Based on your knowledge of contracts from Chapter 6 take a position (either ‘yes’ it is a valid contract or ‘no’ it is not a contract). Indicate your position by commenting to this post, again either "yes a valid contract" or "no not a valid contract" and briefly explain your reasoning. Please, no hedging (yes or no only).

Question: Is this a valid contract?

Case: Jack and Joan Brown made it a habit to stop by the Dew Drop Inn every Friday night after work. Here they would meet their best friends, Sam and Shelly Simon, for an evening of dining, dancing, and libations. One Friday, Jack and Joan came stomping into the Dew Drop, having just received their tax assessment for a piece of bare ground they owned adjacent to their home. “I can’t believe this tax assessment,” moaned Jack. “The county is going to raise our property taxes $400 on that vacant lot because they say it’s worth $20,000! Boy, if we could get that kind of money for it, we’d sell it in a minute.”

Several beers later, Sam questioned, “Are you really serious about selling that lot, Jack? We’ve been wanting to build a new house, and being right next door to our best friends, well, I think we’d be interested in buying it.”

“Like I said,” remarked Jack, “if it’s worth $20,000, someone can have it!”

With that, Sam reached across the bar, grabbed several napkins, and scribbled out a makeshift agreement, containing the full names of the parties, the purchase price, and the legal description of the property, taken from Jack’s property assessment notice. Sam and Shelly both signed the napkin/contract, as did Jack and Joan. They toasted the occasion as Sam handed his check for $20,000 to Jack.

The next morning, Jack called Sam. “Hey, buddy, what shall I do with this check you gave me last night? Should I rip it up?”

Sam replied, “Of course not. We want the property. A deal’s a deal!”

A month later, Sam and Shelly were served with papers announcing that the Browns were suing them for coercing the sale of the property. Obviously, Jack and Joan didn’t believe that a sale had been made.

Business Week Speakers in Real Estate

2008-02-28T11:38:00.003-06:00

Business Week will be here in a couple of weeks. March 10 to 14 the COBA will bring a host of different speakers from the local business community. This year, Business Week will highlight the economic, business and civic influence of Glorypark Town Center on the City of Arlington and Tarrant County Region. The keynote speaker will be Yaromir Steiner, CEO, Steiner + Associates, Inc. as the keynote speaker on Tuesday, March 11 (for more information visit www3.uta.edu/coba/newcobasite/dean/newsevent1.html).

Some other important sessions of interest include visits from:

*Greg Bennett, Director of Research for Swearingen (Monday, March 10th from 8 to 8:50 AM Room 241)
*Jeremy Normand, Owner of Jeremy Normand State Farm Insurance (Wednesday, March 12th from 8 to 8:50 AM Room 241), and
*David Karr, Senior Project Manager at Hillwood Development (Friday, March 14th from 8 to 8:50 AM Room 241).

You are welcome to attend any of these sessions. All three speakers will speak about topics relevant to our material in REAE 3325.

Tax Question

2008-02-27T22:43:00.002-06:00

What is the "assessment ratio" in Tarrant and Dallas Counties?

Property Tax Calculation

2008-02-26T14:34:00.005-06:00

Does everyone understand property tax calculations?

For example, what would be the property tax for a property with an estimated market value of $150,000 (assessor's or tax district's estimation), an assessment ratio of 75%, and the following millage rates: 10 mills for County, 5 mills for library, 25 mills for school district, and 20 mills for the municipality. Also, the owner of this property qualifies for a $6,000 homestead exemption.

What is the assessed value?

What are the property taxes?

What is the value (tax savings) of the homestead exemption?

Comment to this post if you would like to take a shot at this.

quick question

2008-02-18T23:22:00.002-06:00

im sure it is mentioned somewhere in the syllabus, but instead of reading it again, does anyone know if we need to know the tvm stuff for any other exams(excluding the final)?

TVM "PASS" List Posted on Class Home Page

2008-02-17T15:46:00.002-06:00

The TVM "PASS" list, as of exam 1, is now posted on our website. If you submitted the TVM on or before the day of exam 1, you received 5 bonus point on the first exam (which is included in your score reported on WebCT). If you submitted the TVM on or before the day of exam 1 but failed you did not received any bonus points. If you submitted the TVM on or before the day of exam 1 and failed but resubmitted and passed, you received 4 bonus points (which will be reflected in WebCT shortly). If you submitted the TVM tutorial after the date of the first exam, you will be included in the next list which will be posted after Exam 2.

If you are taking FINA 3313 and are required to complete the TVM, you can show your instructor this website and list.

About TVM points...

2008-02-14T21:37:00.001-06:00

How do we know if we received credit for turning it in.

TVM pick-up question...

2008-02-12T20:51:00.002-06:00

Student question: I was wondering if i could come by and pick up my TVM Tutorial tomorrow Wednsday. My last class ends at 10:50 a.m. will you still be in your office?

Answer: First of all, remember that I won't have office hours tomorrow. I teach from 8 to 9 AM then I am off to Dallas for meetings the rest of the day. I will have office hours as normal on Friday.

Sanjukta is in charge of the TVMs and she has all the TVM tutorials in her office. Normally, we don't return the TVM but you are welcome to pick it up if you can coordinate with her. Sanjukta might also be able to leave the TVM at the Department office (434 Business Building) where you can pick it up between 9 and 4:50 PM, Monday through Friday.

Exam grading question...

2008-02-12T20:28:00.000-06:00

Student question: I was wondering how much is each answer worth and also if I received credit for turning in my Tutorial early. I was just concerned because I made an 66.71 on my test but thought I did better. I will make sure to pick up my scantron from the business building, but just wondering on the actual points earned per problem.

Answer: Your exam score is the number of questions you got correct divided by 28 (the total number of questions). If you turned in the TVM before the exam, then you received 5 bonus points (these points are added to your percent score, for example, if you had 61.71% on the exam and completed the TVM tutorial, then your final exam 1score is 66.71%).

If you turned in the TVM tutorial before the exam and it did not pass, Sanjukta has volunteered to contact you (she e-mailed you on Sunday) and give you a chance to resubmit and fix the problem. If you correct the problem, we will regrade the TVM but the maximum number of bonus points on the resubmission is 4 points. Only one person has resubmitted so far. If Sanjukta has contacted you, please thank her. The most efficient option would have been to just return the TVM to you (without bonus). No bonus for TVM turned in after the exam 1.

The other possibility for bonus was blog participation. The maximum number of blog bonus points on this exam was 2. A couple students received 2 points and several student received 1 point.

Sanjukta and I will be posting a TVM completion list soon. We are just waiting to see if more people resubmit. We wait until Sunday and no longer.

Forgot to mention...

2008-02-12T16:47:00.001-06:00

If you would like to pick-up your Scan-tron answer sheet for exam 1, please go to room 434 Business Building (Finance and Real Estate Department office) between 9 and 4:50 PM (Monday through Friday). Our Department administrator Marlene Tanner has your original Scan-trons answer sheets.

WebCT is working and Exam 1 scores have been posted!

2008-02-12T14:59:00.000-06:00

If you go to WebCT (www.uta.edu/webct) and log-in with your UTA user name and ID, you should find our class and your Exam 1 score (as a %) posted. Included in your score is any bonus for early TVM completion and blog participation. If you haven't already, please review the Exam 1 audio/video clip found on our course homepage.

(If you are interested in the reason for the delay, here it is...Our 2008 class roster was loaded into REAE 3325 for Spring of 2007.)

TVM Bonus: 10 students received the full 5-point bonus for early TVM submission. Two students turned in the TVM tutorial before the exam, but the TVM grader found a significant problem with the submitted answer(s). Sanjukta has e-mailed these two students (Daniel and James) for follow-up (please check your e-mail).

Exam 1 Review Clip Posted

2008-02-10T15:31:00.000-06:00

The class roster has not been loaded into WebCT (as of Sunday afternoon)so I cannot report individual grades but I did go ahead and post a wmv file reviewing the answers to Exam 1. The exam review link can be found on the course home page under the assignments for Week 5 (also, please do not forget about Chapters 2 and 3!). I will post individual scores as soon as possible.

WebCT difficulty...

2008-02-09T15:32:00.000-06:00

First of all, I would like to thank everyone for making the exam so easy to administer today. Thank you very much for arriving on time and getting right to work. Also, nice to see you guys in person!

As a couple of you have pointed out (and thanks for bringing this to my attention), I am having trouble loading our class roster into WebCT (looks like tech problem number 2 of the semester).

I have contacted the HelpDesk and they are looking into the problem. However, this does mean that WebCT might not be up until Monday. I will make a new blog post as soon as the grades have been uploaded into WebCT. Thank you.

TVM Blue Certificate Form

2008-02-08T22:10:00.000-06:00

If you are turning in your TVM tutorial soon, please don't forget that you must submit a copy of all sections and the TVM certificate form (the original blue form that comes with the TVM tutorial-please see your TVM directions). I cannot accept the TVM without the certificate form (Department requirement!). Thanks.

fyi Student Question... (see you Saturday Morning 10 AM)

2008-02-08T14:18:00.000-06:00

Question: Well in the main problem its states that he borrows $300,000 at a annual interest rate of 10.25 for 15 years and then it says further that the loan required 2 discounts points at the time of origination and he kept the loan for the full term. so what would be the effective interest rate?I I've tired to work backwards with the answer that we I have provide but i still can't figure it out

Answer:
First step is to calculate the mortgage payment for a $300,000 mortgage, 10.25% per year rates, for 15-years with monthly payments.

n=180
i=10.25%/12 (I have my calculator set to 1 payment/year.)
PV=300,000
FV=0
PMT=?=-3269.85

Second step is to calculate the points.

2 points = 2% of the mortgage amount
300,000 x .02 = 6000

So, the borrower (mortgagor) actually receives $294,000 ($300,000 - $6,000)

Third step is to calculate the effective yield.

n=180 (the mortgage is held to term.)
PV=296,000
PMT=-3269.85
FV=0
i=.8740%/month x 12 months = 10.49%

fyi Dr. McLean from the CFA Institute will be on-campus today...

2008-02-06T10:03:00.000-06:00

All year around, I often get questions about the CFA program. It has been many years since I completed the candidate program and this program has subsequently grown (a lot!) and changed. Well, we have a special opportunity this afternoon.

Today, Wednesday, February 6, 2008 we will have one of the top executives from CFA Institute headquarters on campus. This is the second year that Dr. McLean will visit UTA and he would like to meet as many UTA students and faculty as possible.

To help facilitate this request, I have scheduled a "Meet and Greet" sesssion from 5 PM to 6:20 PM in 609 Business Building. Please stop in at this time to meet Dr. McLean and find out more about the CFA program. See you there!

Exam 1: Saturday, 10 AM in room 241 Business Building

2008-02-05T15:11:00.000-06:00

Just a reminder regarding the first REAE 3325d exam this Saturday at 10 AM in Room 241 Business Building.

The exam will cover chapters 1, 13, 14 (I am including the Review Materials for Real Estate packet with Chapter 14), and 15.

This first exam will be 25 to 30 multiple-choice style questions (expect more questions on future exams). Approximately 10 questions will involve calculations (so, bring your financial calculators!).

Please arrive promptly at 10 AM and bring your Scan-tron answer sheet (available at the UTA Bookstore), calculator, pencils, and photo ID (UTA id preferred).

Good Luck! (i.e., luck = study hard)

Two New Clips from TVM Review for Real Estate Packet

2008-02-03T17:36:00.000-06:00

Just wanted to make sure everyone knows about the two new audio/video clips posted (today) under the TVM Review Materials for Real Estate (our material that supplements Chapter 14). The new clips cover (1) mortgage balances, points, and amortization tables and (2) problem set 3 review.

Also, note we will not be covering the "duration" and "variance in real estate cashflow" section of the Review packet. In addition, I have the answers to problem set 4 posted on the website but this problem set is optional for our class (extra practice but optional) and not reviewed in a clip.

Mortgage Balance Practice Problem

2008-02-01T10:18:00.000-06:00

I have a student who is looking at refinancing her mortgage right now (mortgage interest rates have dropped recently). She is looking to refinance $100,000 mortgage and she is getting mortgage interest rate quotes at 5.5% for a 30-year mortgage with montly payments. As we know, people typically do not stay in the same property for 30 years. She expects to move in 5 years and she would like to know the balance of this loan at the end of 5 years.

What will be the remaining mortgage balance of this mortgage at the end of 5 years?

The easiest way to solve this problem is to use the following rule: The balance of a mortgage at any point in time is just the Present Value of the remaining mortgage payments discount at the mortgage contract rate.

HINT: Step 1 - calculate the mortgage payment. Step 2 - calculate the number of remaining payments. Step 3 - discount the remaining payments back to present value.

Would anyone like to show the answer and step by step calculations? If so, please comment to this post.

Extra TVM problem...

2008-01-30T16:19:00.000-06:00

Anyone one want to take a shot at this question? If so, please comment to this post.

True story: Last night, I was helping my wife's 24 year old brother set-up his first retirement account, a Roth IRA (Individual Retirement Account). We estimated that he will retire when he is age 67 and he will invest his first contribution of $5,000 in one year (we just set-up the account and did the paper work). He will make annual contributes of $5,000 per year until retirement (note: $5,000 is currently the maximum you can contribute to an IRA). We selected an account that is a mix of stocks and bonds (but primarily stocks). The long-term average return on this account is 9%, which we thought was an appropriate return or rate for our analysis.

How much will my wife's brother have at age 67? Of this amount, how much is interest on principle? How much is compound interest? How much did he actually deposit into this account?

TVM Quesion

2008-01-29T09:39:00.000-06:00

Student Question: I was reviewing the syllabus and would like to turn in the TVM tutorial for extra credit on the first exam. Since this is a distance learning class, will you accept the tutorial if I turn it in on the day of the exam? Or would you rather I drop by during your office hours and turn it in then? Also, I am concurrently enrolled in FINA 3313 and I must complete the tutorial for that class as well. I have talked to Dr. Yong and she told me it was acceptable to turn the tutorial in to you and have you sign the prior completion sheet. Is that acceptable to you as well? Or must I go through the Department of Finance and Real Estate?

Answer: For bonus points on the first exam, I will accept TVM up to and including the day of the first exam. However, if the TVM Tutorial is not complete and you do not pass, you will not receive any bonus. (You will need to resubmit the TVM Tutorial until you pass.)

I will keep of list of TVM Tutorial completion on our course home page. If anyone wants to see if you completed the TVM Tutorial, you can just refer them to our web page. I will update this list shortly after each exam.

Having Calculator Troubles?

2008-01-28T10:06:00.000-06:00

Anyone having problems with the calculator? If so, come to my REAE 3325 class this Wednesday and Friday (8 AM to 8:50 AM) in room 241 (this also happens to be our examination room for the four Saturday exams). This week we are doing a lot of practice calculator problems.

Announcements, Pictures, and Chapter 13 Questions?

2008-01-25T09:29:00.000-06:00

Announcements
One thing nice about this on-line section is that you don't need to worry about the weather. In the place of weather worries, I guess we have the occasional technical (usually a server) problems.

As a reminder, you are not required to participate in this blog but you do need to keep up with announcement on both the website and blog.

Thank you to those who have commented to the prior post about your level of real estate related experience. We have some interesting real estate and even more interesting non-real estate related experiences in this class.

Pictures
If you checked the course website recently, you will notice I posted two pictures. The first picture is of myself at my desk (a very bad web cam shot) and the second picture is my dog (Riley). Although we are primarily on-line, I thought it would be nice to put a face with the site and also have a class mascot (that's Riley, not me).

This is NOT a requirement, but if you would like to send me a picture of yourself and one additional picture of anything you find interesting (must be legal and tasteful), I will add these pictures to our course website. It would be nice for me to put some faces with names. Also, we can try to have a little fun on-line (we do have a little fun the regular in-class). Please send the pictures by February 1st and I will post them on February 2nd.

Chapter 13
How are you doing with Chapter 13? This is an important chapter. Any questions?

I call next week, TVM boot camp. We will cover chapter 14 and the pdf download "Review Materials for Real Estate." I am in the process of recording video clips for the "Review Materials..." and posting these clips on the website (right before the Chapter 14 course materials). If this is your first look at TVM, you will need to spend a good amount of time on this next week (just a friendly heads-up).

Have a good weekend.

Calculator question...

2008-01-23T09:19:00.000-06:00

"I have a question regarding the calculator we are allowed to use on the tests. Is the use of a Texas Instruments TI-83 graphing calculator permitted? Or must I go buy a financial calculator?"

I know that graphing calculators are very expensive, but you really need a (basic) financial calculator for this course and probably many other business courses (especially in finance and real estate). Now, I know a few higher-end graphing calculator models have a "time-value-of-money" menu, but the basic graphing calculators do not. Check your calculator carefully but you definitely need the TVM functions.

TVM tutorial question...

2008-01-20T21:09:00.000-06:00

Let me share an answer to a recent question regarding the TVM tutorial. You need to complete all 13 sections of the TVM tutorial and print-out hard copies of each section. You will turn-in the print-out of each section (please staple each section) and the TVM certificate page. The TVM tutorials are graded pass/fail.

Still Missing 0!!!

2008-01-19T11:15:00.000-06:00

Four registered students have not checked in this week. If you know any of these students, please help me get the word out to them to contact reae3325d@gmail.com and visit the course website www.uta.edu/faculty/hansz/3325/distance/main.htm right away.

UNLESS WE HAVE SOME LATE ADDs, EVERYONE HAS CHECKED-IN AND SENT ME THEIR E-MAIL. THANKS YOU! DR. HANSZ (LATE ADDS DO NEED TO E-MAIL ME IMMEDIATELY!)

Thanks!

What is your real estate experience? 4 questions

2008-01-18T09:29:00.000-06:00

Normally, I don't require or ask anyone to comment or post to this blog. However, I would like everyone (all 35 students) to respond to this posting.

Chapter 1 discusses the market for real estate knowledge. It would be useful to me and possibly the rest of the class to get a feel for the level of real estate experience in this section.

Please comment to this posting by answering the following four (4) questions:

(1) Are you currently employed in the real estate industry? If so, what is your background (brokerage, appraisal, property management, investing, etc.).

(2) Have you done the following:
a) rented an apartment
b) purchased a house
c) sold a house
d) made an investment in real estate

(3) Is anyone in your family in the real estate business or had an interesting real estate related experience?

(4) Finally, please give us one interesting fact about yourself that is non-real estate related.

I might mention that real estate experience is not a course prerequisite and I have found no relationship between prior real estate experience and success in this course (students with no prior real estate experience have worked hard and done very well). Success typically depends on the amount of time and effort you put into the course this semester.

Please ues the "comments" function below to reply to this post (will keep everyone's reply organized with this posting).

Cheers,

Students Who Have Not Checked-In

2008-01-17T14:16:00.000-06:00

Below is the list of student who have registered for the course but who have not check-in by sending me their preferred e-mail address (send to reae3325d@gmail.com). If your name is on this list and you have already sent me your e-mail address, I do apologize (a couple names sound familar and you may have contacted me earlier). Please do send (or resend) me your preferred e-mail address.

Al-Qasem,Sari Kerim
Calderwood,Nathan Marcus
Funk,Kyle Lewis
James,Jade K
Jeane,Christopher
Poprawa,Wojciech Iwo
Searles,Holly Helene
Syed,Mohsin
Terry,Amanda Faye
Torres-Patek,Cora A
Urrahman,Muhammad Faisal
Vazquez,Raquel

If you know any of these students, please tell them to e-mail me and check the course website immediately www.uta.edu/faculty/hansz/3325/distance/main.htm

Also, I would like to post an Excel spreadsheet on our course website with names and e-mail addresses. The purpose of this spreadsheet will be to faciliate student-to-student interaction by e-mail (at least let you see who is registered for this section) and we will also keep tract of TVM tutorial completions. If anyone has an objection to this posting, please let me know and I will not include your name and/or e-mail address.

Thank you,

Sign In This Week

2008-01-16T20:49:00.000-06:00

Thank you to those of you who have sent me your e-mail. If you are enrolled in the course please send me your preferred e-mail address and go to www.uta.edu/faculty/hansz/3325/distance/main.htm for this week's assignments.

Our first exam is early in February so you need to get started with the course this week!

Dr. Hansz
reae3325d@gmail.com

Website Up and Working!

2008-01-15T15:07:00.001-06:00

Finally, the technical problem has been fixed and the class website is up and running. Please go to http://www.uta.edu/faculty/hansz/3325/distance/main.htm

Please review the website carefully. Also, you can download the course syllabus. I am also working on an Orientation video clip which should be up by Wednesday night.

Don't forget, if you haven't sent me your preferred e-mail address, please contact me at reae3325d@gmail.com this week!

Website Problem Update

2008-01-14T17:59:00.000-06:00

Just to let you guys know, I intend to use WebCT only for posting grades. In fact, I am trying not to populate the WebCT roster before the Census date at the end of this month. Please, never contact me through WebCT e-mail because I only check WebCT when posting grades. Please use the following e-mail address reae3325d@gmail.com.

For you tech Geeks (I am sure many of you know more about this than I do), I found out what the problem is with our course website. The University recently switched the "dav" server (which is home to my faculty website and many other faculty websites and there are probably many others with this problem) from a "http" server to a secure "https" server. We should be able to update my access to reflect the new https server, but we are still having difficulties. Hang tight!

PS Please note that you guys can access and use the course Website at www.uta.edu/faculty/hansz (scroll down to "Current Courses" and click on the link for REAE 3325 Real Estate Fundamentals DISTANCE LEARNING). Just remember that this information was posted last Fall and I need to make updates.

REAE 3325 Distance Education Section

2008-01-14T12:36:00.000-06:00

Real Estate Fundamentals Students,

I am currently working on updating the course website at www.uta.edu/faculty/hansz/ (scroll down to "Current Courses" and please make sure you click on REAE 3325 Distance Education section). There is a technical problem with publishing updates and I am working with the HelpDesk to solve the problem.

In the meantime, please send me your e-mail address. Send to reae3325d@gmail.com. If we can't post the syllabus on the website very soon, I will make a distribution list and e-mail the syllabus to you.

The first assignment for this week is to read chapters 1 and 13. Also, please view the video clips that I prepared for chapters 1 and 13 found on my website (remember, you must use Internet Explorer (version 5 or higher) to view the video clips).

I am looking forward to getting started with you.