CAR reported today that a company that tracks "Phantom Inventory" places the number at 1.7 million up alomst 30% over the prior year's 1.1 million homes. Corelogic counts the amount of "Phantom Inventory" is the number of homes that banks currently hold in inventory but not yet placed on the market including homeowners that are 90 days delinquent on their mortgages. This number represents the a 3.3 month supply at the current rate of sales.
Visible inventory in September of 2009 stood at 3.8 million units. This represents a 7 month supply down from 10 months a year ago. The total unsold inventory which, (I assume) includes short sales and normal sales is estimated to be 5.5 million units relatively flat from last years 5.7 million units. This number represents 11 months supply down a month from the prior year.
According to Corelogic while the numbers appear to be normal and stabilizing, the market inventory will get worse before it will get better.
Wednesday, December 30, 2009
Monday, December 28, 2009
Possible Cause of Credit Limit Reductions or Account Closures
Reprinted with Permission from Credit Line Financial
Why did the credit card issuer do this to me? This is certainly one of most common questions we're getting these days as credit card issuers are continuing to lower credit limits, close accounts, and increase interest rates. While many of you would assume that their decision is simply credit related, that's not the case. There are many other reasons why the credit card issuer may have taken an adverse action against you. I've drafted a list of the possible reasons:
Credit Score Related – Credit score falls below minimum score threshold. Action could be based on how far below the threshold the consumer falls.
Credit Data Related – A new delinquency hit the credit report; a new inquiry hit the credit reports; a new credit card hit the credit report; the consumer increased the amount of debt he or she is carrying; the consumer's credit card utilization increased on one or all cards.
Geography and Economy Related – Consumer lives in an area where home values have descended (no equity). Consumer lives in an area where the unemployment rate is disproportionately high.
Non-Credit Related – Credit card issuer finds out that consumer has lost his or her job; wants to take part in a hardship program; took a pay reduction; got divorced; might be laid off. Other reasons: the consumer has account inactivity; uses the card too infrequently (under usage); pays in full each month; or is otherwise not profitable.
Issuer Related – Issuer determines that your account cannot remain profitable under current terms. Regarding rewards cards, the issuer's terms changed with the rewards partner.
Ken Strey
Business Development ManagerYour Credit Expert For Life!
kstrey@creditlineiq.org
Phone: 925-265-8502
Why did the credit card issuer do this to me? This is certainly one of most common questions we're getting these days as credit card issuers are continuing to lower credit limits, close accounts, and increase interest rates. While many of you would assume that their decision is simply credit related, that's not the case. There are many other reasons why the credit card issuer may have taken an adverse action against you. I've drafted a list of the possible reasons:
Credit Score Related – Credit score falls below minimum score threshold. Action could be based on how far below the threshold the consumer falls.
Credit Data Related – A new delinquency hit the credit report; a new inquiry hit the credit reports; a new credit card hit the credit report; the consumer increased the amount of debt he or she is carrying; the consumer's credit card utilization increased on one or all cards.
Geography and Economy Related – Consumer lives in an area where home values have descended (no equity). Consumer lives in an area where the unemployment rate is disproportionately high.
Non-Credit Related – Credit card issuer finds out that consumer has lost his or her job; wants to take part in a hardship program; took a pay reduction; got divorced; might be laid off. Other reasons: the consumer has account inactivity; uses the card too infrequently (under usage); pays in full each month; or is otherwise not profitable.
Issuer Related – Issuer determines that your account cannot remain profitable under current terms. Regarding rewards cards, the issuer's terms changed with the rewards partner.
Ken Strey
Business Development ManagerYour Credit Expert For Life!
kstrey@creditlineiq.org
Phone: 925-265-8502
10 Trouble Spots to Consider When Purchasing a Foreclosed Home
Reprinted from Lowe's Home Improvement Newsletter
and RIS media
RISMEDIA, December 21, 2009—It’s easy pickings out there for many potential homebuyers. Housing prices are at their lowest in more than a decade, inventories are high, analysts are predicting a new wave of foreclosures and the government is offering two substantial tax credits for which many homebuyers qualify.
But bargain buyers beware, warns Vince Mastronardi, whose property preservation business has been busy preparing foreclosed homes for sale.
“Buyers need to educate themselves about the potential pitfalls of purchasing distressed property,” says Mastronardi, president of On-Site Specialty Cleaning & Restoration. “It’s not so much what damage occurred, but the source of that damage and how long before the problem was addressed.”
These 10 signs may indicate that trouble is around the corner.
1. Unheated house in winter months. If the home has been properly winterized, there’s no need for heat. But if the home has not been properly winterized, pipes will burst and cause water damage.
2. Missing sinks, toilets and other fixtures. Make sure they’ve been properly removed and not ripped from walls and floors.
3. Peeling, bubbling, and discolored paint; swelling in walls or ceilings (especially around kitchens and bathrooms) or a musty odor all indicate water damage and, potentially, the presence of moisture and mold.
4. Fungus growth inside cabinets, behind drawers and built-ins. Fungus could mean that there has been water damage. Since water falls down, look for the source above the mold.
5. Blocked drains or pipes will cause future problems and may have already created sewage backups.
6. Black cobwebs, greasy gray residue on walls and/or a strong oily odor. This could point to potential soot damage or a malfunctioning furnace.
7. An older home with extensive renovations. Check with the city for pulled permits in order to get remolding details. If asbestos is present and has been disturbed, be sure it’s been remediated by a certified specialist.
8. Excessive painting of every nook, cranny, door and floor may mean that the seller is covering up mold.
9. Discolored subflooring. From the basement, check the subflooring above for stains and small holes, both caused by mold.
10. Air Quality. The air quality within a home tells a lot about the home’s condition. Be sure to include air and surface testing in your home inspection. It’s a few hundred dollars well spent.
“Time and technique are the most important factors of effective clean-up and preventing future problems like mold or contamination,” Mastronardi explains. “Ideally, professional cleanup begins within a few days of the damage; technicians are trained, certified or licensed; and equipment is specialized and up to date.”
Ask the seller to explain how the damage was fixed. Plus, check out the company that performed the repairs to ensure it has industry-recommended certification. If needed, follow-up with the seller or repairing company for specific repair details.
For more information, visit http://www.on-sitecorporation.com/.
Read more: http://rismedia.com/2009-12-20/10-trouble-spots-to-consider-when-purchasing-a-foreclosed-home/#ixzz0b176HpdK
and RIS media
RISMEDIA, December 21, 2009—It’s easy pickings out there for many potential homebuyers. Housing prices are at their lowest in more than a decade, inventories are high, analysts are predicting a new wave of foreclosures and the government is offering two substantial tax credits for which many homebuyers qualify.
But bargain buyers beware, warns Vince Mastronardi, whose property preservation business has been busy preparing foreclosed homes for sale.
“Buyers need to educate themselves about the potential pitfalls of purchasing distressed property,” says Mastronardi, president of On-Site Specialty Cleaning & Restoration. “It’s not so much what damage occurred, but the source of that damage and how long before the problem was addressed.”
These 10 signs may indicate that trouble is around the corner.
1. Unheated house in winter months. If the home has been properly winterized, there’s no need for heat. But if the home has not been properly winterized, pipes will burst and cause water damage.
2. Missing sinks, toilets and other fixtures. Make sure they’ve been properly removed and not ripped from walls and floors.
3. Peeling, bubbling, and discolored paint; swelling in walls or ceilings (especially around kitchens and bathrooms) or a musty odor all indicate water damage and, potentially, the presence of moisture and mold.
4. Fungus growth inside cabinets, behind drawers and built-ins. Fungus could mean that there has been water damage. Since water falls down, look for the source above the mold.
5. Blocked drains or pipes will cause future problems and may have already created sewage backups.
6. Black cobwebs, greasy gray residue on walls and/or a strong oily odor. This could point to potential soot damage or a malfunctioning furnace.
7. An older home with extensive renovations. Check with the city for pulled permits in order to get remolding details. If asbestos is present and has been disturbed, be sure it’s been remediated by a certified specialist.
8. Excessive painting of every nook, cranny, door and floor may mean that the seller is covering up mold.
9. Discolored subflooring. From the basement, check the subflooring above for stains and small holes, both caused by mold.
10. Air Quality. The air quality within a home tells a lot about the home’s condition. Be sure to include air and surface testing in your home inspection. It’s a few hundred dollars well spent.
“Time and technique are the most important factors of effective clean-up and preventing future problems like mold or contamination,” Mastronardi explains. “Ideally, professional cleanup begins within a few days of the damage; technicians are trained, certified or licensed; and equipment is specialized and up to date.”
Ask the seller to explain how the damage was fixed. Plus, check out the company that performed the repairs to ensure it has industry-recommended certification. If needed, follow-up with the seller or repairing company for specific repair details.
For more information, visit http://www.on-sitecorporation.com/.
Read more: http://rismedia.com/2009-12-20/10-trouble-spots-to-consider-when-purchasing-a-foreclosed-home/#ixzz0b176HpdK
Saturday, December 26, 2009
Prediction 1: Rise of the Short Sale
Welcome 2010! We are coming into a new year. With the economy stable and troubled, real estate stable and troubled and the job market still in flux, we will see continued efforts from the federal government to make an impact on the economy starting with more corrections to improve the housing market.
Housing is a big driver in the economy, new home sales create secondary demand for "durable goods" like home appliances and fixtures. Unlike a year ago, loans are now available but new home sales are still low and housing starts have not yet shown any signs of improvement. Real estate recover is going to be driven by resales. Through 2009, year foreclosures have continued at historicly high rates and defaults are continuing in record numbers.
Me and others have commented on the existence of Phantom Inventory. I recently posted about the number of foreclosures at auction and the number of homes released for sale not being equal. In addition to all this market insanity, the banks have been slow to release a number of homes in this area. Moderating the number of listings, while lending conditions have improved has created an artifical shortage and has inflated prices.
The reason this is nuts is that all the while the above is happening, foreclosures are continuing at a rate higher than the listed foreclosure inventory is sold. (If anyone at the too big to fail bank are listening, could you kindly release all your bay area real estate under 500k, we need more of those homes on the market.)
To add to the insanity, investors are snapping up foreclosures at auction, cleaning them up and reselling them at a profit. On one hand this is good for the economy, good for the banks but on the other hand it is bad for homeowners in distress and first time home buyers. It is adding unnecessary expense for the people who are actually buying homes to live in. What a crazy idea that is...
To my point, more changes are on the way for consumers in morgage trouble. As we speak the federal government is creating legislation to make it easier for short sales to occur by limiting damands by second lenders and creating new rules and incentives for banks to operate with to try to stop the impending flood of foreclosures. We should see these rules in place and I would guess by the third quarter of this year those homes will reach the market.
From an agents perspective this whole short sale process is madness. Lost papers, delays, buyers backing out (I have had to get 2 offers at different times on each of mine), the process has to restart once a buyer backs out, there are no guarentees that the bank is going to approve the sale or they demand a top dollar and unreasonable price. It's nuts. The consequences of this madness is that short sales have to offered at a discount to foreclosures.
Think about that. The administrative costs are higher on short sales, the offer price is lower to incentivise buyers to stick the process out. The banks provide awful service on Short Sales and they demand top dollar. (Sounds a lot like the Microsoft business model). I wish everyone could a business that way. It would solve the job's problem in an instant.
The last thing I learned in business business school is that good corporate citizenship is the key to free enterprise. When you start to generate profits at the expense of your consumers, expect the government to get involved to solve the problem in ways businesses won't like. The good news for homeonwers in distress is that help may actually be on the way. It only took 3 years. The question is, is it too little too late.
Housing is a big driver in the economy, new home sales create secondary demand for "durable goods" like home appliances and fixtures. Unlike a year ago, loans are now available but new home sales are still low and housing starts have not yet shown any signs of improvement. Real estate recover is going to be driven by resales. Through 2009, year foreclosures have continued at historicly high rates and defaults are continuing in record numbers.
Me and others have commented on the existence of Phantom Inventory. I recently posted about the number of foreclosures at auction and the number of homes released for sale not being equal. In addition to all this market insanity, the banks have been slow to release a number of homes in this area. Moderating the number of listings, while lending conditions have improved has created an artifical shortage and has inflated prices.
The reason this is nuts is that all the while the above is happening, foreclosures are continuing at a rate higher than the listed foreclosure inventory is sold. (If anyone at the too big to fail bank are listening, could you kindly release all your bay area real estate under 500k, we need more of those homes on the market.)
To add to the insanity, investors are snapping up foreclosures at auction, cleaning them up and reselling them at a profit. On one hand this is good for the economy, good for the banks but on the other hand it is bad for homeowners in distress and first time home buyers. It is adding unnecessary expense for the people who are actually buying homes to live in. What a crazy idea that is...
To my point, more changes are on the way for consumers in morgage trouble. As we speak the federal government is creating legislation to make it easier for short sales to occur by limiting damands by second lenders and creating new rules and incentives for banks to operate with to try to stop the impending flood of foreclosures. We should see these rules in place and I would guess by the third quarter of this year those homes will reach the market.
From an agents perspective this whole short sale process is madness. Lost papers, delays, buyers backing out (I have had to get 2 offers at different times on each of mine), the process has to restart once a buyer backs out, there are no guarentees that the bank is going to approve the sale or they demand a top dollar and unreasonable price. It's nuts. The consequences of this madness is that short sales have to offered at a discount to foreclosures.
Think about that. The administrative costs are higher on short sales, the offer price is lower to incentivise buyers to stick the process out. The banks provide awful service on Short Sales and they demand top dollar. (Sounds a lot like the Microsoft business model). I wish everyone could a business that way. It would solve the job's problem in an instant.
The last thing I learned in business business school is that good corporate citizenship is the key to free enterprise. When you start to generate profits at the expense of your consumers, expect the government to get involved to solve the problem in ways businesses won't like. The good news for homeonwers in distress is that help may actually be on the way. It only took 3 years. The question is, is it too little too late.
Tuesday, November 3, 2009
Putting Foreclosures in Perspective
Putting Foreclosures in Perspective
By George W. Mantor
RISMEDIA, November 3, 2009—When considering the implications of the current foreclosure situation, I believe we are being misinformed about the forces behind the high rate of mortgage defaults.
I also believe there is more to learn about the lack of success in getting mortgages modified.
Or, as recently published reports on certain court cases have shown, why foreclosing entities either cannot or will not produce a valid chain of title in foreclosure proceedings even though it may cost them the case or sanctions by the courts.
Just as baffling, why would a lender make a loan and then lose the means by which to repossess the asset? There are, as it turns out, other ways for financial institutions to make money and when they can, they do.
That goes to the very heart of what happened to our prosperity. By reclassifying liabilities as assets, Wall Street was able to sell debt as an investment. Any kind of debt will do because the debt doesn’t matter. No risk is too great because there is no risk. They sell the loan and then make a bet that it will default. It’s called a Credit Default Swap (CDS).
A CDS is the most widely traded type of derivative, and these investments represent the biggest financial market in the world. CDS resemble insurance policies, but there is no requirement to actually hold any asset or suffer any loss, so CDS are widely used just to increase profits by gambling on market changes
According, to the Bank of International Settlements [BIS], the aggregate derivative positions of banks grew from $100 trillion in 2002 to — believe it — $516 trillions in 2007; that is over 500 per cent in five years.
The BIS recently reported that total derivatives trades exceeded one quadrillion dollars – that’s 1,000 trillion dollars. This is curious when you realize that the gross domestic product of all the countries in the world is only about 60 trillion dollars.
The answer is that gamblers can bet as much as they want. They can bet money they don’t have, and that is where the huge increase in risk comes in. There is no regulation of these instruments and they do not show as liabilities on the balance sheets of the institutions.
A Derivative is a financial instrument whose value is not its own, but derived from something else, on some underlying asset or transaction, such as commodities, equities (stocks) bonds, interest rates, exchange rates, stock market indexes, why, even inflation indexes, index of weather. Basically, they are just bets. You can “hedge your bet” that something you own will go up by placing a side bet that it will go down. “Hedge funds” hedge bets in the derivatives market.
Nor, did mortgage defaults cause the crisis. Mortgage securities made up only $7 trillion of the huge derivative market.
To the extent that any information is available on what brought us to this point, it is mostly bloggers.
Most of the blogging perceives the foreclosure problem as the result of sub-prime loans, irresponsible borrowers, and mortgage resets.
Such a superficial view reveals a complete lack of understanding of how the securitization of mortgages makes Wall Street all of that money out of nothing at all. You have to follow the money.
An important distinction is that the consumer was not the driving force behind this money binge, but the profits Wall Streets was making on Derivatives.
When you break it all down, it looks to me like Wall Street possibly took a lesson from Broadway. The Producers is about a Broadway producer and his accountant who realize they can make more money with a musical that was guaranteed to fail than one that would succeed. But, the musical’s sure-to-fail hit song, “Springtime for Hitler” surprisingly turned out to be an astonishing success. When the investors came for their profits, there were too many investors to pay back.
Wall Street, where life imitates art.
George W. Mantor is known as “The Real Estate Professor” for his wealth building formula, Lx2+(U²)xTFP=$? and consumer education efforts. During a career that has spanned more than three decades, he has amassed experience in new home and resale residential real estate, resort marketing, and commercial and investment property. He is currently the founder and president of The Associates Financial Group, a real estate consulting firm.
Mantor can be reached at GWMantor@aol.com.
Don’t miss more news on RISMedia.com:Read more: http://rismedia.com
By George W. Mantor
RISMEDIA, November 3, 2009—When considering the implications of the current foreclosure situation, I believe we are being misinformed about the forces behind the high rate of mortgage defaults.
I also believe there is more to learn about the lack of success in getting mortgages modified.
Or, as recently published reports on certain court cases have shown, why foreclosing entities either cannot or will not produce a valid chain of title in foreclosure proceedings even though it may cost them the case or sanctions by the courts.
Just as baffling, why would a lender make a loan and then lose the means by which to repossess the asset? There are, as it turns out, other ways for financial institutions to make money and when they can, they do.
That goes to the very heart of what happened to our prosperity. By reclassifying liabilities as assets, Wall Street was able to sell debt as an investment. Any kind of debt will do because the debt doesn’t matter. No risk is too great because there is no risk. They sell the loan and then make a bet that it will default. It’s called a Credit Default Swap (CDS).
A CDS is the most widely traded type of derivative, and these investments represent the biggest financial market in the world. CDS resemble insurance policies, but there is no requirement to actually hold any asset or suffer any loss, so CDS are widely used just to increase profits by gambling on market changes
According, to the Bank of International Settlements [BIS], the aggregate derivative positions of banks grew from $100 trillion in 2002 to — believe it — $516 trillions in 2007; that is over 500 per cent in five years.
The BIS recently reported that total derivatives trades exceeded one quadrillion dollars – that’s 1,000 trillion dollars. This is curious when you realize that the gross domestic product of all the countries in the world is only about 60 trillion dollars.
The answer is that gamblers can bet as much as they want. They can bet money they don’t have, and that is where the huge increase in risk comes in. There is no regulation of these instruments and they do not show as liabilities on the balance sheets of the institutions.
A Derivative is a financial instrument whose value is not its own, but derived from something else, on some underlying asset or transaction, such as commodities, equities (stocks) bonds, interest rates, exchange rates, stock market indexes, why, even inflation indexes, index of weather. Basically, they are just bets. You can “hedge your bet” that something you own will go up by placing a side bet that it will go down. “Hedge funds” hedge bets in the derivatives market.
Nor, did mortgage defaults cause the crisis. Mortgage securities made up only $7 trillion of the huge derivative market.
To the extent that any information is available on what brought us to this point, it is mostly bloggers.
Most of the blogging perceives the foreclosure problem as the result of sub-prime loans, irresponsible borrowers, and mortgage resets.
Such a superficial view reveals a complete lack of understanding of how the securitization of mortgages makes Wall Street all of that money out of nothing at all. You have to follow the money.
An important distinction is that the consumer was not the driving force behind this money binge, but the profits Wall Streets was making on Derivatives.
When you break it all down, it looks to me like Wall Street possibly took a lesson from Broadway. The Producers is about a Broadway producer and his accountant who realize they can make more money with a musical that was guaranteed to fail than one that would succeed. But, the musical’s sure-to-fail hit song, “Springtime for Hitler” surprisingly turned out to be an astonishing success. When the investors came for their profits, there were too many investors to pay back.
Wall Street, where life imitates art.
George W. Mantor is known as “The Real Estate Professor” for his wealth building formula, Lx2+(U²)xTFP=$? and consumer education efforts. During a career that has spanned more than three decades, he has amassed experience in new home and resale residential real estate, resort marketing, and commercial and investment property. He is currently the founder and president of The Associates Financial Group, a real estate consulting firm.
Mantor can be reached at GWMantor@aol.com.
Don’t miss more news on RISMedia.com:Read more: http://rismedia.com
The Difference Between Loan and Appraisal Contingencies
This question was asked by a Trulia Blogger. Here was the question.
I am trying to understand the difference between both. If there is an agreement to put 20% on a home with no appraisal contingency and if the bank estimates the home to be of much lower value would the situation not be covered by loan contingency (since bank may refuse to give the loan asked for)? What is the use of the appraisal contingency in cases where buyer only puts 20% down?
Here was my response.
The two are interrelated but there is a sharp difference between them. What is implied by your post, I would characterize as loan contingency consideration. In other words it strength of buyer in regards to financing.
(Lets start by discussing) the financing. Lets say we have a 400k loan and a buyer with 20% down payment of 100k on a 500k purchase. I use this beacuse I can do the math in my head easily. So buyer is in contract and the home appraises for 450k. Now like you descibe there is no problem with the loan approval. The buyer puts 90k down instead of 100k and you go to close right? Well no. A an appraisal contingency states that the contract is valid only if the property appraises for price on the contract. The buyer can now walk away. Right? Well no.
This is one way realtors make their money. Realtors make money by getting contracts to close. Our contracts state that the buyer just cant walk away. Buyers have to give the sellers a chance to reduce the sale price to the appriasal or get another appraisal (or lately go through an administrative appeals process which I wont get into here.) Clearly the buyer isn't going to balk, they loved the house at 500k at 450k it would be assumed they are now ecstatic.
Lets now say that the sellers pay for a 2nd appraisal and they lose the administraitve appeal. The value of the home is $450 per appriasal and there is an appraisal contingency and the contract says 20% down. The seller says, "I don't care, but I'll take 475k and I won't take a penny less." Now, we know the buyer can offer the seller the additonal 10k (The difference between 20% of 500k vs 20% of 450k) without a problem. The loan contingency though says that the buyer can only put down 20%. There is a 15k gap.
This is why there is a separate contingency for loan and appriasal.
Web Reference: http://bob2sell.com
I am trying to understand the difference between both. If there is an agreement to put 20% on a home with no appraisal contingency and if the bank estimates the home to be of much lower value would the situation not be covered by loan contingency (since bank may refuse to give the loan asked for)? What is the use of the appraisal contingency in cases where buyer only puts 20% down?
Here was my response.
The two are interrelated but there is a sharp difference between them. What is implied by your post, I would characterize as loan contingency consideration. In other words it strength of buyer in regards to financing.
(Lets start by discussing) the financing. Lets say we have a 400k loan and a buyer with 20% down payment of 100k on a 500k purchase. I use this beacuse I can do the math in my head easily. So buyer is in contract and the home appraises for 450k. Now like you descibe there is no problem with the loan approval. The buyer puts 90k down instead of 100k and you go to close right? Well no. A an appraisal contingency states that the contract is valid only if the property appraises for price on the contract. The buyer can now walk away. Right? Well no.
This is one way realtors make their money. Realtors make money by getting contracts to close. Our contracts state that the buyer just cant walk away. Buyers have to give the sellers a chance to reduce the sale price to the appriasal or get another appraisal (or lately go through an administrative appeals process which I wont get into here.) Clearly the buyer isn't going to balk, they loved the house at 500k at 450k it would be assumed they are now ecstatic.
Lets now say that the sellers pay for a 2nd appraisal and they lose the administraitve appeal. The value of the home is $450 per appriasal and there is an appraisal contingency and the contract says 20% down. The seller says, "I don't care, but I'll take 475k and I won't take a penny less." Now, we know the buyer can offer the seller the additonal 10k (The difference between 20% of 500k vs 20% of 450k) without a problem. The loan contingency though says that the buyer can only put down 20%. There is a 15k gap.
This is why there is a separate contingency for loan and appriasal.
Web Reference: http://bob2sell.com
Wednesday, October 28, 2009
Schizophrenic Sales Data
Don't believe what you read! Just kidding. This is a great lesson about what is going on in our market today and why it is great that we live in such a special state. In today's CAR newsletter the following short stories were in the same article.
C.A.R. releases Sept. sales and price report
Home sales increased 2.1 percent in September in California compared with the same period a year ago, while the median price of an existing home declined 7.3 percent, C.A.R. reported yesterday.
The median price of an existing, single-family detached home in California during September 2009 was $296,090, a 7.3 percent decrease from the revised $319,310 median for September 2008, C.A.R. reported. The September 2009 median price rose 1.1 percent compared with August’s $292,960 median price.
“A new milestone was reached in September, when five C.A.R. regions reported positive year-to-year increases in the median price, the first such increase since January 2008,” said C.A.R. Vice President and Chief Economist Leslie-Appleton-Young. “September also marked the seventh consecutive month of month-to-month increases in the statewide median price and the first single-digit decline in the year-to-year median price since October 2007, after 22 consecutive months of double-digit decreases.”
Home prices decline 0.3 percent nationwide
Home prices decreased 0.3 percent nationwide on a seasonally adjusted basis from July to August, according to the Federal Housing Finance Agency’s (FHFA) monthly House Price Index. The FHFA’s index is calculated using purchase prices of houses owned or guaranteed by Fannie Mae or Freddie Mac. For the 12 months ending in August, U.S. home prices decreased 3.6 percent. The U.S. index is 10.7 percent below its April 2007 peak.
Makes you wonder how both can be true. The answer is simple. Real estate is a local phenomenon subject to many more factors beyond being a home and a price. Jobs, income bracket, community, age demographic, price point, financing, interest rates all play a part in the value of real estate.
The median price is up due to liquidity that was in the process ot tightening up last year. A year ago a loan over $700k simply didn't exist so selling a home in that price point was an extreme challenge. Now the laon market has stabilized and more buyers have the capaility to purchase a home. More recently inventory has dried up and banks have slowed the rate in foreclosures into the market. These two factors have created a mini boom in the lower price points and as more homes have sold in the 500k-800k range, the median goes up and prices overall fall. I won't even the high end freefall of prices but this is simply icing on the cake.
C.A.R. releases Sept. sales and price report
Home sales increased 2.1 percent in September in California compared with the same period a year ago, while the median price of an existing home declined 7.3 percent, C.A.R. reported yesterday.
The median price of an existing, single-family detached home in California during September 2009 was $296,090, a 7.3 percent decrease from the revised $319,310 median for September 2008, C.A.R. reported. The September 2009 median price rose 1.1 percent compared with August’s $292,960 median price.
“A new milestone was reached in September, when five C.A.R. regions reported positive year-to-year increases in the median price, the first such increase since January 2008,” said C.A.R. Vice President and Chief Economist Leslie-Appleton-Young. “September also marked the seventh consecutive month of month-to-month increases in the statewide median price and the first single-digit decline in the year-to-year median price since October 2007, after 22 consecutive months of double-digit decreases.”
Home prices decline 0.3 percent nationwide
Home prices decreased 0.3 percent nationwide on a seasonally adjusted basis from July to August, according to the Federal Housing Finance Agency’s (FHFA) monthly House Price Index. The FHFA’s index is calculated using purchase prices of houses owned or guaranteed by Fannie Mae or Freddie Mac. For the 12 months ending in August, U.S. home prices decreased 3.6 percent. The U.S. index is 10.7 percent below its April 2007 peak.
Makes you wonder how both can be true. The answer is simple. Real estate is a local phenomenon subject to many more factors beyond being a home and a price. Jobs, income bracket, community, age demographic, price point, financing, interest rates all play a part in the value of real estate.
The median price is up due to liquidity that was in the process ot tightening up last year. A year ago a loan over $700k simply didn't exist so selling a home in that price point was an extreme challenge. Now the laon market has stabilized and more buyers have the capaility to purchase a home. More recently inventory has dried up and banks have slowed the rate in foreclosures into the market. These two factors have created a mini boom in the lower price points and as more homes have sold in the 500k-800k range, the median goes up and prices overall fall. I won't even the high end freefall of prices but this is simply icing on the cake.
Wednesday, October 21, 2009
Yahoo News Link
Here is a quick news link from Yahoo on the state of the market.
http://finance.yahoo.com/news/Homes-About-to-get-much-cnnm-699910894.html?x=0
http://finance.yahoo.com/news/Homes-About-to-get-much-cnnm-699910894.html?x=0
Wednesday, September 9, 2009
Home Improvement Rules of Thumb.
On a zillow blog a poster asked about how much to invest in a kitchen remodel. Stan at Brandon Handyman.com, "Realtors_Fix It Guy" posted in response. "Cost of kitchen upgrade should be at or near 1/5th in porportion but not exceeding 25% of total home value... As for a bath redo, stay around 20% overall value divided by number of bathrooms... ie. 2 baths = 10% ea... or 12.5% and 7.5%, etc.
I like this advice it though it provides a very generous range. This rule of thumb I would further advise is for owners who are planning on being in their home more than 5 years. Another poster in the kithcen and bath busess elaborated further.
your remodel, and as with all things in life, you will usually get what you pay for. If you want the products with finer quality, or more options, or the better quality, the more costly the remodel is going to be.
"...I usually suggest a project budget starting point of 15-20% as this will allow you to select the better quality materials and products that you will invariably want. If this is your "dream home" and you want this to be your "dream kitchen" you can easily shoot right past the 25% end of the rule, but then you are doing this for yourself, it's your dream, and you deserve it now don't you!! If you are remodeling to sell or you are planning on being in the home less than 2 years, I recommend shooting for the 10% end of the rule. By staying around 10% you will still be putting in good quality materials but you will not be spending unnecessarily. And while it is possible to spend less (I help clients do it all the time), if you go too much below the 10% rule, you may then start to devalue the home instead of increasing it's value. (things look cheap for a reason)."
I have to put a serious issue with the other guy's comments.
If a seller came up to me and told me they were going to put 10% of the cost of their home into the kitchen. The first question I would ask is how long are you going to live there? The psoter said if the answer is 2 years then clsoer to the 10% is closer. I say that if the number is less than 2 years do a cosmetic remodel because you are more likely going to get 70 cents on the dollar return on your money. The lower one is on the home price range, the lower that return goes. This requires some elaboration.
If you live in a $300k home and put $30k into the kitchen then learned you had to sell right away. It is very resonable to expect $330k back right away but probaly more like $320k all other things equal. But I will share that if one planned to remodeled the kitchen with the intent to sell on the plannable horizon, I could put you in touch with people who could do it for $12k and we could sell the home for $330k. Sound good to you?
Most people don't know the difference between a "value" remodel or "quality" remodel. To he honest (and this is no disparaging any one here) I have seem the same quality of materials used for both a 15k and 30k remodel. The poster comes form San Ramon CA. I advised they go out to the new construction in the Dougherty Valley, an area where much development is happening, and look at the "quality" materials some builders are putting in those homes with masontie laminate covered drawer bottoms and laminate shelving. I ask would this be a 15k or 30k kitchen? Those builders use high end looking finishes which is what people want. They want nice looking and new.
If one is going to put in a kitchen in the 300k home would anyone really advise they spend 75k?
I would condition these statements by saying a homeowner should take the average cost of the home in their neighborhood then add the cost of the remodel. If that number is meaningfully over the most expensive recent sale in the area, then lower your budget.
I like this advice it though it provides a very generous range. This rule of thumb I would further advise is for owners who are planning on being in their home more than 5 years. Another poster in the kithcen and bath busess elaborated further.
your remodel, and as with all things in life, you will usually get what you pay for. If you want the products with finer quality, or more options, or the better quality, the more costly the remodel is going to be.
"...I usually suggest a project budget starting point of 15-20% as this will allow you to select the better quality materials and products that you will invariably want. If this is your "dream home" and you want this to be your "dream kitchen" you can easily shoot right past the 25% end of the rule, but then you are doing this for yourself, it's your dream, and you deserve it now don't you!! If you are remodeling to sell or you are planning on being in the home less than 2 years, I recommend shooting for the 10% end of the rule. By staying around 10% you will still be putting in good quality materials but you will not be spending unnecessarily. And while it is possible to spend less (I help clients do it all the time), if you go too much below the 10% rule, you may then start to devalue the home instead of increasing it's value. (things look cheap for a reason)."
I have to put a serious issue with the other guy's comments.
If a seller came up to me and told me they were going to put 10% of the cost of their home into the kitchen. The first question I would ask is how long are you going to live there? The psoter said if the answer is 2 years then clsoer to the 10% is closer. I say that if the number is less than 2 years do a cosmetic remodel because you are more likely going to get 70 cents on the dollar return on your money. The lower one is on the home price range, the lower that return goes. This requires some elaboration.
If you live in a $300k home and put $30k into the kitchen then learned you had to sell right away. It is very resonable to expect $330k back right away but probaly more like $320k all other things equal. But I will share that if one planned to remodeled the kitchen with the intent to sell on the plannable horizon, I could put you in touch with people who could do it for $12k and we could sell the home for $330k. Sound good to you?
Most people don't know the difference between a "value" remodel or "quality" remodel. To he honest (and this is no disparaging any one here) I have seem the same quality of materials used for both a 15k and 30k remodel. The poster comes form San Ramon CA. I advised they go out to the new construction in the Dougherty Valley, an area where much development is happening, and look at the "quality" materials some builders are putting in those homes with masontie laminate covered drawer bottoms and laminate shelving. I ask would this be a 15k or 30k kitchen? Those builders use high end looking finishes which is what people want. They want nice looking and new.
If one is going to put in a kitchen in the 300k home would anyone really advise they spend 75k?
I would condition these statements by saying a homeowner should take the average cost of the home in their neighborhood then add the cost of the remodel. If that number is meaningfully over the most expensive recent sale in the area, then lower your budget.
Tuesday, August 11, 2009
Maybe it’s time to let Bankruptcy Courts deal with Neg-Am Mortgages.
This blog should fall into the arena of gossip for some more educated source to follow up and provide better and more firm facts.
Someone I trust was talking to a banker and they started to discuss the problems with the banking system. After covering all the numerous talking points about who was to blame and pointing the usual fingers; the Community Investment Act, Fannie and Freddie Mac acting as irresponsible investor on bad loans, and the removal of the restriction preventing Investment Banks from engaging in real estate (Glass-Stegal). In other words the usual complaints. They then started to discuss possible solutions to the debacle, this is where I became interested.
Most real estate agents, and others who have attempted a loan modification, know what kind of a byzantine nightmare the process can be. Many calls, lost paperwork, and low level staff manning the phones that have no authority other than the right to tell you 'NO' and 'declined'.
They talked about the system. Once a bank receives the modification or short sale request, it has to go to its files and pull the loan documents, submit all the paperwork to an underwriter who was given a set of policies drafted by the banks attorney's who may also eventually research the loan. At the same time, if there is a second loan, a concurrent negotiation occurs with an institution that has their own phalanx of underwriters, attorneys, and guidelines.
Part of the bank's research is to determine if there was mortgage insurance and if there was an investor on the loan. Once it is discovered that these entities exist, there are yet another set of guidelines to deal with from corporations who have yet another series of underwriters, guidelines, and attorneys.
So lets review, under the ideal situation in any short sale or loan modification with one loan there
could be as few one and many as three institutions involved; the bank then additionally one insurer and/or one investor. If there are two mortgages, then there are two to six institutions.
Now let's complicate the matter, like the reality for most. No bank has one investor, nor do they use one insurer. So as the pool of loans grows and the number of vendors grows, and the process gets more and more complicated. Other complications arise when you consider the myriad of state laws and the fact that many of the investors are overseas. but then it gets really tricky.
Somewhere along the line, investment banks created these "so-called" risk hedges called the collateralized mortgage obligation or collateralized debt obligation (CMO's or CDO's). This was a new form of investment designed to reduce losses on bad mortgages. So the banks take their pool of assets backed by debt and people's incomes and they divide these obligations into investment vehicles, using another set of contracts (drafted by attorneys) and start trading them on Wall Street to institutional investors (who have their own attorneys).
So at the peak of the bubble we had we had little or no oversight from the Republicans, We had Democrats pushing banks to underwrite bad loans that were purchased by Fannie Mae and Freddie Mac. The Investment Banks poured money into the mortgage market. Banks wrote loans, sold some to investors, and insured others, all while packaging bundles of investments and selling them to insurance companies, other banks, foreign governments and hedge funds.
So now the banker gets to the end of his discussion. "Event's didn't work out so well." he says. "Real Estate agents are working the short sales and individuals are trying to perform loan modifications." He continued, "The reason most loan mod's and short sales do not get approved is because it is just cheaper to foreclose than to deal with all the various companies and their attorneys. Every bank can't come up with one set of guidleines to deal with all the different situations all these contracts and attorneys have created." Once the foreclosure occurs then it wipes the slate clean for the bank holding the loan at the core of this complex system of contracts. The homeowner is treated like one of the investors and gets wiped out with the foreclosure.
This is why it's so hard to do a short sale or loan mod.
Someone I trust was talking to a banker and they started to discuss the problems with the banking system. After covering all the numerous talking points about who was to blame and pointing the usual fingers; the Community Investment Act, Fannie and Freddie Mac acting as irresponsible investor on bad loans, and the removal of the restriction preventing Investment Banks from engaging in real estate (Glass-Stegal). In other words the usual complaints. They then started to discuss possible solutions to the debacle, this is where I became interested.
Most real estate agents, and others who have attempted a loan modification, know what kind of a byzantine nightmare the process can be. Many calls, lost paperwork, and low level staff manning the phones that have no authority other than the right to tell you 'NO' and 'declined'.
They talked about the system. Once a bank receives the modification or short sale request, it has to go to its files and pull the loan documents, submit all the paperwork to an underwriter who was given a set of policies drafted by the banks attorney's who may also eventually research the loan. At the same time, if there is a second loan, a concurrent negotiation occurs with an institution that has their own phalanx of underwriters, attorneys, and guidelines.
Part of the bank's research is to determine if there was mortgage insurance and if there was an investor on the loan. Once it is discovered that these entities exist, there are yet another set of guidelines to deal with from corporations who have yet another series of underwriters, guidelines, and attorneys.
So lets review, under the ideal situation in any short sale or loan modification with one loan there
could be as few one and many as three institutions involved; the bank then additionally one insurer and/or one investor. If there are two mortgages, then there are two to six institutions.
Now let's complicate the matter, like the reality for most. No bank has one investor, nor do they use one insurer. So as the pool of loans grows and the number of vendors grows, and the process gets more and more complicated. Other complications arise when you consider the myriad of state laws and the fact that many of the investors are overseas. but then it gets really tricky.
Somewhere along the line, investment banks created these "so-called" risk hedges called the collateralized mortgage obligation or collateralized debt obligation (CMO's or CDO's). This was a new form of investment designed to reduce losses on bad mortgages. So the banks take their pool of assets backed by debt and people's incomes and they divide these obligations into investment vehicles, using another set of contracts (drafted by attorneys) and start trading them on Wall Street to institutional investors (who have their own attorneys).
So at the peak of the bubble we had we had little or no oversight from the Republicans, We had Democrats pushing banks to underwrite bad loans that were purchased by Fannie Mae and Freddie Mac. The Investment Banks poured money into the mortgage market. Banks wrote loans, sold some to investors, and insured others, all while packaging bundles of investments and selling them to insurance companies, other banks, foreign governments and hedge funds.
So now the banker gets to the end of his discussion. "Event's didn't work out so well." he says. "Real Estate agents are working the short sales and individuals are trying to perform loan modifications." He continued, "The reason most loan mod's and short sales do not get approved is because it is just cheaper to foreclose than to deal with all the various companies and their attorneys. Every bank can't come up with one set of guidleines to deal with all the different situations all these contracts and attorneys have created." Once the foreclosure occurs then it wipes the slate clean for the bank holding the loan at the core of this complex system of contracts. The homeowner is treated like one of the investors and gets wiped out with the foreclosure.
This is why it's so hard to do a short sale or loan mod.
Friday, June 19, 2009
Buyer's Agency
For most people, buying a home is their single biggest investment. The process is filled with many complex details that may seem confusing and complicated if not properly understood. The rules are generally governed by the contracts agreed to between buyer and seller. These contracts are typically drawn up by the attorneys for the companies that make up each MLS association across the country. They draft these agreements to reconcile state laws and the court cases of each state where problems arise between buyer and seller.
In the past, agents were legally obligated to protect the interests of the home seller. Today, in our consumer oriented society, that model has been replaced. Agents who represent buyers have the legal duty to protect those buyers under state agency laws. The most recent changes to the business of real istate is the introduction of homebuyer agreements. Homebuyers are choosing to have their own real estate agent, a contracted buyer's agent, to legally represent them under a written agreement.
In every case where an agent is a buyer’s representative is involved, under contract or not, the agency law requires specific represenation for you, the buyer, not the seller, and has full fiduciary duties, including loyalty to the buyer. By definition and law, the buyer’s agent has your best interests in mind throughout the transaction. The percentage of homebuyers with buyer representation has grown significantly in the past decade. According to a recent National Association of Realtors® survey, nearly half (46%) of home buyers used the services of a buyer’s agent last year, and four out of every five buyer’s agent agreements were in writing.
The following points are presented at the beginning of every transaction on a document called the Agency Disclosure regardless of whether or not there is a contract between the buyer and his agent . The buyer’s agent and the homebuyer establish by mutual agreement and in writing, known as a buyer's agency agreement, that will entitle the homebuyer to:
Loyalty: The real estate agent has a fiduciary resposibility, the highest protection under the law, to act in the best interest of the buyer.
Reasonable Skill and Care: Performing the job of an Agent with the utmost care, integrity and honesty. Some of the tasks include; Assisting in the determing a purchase price, resourcing professionals in the discovery of material facts, and investigating the material issues important to the buyer.
Disclosure: All material facts such as relationships between agent and other parties, existence of other offers, status of deposits, and legal effect of important contract provisions.
Confidentiality: Any discussions, facts, or information that should not be revealed to others but does not include responsibility of fairness and honesty in dealings with all parties. Accounting in dealings. Negotiaing you your behalf without compromsing your position or disclosing unnecessary knowledge about you.
Buyers Agency Agreements
There are two types of buyers agency agreements. One is where the agent is compensated by the buyer regardless of what the buyer purchased and the other simply defines and clarifies the legal considerations between buyer and the agent. Buyers should be aware and ask the question about how the agent is compensated since there are legal remifications. For example, if the buyer under a buyers agent compensation agreement innocently discovers that his friend is selling a home he can purchase and makes an agreement to buy his house without agents. The buyer may be obligated to pay a commission to his buyers agent even when the agent was not involved in the process.
Using buyers brokerage agreements is helpful between buyers and their agents because they do make clear the duties and responsibilites of the agent and a buyer.
Monday, June 15, 2009
The ABC's of the Real Estate Market
I recently went to a seminar and the presenter had a great way to describe areas in an investment standpoint.
A residential housing market can be broken into 3 parts the "lower end", homes priced under the conforming loan maximum, and the "high end." The high end has two parts. One is the the market that requires leverage to purchase from the conforming lona limit to somehwere in the lo millions.
The lower end can again be broken into 3 parts. Grade A: The areas that had value 3 years ago and will have value again 3 years form now. Grade B : The areas that will improve in the next recovery. Grade C: The bottom and most challenging areas that are currently flooded with foreclosures.
Each area offers a unique opprotunity for different types of buyers. For example, first time home buyers who are interested in appreciation may be advised to purchase in category B areas if they are not financially able to purchase in category A areas since the B areas should improve in the next up cycle.
With regards to investments, this description should hold true as well. The most money would be expected in the category B areas. Category A markets will be tighter and from an investment standpoint will be characterized as good places to park money. Basically a place to preserve capital. The market may go down, but these category A area have historically been the first to recover in prior upswings, currently these markets are under pressure.
Category B areas have for the most part bottomed and should will hold, all other things being equal, being a good place for capital growth in the long term. The lower the price the more this characterization is true. Over the last few years, these homes have fallen further from their highs as a percentage of price and will recover quicker due to the homes being more affordable and in lower price points.
Category C areas are for cash buyers only and only make sense for LONG term holds (like a bond) the appreciation will be slow but the prices on a per square foot basis are generous making rental streams good only when unlevered and price is a factor.
Category A areas are closer to the top of the conforming loan range (629k). Category B and C areas are in the mid and lower price ranges.
In centreal and east Contra Costa County, places like San Ramon, Danville, Walnut Creek, are solid category A properties. Pleasant Hill starts in the lower end A range and moves into the upper end homes. Concord, Martinez and Livermore are solid B categories with category A components. Antioch, Pittsburg, Brentwood and outlying areas are in the solid C category.
A residential housing market can be broken into 3 parts the "lower end", homes priced under the conforming loan maximum, and the "high end." The high end has two parts. One is the the market that requires leverage to purchase from the conforming lona limit to somehwere in the lo millions.
The lower end can again be broken into 3 parts. Grade A: The areas that had value 3 years ago and will have value again 3 years form now. Grade B : The areas that will improve in the next recovery. Grade C: The bottom and most challenging areas that are currently flooded with foreclosures.
Each area offers a unique opprotunity for different types of buyers. For example, first time home buyers who are interested in appreciation may be advised to purchase in category B areas if they are not financially able to purchase in category A areas since the B areas should improve in the next up cycle.
With regards to investments, this description should hold true as well. The most money would be expected in the category B areas. Category A markets will be tighter and from an investment standpoint will be characterized as good places to park money. Basically a place to preserve capital. The market may go down, but these category A area have historically been the first to recover in prior upswings, currently these markets are under pressure.
Category B areas have for the most part bottomed and should will hold, all other things being equal, being a good place for capital growth in the long term. The lower the price the more this characterization is true. Over the last few years, these homes have fallen further from their highs as a percentage of price and will recover quicker due to the homes being more affordable and in lower price points.
Category C areas are for cash buyers only and only make sense for LONG term holds (like a bond) the appreciation will be slow but the prices on a per square foot basis are generous making rental streams good only when unlevered and price is a factor.
Category A areas are closer to the top of the conforming loan range (629k). Category B and C areas are in the mid and lower price ranges.
In centreal and east Contra Costa County, places like San Ramon, Danville, Walnut Creek, are solid category A properties. Pleasant Hill starts in the lower end A range and moves into the upper end homes. Concord, Martinez and Livermore are solid B categories with category A components. Antioch, Pittsburg, Brentwood and outlying areas are in the solid C category.
Wednesday, June 10, 2009
Home Modification Trial Period
http://www.contracostatimes.com/business/ci_12520979?nclick_check=1
This newpaper article was printed on June 8th, 2009 Contra Costa Times. It is a detailed explanation, in Q and A form, about the governments Home Affordable Mortgage Modification program.
This newpaper article was printed on June 8th, 2009 Contra Costa Times. It is a detailed explanation, in Q and A form, about the governments Home Affordable Mortgage Modification program.
Monday, June 8, 2009
Stuck between a Mortgage Rock and a Hard Place?
You are not alone.
http://www.marketwatch.com/story/one-owners-tale-of-mortgage-modification-hell?pagenumber=1
Another Short Post.
http://www.marketwatch.com/story/one-owners-tale-of-mortgage-modification-hell?pagenumber=1
Another Short Post.
Friday, June 5, 2009
Quick Post on Bay Area Real Estate Market
Here is a online news story form CBS Marketwatch on Bay Area housing.
http://www.marketwatch.com/story/were-overlooking-signs-of-housing-comeback?siteid=nwhpf&sguid=vmtIvi8U2kmwaufqPiI3RQ
For more information e-mail me direct under the heading "Trough Bottom"
http://www.marketwatch.com/story/were-overlooking-signs-of-housing-comeback?siteid=nwhpf&sguid=vmtIvi8U2kmwaufqPiI3RQ
For more information e-mail me direct under the heading "Trough Bottom"
Tuesday, March 17, 2009
Good Intentions
This was a post was copied with the poster's permission from Trulia.com advice.
(A) church orchestrated a purchase of a single family home to be used by the senior pastor. About three years ago the church’s Board of decided to purchase a single family home adjacent to the church. At the time since the church was financially burdened, they decided to purchase the property under a junior pastor’s name. During the no-down payment and no income verification era, a junior pastor who only makes $1,000/month was approved and was able to purchase a $680K home now worth $550K, which he handed over to the senior pastor. For the last three years, the church has been paying the mortgage payment of around $1,700 (option-arm loan.) The church is still paying the payment and is willing to continue making the payment. Now the junior pastor is saying that the Board tricked him into this and wants out. How can the church be able to assume the loan w/o paying the negative equity? What should we ask the lender to do? Isn't the bank better off transferring the loan?
When I initially read this post, thoughts raced thought my head. The poster was in Oakland about 20 minutes from where I do business. Close enough to know what is going on there but far enough away to not be involved. In the heyday when Walnut Creek values were high theirs were out of sight. When we were seeing 10 offers on homes they had 30 offers. Prices were through the roof. It was a sign of the times, good times for the agents but not so much for the buyers.
As the peak neared innocent people started pulling together to find innovative solutions to their individual housing problem. Like this example, they worked together, discovered a solution, and solved the problem. Like life, everything goes well until it doesn’t go well anymore. The irony here, of course, is the innocents are member of the church, who pulled together to help the senior pastor.
Some variation of the proverb “The road to hell is paved with good intentions” was coined by Saint Bernard of Clairvaux (1091-1153). I am sure he wasn’t talking about a real estate transaction but I would suggest he may have been the first church attorney. Let’s examine how these innocents stepped over the line.
Everyone for noble reasons allowed the innocent's to purchase a property without the income to support a loan. This business was a common practice; everyone was doing this sort of business. The innocents put one of their own up to get a loan. A loan broker sold (now this is really ironic) them a liar loan of some kind. Some mortgage bank underwrote the loan. Some agent sold them the property. Some seller made some cash.
Then the chips came falling. Prices fell. Accusations are flying. The loan is no good.
Now they are now caught between the law and the bank. The freely admit to finding a (unqualified) buyer to purchase a property on behalf of a financially burdened entity. This process is called finding a straw buyer. The practice as it is commonly known has to be handled carefully in order to avoid falling into the category of unethical or even illegal. In order for the transaction to function properly, all parties need to be made aware the buyer of record is an intermediary, the intermediary buyer has to be qualified to purchase the property, and paperwork has be in order. At best the church is on the hook for the full amount of the loan, at worst its fraud.
The innocents now need help and are looking for ways to reduce the basis of the property. I advised them to seek counsel.
The point of this post is not really to demonstrate how easy it was to step over the ethical and legal lines. It’s that the characterizations of important people and talking heads do not reflect the reality of the last few years of the real estate boom. These people were permitted by a unregulated and broken system to take a risk; a risk that offered a reasonable upside but returned a whole lot of trouble. They were innocents that had a need, who found a solution, and became a statistic.
(A) church orchestrated a purchase of a single family home to be used by the senior pastor. About three years ago the church’s Board of decided to purchase a single family home adjacent to the church. At the time since the church was financially burdened, they decided to purchase the property under a junior pastor’s name. During the no-down payment and no income verification era, a junior pastor who only makes $1,000/month was approved and was able to purchase a $680K home now worth $550K, which he handed over to the senior pastor. For the last three years, the church has been paying the mortgage payment of around $1,700 (option-arm loan.) The church is still paying the payment and is willing to continue making the payment. Now the junior pastor is saying that the Board tricked him into this and wants out. How can the church be able to assume the loan w/o paying the negative equity? What should we ask the lender to do? Isn't the bank better off transferring the loan?
When I initially read this post, thoughts raced thought my head. The poster was in Oakland about 20 minutes from where I do business. Close enough to know what is going on there but far enough away to not be involved. In the heyday when Walnut Creek values were high theirs were out of sight. When we were seeing 10 offers on homes they had 30 offers. Prices were through the roof. It was a sign of the times, good times for the agents but not so much for the buyers.
As the peak neared innocent people started pulling together to find innovative solutions to their individual housing problem. Like this example, they worked together, discovered a solution, and solved the problem. Like life, everything goes well until it doesn’t go well anymore. The irony here, of course, is the innocents are member of the church, who pulled together to help the senior pastor.
Some variation of the proverb “The road to hell is paved with good intentions” was coined by Saint Bernard of Clairvaux (1091-1153). I am sure he wasn’t talking about a real estate transaction but I would suggest he may have been the first church attorney. Let’s examine how these innocents stepped over the line.
Everyone for noble reasons allowed the innocent's to purchase a property without the income to support a loan. This business was a common practice; everyone was doing this sort of business. The innocents put one of their own up to get a loan. A loan broker sold (now this is really ironic) them a liar loan of some kind. Some mortgage bank underwrote the loan. Some agent sold them the property. Some seller made some cash.
Then the chips came falling. Prices fell. Accusations are flying. The loan is no good.
Now they are now caught between the law and the bank. The freely admit to finding a (unqualified) buyer to purchase a property on behalf of a financially burdened entity. This process is called finding a straw buyer. The practice as it is commonly known has to be handled carefully in order to avoid falling into the category of unethical or even illegal. In order for the transaction to function properly, all parties need to be made aware the buyer of record is an intermediary, the intermediary buyer has to be qualified to purchase the property, and paperwork has be in order. At best the church is on the hook for the full amount of the loan, at worst its fraud.
The innocents now need help and are looking for ways to reduce the basis of the property. I advised them to seek counsel.
The point of this post is not really to demonstrate how easy it was to step over the ethical and legal lines. It’s that the characterizations of important people and talking heads do not reflect the reality of the last few years of the real estate boom. These people were permitted by a unregulated and broken system to take a risk; a risk that offered a reasonable upside but returned a whole lot of trouble. They were innocents that had a need, who found a solution, and became a statistic.
Tuesday, March 10, 2009
I sent a client who is early on the path to trouble to his lender to try to do a ‘Help for Homeowners’ loan restructuring. This was the first failed attempt by the government to stem the tide of foreclosures late in last administration.
She would be the latest prospect I had sent to an attorney, an accountant and back to the bank. Her situation is this and generally the same with the other prospects who ran that gamut. She bought when prices were high. She had sold a condominium and put minimal down payment on a house with a conventional loan. When the home price spiked she was sold a negative amortized loan from a friend and pulled cash out. Years passed, the value of the home dropped 50%, and the interest rate reset so that the interest only optional payment is 50% of her take home income.
The attorney told her she is on he hook for the difference should she sell. Having good credit, she saved a nice little nest egg for a young woman in her 30’s and would do fine if she could correct the loan problem. She wants to protect her credit but in order to do so she has to get out of the loan.
Since banks are not refinancing people whose loans are in excess of their home values and they are not giving loans to people who would be paying in excess of 50% of their net take home pay. Every month the negative amortized portion of the loan is added to the loan basis, in other words she is going further underwater. Right now, this woman in on the path to losing the home. It’s not a mater of ‘if’ it’s a matter of ‘when’ unless something changes.
We discussed the ‘Help for Homeowners’ plan. The jist of the program is to help people stay in their homes by restructuring the values to current market prices, with reduced loan basis and fixed rates, but you give as little as 50% of your equity to the bank. Don’t worry about the accuracy of these specifics because the details are as irrelevant as the program. I advised her to give it a try.
She called Indymac Bank and asked about their ‘Help for Homeowners’. Yes, I said Indymac. The bank the federal government owns….THE BANK THE FEDERAL GOVERNMENT OWNS! They told her she had to be 45 day’s late on her mortgage payments in order to qualify.
She called me asking if she should make her tax and mortgage payments. Unfortunately I am licensed and couldn’t tell her what the smart thing to do was.
I am now sending her the specifics of the Obama plan. I’ll keep you posted.
She would be the latest prospect I had sent to an attorney, an accountant and back to the bank. Her situation is this and generally the same with the other prospects who ran that gamut. She bought when prices were high. She had sold a condominium and put minimal down payment on a house with a conventional loan. When the home price spiked she was sold a negative amortized loan from a friend and pulled cash out. Years passed, the value of the home dropped 50%, and the interest rate reset so that the interest only optional payment is 50% of her take home income.
The attorney told her she is on he hook for the difference should she sell. Having good credit, she saved a nice little nest egg for a young woman in her 30’s and would do fine if she could correct the loan problem. She wants to protect her credit but in order to do so she has to get out of the loan.
Since banks are not refinancing people whose loans are in excess of their home values and they are not giving loans to people who would be paying in excess of 50% of their net take home pay. Every month the negative amortized portion of the loan is added to the loan basis, in other words she is going further underwater. Right now, this woman in on the path to losing the home. It’s not a mater of ‘if’ it’s a matter of ‘when’ unless something changes.
We discussed the ‘Help for Homeowners’ plan. The jist of the program is to help people stay in their homes by restructuring the values to current market prices, with reduced loan basis and fixed rates, but you give as little as 50% of your equity to the bank. Don’t worry about the accuracy of these specifics because the details are as irrelevant as the program. I advised her to give it a try.
She called Indymac Bank and asked about their ‘Help for Homeowners’. Yes, I said Indymac. The bank the federal government owns….THE BANK THE FEDERAL GOVERNMENT OWNS! They told her she had to be 45 day’s late on her mortgage payments in order to qualify.
She called me asking if she should make her tax and mortgage payments. Unfortunately I am licensed and couldn’t tell her what the smart thing to do was.
I am now sending her the specifics of the Obama plan. I’ll keep you posted.
Wednesday, March 4, 2009
First Real Estate Rant
You have to hand it to those people in Washington. We have about the 5th attempt to reinvent this real estate market. Billions of dollars being pumped into banks to prop them up and all the while the politicians throw snowballs at the avalanche.
So here is my story and I will update it on a periodic basis. I was making crazy dolalrs as a flipper. I did see the top and sold off my junk at a nice profit (I have the 50k tak bill to prove it). I kept one "problem" property and 2 cash flow positive ones. They are my nest egg if I can hold out.
The problem property without getting into too much detail was on account of city zoning and litigation. It was purchased as an investment but I am now living in it to same the property. It is bleeding me about a $1500 month provided the libor index doesn't rise. I figure I have 2 years. Since I have multiple investment's though and my income is not so great on account of the banks not lending. I am living on borrowed time.
So right now my note is at 3%! I'm loving it right now, though the other homes are on floating rate loans and I can't refinance into fixed since its all investor.
Back to the problem, as a realtor the income isn't there to refinance. Since the home was purchased as an investment the bank's won't help but the seem to be willing to foreclose. If you want to know why we have a real estate problem there it is. This story is not uncommon.
If you believe your politicians are looking out for you your living in a fantasy world. More later.
So here is my story and I will update it on a periodic basis. I was making crazy dolalrs as a flipper. I did see the top and sold off my junk at a nice profit (I have the 50k tak bill to prove it). I kept one "problem" property and 2 cash flow positive ones. They are my nest egg if I can hold out.
The problem property without getting into too much detail was on account of city zoning and litigation. It was purchased as an investment but I am now living in it to same the property. It is bleeding me about a $1500 month provided the libor index doesn't rise. I figure I have 2 years. Since I have multiple investment's though and my income is not so great on account of the banks not lending. I am living on borrowed time.
So right now my note is at 3%! I'm loving it right now, though the other homes are on floating rate loans and I can't refinance into fixed since its all investor.
Back to the problem, as a realtor the income isn't there to refinance. Since the home was purchased as an investment the bank's won't help but the seem to be willing to foreclose. If you want to know why we have a real estate problem there it is. This story is not uncommon.
If you believe your politicians are looking out for you your living in a fantasy world. More later.
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