Mortgage Lenders Pursue Homeowners even after Foreclosure.

http://finance.yahoo.com/news/mortgage-lenders-pursue-cnnm-3107909798.html?x=0

I have posted on Trulia and elsewhere that attorney will be buying up the banks bad debt contracts and looking for situation where they can pressure formely foreclosed owners into settlements. Buy and bail homeowners from early in this correction will find it difficult and expensive to fight these collection attorneys.

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

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.

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.

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

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.

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.

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.

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.

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.

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.

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"