There have been a lot of articles about the current state of distressed properties. I think that this is a very good explanation of what is going on.
From a homeowner/consumer point of view, it is crazy, but from the financial organization's point of view, they will do what makes the most sense for them given the current regulatory environment, without regard to any social cost or hardship for individuals affected.
Banks Playing “Foreclosure Roulette” with Delinquent Homeowners
Bea Garwood has been bracing for foreclosure since May, but she says she's been told three times to expect a sheriff's sale in the next month and it still hasn't happened.
"We really at this point do not know where we are in the process," said Garwood, who lives in Pinckney, Mich. with her husband. "We have no clue. We haven't even heard from Chase bank in three weeks."
The Garwoods may have had a lucky spin in the game that industry analyst Sean O'Toole calls "Foreclosure Roulette."
Banks don't want to recognize losses by having to put homes on the market at foreclosure-sale prices, but they don't want to encourage borrowers to quit making payments either, so, O'Toole believes, they randomly foreclose on some people to prevent widespread "moral hazard." The rest are left hanging with the help of the government's "extend and pretend" approach to the collapse of the housing bubble.
"We just don't have the political appetite to bail homeowners out," said O'Toole, CEO of ForeclosureRadar.com. "On the other hand, we don't have the political appetite to kick them out."
Last year the Garwoods tried to modify the mortgage on their Pinckney, Mich. home under the Obama administration's Home Affordable Modification Program, which is supposed to put eligible borrowers into a three-month trial period before making the modification "permanent" for five years. The Garwoods' trial period dragged on for nine months before they received a letter of rejection in March. They've been waiting anxiously since then for the day they will finally lose their house.
It may be a while. The average foreclosure now takes 469 days, according to Lender Processing Services, whereas it took 319 days at the beginning of 2009. Many industry analysts say that is due to the Troubled Asset Relief Program, HAMP, and federal accounting-rule changes.
"We weakened accounting standards to allow banks to keep non-paying mortgages in their books at full value," wrote economist Dean Baker, co-director of the progressive Center for Economic and Policy
Research. "Banks also know that they are looking at glutted markets right now, so they have little incentive to take possession of a home and then try to sell it. And, the HAMP and other programs mostly delay foreclosures and hand money to banks, instead of keeping people in their homes."
American Banker reported last week that the procrastination on foreclosures could backfire: "With home prices expected to fall as much as 10% further, the refusal to foreclose quickly on and sell distressed homes at inventory-clearing prices may be contributing to the stall of the overall market seen in July sales data. It also may increase the likelihood of more strategic defaults."
Of the 1.5 million trial offers made by servicers participating in HAMP, 616,839 have resulted in cancellations, while only 434,716 have resulted in permanent modifications, according to government data released in August. But Treasury officials have said even if a person isn't able to stay in his or her home, HAMP is a success if assists that person in "transitioning with dignity to more suitable housing."
Borrowers rejected from HAMP are sometimes confused, as the Garwoods are, about the reason for their rejection. (Chase has declined to comment on the Garwoods' situation.)
"There's still a lot of uncertainty about why certain homeowners are receiving help in HAMP and others are not," said Diane Standaert, legislative counsel with the Center for Responsible Lending. Standaert said policymakers should consider allowing bankruptcy judges to write down mortgage principal (a process sometimes known as "cramdown"). "I think this new game of casino that lenders and servicers are playing with homeowners...is not going to cut it."
Thursday, September 2, 2010
In Defensive of Home Ownership
I've read several negative articles lately about home ownership, most based on erroneous data and false assumptions. For example, the writer will construct a scenario where current rent is much less than a current mortgage (which is not the case around here) and then throw in the other costs of home ownership, neglecting the forced-savings of paying down the mortgage and the tax breaks involved, etc., which make ownership a better investment - especially over time.
Another article says that stocks appreciate just as much as homes, but neglects to mention the 5 to 1 leverage of a home, which would give 5 times the return as the stocks and the capital gains on home ownership are exempt from taxes, whereas the stock gains are not - another big advantage, etc.
This is a well-balanced article by one of the authors of the famous Case-Shiller index. These academics have be mostly bearish on the housing market prospects for several years, but now Dr Case is coming around to suggesting to good reasons to buy and own a home at this time.
A Dream House After All
By KARL E. CASE
Boston
IF you read the coverage of the latest figures on the sales of existing homes from the National Association of Realtors, you may well have come to the conclusion that the American dream is dead. It is indeed worrisome that sales in July were down 25 percent from a year ago.
But a little perspective is in order.
First, the bad news. What has happened in the housing markets since 2005 is a catastrophe that may take years for our economy to recover from.
Anyone who believed that home prices never fall has learned a tough lesson. The Case-Shiller price indexes released on Tuesday suggest that since their national peak in 2006, home prices have fallen by 29 percent. Some areas of course look better than others. Las Vegas is down 57 percent from its peak and
Phoenix is down 51 percent. On the other hand, Boston is down just 13.5 percent and Dallas only 4.2 percent.
The effect on household wealth has been huge. Data maintained by the Federal Reserve show that the value of residential real estate directly held by households fell to $16.5 trillion in the first quarter of 2010, down from $22.9 trillion in 2006. It has yet to be determined who will end up bearing those losses. The decline in wealth has substantially reduced consumption, stifling the economy.
Depressing, yes — but the end of a dream? Not exactly. I have never quite understood what the American dream really means when it comes to housing. For some people, it means having a solid and fairly safe long-term investment that is coupled with the satisfaction of owning the house they live in. That dream is still alive.
Others, however, think the American dream is owning property that appreciates by 30 percent a year, making a house into a vehicle for paying bills. But those kinds of dreams have become nightmares for the millions of foreclosed property owners who have found themselves sliding toward bankruptcy.
But for people with a more realistic version of the American dream, buying a house now can make a lot of sense. Think of it as an investment. The return or yield on that investment comes in two forms. First, it provides what is called “net imputed rent from owner-occupied housing.” You live in the house and so it provides you with a real flow of valuable services. This part of the yield is counted as part of national income by the Commerce Department. It is the equivalent of about a 6 percent return on your investment after maintenance and repair, and it is constant over time in real terms. Consider it this way: when Enron went belly up, shareholders ended up with nothing, but when the housing market drops, homeowners still have a house. And this benefit is tax-free.
The second part of the yield on investment in a house is the capital gain you receive if it appreciates and you sell the house. Gains are excluded from taxation if the property is a primary residence and the gain is less than $250,000 for a single filer or $500,000 for a married couple filing jointly.
Consider a few other bonuses of buying a home today. You can deduct the interest you pay on the mortgage. Interest rates are about as low as they can get. And, don’t forget, home prices are down by 30 percent on average from the peak. The mortgage-interest deduction and the tax-free income from housing cost the government at least $200 billion a year.
During this recession the government has been doing even more on behalf of the American dream. It offered a tax credit of $8,000 to first-time buyers, and eventually $6,500 to other qualified buyers. Not only did the Federal Reserve continue to keep the short-term interest rates it sets at essentially zero, it purchased $1.4 trillion in mortgage-backed securities so that lenders could keep mortgage rates low.
Do the math. Four years ago, the monthly payment on a $300,000 house with 20 percent down and a mortgage rate of about 6.6 percent was $1,533. Today that $300,000 house would sell for $213,000 and a 30-year fixed-rate mortgage with 20 percent down would carry a rate of about 4.2 percent and a monthly payment of $833. In addition, the down payment would be $42,600 instead of $60,000.
In fact, until about two months ago, it looked as if potential buyers were beginning to understand all these advantages and that the market was turning around. By May 2009, housing prices had stopped falling in a majority of the metropolitan areas surveyed in the Case-Shiller index. Sales were also up. In 2008, 4.9 million existing homes were sold. In 2009, the figure rose to 5.2 million; last November, sales hit an annual rate of 6.5 million (a boom-time number). Even new construction showed a pulse.
So, what happened to kill the momentum? For one thing, the first-time buyer credit expired at the end of April. And some longer-term demographic changes may also be affecting the housing market.
In the next several years, the Census Bureau and other demographers project that the number of American households will increase by 1 to 1.5 million each year. With new construction sagging, we should be experiencing a tightening market with low vacancy, as has occurred in every housing cycle since World War II. But instead of falling, vacancy rates remain at near-record levels.
My guess is that the number of households has not been growing as much as projected and may even be falling. We won’t know for certain until the 2010 census is complete. This figure depends on many factors: immigration, emigration, the age distribution of the population and the number of young adults staying at home or doubling up. Unemployment is high, and we know that without jobs people tend to move in with Mom and Dad. And we don’t make immigration easy, even for those with advanced degrees who would be most likely to enter the housing market. None of this bodes well for a quick recovery.
While demographic trends are uncertain, one important reason for the recent downturn is clear: The steady drip of bad news about the economy has sapped the confidence of buyers, sellers and lenders. And there is no understating the importance of expectations and confidence in this industry.
Real estate sales are unlike other financial transactions. You can place a rough inherent value on a stock or bond by looking at fundamentals: a company’s profits, price-to-earnings ratios, quality of its products and management, and so forth. But a house is worth what someone is willing to pay for it. That’s a very personal, emotional decision.
And emotions can change on a dime. To try to track moods and expectations as part of our Case-Shiller data, the economist Robert Shiller and I send out 2,000 questionnaires each year to recent homebuyers in San Francisco, Los Angeles, Milwaukee and Boston, asking them what they think is likely to happen to the value of their houses over the next year.
In 2005, respondents felt on average that prices would rise 9.6 percent. In 2008, they anticipated a small drop. In 2009, the figure turned positive again in all four cities, with an average anticipated gain of 2.2 percent. We have just tabulated this spring’s survey, which found that homebuyers anticipate a gain of 5.2 percent in the next year.
In a given year, the number of completed sales is about 4 percent to 5 percent of the housing stock. Thus it doesn’t take a change in mood of a large number of buyers to change the overall direction of the market.
This financial crisis has made us all too aware that we live in a Catch-22 world: the performance of the housing market drives the economy, and the performance of the economy drives the housing market. But housing has perhaps never been a better bargain, and sooner or later buyers will regain faith, inventories will shrink to reasonable levels, prices will rise and we’ll even start building again. The American dream is not dead — it’s just taking a well-deserved rest.
Karl E. Case is a professor emeritus of economics at Wellesley and co-creator of Standard & Poor’s Case-Shiller housing index.
Another article says that stocks appreciate just as much as homes, but neglects to mention the 5 to 1 leverage of a home, which would give 5 times the return as the stocks and the capital gains on home ownership are exempt from taxes, whereas the stock gains are not - another big advantage, etc.
This is a well-balanced article by one of the authors of the famous Case-Shiller index. These academics have be mostly bearish on the housing market prospects for several years, but now Dr Case is coming around to suggesting to good reasons to buy and own a home at this time.
A Dream House After All
By KARL E. CASE
Boston
IF you read the coverage of the latest figures on the sales of existing homes from the National Association of Realtors, you may well have come to the conclusion that the American dream is dead. It is indeed worrisome that sales in July were down 25 percent from a year ago.
But a little perspective is in order.
First, the bad news. What has happened in the housing markets since 2005 is a catastrophe that may take years for our economy to recover from.
Anyone who believed that home prices never fall has learned a tough lesson. The Case-Shiller price indexes released on Tuesday suggest that since their national peak in 2006, home prices have fallen by 29 percent. Some areas of course look better than others. Las Vegas is down 57 percent from its peak and
Phoenix is down 51 percent. On the other hand, Boston is down just 13.5 percent and Dallas only 4.2 percent.
The effect on household wealth has been huge. Data maintained by the Federal Reserve show that the value of residential real estate directly held by households fell to $16.5 trillion in the first quarter of 2010, down from $22.9 trillion in 2006. It has yet to be determined who will end up bearing those losses. The decline in wealth has substantially reduced consumption, stifling the economy.
Depressing, yes — but the end of a dream? Not exactly. I have never quite understood what the American dream really means when it comes to housing. For some people, it means having a solid and fairly safe long-term investment that is coupled with the satisfaction of owning the house they live in. That dream is still alive.
Others, however, think the American dream is owning property that appreciates by 30 percent a year, making a house into a vehicle for paying bills. But those kinds of dreams have become nightmares for the millions of foreclosed property owners who have found themselves sliding toward bankruptcy.
But for people with a more realistic version of the American dream, buying a house now can make a lot of sense. Think of it as an investment. The return or yield on that investment comes in two forms. First, it provides what is called “net imputed rent from owner-occupied housing.” You live in the house and so it provides you with a real flow of valuable services. This part of the yield is counted as part of national income by the Commerce Department. It is the equivalent of about a 6 percent return on your investment after maintenance and repair, and it is constant over time in real terms. Consider it this way: when Enron went belly up, shareholders ended up with nothing, but when the housing market drops, homeowners still have a house. And this benefit is tax-free.
The second part of the yield on investment in a house is the capital gain you receive if it appreciates and you sell the house. Gains are excluded from taxation if the property is a primary residence and the gain is less than $250,000 for a single filer or $500,000 for a married couple filing jointly.
Consider a few other bonuses of buying a home today. You can deduct the interest you pay on the mortgage. Interest rates are about as low as they can get. And, don’t forget, home prices are down by 30 percent on average from the peak. The mortgage-interest deduction and the tax-free income from housing cost the government at least $200 billion a year.
During this recession the government has been doing even more on behalf of the American dream. It offered a tax credit of $8,000 to first-time buyers, and eventually $6,500 to other qualified buyers. Not only did the Federal Reserve continue to keep the short-term interest rates it sets at essentially zero, it purchased $1.4 trillion in mortgage-backed securities so that lenders could keep mortgage rates low.
Do the math. Four years ago, the monthly payment on a $300,000 house with 20 percent down and a mortgage rate of about 6.6 percent was $1,533. Today that $300,000 house would sell for $213,000 and a 30-year fixed-rate mortgage with 20 percent down would carry a rate of about 4.2 percent and a monthly payment of $833. In addition, the down payment would be $42,600 instead of $60,000.
In fact, until about two months ago, it looked as if potential buyers were beginning to understand all these advantages and that the market was turning around. By May 2009, housing prices had stopped falling in a majority of the metropolitan areas surveyed in the Case-Shiller index. Sales were also up. In 2008, 4.9 million existing homes were sold. In 2009, the figure rose to 5.2 million; last November, sales hit an annual rate of 6.5 million (a boom-time number). Even new construction showed a pulse.
So, what happened to kill the momentum? For one thing, the first-time buyer credit expired at the end of April. And some longer-term demographic changes may also be affecting the housing market.
In the next several years, the Census Bureau and other demographers project that the number of American households will increase by 1 to 1.5 million each year. With new construction sagging, we should be experiencing a tightening market with low vacancy, as has occurred in every housing cycle since World War II. But instead of falling, vacancy rates remain at near-record levels.
My guess is that the number of households has not been growing as much as projected and may even be falling. We won’t know for certain until the 2010 census is complete. This figure depends on many factors: immigration, emigration, the age distribution of the population and the number of young adults staying at home or doubling up. Unemployment is high, and we know that without jobs people tend to move in with Mom and Dad. And we don’t make immigration easy, even for those with advanced degrees who would be most likely to enter the housing market. None of this bodes well for a quick recovery.
While demographic trends are uncertain, one important reason for the recent downturn is clear: The steady drip of bad news about the economy has sapped the confidence of buyers, sellers and lenders. And there is no understating the importance of expectations and confidence in this industry.
Real estate sales are unlike other financial transactions. You can place a rough inherent value on a stock or bond by looking at fundamentals: a company’s profits, price-to-earnings ratios, quality of its products and management, and so forth. But a house is worth what someone is willing to pay for it. That’s a very personal, emotional decision.
And emotions can change on a dime. To try to track moods and expectations as part of our Case-Shiller data, the economist Robert Shiller and I send out 2,000 questionnaires each year to recent homebuyers in San Francisco, Los Angeles, Milwaukee and Boston, asking them what they think is likely to happen to the value of their houses over the next year.
In 2005, respondents felt on average that prices would rise 9.6 percent. In 2008, they anticipated a small drop. In 2009, the figure turned positive again in all four cities, with an average anticipated gain of 2.2 percent. We have just tabulated this spring’s survey, which found that homebuyers anticipate a gain of 5.2 percent in the next year.
In a given year, the number of completed sales is about 4 percent to 5 percent of the housing stock. Thus it doesn’t take a change in mood of a large number of buyers to change the overall direction of the market.
This financial crisis has made us all too aware that we live in a Catch-22 world: the performance of the housing market drives the economy, and the performance of the economy drives the housing market. But housing has perhaps never been a better bargain, and sooner or later buyers will regain faith, inventories will shrink to reasonable levels, prices will rise and we’ll even start building again. The American dream is not dead — it’s just taking a well-deserved rest.
Karl E. Case is a professor emeritus of economics at Wellesley and co-creator of Standard & Poor’s Case-Shiller housing index.
Wednesday, August 4, 2010
Rehabbing for Profit - Now is a Good Time
Here is a good article about rehabbing REOS for Profit
I’ve been looking into this locally. REO means bank owned, but the best deals seem to be at the foreclosure auction sales.
The local scene is somewhat different than what is described in the article. Yes, some people rehab rough homes, keep them and rent them, but others people have been successfully buying homes at auction (for less than the mortgage amount), fixing them up and selling them for a good profit on the open market.
This benefits the market, because rough homes which would not qualify for financing do not come on the market and sell for low prices, the fixed up homes command good current market prices and the new owners are pleased to get homes in good, updated condition at those prices.
I was concerned that the lapse of the home-buyer tax credit might turn the market down. It has hit prices a bit, but not significantly. Fixed up homes at reasonable prices are still selling well.
This article is from a foreclosure listing service. I subscribe to a similar service and get search pre-foreclosure, foreclosure sale and REO listings for you.
Rehabbing REOs for More ROI
By Octavio Nuiry
Staff Writer
Attention foreclosure buyers: Plenty of roughed-up repos are yours for the taking. From the hills of San Francisco, Calif., to the sands of Cape Coral, Fla., repo rehabbers are snagging discounted digs before the sector snaps back. Cash-strapped lenders, anxious to shore up their depleted balance sheets, are slashing prices and accepting lowball offers, according to investors and brokers across the country.
As foreclosures skyrocket, a growing number of investors are becoming enamored with the idea of buying up foreclosed properties, fixing them up, renting them out, getting them to cash flow until the market turns or selling them for a tidy profit.
Consider repo rehabber Jeremy Burgess. Burgess, a 30-year old real estate investor from Washington state who moved to Detroit, Mich., in 2007, is finding real estate gold in Southeastern Michigan. Burgess – who started real estate company Urban Detroit Wholesalers with his wife, Jeanna Kiehle, and partner Jared Pomranky three years ago — buys, renovates, then flips properties wholesale to out-of-state investors or rents them to locals. Since 2007, Burgess has expanded his business despite the bust, closing more than 150 deals. He views the downturn as an opportunity to build his real estate empire and distinguish his firm from others. He typically renovates 12 to 15 properties a month, and is working on seven flips right now.
How does he do it?
Rehabbing Just Right
Burgess uses four filters to home in on prime REO investments: First, he clusters all his purchases in just two ZIP codes – 48235 and 48221 – on the west side of Detroit. Secondly, he seeks neighborhoods where homeownership is 70 percent or higher. Third, he looks for areas where 50 percent of the homeowners earn $35,000 annually or more a year. Finally, he searches for communities where families have two or more kids with at least a secondary education or higher.
"This helps me narrow down my investment," claims Burgess, who buys clean, well-kept, foreclosed homes in good or up-and-coming middle-class neighborhoods. "It allows me to cut out 80 percent of the properties I see."
Burgess said he has four or five real estate agents bird-dogging properties for him, and the leads they generate are sent to his assistant, who he trained how to spot repo gems. Asked what makes a top-notch repo rehabber, Burgess said: "First, you need an awesome team on the ground. Second, a lot of people under-rehab, which gets you 30 to 40 percent less in rents or resale value. And don’t over-rehab."
He buys Detroit foreclosures for a mere $12,000 – and pays all-cash. He and his partner then hire a non-profit group, Motor City Blight Busters, to do the rehab work, saving thousands on labor costs. Motor City hires and trains local laborers to work as apprentices on the job, keeping costs down. Typically he puts $13,000 to $17,000 worth of improvements into each home, replacing the roof, windows, renovating bathrooms, kitchens, adding new light fixtures, new doors, painting and landscaping.
"I have 14 rentals right now," said Burgess, noting that his company can get a 12 to 20 percent return on its investment. "Right now 70 percent of my business is wholesaling foreclosures to out-of-state investors. I have 13 wholesale deals I’m working on now."
He said average rents in Detroit are $800 to $900 a month. Rental properties generate $300 a month each in positive cash flow.
I’ve been looking into this locally. REO means bank owned, but the best deals seem to be at the foreclosure auction sales.
The local scene is somewhat different than what is described in the article. Yes, some people rehab rough homes, keep them and rent them, but others people have been successfully buying homes at auction (for less than the mortgage amount), fixing them up and selling them for a good profit on the open market.
This benefits the market, because rough homes which would not qualify for financing do not come on the market and sell for low prices, the fixed up homes command good current market prices and the new owners are pleased to get homes in good, updated condition at those prices.
I was concerned that the lapse of the home-buyer tax credit might turn the market down. It has hit prices a bit, but not significantly. Fixed up homes at reasonable prices are still selling well.
This article is from a foreclosure listing service. I subscribe to a similar service and get search pre-foreclosure, foreclosure sale and REO listings for you.
Rehabbing REOs for More ROI
By Octavio Nuiry
Staff Writer
Attention foreclosure buyers: Plenty of roughed-up repos are yours for the taking. From the hills of San Francisco, Calif., to the sands of Cape Coral, Fla., repo rehabbers are snagging discounted digs before the sector snaps back. Cash-strapped lenders, anxious to shore up their depleted balance sheets, are slashing prices and accepting lowball offers, according to investors and brokers across the country.
As foreclosures skyrocket, a growing number of investors are becoming enamored with the idea of buying up foreclosed properties, fixing them up, renting them out, getting them to cash flow until the market turns or selling them for a tidy profit.
Consider repo rehabber Jeremy Burgess. Burgess, a 30-year old real estate investor from Washington state who moved to Detroit, Mich., in 2007, is finding real estate gold in Southeastern Michigan. Burgess – who started real estate company Urban Detroit Wholesalers with his wife, Jeanna Kiehle, and partner Jared Pomranky three years ago — buys, renovates, then flips properties wholesale to out-of-state investors or rents them to locals. Since 2007, Burgess has expanded his business despite the bust, closing more than 150 deals. He views the downturn as an opportunity to build his real estate empire and distinguish his firm from others. He typically renovates 12 to 15 properties a month, and is working on seven flips right now.
How does he do it?
Rehabbing Just Right
Burgess uses four filters to home in on prime REO investments: First, he clusters all his purchases in just two ZIP codes – 48235 and 48221 – on the west side of Detroit. Secondly, he seeks neighborhoods where homeownership is 70 percent or higher. Third, he looks for areas where 50 percent of the homeowners earn $35,000 annually or more a year. Finally, he searches for communities where families have two or more kids with at least a secondary education or higher.
"This helps me narrow down my investment," claims Burgess, who buys clean, well-kept, foreclosed homes in good or up-and-coming middle-class neighborhoods. "It allows me to cut out 80 percent of the properties I see."
Burgess said he has four or five real estate agents bird-dogging properties for him, and the leads they generate are sent to his assistant, who he trained how to spot repo gems. Asked what makes a top-notch repo rehabber, Burgess said: "First, you need an awesome team on the ground. Second, a lot of people under-rehab, which gets you 30 to 40 percent less in rents or resale value. And don’t over-rehab."
He buys Detroit foreclosures for a mere $12,000 – and pays all-cash. He and his partner then hire a non-profit group, Motor City Blight Busters, to do the rehab work, saving thousands on labor costs. Motor City hires and trains local laborers to work as apprentices on the job, keeping costs down. Typically he puts $13,000 to $17,000 worth of improvements into each home, replacing the roof, windows, renovating bathrooms, kitchens, adding new light fixtures, new doors, painting and landscaping.
"I have 14 rentals right now," said Burgess, noting that his company can get a 12 to 20 percent return on its investment. "Right now 70 percent of my business is wholesaling foreclosures to out-of-state investors. I have 13 wholesale deals I’m working on now."
He said average rents in Detroit are $800 to $900 a month. Rental properties generate $300 a month each in positive cash flow.
Wednesday, July 14, 2010
Do You Need TO Hire A Buyer's Agent?
Beware! Don’t just call the number of the agent who is advertising a home for sale. They are representing the seller of the property, not you. You can hire your own buyer’s agent (an agent who represents you and your interests) and they will be paid from the sellers anyway. It will not cost you anything and may save you a bundle.
This is an article from the FHA (The Federal Gov.) about when and how to hire a Real Estate agent to represent you when you are looking to purchase property.
Which comes first? The Realtor or the house?
Many times when talking to people about buying a home this question inevitably comes up. Why do I need a real estate agent if I don't have a house picked out? Or why can't I just use the one with the sign in the yard?
Most people tend to rank real estate agents right up there with lawyers and dentists. Ok, maybe not that bad. Perhaps buyers feel they will be pushed into something by the Realtor. Maybe they think there is a special incentive that the Realtor gets by steering a buyer to certain properties. Most of the fears that buyers have about Realtors are just plane false. It could also be due to a lack of basic knowledge on how the process works.
When a property is listed for sale, most of the time the commission that the seller is willing to pay is set. (The common exception to this is HUD Repossessions which we will explain later.) The commission to sell the home is usually around 6% of the sales price. So if you are a buyer and walk into a house for sale without your own Realtor, the Realtor that put the sign in the yard is going to make the entire 6% commission of the sales price. Does he have an incentive to get you to pay the highest price possible? Sure, he works for the seller. The more you pay, the happier his client is. And the more you pay, the higher the commission for the realtor. There are things called dual agency and some other technical stuff, but if your impression is that the seller's realtor has your best interest at heart you are misguided. The seller's Realtor cannot work for both the seller and the buyer at the same time effectively.
If however, you hire your own real estate agent to help negotiate the transaction, then the 6% commission is generally split between the two real estate agents so each Realtor makes 3%. The seller is still paying the same amount regardless of how many Realtors are involved. The big difference here is that your real estate agent's job is to represent your interest only. They want to get the deal done for you! If you are a happy client, you are likely to refer business to them for doing a good job.
Some people might feel that the real estate agent is pushing them to pay a higher price because then they get a higher commission. Rarely would this ever be the case. Let's say the difference in what you want to pay and what you agent is recommending is as much as $10,000. The commission on that increase is only $300. Most agents split that with their real estate broker so they get about $150. Would it be worth $150 in extra income to possibly lose a sale? Remember that the difference was $10,000. Most price differences are usually just a couple of thousand dollars apart.
If you want a real estate agent to work hard for you in finding the perfect home at the right price - you need to be loyal to them. No real estate agent wants to spend hours researching information for a buyer, only to have them go use another real estate agent. One way to show that you are serious about working with an agent is to sign a "Buyers Brokerage Agreement." This document basically states that you will work only with them in finding a house, and if you go off and use another agent without first getting out of the contract, then you owe the agent a commission. You will find that by using this contract you get more time and effort on your agent's part.
However, before you ever sign one of these contracts you want to make sure that this is the real estate agent and brokerage company that you want to work with. You should interview the agent. Ask questions about their typical deals, typical clients, experience, communication style, and anything else you feel is relevant. Remember you are hiring them to work for you.
This is an article from the FHA (The Federal Gov.) about when and how to hire a Real Estate agent to represent you when you are looking to purchase property.
Which comes first? The Realtor or the house?
Many times when talking to people about buying a home this question inevitably comes up. Why do I need a real estate agent if I don't have a house picked out? Or why can't I just use the one with the sign in the yard?
Most people tend to rank real estate agents right up there with lawyers and dentists. Ok, maybe not that bad. Perhaps buyers feel they will be pushed into something by the Realtor. Maybe they think there is a special incentive that the Realtor gets by steering a buyer to certain properties. Most of the fears that buyers have about Realtors are just plane false. It could also be due to a lack of basic knowledge on how the process works.
When a property is listed for sale, most of the time the commission that the seller is willing to pay is set. (The common exception to this is HUD Repossessions which we will explain later.) The commission to sell the home is usually around 6% of the sales price. So if you are a buyer and walk into a house for sale without your own Realtor, the Realtor that put the sign in the yard is going to make the entire 6% commission of the sales price. Does he have an incentive to get you to pay the highest price possible? Sure, he works for the seller. The more you pay, the happier his client is. And the more you pay, the higher the commission for the realtor. There are things called dual agency and some other technical stuff, but if your impression is that the seller's realtor has your best interest at heart you are misguided. The seller's Realtor cannot work for both the seller and the buyer at the same time effectively.
If however, you hire your own real estate agent to help negotiate the transaction, then the 6% commission is generally split between the two real estate agents so each Realtor makes 3%. The seller is still paying the same amount regardless of how many Realtors are involved. The big difference here is that your real estate agent's job is to represent your interest only. They want to get the deal done for you! If you are a happy client, you are likely to refer business to them for doing a good job.
Some people might feel that the real estate agent is pushing them to pay a higher price because then they get a higher commission. Rarely would this ever be the case. Let's say the difference in what you want to pay and what you agent is recommending is as much as $10,000. The commission on that increase is only $300. Most agents split that with their real estate broker so they get about $150. Would it be worth $150 in extra income to possibly lose a sale? Remember that the difference was $10,000. Most price differences are usually just a couple of thousand dollars apart.
If you want a real estate agent to work hard for you in finding the perfect home at the right price - you need to be loyal to them. No real estate agent wants to spend hours researching information for a buyer, only to have them go use another real estate agent. One way to show that you are serious about working with an agent is to sign a "Buyers Brokerage Agreement." This document basically states that you will work only with them in finding a house, and if you go off and use another agent without first getting out of the contract, then you owe the agent a commission. You will find that by using this contract you get more time and effort on your agent's part.
However, before you ever sign one of these contracts you want to make sure that this is the real estate agent and brokerage company that you want to work with. You should interview the agent. Ask questions about their typical deals, typical clients, experience, communication style, and anything else you feel is relevant. Remember you are hiring them to work for you.
Thursday, July 1, 2010
Homebuyer Tax Credit Closing Deadline Extended
Re: NAR Update: Tax Credit Deadline Extended; Flood Insurance Program Reinstated
Dear fellow REALTOR®,
I am happy to report that Congress has passed a bill extending the Homebuyer Tax Credit closing deadline to September 30, 2010. This is a huge win for REALTORS® and homebuyers, and NAR worked closely with members of Congress to make it happen.
The extension applies only to transactions that had ratified contracts in place as of April 30, 2010, and have not yet closed. There will be no gap between June 30 and the date the President signs the bill into law.
Additionally, Congress has extended the National Flood Insurance Program (NFIP) through September 30th. The bill is retroactive and will cover the lapse period from June 1, 2010, to the date the law is enacted. NAR will continue to work with Congress on the NFIP Reform bill, and we will keep you posted on those efforts.
For additional information on both the tax credit deadline and the NFIP, visit Realtor.org/Government_Affairs.
Neither of these bills would have passed without your support. Nearly 83,000 REALTORS® responded to our latest Call for Action, sending more than 250,000 letters to Congress asking them to extend the National Flood Insurance Program. I know many of you also raised your voices in support of extending the tax credit deadline.
Dear fellow REALTOR®,
I am happy to report that Congress has passed a bill extending the Homebuyer Tax Credit closing deadline to September 30, 2010. This is a huge win for REALTORS® and homebuyers, and NAR worked closely with members of Congress to make it happen.
The extension applies only to transactions that had ratified contracts in place as of April 30, 2010, and have not yet closed. There will be no gap between June 30 and the date the President signs the bill into law.
Additionally, Congress has extended the National Flood Insurance Program (NFIP) through September 30th. The bill is retroactive and will cover the lapse period from June 1, 2010, to the date the law is enacted. NAR will continue to work with Congress on the NFIP Reform bill, and we will keep you posted on those efforts.
For additional information on both the tax credit deadline and the NFIP, visit Realtor.org/Government_Affairs.
Neither of these bills would have passed without your support. Nearly 83,000 REALTORS® responded to our latest Call for Action, sending more than 250,000 letters to Congress asking them to extend the National Flood Insurance Program. I know many of you also raised your voices in support of extending the tax credit deadline.
Wednesday, June 30, 2010
Is It The Bottom?
This blog is mostly concerned with the local Sonoma County market, but once in awhile I'll include other information. This is hot off the wires from one of my favorite Real Estate gurus, Adiel Gorel of ICG.
He has been helping people invest in different parts of the country for many years and here are some notes from a recent conference call:
Is it the bottom?
Maybe. Hard to predict precisely, but prices are very far down from peaks and have generally stabilized.
Some homes are selling for far less than construction costs.
Some examples:
$70k to buy .
It would cost $160k to build and would sell with builder’s profit in addition to costs.
Shadow inventory is often talked about. (Bank owned by not on the market.) The area graphs show that they bank owned properties are going down a bit as a % of the total in places like Phoenix.
Financing is the challenge:
Banks could get softer or harder. Too many variables to predict.
Logic and the banks do not co-exist. We may not see the complete picture.
If you own less than 4 properties with loans, you can get a loan
If you own more than 4 properties with loans on them, 25-30% down
or buy with cash, even use retirement account money.
Once banks relax a bit, you can refi. and get your money back
There are some special situations with builder/developer financing.
Cash flow is strong, even with 20% down because of low mortgage interest rates and
Average rental prices have come down 10-15%
Some housing prices have come down up to 70%
Markets:
CA and NY some areas
Love Sacramento market
But little left. Too many investors
Likes diversified economy and bigger areas.
AZ, NV, FL , he likes best
Las Vegas
VA loans with 5% down.
Prices down 75% from peak.
Still good long term demographic projections.
Phoenix
Uptick from 2009
Does not think the new proposed law in AZ will affect it long term.
Still good long term demographic projections.
Florida:
Orlando
$40 to $43 per ft for fairly new homes.
Bank owned properties.
$60k priced homes.
Slightly better than Tampa or Jacksonville, because of better economy due to tourism and conventions (which are starting to come back.)
Still good long term demographic projections.
Atlanta
Non-recourse loans available.
20-22% down, new homes, cash flow. Tenant with option to buy.
Oklahoma City
5 yr loan with 25% down
30 yr loan, 40% down
$50-60k - to 100k
Denver
Some flipping there
A lot of patience and a strong stomach
Other areas,
Like Washington, Idaho, the deals are not generally there. There are some foreclosures, but prices have not come down so much generally.
Dallas has some malaise, not as good bargains. Did not go up so much and has not come down so much.
Still likes single-family homes for most investors.
Duplexes and 4 plexus: be careful of the areas for these.
Apartment buildings
More like operating a business.
Best are 150 to 300 units with onsite managers.
Sometimes smaller complexes are OK if managed by a specialty firm which manages several of these.
Flips:
Does not recommend short term flips as much as longer term:
Safer, but not as quick, to keep for a year or 2.
Buy quality:
Not too fancy areas, but good solid areas with school districts and good value.
You can buy junk for less, but there is more risk.
Existing properties:
Some mods are going through.
Short refis. These are rare.
$5000 fee or 1% of loan
What to do with investment properties currently owned with negative cash flow?
If only $100 to $200 negative and you have good credit to preserve, keep them.
If not, you need to consider individual situations.
Monday, June 28, 2010
Mortgage Rates at 50-year Lows...if you can get them
As this article says, mortgage rates are indeed at historic lows, but.....you need to have cash or a good job and credit to get that great financing.
Local prices are stable to increasing in the lower segment of the market (under $400k) and great discounts are available for some higher priced properties.
It is indeed a great time to buy.....if you can qualify. Give us a call. We work with a couple of great loan people who can do a no-cost evaluation of your situation.
Mortgage rates hit 50-year lows and it likely won't matter
Jun 25th 2010 at 3:00PM
The good news: Mortgage rates dropped to their lowest levels in more than 50 years.
The bad news: You need to have a job and impeccable credit to get them.
The average 30-year fixed loan rate tumbled to 4.69% this week, down from 4.75% last week, Freddie Mac reported. These are the lowest rates since the mortgage giant began keeping records in 1971 and the last time rates were lower was in the 1950s.
Nobody expects the falling rates to matter much. They aren't likely to snap the housing market back to life. And they aren't likely to benefit anyone who is unemployed, underemployed or who has had their credit rating dinged in the recession. Sales of new homes fell 33% after the federal tax credit incentives expired at the end of April and while existing home sales are still showing better numbers, experts say those numbers are being buoyed by the tax credit buyers still in the pipeline and trying to close escrow.
The bad news: You need to have a job and impeccable credit to get them.
The average 30-year fixed loan rate tumbled to 4.69% this week, down from 4.75% last week, Freddie Mac reported. These are the lowest rates since the mortgage giant began keeping records in 1971 and the last time rates were lower was in the 1950s.
Nobody expects the falling rates to matter much. They aren't likely to snap the housing market back to life. And they aren't likely to benefit anyone who is unemployed, underemployed or who has had their credit rating dinged in the recession. Sales of new homes fell 33% after the federal tax credit incentives expired at the end of April and while existing home sales are still showing better numbers, experts say those numbers are being buoyed by the tax credit buyers still in the pipeline and trying to close escrow.
As long as prospective home buyers are worried about their financial well-being and job security, many will be reluctant to take the plunge, Greg McBride, senior financial analyst with Bankrate.com, told MSNBC.
The falling rates are tied to investors nervous about Europe's debt crisis and the global economy and who have shifted their money into safe Treasury bonds. Mortgage rates generally track Treasury bonds.
Tuesday, June 22, 2010
Distressed Property Programs Making a Bit of Progress
I do not report on national trends very often, because they often do not usually give an accurate picture of local trends, but this is a good general article on the distressed housing market, which seems to mirror what is happening locally.
Lenders are still a long way from doing what is needed, but there does seem to be a bit of progress in helping homeowners retain their homes.
June 22, 2010, 2:46 p.m. EDT
Modifications rise sharply on some mortgage loans
60-day-delinquent loans fall for first time in two years, Fannie and Freddie say
By Amy Hoak , MarketWatch
CHICAGO (MarketWatch) -- Loan modifications through the government's Home Affordable Modification Program tripled in the first quarter compared to the fourth quarter, according to data that covers loans held by Fannie Mae and Freddie Mac, the Federal Housing Finance Agency said Tuesday.
Also, loans 60 or more days past due fell for the first time in two years, dropping by nearly 23,800 to about 1.7 million in the first quarter, according to the FHFA's latest quarterly Foreclosure Prevention & Refinance report.
Overall, the FHFA said various efforts to keep homeowners out of
foreclosure, including loan modifications, short sales and deeds-in-lieu,
rose 75% in the first quarter compared with the previous quarter, to a
total of 239,000 completed "foreclosure prevention activity" efforts.
Permanent mortgage modifications through the government's Home
Affordable Modification Program rose to 136,000 at the end of the first
quarter, up from 43,000 in the fourth quarter. Homeowners must
successfully complete a trial modification period in order to make their
modification permanent.
About 66% of modifications completed in the fourth quarter reduced
borrowers' monthly payments by more than 20%.
Meanwhile, cumulative refinance volume through the Home Affordable
Refinance Program rose 53% to nearly 291,600 at the end of the first
quarter, up from 190,180 in the fourth quarter. The program allows
existing Freddie and Fannie borrowers who are current on their
mortgage payments to refinance and reduce their monthly mortgage
payments at loan-to-value ratios up to 125%.
The Federal Housing Finance Agency regulates Fannie Mae, Freddie
Mac and the 12 federal home loan banks; the numbers in the report
don't reflect the Federal Housing Administration's efforts to prevent
foreclosures.
A broader view
Overall, the total number of homeowners receiving restructured mortgages since April 2009 increased to 2.8 million; also, half of homeowners unable to enter a permanent HAMP modification get an
alternate modification with their servicer, according to a separate report Monday from the Department of Housing and Urban Development and the Treasury Department.
The 2.8 million figure "includes more than 1.2 million homeowners who have started HAMP trial modifications and nearly 400,000 who have benefitted from FHA loss- mitigation activities," the report said. "Of those in the HAMP program, 346,000 have entered a permanent modification, saving a median of more than $500 per month," See HUD and Treasury's monthly housing scorecard.
"The good news is the industry is doing more than the government modifications," said Faith Schwartz, senior adviser for HOPE NOW, a private-sector alliance of mortgage servicers, investors, mortgage insurers and non-profit counselors. "They start with the government mods to see if they fit."
Treasury Secretary Tim Geithner said in a news release Monday: "The Administration's housing policies, combined with actions of the Fed, have lowered mortgage interest rates, helped stabilize home prices and reduced the rate of foreclosures, repairing some of the damage caused by the financial crisis to the financial security of millions and millions of American families."
Separately, the percentage of loans in foreclosure or with at least one payment past due was a non-seasonally adjusted 14% in the first quarter, down from 15% in the fourth quarter of 2009, according to a Mortgage Bankers Association report in May. That works out to about 6.2 million loans somewhere in the delinquency or foreclosure process. See story on 14% of mortgages delinquent or in foreclosure.
Lenders are still a long way from doing what is needed, but there does seem to be a bit of progress in helping homeowners retain their homes.
June 22, 2010, 2:46 p.m. EDT
Modifications rise sharply on some mortgage loans
60-day-delinquent loans fall for first time in two years, Fannie and Freddie say
By Amy Hoak , MarketWatch
CHICAGO (MarketWatch) -- Loan modifications through the government's Home Affordable Modification Program tripled in the first quarter compared to the fourth quarter, according to data that covers loans held by Fannie Mae and Freddie Mac, the Federal Housing Finance Agency said Tuesday.
Also, loans 60 or more days past due fell for the first time in two years, dropping by nearly 23,800 to about 1.7 million in the first quarter, according to the FHFA's latest quarterly Foreclosure Prevention & Refinance report.
Overall, the FHFA said various efforts to keep homeowners out of
foreclosure, including loan modifications, short sales and deeds-in-lieu,
rose 75% in the first quarter compared with the previous quarter, to a
total of 239,000 completed "foreclosure prevention activity" efforts.
Permanent mortgage modifications through the government's Home
Affordable Modification Program rose to 136,000 at the end of the first
quarter, up from 43,000 in the fourth quarter. Homeowners must
successfully complete a trial modification period in order to make their
modification permanent.
About 66% of modifications completed in the fourth quarter reduced
borrowers' monthly payments by more than 20%.
Meanwhile, cumulative refinance volume through the Home Affordable
Refinance Program rose 53% to nearly 291,600 at the end of the first
quarter, up from 190,180 in the fourth quarter. The program allows
existing Freddie and Fannie borrowers who are current on their
mortgage payments to refinance and reduce their monthly mortgage
payments at loan-to-value ratios up to 125%.
The Federal Housing Finance Agency regulates Fannie Mae, Freddie
Mac and the 12 federal home loan banks; the numbers in the report
don't reflect the Federal Housing Administration's efforts to prevent
foreclosures.
A broader view
Overall, the total number of homeowners receiving restructured mortgages since April 2009 increased to 2.8 million; also, half of homeowners unable to enter a permanent HAMP modification get an
alternate modification with their servicer, according to a separate report Monday from the Department of Housing and Urban Development and the Treasury Department.
The 2.8 million figure "includes more than 1.2 million homeowners who have started HAMP trial modifications and nearly 400,000 who have benefitted from FHA loss- mitigation activities," the report said. "Of those in the HAMP program, 346,000 have entered a permanent modification, saving a median of more than $500 per month," See HUD and Treasury's monthly housing scorecard.
"The good news is the industry is doing more than the government modifications," said Faith Schwartz, senior adviser for HOPE NOW, a private-sector alliance of mortgage servicers, investors, mortgage insurers and non-profit counselors. "They start with the government mods to see if they fit."
Treasury Secretary Tim Geithner said in a news release Monday: "The Administration's housing policies, combined with actions of the Fed, have lowered mortgage interest rates, helped stabilize home prices and reduced the rate of foreclosures, repairing some of the damage caused by the financial crisis to the financial security of millions and millions of American families."
Separately, the percentage of loans in foreclosure or with at least one payment past due was a non-seasonally adjusted 14% in the first quarter, down from 15% in the fourth quarter of 2009, according to a Mortgage Bankers Association report in May. That works out to about 6.2 million loans somewhere in the delinquency or foreclosure process. See story on 14% of mortgages delinquent or in foreclosure.
Thursday, June 17, 2010
Sonoma County Real Estate Update June 2010
This is a good article about the current state of the real estate market in Sonoma County.
It mentions a couple of the biggest question marks going forward: the lapse of the Federal tax credits and the number of distressed properties.
There is breaking news that the completion of sales qualified for the tax credit now in the pipeline (accepted offer by last April, but not yet closed escrow) may be extended from the end of June until Sept., but no word on any new extension of the tax credit for new sales from this point forward.
May home sales, prices increase in Sonoma
County
By SAM SCOTT
THE PRESS DEMOCRAT
Published: Wednesday, June 16, 2010 at 6:22 p.m.
Sonoma County home sales increased for the fourth consecutive month, rising nearly
8 percent from April to May, but activity still trails last year.
Buyers purchased 410 single-family homes in May, up from 381 in April but down
slightly from 416 a year ago.
Prices, meanwhile, increased for the first time in five months. The median price hit
$362,000, up 5 percent from April and up 4 percent from a year ago.
“It shows we have a very steady growth in demand in the marketplace,” said Rick
Laws, manager at Coldwell Banker in Santa Rosa, who compiles The Press
Democrat’s monthly housing report.
But others said economic uncertainty was still keeping the market down. Sales have
dropped nearly 9 percent in the first five months of the year, compared to the same
period a year ago — despite a $8,000 federal tax credit for home buyers who signed
their contracts by April 30.
“It’s just sort of a mediocre market right now,” said Mike Kelly, senior sale
consultant at Keller Williams Realty in Santa Rosa, who added that unemployment
and job insecurity were partly responsible.
Unemployment in Sonoma County doubled over the past two years and has hovered
in double-digits in 10 of the last 11 months, receding only slightly to 10.6 percent in
April.
The true impact of the federal tax credit won’t be felt until June sales figures are
finalized, Kelly said. The credit extends to people who signed by the April deadline
but close by the end of June.
Laws said he didn’t think the end of the tax credit would have a big impact on the
housing market. The credit offered an incentive to buy, but ultimately wasn’t enough
to make or break most deals, he said.
Both Kelly and Laws said the mix of sales is changing as the market settles into a
more normal pattern. There has been reduced inventory in distressed properties —
usually either short sales or foreclosed properties, the “rocket fuel” in much recent
buyer interest, Kelly said.
In February 2009, more than 75 percent of homes sold in Sonoma County were
bank-owned properties, according to Laws. In May less than 47 percent were.
As banks put fewer properties on the market, buyers are increasingly having to
compete with each other, particularly for homes in the lower end of the spectrum,
Laws said.
He said the market was “bifurcated.” Above $500,000, he said the situation tends to
favor buyers. Below $400,000, it is generally a seller’s market with inventory not
meeting demand, Laws said.
“If the value is there and the house is in good condition and in a good neighborhood
and priced at market, it gets multiple offers,” said Glen Hurley with Platinum Real
Estate, who is president of the Santa Rosa Chapter of Realtors.
The return of “normal sellers” who aren’t trying to unload distressed properties is
encouraging, Kelly said. When they sell, they tend to “buy up.” A short sale or foreclosure, however, is rarely matched with a corresponding purchase.
The competition is driving up home prices. The median price for a single-family
home, $362,000 in May, was its highest level since December 2009.
The median is the mid-point at which half the homes sold for more, and half for less.
Sonoma County home prices peaked in August 2005 when the median hit $619,000
before tumbling to a low of $305,000 in February 2009.
Through May the median price of a single-family home sold in 2010 was $350,000,
up 10 percent from the same five-month period last year.
“There is very little inventory,” said Paula Gold-Nocella, a broker with Prudential
California Realty in Healdsburg. “That’s what’s driving the price up.”
It mentions a couple of the biggest question marks going forward: the lapse of the Federal tax credits and the number of distressed properties.
There is breaking news that the completion of sales qualified for the tax credit now in the pipeline (accepted offer by last April, but not yet closed escrow) may be extended from the end of June until Sept., but no word on any new extension of the tax credit for new sales from this point forward.
May home sales, prices increase in Sonoma
County
By SAM SCOTT
THE PRESS DEMOCRAT
Published: Wednesday, June 16, 2010 at 6:22 p.m.
Sonoma County home sales increased for the fourth consecutive month, rising nearly
8 percent from April to May, but activity still trails last year.
Buyers purchased 410 single-family homes in May, up from 381 in April but down
slightly from 416 a year ago.
Prices, meanwhile, increased for the first time in five months. The median price hit
$362,000, up 5 percent from April and up 4 percent from a year ago.
“It shows we have a very steady growth in demand in the marketplace,” said Rick
Laws, manager at Coldwell Banker in Santa Rosa, who compiles The Press
Democrat’s monthly housing report.
But others said economic uncertainty was still keeping the market down. Sales have
dropped nearly 9 percent in the first five months of the year, compared to the same
period a year ago — despite a $8,000 federal tax credit for home buyers who signed
their contracts by April 30.
“It’s just sort of a mediocre market right now,” said Mike Kelly, senior sale
consultant at Keller Williams Realty in Santa Rosa, who added that unemployment
and job insecurity were partly responsible.
Unemployment in Sonoma County doubled over the past two years and has hovered
in double-digits in 10 of the last 11 months, receding only slightly to 10.6 percent in
April.
The true impact of the federal tax credit won’t be felt until June sales figures are
finalized, Kelly said. The credit extends to people who signed by the April deadline
but close by the end of June.
Laws said he didn’t think the end of the tax credit would have a big impact on the
housing market. The credit offered an incentive to buy, but ultimately wasn’t enough
to make or break most deals, he said.
Both Kelly and Laws said the mix of sales is changing as the market settles into a
more normal pattern. There has been reduced inventory in distressed properties —
usually either short sales or foreclosed properties, the “rocket fuel” in much recent
buyer interest, Kelly said.
In February 2009, more than 75 percent of homes sold in Sonoma County were
bank-owned properties, according to Laws. In May less than 47 percent were.
As banks put fewer properties on the market, buyers are increasingly having to
compete with each other, particularly for homes in the lower end of the spectrum,
Laws said.
He said the market was “bifurcated.” Above $500,000, he said the situation tends to
favor buyers. Below $400,000, it is generally a seller’s market with inventory not
meeting demand, Laws said.
“If the value is there and the house is in good condition and in a good neighborhood
and priced at market, it gets multiple offers,” said Glen Hurley with Platinum Real
Estate, who is president of the Santa Rosa Chapter of Realtors.
The return of “normal sellers” who aren’t trying to unload distressed properties is
encouraging, Kelly said. When they sell, they tend to “buy up.” A short sale or foreclosure, however, is rarely matched with a corresponding purchase.
The competition is driving up home prices. The median price for a single-family
home, $362,000 in May, was its highest level since December 2009.
The median is the mid-point at which half the homes sold for more, and half for less.
Sonoma County home prices peaked in August 2005 when the median hit $619,000
before tumbling to a low of $305,000 in February 2009.
Through May the median price of a single-family home sold in 2010 was $350,000,
up 10 percent from the same five-month period last year.
“There is very little inventory,” said Paula Gold-Nocella, a broker with Prudential
California Realty in Healdsburg. “That’s what’s driving the price up.”
Wednesday, June 16, 2010
Deficiency Judgements - It's a Big Deal
A deficiency judgment can occur when a property sells for less than the current loan balance against the property. For example, if a home sells for $200,000 when the loan balance is $250,000, there will be a $50,0000 deficiency (or more, because there will also be costs of sale the lender will need to cover.)
This can occur either as a short sale (the owner sells the home with approval of the lender) or as a foreclosure (the lender takes the home back from the homeowner and sells it).
If the lender has a deficiency, in many cases they have the right to pursue that amount from the previous homeowner. In the past, lenders rarely tried to collect deficiency judgments, but as the article below explains, they are starting to now. Or they are selling that deficiency collection right to another company, such as a collection agency, and those agencies are pursuing the deficiency from the previous homeowner.
These deficiency rights vary by state and there are some ways to avoid the collection. Call me to discuss if you are contemplating a short sale or giving up your property to the lender.
Lenders go after money lost in foreclosures
By Dina ElBoghdady
Washington Post Staff Writer
Wednesday, June 16, 2010; A11
After the bank foreclosed on Fernando Palacios's Gainesville home in March, he thought he was done with what he described as the most stressful financial situation of his life.
The bank sold the home for far less than Palacios owed on it, as often happens with foreclosures. What Palacios did not see coming was the letter from his lender demanding that he pay the shortfall: $148,064.02. "I really thought I was through with this house," said Palacios, who fell behind on payments when the economy soured and his cleaning business stumbled.
Over the past year, lenders have become much more aggressive in trying to recoup money lost in foreclosures and other distressed sales, creating more grief for people who thought their real estate headaches were far behind.
In many localities -- including Virginia, Maryland and the District -- lenders have the right to pursue borrowers whose homes have sold at a loss to collect the difference between what the property sold for and what the borrower owed on it, also called a deficiency.
Before the housing bust, when the volume of foreclosures was relatively low, lenders seldom bothered to chase after deficiencies because borrowers had few remaining assets to claim and doing so involved hassles and costs. But with foreclosures soaring, lenders are more determined to get their money back, especially if they suspect borrowers are skipping out on loan they could afford, an increasingly common practice in areas where home values have tanked.
Palacios said he was committed to staying in his house, which he bought in 2005. He sunk $20,000 into improving it and hoped to raise his children there. But his lender refused to modify his loan, he said. To avoid personal liability for the deficiency, Palacios is filing for bankruptcy protection, as many people do who are in similar situations, said Nancy Ryan, his bankruptcy attorney.
"I am definitely seeing more people come through my door who walked away from houses a year or two ago and thought they were as free as the dead," Ryan said. "They're stunned when they realize they're not."
Several lenders contacted for this story declined to say how often they pursue deficiencies. But many said they try to collect the debt if they conclude the borrower can repay all or part of it.
"Lenders are not going after people who face a hardship," said John Mechem, a spokesman for the Mortgage Bankers Association. "If they can't pay their mortgage because they have a loss of income, there is no point in going after them."
Those who had a second mortgage, such as a home-equity line of credit, in addition to their primary mortgage may find themselves particularly vulnerable, especially if they tapped into the equity line for cash.
Second lenders are last in line to get paid when a distressed property is sold. There's usually little or no money left over for them, making it more likely that they will pursue large deficiencies, several attorneys said.
Gretchen Somers said she and her husband understood the risks last year when they completed a "short sale," a transaction that allowed them to sell their Manassas home for about $150,000 less than they owed on it. But they felt they had no other options.
Somers said her family hung onto the house as long as possible. They tried but failed to sell it when her husband was transferred to Arizona for his job in early 2006, just as home prices were softening. They moved back into the house then tried to sell it again in 2008, after their adjustable-rate mortgage reset and their monthly mortgage payment nearly doubled. But home prices had plunged further by then, making it even tougher to sell.
Last year, their first lender and their home-equity line lender granted permission for the short sale. But the second lender reserved the right to come after the couple. Six months later, a collection agency called demanding $85,000 for related losses.
In hindsight, Somers said she and her husband should have just walked away from the house. "We took care of the house because we wanted it to sell," Somers said. "If they were going to come after us anyway, we shouldn't have done them the favor of making sure it looked good and cutting the grass even after we moved out, We should have mailed them the key and said: 'Here you go.' "
Carlos Cortez and his wife managed to escape that fate after their second lender came after them for $70,000 when their short sale was completed on his Manassas Park townhouse in 2008.
Cortez knew that was a possibility, but he went through with the sale because his real estate agent said the lender was engaging in scare tactics.
James Scruggs, an attorney at Legal Services of Northern Virginia, said the lender appears to have backed off after Cortez argued that that the loan officer falsely qualified him and his wife for a home-equity line by fabricating key details about their finances.
A handful of states do not allow lenders to pursue deficiencies, nor does a federal program that took effect April 10. Lenders participating in that initiative are paid for approving short sales and as a condition, they cannot go after outstanding debt.
In many states, lenders can go after deficiencies, though laws vary widely, said John Rao, an attorney at the National Consumer Law Center. Some states limit how long the banks have to file a claim or collect the debt. Others may calculate deficiencies based on the fair-market value of the house, Rao said. For instance, if a home sells for $200,000 yet its fair market value is $250,000, "the borrower who owes $240,000 on the mortgage would not have a deficiency," he said.
Borrowers should get a waiver in writing from their lenders to protect themselves, said Diane Cipollone, an attorney at the nonprofit Civil Justice. "Nobody should assume the deficiency is forgiven," she said.
This can occur either as a short sale (the owner sells the home with approval of the lender) or as a foreclosure (the lender takes the home back from the homeowner and sells it).
If the lender has a deficiency, in many cases they have the right to pursue that amount from the previous homeowner. In the past, lenders rarely tried to collect deficiency judgments, but as the article below explains, they are starting to now. Or they are selling that deficiency collection right to another company, such as a collection agency, and those agencies are pursuing the deficiency from the previous homeowner.
These deficiency rights vary by state and there are some ways to avoid the collection. Call me to discuss if you are contemplating a short sale or giving up your property to the lender.
Lenders go after money lost in foreclosures
By Dina ElBoghdady
Washington Post Staff Writer
Wednesday, June 16, 2010; A11
After the bank foreclosed on Fernando Palacios's Gainesville home in March, he thought he was done with what he described as the most stressful financial situation of his life.
The bank sold the home for far less than Palacios owed on it, as often happens with foreclosures. What Palacios did not see coming was the letter from his lender demanding that he pay the shortfall: $148,064.02. "I really thought I was through with this house," said Palacios, who fell behind on payments when the economy soured and his cleaning business stumbled.
Over the past year, lenders have become much more aggressive in trying to recoup money lost in foreclosures and other distressed sales, creating more grief for people who thought their real estate headaches were far behind.
In many localities -- including Virginia, Maryland and the District -- lenders have the right to pursue borrowers whose homes have sold at a loss to collect the difference between what the property sold for and what the borrower owed on it, also called a deficiency.
Before the housing bust, when the volume of foreclosures was relatively low, lenders seldom bothered to chase after deficiencies because borrowers had few remaining assets to claim and doing so involved hassles and costs. But with foreclosures soaring, lenders are more determined to get their money back, especially if they suspect borrowers are skipping out on loan they could afford, an increasingly common practice in areas where home values have tanked.
Palacios said he was committed to staying in his house, which he bought in 2005. He sunk $20,000 into improving it and hoped to raise his children there. But his lender refused to modify his loan, he said. To avoid personal liability for the deficiency, Palacios is filing for bankruptcy protection, as many people do who are in similar situations, said Nancy Ryan, his bankruptcy attorney.
"I am definitely seeing more people come through my door who walked away from houses a year or two ago and thought they were as free as the dead," Ryan said. "They're stunned when they realize they're not."
Several lenders contacted for this story declined to say how often they pursue deficiencies. But many said they try to collect the debt if they conclude the borrower can repay all or part of it.
"Lenders are not going after people who face a hardship," said John Mechem, a spokesman for the Mortgage Bankers Association. "If they can't pay their mortgage because they have a loss of income, there is no point in going after them."
Those who had a second mortgage, such as a home-equity line of credit, in addition to their primary mortgage may find themselves particularly vulnerable, especially if they tapped into the equity line for cash.
Second lenders are last in line to get paid when a distressed property is sold. There's usually little or no money left over for them, making it more likely that they will pursue large deficiencies, several attorneys said.
Gretchen Somers said she and her husband understood the risks last year when they completed a "short sale," a transaction that allowed them to sell their Manassas home for about $150,000 less than they owed on it. But they felt they had no other options.
Somers said her family hung onto the house as long as possible. They tried but failed to sell it when her husband was transferred to Arizona for his job in early 2006, just as home prices were softening. They moved back into the house then tried to sell it again in 2008, after their adjustable-rate mortgage reset and their monthly mortgage payment nearly doubled. But home prices had plunged further by then, making it even tougher to sell.
Last year, their first lender and their home-equity line lender granted permission for the short sale. But the second lender reserved the right to come after the couple. Six months later, a collection agency called demanding $85,000 for related losses.
In hindsight, Somers said she and her husband should have just walked away from the house. "We took care of the house because we wanted it to sell," Somers said. "If they were going to come after us anyway, we shouldn't have done them the favor of making sure it looked good and cutting the grass even after we moved out, We should have mailed them the key and said: 'Here you go.' "
Carlos Cortez and his wife managed to escape that fate after their second lender came after them for $70,000 when their short sale was completed on his Manassas Park townhouse in 2008.
Cortez knew that was a possibility, but he went through with the sale because his real estate agent said the lender was engaging in scare tactics.
James Scruggs, an attorney at Legal Services of Northern Virginia, said the lender appears to have backed off after Cortez argued that that the loan officer falsely qualified him and his wife for a home-equity line by fabricating key details about their finances.
A handful of states do not allow lenders to pursue deficiencies, nor does a federal program that took effect April 10. Lenders participating in that initiative are paid for approving short sales and as a condition, they cannot go after outstanding debt.
In many states, lenders can go after deficiencies, though laws vary widely, said John Rao, an attorney at the National Consumer Law Center. Some states limit how long the banks have to file a claim or collect the debt. Others may calculate deficiencies based on the fair-market value of the house, Rao said. For instance, if a home sells for $200,000 yet its fair market value is $250,000, "the borrower who owes $240,000 on the mortgage would not have a deficiency," he said.
Borrowers should get a waiver in writing from their lenders to protect themselves, said Diane Cipollone, an attorney at the nonprofit Civil Justice. "Nobody should assume the deficiency is forgiven," she said.
Tuesday, June 15, 2010
Insider Short Sales Secrets Revealed
Why learn about short sales?
There are a lot of short sales on the market right now and more coming. Lenders are being pressured by the federal government to pursue loan modifications and short sales instead of foreclosures.
If you are a homeowner, who owes more on your loan than your home is worth, if you want to sell, it will need to be a short sale.
Advantages of a short sale instead of a foreclosure for the homeowner:
• Provides some control over the process. (Not a lot more, but some.)
• May provide some financial incentive to the owner. (Rarely, but it does happen.)
• Preserves personal dignity. (No public posting of foreclosure sale notice.)
• Less of a hit to your credit score.
• Less time before your can buy a new home.
• The short payoff can help preserve the neighborhood market values.
Advantages of a short sale for a buyer:
• More homes available.
• Less competition (many Realtors and buyers will avoid short sales.)
• Possible lower price than for a private sale.
Insider info:
I recently attended 2 events with insiders on both sides of the short sale scene: one event featured a lender's representative and the other event had an title company escrow/negotiator representative, who represents homeowner/sellers. They confirmed some things I knew from previous events and also revealed some new information.
First some definitions for the purposes of this article:
Short sale: a sale of a property is made for less than the current loan balance. For example, if there is a loan on a property for $200,000, but the current market value and offer to purchase the property is $150,000, the payoff to the lender will be $50,000 less than the loan amount (minus also all costs of sale.)
Homeowner/seller: person on the title (legal record) as the owner.
Loan originator: the company who originally signs-up the home-owner for a loan. This can be a mortgage broker, who could represent many different lenders, or a lender, such as Well Fargo Bank.
Loan servicer: This is a company, who services the loan. They collect payments, etc. This may be the loan originator, the original lender, or another company.
The lender/investor: This is a company or individual, who ends up "holding the paper" – the owner of the mortgage. This might be the original lender, but most lenders resell their loans to another investor, a government agency, or another financial institution such as a securities firm. Loans can also be packaged with other loans to create a "securitization" of the loan and that security can be resold several times.
The owner’s representative: The processing of the short sale may be long and difficult.
• It is almost impossible for an owner to do it and even Realtors do not have the specialized knowledge and time to be consistently successful.
• The listing Realtor may have someone in their office, who can do it (we do.)
• Many title companies now have specialists, who can handle the processing, but they cannot negotiate with the lender/investor.
• A third party negotiator or another representative may both process the paperwork and negotiate with the servicer.
The short sale process: (in brief)
1. The property is listed with a Realtor for sale by the owner.
2. An offer to purchase is made by a buyer and is accepted by the owner.
3. The offer is submitted to the servicer for approval, along with a complete file of information about the owner, the reasons they qualify for the short sale, etc.
4. The servicer assigns a negotiator to evaluate the file and approve it or not.
5. If necessary, the servicer submits the deal to the lender/investor for approval
6. There may be more negotiations necessary to get final approval
Whew! Sorry, for all of the detail, but you have to know the players to understand the game.
What you should know about the short sale process.
Servicer/lender policies and procedures are constantly changing, their personnel are constantly changing and lender/investor rules are generally unknowable, all making for typically an incredibly frustrating processes.
According to the lender's representative I heard speak, (let’s call him by the code name “Mr. L,” he has the best and most successful processing and closing available. He may just be right, but unfortunately he only manages the short sales for one lender's portfolio loans, (the loans they have kept in their own account.) He does not deal with their investor loans (loans they service, but have sold to another investor.) Only about 10% of the loans they service are their own portfolio loans.
As described by the title company owner’s representative, other servicer/lenders are not as good, some much, much worse. Here are some comparisons.
Insider info:
L’s company’s internal calculation is that the lender/investor will recover 10% more money approving a typical short sale instead of foreclosing on a property.
So, why is it so hard to get a short sale approved? (Keep reading and you will learn some possible reasons.)
The journey of the short sale file:
1. Your representative submits a package of information (a file) to the lender servicer’s Set-up person:
• L’s lender representative provides local processing and approvals. Most big lenders only have remote processing centers in far away states, usually staffed with people, who may have just been hired and have little knowledge of what is going on.
• They make sure the file is complete.
• If the file is incomplete, they may just shred it. It might be missing only one piece of information (maybe some information that no one has previously required) but it will be too difficult to keep track of and update. So, they will ask for a new complete package.
• The processor person may be new or poorly trained and mess up the process.
• Your file may be lost….several times….during the process. This is common.
• L’s response time at any stage of the process is 7 to 10 business days. (The industry average is more like 2-3 weeks.)
When complete, your file goes to -
2. The Negotiator:
• Processing: They may have several hundred files and take several weeks to get to yours. Then, it gets maybe 5 minutes of review.
o By the time the file is considered, the docs may be too dated. They will request new docs and your file goes to the end of the line. (This can happen more than once.)
o If the file is incomplete (by their latest standards which may be new and unknown) you will get a request for more info and your file goes to the end of the line.
o If there are questions, they may ask for clarification or may just trash the file. (Too much work.)
• Valuation/negotiation:
o Review of the purchase offer: the lender/investor want the highest possible net return and the best chance of closing the deal. So sometimes they will accept an all-cash offer, which is lower than an offer requiring financing.
• The lender/investor will have someone do a valuation of the property to determine if the purchase offer they have is reasonable given the current market.
o May use out-of-town appraiser or Realtor who does not know the local market.
o May do a desktop appraisal (just look at computer reports) or a drive by. Rarely will they find out about interior condition or possible anomalies.
o Valuations can be way off.
Completed package will be submitted to the lender/investor.
3. Investor evaluation:
• The servicer will not reveal the investor’s requirements. It may be that you go through the entire process and the investor will not allow a short sale.
• The investor may have mortgage insurance, which will cover their loss in the case of a foreclosure, but not a short sale, so they will deny a short sale, foreclose on the property and put it on the market, sometimes even at a lower price point than the short sale offer price!
• Sometimes, it will take them a long time to approve the deal. They may only meet to consider files quarterly.
• If there is a second loan or equity line on the property
o Lender/investors in first position know the second loan is not worth anything if the property is sold at foreclosure, but the second lender may demand a payoff anyway to approve the short sale.
o L says he will pay 10 to 15% to a second mortgage holder. Others will typically pay nothing toward a second mortgage, but may pay something depending upon the circumstances.)
o Sometimes this stalemate will prevent the short sale from being approved and the property will end up going to foreclosure.
• The bottom line for the lender/investor is how will they recover the most money?
Loan modification, short sale, foreclosure? That is the option they will take.
The closing: completion of the sales transaction
• L’s average timing from application to closing is 37 business days. (The typical short sale takes 3-4 months and can often take over a year. (If it takes that long, in 4 out of 5 cases the original buyer is long gone and you have to hope to have a back-up offer in hand.)
• Deficiency and other issues: This is a big deal and a more complicated subject than we can explain in detail here, but here are some basics.
o Your short sale can be accepted, but with the provision that the owner will contribute a promissory note for the lender’s loss.
o If the loan is not the original purchase money loan, the lender can reserve the right to come after the owner for any amount that they are short from their loan balance.
o If there is a deficiency provision in your short sale agreement, for example, if your home sells for $50,000 less than the mortgage balance, they can present you with a bill for the $50,000 sometime in the future. They may even sell the note to an aggressive collection agency to come after you. Many owners will not sign that deal.
• Sometimes, the lender may have a quota and just accept a certain number closes per month. If that is so, you have to wait your turn. That’s it.
• L says he closes 70% of his short sales. The industry average is 36%.
So, short sales can be done, but up until now, it has been a difficult process most of the time.
However, there is some additional hope. The new government HAFA program has mandated more standardized processes and procedures for short sales. Time will tell if the lenders manage to implement them.
There are a lot of short sales on the market right now and more coming. Lenders are being pressured by the federal government to pursue loan modifications and short sales instead of foreclosures.
If you are a homeowner, who owes more on your loan than your home is worth, if you want to sell, it will need to be a short sale.
Advantages of a short sale instead of a foreclosure for the homeowner:
• Provides some control over the process. (Not a lot more, but some.)
• May provide some financial incentive to the owner. (Rarely, but it does happen.)
• Preserves personal dignity. (No public posting of foreclosure sale notice.)
• Less of a hit to your credit score.
• Less time before your can buy a new home.
• The short payoff can help preserve the neighborhood market values.
Advantages of a short sale for a buyer:
• More homes available.
• Less competition (many Realtors and buyers will avoid short sales.)
• Possible lower price than for a private sale.
Insider info:
I recently attended 2 events with insiders on both sides of the short sale scene: one event featured a lender's representative and the other event had an title company escrow/negotiator representative, who represents homeowner/sellers. They confirmed some things I knew from previous events and also revealed some new information.
First some definitions for the purposes of this article:
Short sale: a sale of a property is made for less than the current loan balance. For example, if there is a loan on a property for $200,000, but the current market value and offer to purchase the property is $150,000, the payoff to the lender will be $50,000 less than the loan amount (minus also all costs of sale.)
Homeowner/seller: person on the title (legal record) as the owner.
Loan originator: the company who originally signs-up the home-owner for a loan. This can be a mortgage broker, who could represent many different lenders, or a lender, such as Well Fargo Bank.
Loan servicer: This is a company, who services the loan. They collect payments, etc. This may be the loan originator, the original lender, or another company.
The lender/investor: This is a company or individual, who ends up "holding the paper" – the owner of the mortgage. This might be the original lender, but most lenders resell their loans to another investor, a government agency, or another financial institution such as a securities firm. Loans can also be packaged with other loans to create a "securitization" of the loan and that security can be resold several times.
The owner’s representative: The processing of the short sale may be long and difficult.
• It is almost impossible for an owner to do it and even Realtors do not have the specialized knowledge and time to be consistently successful.
• The listing Realtor may have someone in their office, who can do it (we do.)
• Many title companies now have specialists, who can handle the processing, but they cannot negotiate with the lender/investor.
• A third party negotiator or another representative may both process the paperwork and negotiate with the servicer.
The short sale process: (in brief)
1. The property is listed with a Realtor for sale by the owner.
2. An offer to purchase is made by a buyer and is accepted by the owner.
3. The offer is submitted to the servicer for approval, along with a complete file of information about the owner, the reasons they qualify for the short sale, etc.
4. The servicer assigns a negotiator to evaluate the file and approve it or not.
5. If necessary, the servicer submits the deal to the lender/investor for approval
6. There may be more negotiations necessary to get final approval
Whew! Sorry, for all of the detail, but you have to know the players to understand the game.
What you should know about the short sale process.
Servicer/lender policies and procedures are constantly changing, their personnel are constantly changing and lender/investor rules are generally unknowable, all making for typically an incredibly frustrating processes.
According to the lender's representative I heard speak, (let’s call him by the code name “Mr. L,” he has the best and most successful processing and closing available. He may just be right, but unfortunately he only manages the short sales for one lender's portfolio loans, (the loans they have kept in their own account.) He does not deal with their investor loans (loans they service, but have sold to another investor.) Only about 10% of the loans they service are their own portfolio loans.
As described by the title company owner’s representative, other servicer/lenders are not as good, some much, much worse. Here are some comparisons.
Insider info:
L’s company’s internal calculation is that the lender/investor will recover 10% more money approving a typical short sale instead of foreclosing on a property.
So, why is it so hard to get a short sale approved? (Keep reading and you will learn some possible reasons.)
The journey of the short sale file:
1. Your representative submits a package of information (a file) to the lender servicer’s Set-up person:
• L’s lender representative provides local processing and approvals. Most big lenders only have remote processing centers in far away states, usually staffed with people, who may have just been hired and have little knowledge of what is going on.
• They make sure the file is complete.
• If the file is incomplete, they may just shred it. It might be missing only one piece of information (maybe some information that no one has previously required) but it will be too difficult to keep track of and update. So, they will ask for a new complete package.
• The processor person may be new or poorly trained and mess up the process.
• Your file may be lost….several times….during the process. This is common.
• L’s response time at any stage of the process is 7 to 10 business days. (The industry average is more like 2-3 weeks.)
When complete, your file goes to -
2. The Negotiator:
• Processing: They may have several hundred files and take several weeks to get to yours. Then, it gets maybe 5 minutes of review.
o By the time the file is considered, the docs may be too dated. They will request new docs and your file goes to the end of the line. (This can happen more than once.)
o If the file is incomplete (by their latest standards which may be new and unknown) you will get a request for more info and your file goes to the end of the line.
o If there are questions, they may ask for clarification or may just trash the file. (Too much work.)
• Valuation/negotiation:
o Review of the purchase offer: the lender/investor want the highest possible net return and the best chance of closing the deal. So sometimes they will accept an all-cash offer, which is lower than an offer requiring financing.
• The lender/investor will have someone do a valuation of the property to determine if the purchase offer they have is reasonable given the current market.
o May use out-of-town appraiser or Realtor who does not know the local market.
o May do a desktop appraisal (just look at computer reports) or a drive by. Rarely will they find out about interior condition or possible anomalies.
o Valuations can be way off.
Completed package will be submitted to the lender/investor.
3. Investor evaluation:
• The servicer will not reveal the investor’s requirements. It may be that you go through the entire process and the investor will not allow a short sale.
• The investor may have mortgage insurance, which will cover their loss in the case of a foreclosure, but not a short sale, so they will deny a short sale, foreclose on the property and put it on the market, sometimes even at a lower price point than the short sale offer price!
• Sometimes, it will take them a long time to approve the deal. They may only meet to consider files quarterly.
• If there is a second loan or equity line on the property
o Lender/investors in first position know the second loan is not worth anything if the property is sold at foreclosure, but the second lender may demand a payoff anyway to approve the short sale.
o L says he will pay 10 to 15% to a second mortgage holder. Others will typically pay nothing toward a second mortgage, but may pay something depending upon the circumstances.)
o Sometimes this stalemate will prevent the short sale from being approved and the property will end up going to foreclosure.
• The bottom line for the lender/investor is how will they recover the most money?
Loan modification, short sale, foreclosure? That is the option they will take.
The closing: completion of the sales transaction
• L’s average timing from application to closing is 37 business days. (The typical short sale takes 3-4 months and can often take over a year. (If it takes that long, in 4 out of 5 cases the original buyer is long gone and you have to hope to have a back-up offer in hand.)
• Deficiency and other issues: This is a big deal and a more complicated subject than we can explain in detail here, but here are some basics.
o Your short sale can be accepted, but with the provision that the owner will contribute a promissory note for the lender’s loss.
o If the loan is not the original purchase money loan, the lender can reserve the right to come after the owner for any amount that they are short from their loan balance.
o If there is a deficiency provision in your short sale agreement, for example, if your home sells for $50,000 less than the mortgage balance, they can present you with a bill for the $50,000 sometime in the future. They may even sell the note to an aggressive collection agency to come after you. Many owners will not sign that deal.
• Sometimes, the lender may have a quota and just accept a certain number closes per month. If that is so, you have to wait your turn. That’s it.
• L says he closes 70% of his short sales. The industry average is 36%.
So, short sales can be done, but up until now, it has been a difficult process most of the time.
However, there is some additional hope. The new government HAFA program has mandated more standardized processes and procedures for short sales. Time will tell if the lenders manage to implement them.
Demographics Determine Destiny - At Least for Real Estate Prices
One of the most basic law of economics is "supply and demand." If there is more demand than supply, prices will rise. If there is more supply than demand, prices will fall.
The main driver of demand for real estate has historically been population growth and more specifically household formation. More new households menans more demand for new homes and rental houses.
This is a good article about how household formation (demand) has been restricted by the current recession, but so has new home-building (supply.) When the econoomy turns around, there will be a pent-up demand for new and rental homes and the building industry will probably be slow to respond, leading to price appreciation in some markets. Of course, we would need to factor in job growth and financing availability to complete the picture.
Is a housing
shortage coming?
By Les Christie, staff writer
June 15, 2010: 2:08 PM ET
NEW YORK (CNNMoney.com) --
As the nation struggles to shrug off the worst
housing crash since the Great Depression, it
may be hard to believe a housing shortage
could be on its way.
The nation is simply not building enough
homes to keep up with potential demand.
Just 672,000 new homes were started in
April, an annualized rate and less than half
the long-term run rate needed to meet the
nation's natural population growth.
"It is ironic, but there is a growing
consensus that there may be a new housing
shortage coming," said James Gaines, a real
estate economist with Texas A&M.
So far, the shortfall has been masked by a
weak economy that has put a damper on
home buying. Once the job market
rebounds, however, people will look to have
their own homes again. This pent-up
demand could get unleashed on unprepared
markets, causing shortages and rising local
prices.
Household formation -- the technical term
for people moving in together -- has been
on hold during the past few years as young
people, especially, have been unable to find
jobs. In the past, an average of more than
1.3 million households were formed each
year, causing demand for 1.5 million new
homes. (More homes than households are
needed to replace those destroyed by fires,
floods, teardowns and neglect.)
In 2009, only 398,000 new households were
formed, according to the Census Bureau.
That is much lower than average and a
quarter of the number formed just two years
earlier.
"The decline in household formation is
artificial," said Gaines. "The young are
moving in with their parents. There's even
doubling up among working class people.
There's a pent-up demand coming if and
when the economy recovers."
Those doubting a new bubble is near point
to a large inventory overhang. As many as 7
million homes are vacant but not for sale,
according to the Census Bureau, which
should provide cushion to offset increased
demand.
"The housing market hasn't been this way
before," said Nicolas Retsinas, director of
Harvard's Joint Center for Housing Studies.
"The gravity of the problem is deeper and
the challenges different. You have to get
through that inventory."
The inventory number, however, can be
deceiving for two reasons: People may not
want to live in hard-hit areas where the
houses are (think: California exurbs and
Detroit neighborhoods) or the homes may
be beyond repair.
"Many of these vacant homes may not be
habitable or are in locations where nobody
wants to live," Gaines said.
Ordinarily, the nation's homebuilders can
react quickly to meet surges in demand. But
several factors are preventing them from
being nimble. The biggest is the difficulty
getting loans, according to Jerry Howard,
CEO of the National Association of Home
Builders (NAHB).
"When we came out of past recessions, there
wasn't the difficulty of obtaining financing
that there is now," he said.
Many small builders have been unable to
obtain construction loans or lost their
financing in mid-project. That has prodded
NAHB to support federal legislation that
would make $15 billion in lending
guarantees available for private builders.
Hard times also persuaded builders to
postpone purchases of land they could prep
for future development. It will take them that
much longer to gear up production once the
housing market improves.
Too, many builders went out of business in
the bust, so there will be fewer companies
out there to do the building. The survivors
will confront a transformed regulatory
environment, according to Howard, that will
make new homes harder to build and more
expensive.
"There is an increased focus on smart
growth that will create regulatory barriers to
the kind of sprawling development that has
characterized a lot of recent building," said
Retsinas.
The regulations come under two categories,
according to Susan Asmus, NAHB's senior
vice president for advocacy, covering where
new homes are built and how they're built.
One category is storm water runoff. The
Environmental Protection Agency tightened
requirement governing how builders handle
that. Builders will have to install controls
such as catchments or retaining ponds that
slow the flow of storm runoff into the local
watersheds.
"It could add as much as $15,000 to $30,000
an acre in extra costs, depending on the
soil," said Asmus.
Another proposed regulation mandates
sprinkler systems in each new home. This is
already state law, starting January 2011, in
California, Maryland and New Jersey. That
adds as much as $10,000 to the cost of
construction.
Previous overbuilding one-time boom
towns, such as Las Vegas and Miami, should
provide enough inventory of like-new homes
to counter any strong pent-up demand that
breaks free.
It's the more constrained markets, where it's
particularly hard to build -- such as New
York, San Francisco and Seattle -- that will
field the bulk of the new bubble problems,
according to Retsinas. He, however, is less
worried about the purchase market than
about rentals, the usual entree for the young
buyers expected to lead the new housing
market charge.
"Nobody is building any rental inventory,"
said Retsinas.
The main driver of demand for real estate has historically been population growth and more specifically household formation. More new households menans more demand for new homes and rental houses.
This is a good article about how household formation (demand) has been restricted by the current recession, but so has new home-building (supply.) When the econoomy turns around, there will be a pent-up demand for new and rental homes and the building industry will probably be slow to respond, leading to price appreciation in some markets. Of course, we would need to factor in job growth and financing availability to complete the picture.
Is a housing
shortage coming?
By Les Christie, staff writer
June 15, 2010: 2:08 PM ET
NEW YORK (CNNMoney.com) --
As the nation struggles to shrug off the worst
housing crash since the Great Depression, it
may be hard to believe a housing shortage
could be on its way.
The nation is simply not building enough
homes to keep up with potential demand.
Just 672,000 new homes were started in
April, an annualized rate and less than half
the long-term run rate needed to meet the
nation's natural population growth.
"It is ironic, but there is a growing
consensus that there may be a new housing
shortage coming," said James Gaines, a real
estate economist with Texas A&M.
So far, the shortfall has been masked by a
weak economy that has put a damper on
home buying. Once the job market
rebounds, however, people will look to have
their own homes again. This pent-up
demand could get unleashed on unprepared
markets, causing shortages and rising local
prices.
Household formation -- the technical term
for people moving in together -- has been
on hold during the past few years as young
people, especially, have been unable to find
jobs. In the past, an average of more than
1.3 million households were formed each
year, causing demand for 1.5 million new
homes. (More homes than households are
needed to replace those destroyed by fires,
floods, teardowns and neglect.)
In 2009, only 398,000 new households were
formed, according to the Census Bureau.
That is much lower than average and a
quarter of the number formed just two years
earlier.
"The decline in household formation is
artificial," said Gaines. "The young are
moving in with their parents. There's even
doubling up among working class people.
There's a pent-up demand coming if and
when the economy recovers."
Those doubting a new bubble is near point
to a large inventory overhang. As many as 7
million homes are vacant but not for sale,
according to the Census Bureau, which
should provide cushion to offset increased
demand.
"The housing market hasn't been this way
before," said Nicolas Retsinas, director of
Harvard's Joint Center for Housing Studies.
"The gravity of the problem is deeper and
the challenges different. You have to get
through that inventory."
The inventory number, however, can be
deceiving for two reasons: People may not
want to live in hard-hit areas where the
houses are (think: California exurbs and
Detroit neighborhoods) or the homes may
be beyond repair.
"Many of these vacant homes may not be
habitable or are in locations where nobody
wants to live," Gaines said.
Ordinarily, the nation's homebuilders can
react quickly to meet surges in demand. But
several factors are preventing them from
being nimble. The biggest is the difficulty
getting loans, according to Jerry Howard,
CEO of the National Association of Home
Builders (NAHB).
"When we came out of past recessions, there
wasn't the difficulty of obtaining financing
that there is now," he said.
Many small builders have been unable to
obtain construction loans or lost their
financing in mid-project. That has prodded
NAHB to support federal legislation that
would make $15 billion in lending
guarantees available for private builders.
Hard times also persuaded builders to
postpone purchases of land they could prep
for future development. It will take them that
much longer to gear up production once the
housing market improves.
Too, many builders went out of business in
the bust, so there will be fewer companies
out there to do the building. The survivors
will confront a transformed regulatory
environment, according to Howard, that will
make new homes harder to build and more
expensive.
"There is an increased focus on smart
growth that will create regulatory barriers to
the kind of sprawling development that has
characterized a lot of recent building," said
Retsinas.
The regulations come under two categories,
according to Susan Asmus, NAHB's senior
vice president for advocacy, covering where
new homes are built and how they're built.
One category is storm water runoff. The
Environmental Protection Agency tightened
requirement governing how builders handle
that. Builders will have to install controls
such as catchments or retaining ponds that
slow the flow of storm runoff into the local
watersheds.
"It could add as much as $15,000 to $30,000
an acre in extra costs, depending on the
soil," said Asmus.
Another proposed regulation mandates
sprinkler systems in each new home. This is
already state law, starting January 2011, in
California, Maryland and New Jersey. That
adds as much as $10,000 to the cost of
construction.
Previous overbuilding one-time boom
towns, such as Las Vegas and Miami, should
provide enough inventory of like-new homes
to counter any strong pent-up demand that
breaks free.
It's the more constrained markets, where it's
particularly hard to build -- such as New
York, San Francisco and Seattle -- that will
field the bulk of the new bubble problems,
according to Retsinas. He, however, is less
worried about the purchase market than
about rentals, the usual entree for the young
buyers expected to lead the new housing
market charge.
"Nobody is building any rental inventory,"
said Retsinas.
Wednesday, June 9, 2010
What is Happening with Short Sales and Foreclosure Sales
(My comments will be in bolded text).
This is a good explanation about how the rules for Short Sales and Foreclosure sales are both driven by the Loan Servicing Agreement on the original loan.
Several different companies may be involved with a loan.
When you get a loan to buy a property, the loan is originated by one company. That company may keep the loan in their own portfolio, or (more likely) re-sell the loan to another investment company.
Then, the loan may be serviced (payments collected, etc.) by the originating company, or the investment company, which bought the loan, or by another company, which just does loan servicing.
Short Sales
So, when there is a short sale situation (there is a pending sale for less than the loan amount) the loan servicing company may be able to make the deal to sell for the loan amount, may be prohibited from making any such deal, or may be able to make the deal only with the investment company's approval. If the loan has been resold several times or packaged with other loans, that becomes almost impossible.
Foreclosure sales
Traditionally, the minimum acceptable bid has usually been the existing loan amount. If that amount is not equaled or surpassed, the property will go back to the investor company, which holds the loan. They will then list it for sale with a Realtor.
Recently however, if a property is not habitable, due to damage, etc., that means it is almost impossible to get a new loan to buy it, so since it will only attract an all-cash offer anyway, some properties have been selling for less than the current loan amount at the foreclosure sale.
In either a Short Sale or Foreclosure Sale, there will be a "Loan Servicing Agreement" telling the company collecting the loan payments how to collect payments, what to do if payments are late or the borrower does not pay and if they can make a deal to sell at less than the loan amount.
(From the Bryan Ellis News)
The Real Truth Of Why Short Sales Are So Hard To Complete
I had a meeting this week in Las Vegas with some high net worth investors and a colleague of mine who runs a large real estate brokerage that focuses on asset management and foreclosure disposition for very large mortgage lending clients. He was explaining the process of foreclosure auctions and mentioned that the vast majority of properties that go to auction have a starting bid that matches the amount of the debt against the property. Since most foreclosures are tremendously over-leveraged, the typical auction result is the return of the property to the lender. Makes sense… nobody would want a property with massive negative equity to begin with.
Monday, June 7, 2010
Rent or Buy NY Times Writer Decides to Buy
Here is a great article about Renting vs. Buying. It does not cover all of the advantages of buying, but it is a pretty good discussion.
(Please also see my previous post Rent vs. Buy? Which Cities are Best and Worst.)
As Home Prices Drop Low Enough, a Committed Renter Decides to Buy
Rent or Buy? Which Cities are Best and Worst?
There are a lot of personal advantages of owning your own home. You can settle in without being at the mercy of a landlord and of course if you pay on your mortgage until it's term is up, you own the home free and clear. Also, you can add your own personal touches and truly make it your own.
As an investment, historically (OK, not the last couple of years!), homes have appreciated much better than inflation (especially considering the leverage of financing, etc.)
Our neighbor bought her home for $73,000 in the 1970s and even with the recent crash in prices it is still worth $350,000 or more...and she owns it free and clear! If she had been renting all of that time, she would be paying probably $1800 per months and own...nothing.
But what about the cash flow economics of buying vs. renting?
When is a real estate market affordable for buyers? The short answer is "When it is less expensive to buy than rent."
There are 2 ways to look at this: the "Rent vs. Buy Ratio" and the actual rent cost vs. market rent.
Rent vs. Buy Ratio
Some real estate experts say that when a market price of a home is 15 times the annual rental cost, it is a good value. In recent years, that has certainly not been the case in many parts of the country, including Sonoma county, but it is now.
For example, if the the price point to buy a home is $300,000, divide that number by the annual rental cost for a similar home, say $20,000 ($1666 per month times 12 months), the rental ratio would be 15.
Actual Rent vs. Market Rent
This is a more accurate analysis, because it takes into account interest rates, which are historically low at this time.
We have recently helped several people buy homes who now pay less than a comparable home would rent for.
In one example, our clients had been paying $1650 per month for a typical home. They bought a better home in the same neighborhood and now pay $1600 per month in mortgage payments. (Of course they must also pay property taxes and insurance, but the mortgage and property tax income tax deductions more or less cover those costs. And part of that $1650 they pay every month goes toward paying down that mortgage.)
Here are 2 articles about cities with the current best and worst Rent To Buy ratios in the U.S.
If you are thinking about investing in rental real estate, the cities with the best Rent to Buy ratios offer some of the best opportunities. If you are considering this, please contact us. We have contacts in those areas and we also know some of the advantages and disadvantages of investing out-of-state. For example, Florida has some low prices right now, but some of the areas in Florida are very poor rental markets and the homeowner's insurance costs are prohibitive.
San Francisco has one of the worst Rent to Own ratios at 22. So, I consider Sonoma County a good buy at this time. It is in the greater San Francisco Bay Area, but is affordable.
If you're looking for a quick and easy calculation about whether you should finally buy your dream home, you'll likely want to first check out your area's price-to-rent ratio. (For a list of 10 U.S. cities where it's better to rent than buy click here.) Trulia, the online real estate data provider, recently took a look at this hand statistic in the 50 largest U.S. cities by population. By comparing the average purchase price of a 2-bedroom home --including mortgage fees and maintenance expenses -- with the average rental price for 2-bedroom apartments, condos, and townhouses, Trulia calculated the price-to-rent ratio to determine whether it is better to rent or buy in a particular city. Cities with low price-to-rent ratios (under 15) indicate that is cheaper to own a home than rent. "At the peak of the real estate bubble, cities like Miami, Phoenix and Las Vegas were not affordable for many. Now the opposite is true," said Pete Flint, co-founder and CEO of Trulia. "Home sellers in these hard hit areas are forced to lower their prices to compete with all the foreclosures on the market. As a result, these unattainable markets are so affordable it makes better financial sense to buy than rent."
If you're enamored of the age-old wisdom that renting a home is akin
to throwing your money away, think again.
A simple calculation called the price-to-rent ratio can give you an indication of
whether it's a better move to rent or buy a home. Trulia, the online real
estate data provider, evaluated the price-to-rent ratio in the 50
largest U.S. cities by population. By comparing the average purchase
price of a 2-bedroom home -- including mortgage fees and maintenance
expenses -- with the average rental price for 2 bedroom apartments,
condos, and townhouses, Truilia came up with a handy,
back-of-the-envelope way to gauge a local market.
Cities with price-to-rent ratios between 16 and 20 indicate that is
cheaper to rent than purchase a home, but certain financial situations
may make ownership a viable option. In cities with price-to-rent ratios
of 21 and above, it is much more expensive to buy than rent.
"It is not a surprise to see cities like New York and San Francisco
on the 'Rent' cities but I was surprised to see areas like Omaha,
Oklahoma City and Kansas City on our rental list, "said Pete Flint,
co-founder and CEO of Trulia. "We're not suggesting that it's unwise to
buy in these areas though -- just that it's significantly more expensive
than renting."
"In many of these cities, even though home buying is much more costly
than renting, prices are still much lower than they have been in a
long, long time," Flint added.
As an investment, historically (OK, not the last couple of years!), homes have appreciated much better than inflation (especially considering the leverage of financing, etc.)
Our neighbor bought her home for $73,000 in the 1970s and even with the recent crash in prices it is still worth $350,000 or more...and she owns it free and clear! If she had been renting all of that time, she would be paying probably $1800 per months and own...nothing.
But what about the cash flow economics of buying vs. renting?
When is a real estate market affordable for buyers? The short answer is "When it is less expensive to buy than rent."
There are 2 ways to look at this: the "Rent vs. Buy Ratio" and the actual rent cost vs. market rent.
Rent vs. Buy Ratio
Some real estate experts say that when a market price of a home is 15 times the annual rental cost, it is a good value. In recent years, that has certainly not been the case in many parts of the country, including Sonoma county, but it is now.
For example, if the the price point to buy a home is $300,000, divide that number by the annual rental cost for a similar home, say $20,000 ($1666 per month times 12 months), the rental ratio would be 15.
Actual Rent vs. Market Rent
This is a more accurate analysis, because it takes into account interest rates, which are historically low at this time.
We have recently helped several people buy homes who now pay less than a comparable home would rent for.
In one example, our clients had been paying $1650 per month for a typical home. They bought a better home in the same neighborhood and now pay $1600 per month in mortgage payments. (Of course they must also pay property taxes and insurance, but the mortgage and property tax income tax deductions more or less cover those costs. And part of that $1650 they pay every month goes toward paying down that mortgage.)
Here are 2 articles about cities with the current best and worst Rent To Buy ratios in the U.S.
If you are thinking about investing in rental real estate, the cities with the best Rent to Buy ratios offer some of the best opportunities. If you are considering this, please contact us. We have contacts in those areas and we also know some of the advantages and disadvantages of investing out-of-state. For example, Florida has some low prices right now, but some of the areas in Florida are very poor rental markets and the homeowner's insurance costs are prohibitive.
San Francisco has one of the worst Rent to Own ratios at 22. So, I consider Sonoma County a good buy at this time. It is in the greater San Francisco Bay Area, but is affordable.
10 U.S. Cities Where It's Cheaper To Buy Than Rent
If you're looking for a quick and easy calculation about whether you should finally buy your dream home, you'll likely want to first check out your area's price-to-rent ratio. (For a list of 10 U.S. cities where it's better to rent than buy click here.) Trulia, the online real estate data provider, recently took a look at this hand statistic in the 50 largest U.S. cities by population. By comparing the average purchase price of a 2-bedroom home --including mortgage fees and maintenance expenses -- with the average rental price for 2-bedroom apartments, condos, and townhouses, Trulia calculated the price-to-rent ratio to determine whether it is better to rent or buy in a particular city. Cities with low price-to-rent ratios (under 15) indicate that is cheaper to own a home than rent. "At the peak of the real estate bubble, cities like Miami, Phoenix and Las Vegas were not affordable for many. Now the opposite is true," said Pete Flint, co-founder and CEO of Trulia. "Home sellers in these hard hit areas are forced to lower their prices to compete with all the foreclosures on the market. As a result, these unattainable markets are so affordable it makes better financial sense to buy than rent."
The Top 10 Cities Where It's Cheaper To Rent Than
Buy A Home
If you're enamored of the age-old wisdom that renting a home is akin
to throwing your money away, think again.
A simple calculation called the price-to-rent ratio can give you an indication of
whether it's a better move to rent or buy a home. Trulia, the online real
estate data provider, evaluated the price-to-rent ratio in the 50 largest U.S. cities by population. By comparing the average purchase
price of a 2-bedroom home -- including mortgage fees and maintenance
expenses -- with the average rental price for 2 bedroom apartments,
condos, and townhouses, Truilia came up with a handy,
back-of-the-envelope way to gauge a local market.
Cities with price-to-rent ratios between 16 and 20 indicate that is
cheaper to rent than purchase a home, but certain financial situations
may make ownership a viable option. In cities with price-to-rent ratios
of 21 and above, it is much more expensive to buy than rent.
"It is not a surprise to see cities like New York and San Francisco
on the 'Rent' cities but I was surprised to see areas like Omaha,
Oklahoma City and Kansas City on our rental list, "said Pete Flint,
co-founder and CEO of Trulia. "We're not suggesting that it's unwise to
buy in these areas though -- just that it's significantly more expensive
than renting."
"In many of these cities, even though home buying is much more costly
than renting, prices are still much lower than they have been in a
long, long time," Flint added.
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