Category — Real Estate

The widely watched released their home price numbers yesterday and   show that the U.S. National Home Price Index improved in the second quarter of 2009. The data covers 20 cities across the US and reports that the index rose quarter-over-quarter by 1.4% but fell 15.4% year-over-year.

While these numbers may be reassuring to some it has not been without a huge price tag as mentioned here. Can it continue when the stimulus money stops or will it just fizzle out as it did last year? It is hoped that it will create a sense of urgency among buyers that they must act now before they miss the bottom which is being experienced in many housing markets reporting multiple contract offers on listings, something we have not seen in a very long time.

So while this report gives cause for hope, there are still issues in unemployment, foreclosures, new housing inventory, first time homebuyer tax credit ending and Alt-A option arm resets all showing we still have a long road to recovery but could the worst be behind us?

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National Association of Realtors last week reported existing home sales had increased for the fourth month in a row. Existing homes, or homes that are previously owned, were up 7.2% to an annualized rat of   5.25 million compared with June and 5% from July 2008.

While many are standing on their soap boxes preaching the end of the crisis as we know it there is strong evidence that we are not out of the woods yet. While yes prices are down, mortgage rates are historically low and strong government incentives; these are exactly the issues in the marketplace.

* Prices are still down 32% from their peak and have not turned
* 30% of home sales in July were First Time Home Buyers
* 31% of home sales were distressed sales or sales of homes in foreclosure (First time in history)

Look at it; we still have huge amounts of “known” inventory on the market. We have government intervention that is artificially reducing this inventory through first time home buyer incentives, loan modifications, short sales and BILLIONS being spent weekly to keep mortgage rates low. You have lenders suspected of withholding foreclosed inventory off the market, by some accounts only about a third of repossessed houses are being actively marketed. Many home sellers above $250,000 taking their unsold home off the market and we may have another round of foreclosures due to “Alt-A” and option arm mortgages that will begin resetting and unemployment levels and underwriting guidelines are still tightening.

While sales of homes to first time home buyers has been a huge drag on home prices I don’t think we can conclude a turn around until prices collectively, actually start to increase, government intervention stops and monthly inventories are reduced.

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What is the MDIA or Mortgage Disclosure Information Act?

The Mortgage Disclosure Information Act or MDIA was passed into law when Congress enacted the Housing and Economic Recovery Act becoming effective July 30, 2009. The MDIA, seeks to ensure that consumer’s receive cost disclosures earlier in the mortgage process to create transparency during the loan process. It is important to understand the significance of this law and the affect it can have on your loan closings. Bear in mind, this rule only applies to primary residences and vacation / second home transactions and the interpretation will vary among lenders who will error on the side of caution.

What Changes Do the New Rules Bring?

The MDIA only allows a “reasonable” credit report fee to be collected before the customer receives the Good Faith Estimate (GFE) and Truth in Lending (TIL). The customer must receive both the GFE and the TIL within 3 days of application. Once the borrower has received and signed the initial Truth in Lending Disclosure, the loan officer can then order the appraisal. The MDIA has established the following schedule to be used to determine when it is permissible to accept fees:

• Disclosures mailed to borrowers —- on the 4th business day after mailing
• Disclosures e-mailed to borrowers —- on the day actual receipt is confirmed
• Disclosures are provided in person —- on the day of receipt

There is a 7 day mandatory waiting period after receiving the final Good Faith Estimate and Truth in Lending before signing final loan documents. If, throughout the loan process, the fees and charges change more than 10%, the APR by .125% or a change in loan terms there is a mandatory 3 day wait plus the mandatory wait time based on the manor the re disclosure took place. Its important to note, that this means ANY fees added after the initial disclosure has been made, not just lender.

What Makes the APR change?

• Fees - Changes in lender or title fees
• Interest Rate - Locking a rate other than what was disclosed on the application or an extension in rate lock time period
• Loan Amount - Putting more or less money down; Reduction in purchase price
• Type of Loan - Deciding to put less money down, changing to an FHA or VA which can have more fees associated.

What Can a REALTOR® & Lender do to Help Ensure Timely Close?

First it’s important for everyone to be on the same page to understand that the loan process will take longer. It’s crucial that the buyer is genuinely pre-approved prior to entering into the contract. Its imperative that a dialogue takes place in the beginning with the chosen title representative to accurately reflect their fees. Its important for loan officers to lock the loan early in the process, don’t gamble the interest rate. Going forward its important to manage your customers expectations. Also, its going to be important to schedule your loan closings 45 days out and initially even 60 days while lenders get used to these new processes as we are only 3 weeks into it and the first loans are approaching closing.

If something does come up at the end it’s important to note, that no re disclosure is necessary if the lender, broker, Realtor or seller pay whatever fee was added. The final rule also allows consumers to expedite consummation to meet a bona fide personal financial emergency.

Be ready, more regulations coming down the pike as well. New RESPA regulations that were published November 17, 2008 and are scheduled to take full effect on January 1, 2010.

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For first time homebuyers out looking for homes that will utilize the $8,000 tax credit, times a running out. November 30th, 2009 is the final day to close and with the new Truth in Lending MDIA disclosure it could take up to 45 days to close on the loan.

The First Time Homebuyer Tax Credit was passed as part of Obama’s American Recovery and Reinvestment Act of 2009, signed into law by President Obama on February 17, 2009, crediting up to $8,000 in tax payments to qualified first time home buyers. The maximum tax credit for an individual first time home buyer is 10% of the purchase price, up to $8,000.

Who qualifies for the $8,000 First Time Home Buyer Tax Credit?

• Must be a first time home buyer defined as no home ownership in the last 3 years, so prior ownership does not disqualify them only home ownership in the last 3 years
• No repayment is required if the buyer owns and occupies the property for 36 months
• The tax credit starts to phase out for an individual taxpayer with a modified adjusted gross income from $75,001 to $95,000 for single filers and $150,001 to $170,000 for joint filers.

Who does not qualify for the $8,000 First Time Home Buyer Tax Credit?

• The property is acquired from a related person
• The property is acquired by gift or inheritance
• The buyer is a nonresident alien
• The buyer disposes of the property before the end of such taxable year

A common misconception about the $8,000 First Time Home Buyer Tax Credit is that it is a true credit and not a deduction. So if you typically get a refund you would get $8,000 above and beyond your typical refund. Conversely if you owe every year your $8,000 would be deducted from the amount you owe.

You can check out the IRS publication at your convenience and remember if you do not have a ratified contract and make loan application by October 15, 2009 chances are your will not close by the November 30, 2009 deadline and you will end up at the short end of the stick.

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There is a new, old bad word among lenders now and that is property flipping concerning seller seasoning. The current lending crisis has led to seller seasoning becoming more of an issue among buyers, lenders, investors and brokers. Seller Seasoning refers to the length of time a seller has owned a property or been on title of the property. Property flipping is when an investor buys a property and turns around and immediately sells it. Immediately, by lenders definition is within 12 months.

There are 4 types of lending entities, each with their own flipping guideline.

•    FHA (Federal Housing Authority)
•    Conforming (Fannie and Freddie)
•    VA (Veterans Administration)
•    Hard Money (Kinda like getting a loan from Shady Frank but not to be confused with Barney Frank, although close.)

Now HUD defined property flipping with the original letter as “the practice whereby a property recently acquired is resold for a considerable profit with an artificially inflated value, often abetted by a lender’s collusion with the appraiser.”

In 2006 HUD loosened FHA’s flipping policy to 2 versions, 90 days and less and a 91 – 360 days.
According to FHA guidelines, FHA will only insure a loan on a property sold within 90 days if the seller is HUD, a Government Agency, a Federally Chartered Bank, a Non Profit or a relocation company.  AFTER 90 days to 6 months, FHA will require a 2nd appraisal if the purchase price is 100% above the sellers purchase price and also, this appraisal cost can not be paid by the borrower.

Additionally, up to 12 months, FHA can require additional documentation to “support the resale value if the resale price is 5 percent or greater than the lowest sales price of the property.”

*For more information see FHA MORTGAGEE LETTER 2006 -14

Conforming (Fannie and Freddie) has no seller seasoning requirement

VA (Veterans Administration) has no seller seasoning requirement

Fannie, Freddie and VA have no “seller seasoning” requirements, although each lender I can assure you does. Most lenders are 12 months, some are 6 months and at the very least 1 or 2 will be 90 days. This is called Risk Overlaying.

Risk Overlays … Lenders may impose additional conditions to further insulate themselves from the possibility that they may have to buy back the loan. Risk overlaying not only applies to seller seasoning but every other loan underwriting guideline as well. As a Buyer, seller, Realtor you have to be very careful….just because there is a DU approval DOES NOT MEAN the lender will fund the loan. I can not stress this enough. The biggest overlays right now are credit scores and debt ratio’s but there are many more. Buyer beware.

Do your due diligence find out prior to submitting an offer how long the seller has been on title. If its less than 90 days save yourself the trouble unless of course it qualifies for the FHA exception. If you don’t, your lender will not find out till the appraisal is done that the title has transferred and then your into the transaction for $350-$400 and a lot more in wasted time.

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Ouch! Mortgage bonds had a horrible week with the 4.5% bond falling from a high of 100.75 to a close of 98.75 a whopping 200 points. Looks like we will begin next week with significantly higher mortgage rates, apparently the economy has begun to see the light at the end of the tunnel and the worst is behind it according to all the “good news” out last week that caused the selling of mortgage bonds. A key question is are we out of the woods or is it just a little rebound before the downtrend continues?

Unemployment dropped to 9.4%, from the prior month’s reading of 9.5% - breaking a streak of 9 straight monthly increases. People still aren’t spending. Savings rate stands at 4.6%, down from May figure of 6.2% but still up significantly from prior publications of negative to 1% all the while wages and salaries have declined 4.7% from the prior year. Consumers have still have little access to credit as credit cards and home equity lines have all but dried up. The only thing that could stimulate the consumer would be a reversal of wages or lower taxes and with the Fed Printing Press working 24 hour days, 7 days a week we can be assured tax rates will increase…significantly is my guess. Just next week the Fed will be auctioning off another $75B. How high can taxes go?… funny you should ask!

Housing has been rebounding. On Tuesday, the Pending Home Sales Index came in at an amazing 3.6%, where only a 0.7% rise was expected. The National Association of Realtors reported that Pending Home Sales rose in June for the fifth straight month, fueled by low home loan rates and bargain home prices. Its important to note that this figure is on contracts written and not closed…. But regardless it seems the Fed’s buying of mortgage bonds to keep rates low, over $ ONE TRILLION worth, and the $8,000 “first time” home buyer tax credit does seem to be helping sales to firm. Can we say missing the boat???

Be on the look out his week for rates to bounce a little lower due to last weeks oversold conditions, with hand on trigger to lock. We are still on a long term down trend but still below all major moving averages. Hopefully the 4.5% mortgage bond can get above the 50 day moving average of 99.41 and the 100 day next at 99.90.

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Before signing any papers for a loan modification, speak to an attorney or a state regulatory agency. You will want to speak with someone who is familiar with the governing process of these companies. Also, make sure the loan modification company has filed a contract with your state and that they hold a valid state license. In addition, make sure they are willing to go through the United States Postal service for pickup and delivery of funds and documents. If not, it could be that they are just trying to skirt issues of mail fraud.

Get educated on loan modifications. Know what your loan options are. Have several different real estate agents give you a comparative market analysis (CMA) to see what your home would sell for. Seek the advice of an attorney if you want to pursue keeping your home.

Here are some of the common things many “scam” companies will say when you call and ask them if they can help you save your home.

1. “By signing the title of your home over to us, we can salvage your credit. That way when the foreclosure is issued, it’s our name that will be recorded.”

Busted - In truth, a home foreclosure is always recorded against the borrower. It doesn’t matter whose name is on title. The person who borrowed the funds is responsible. If you fall for this, you now owe money on something you no longer own.

2. “We will help you out of this situation by giving you some money AND paying your delinquent payments. Just sign the title to your house over.” [Read more →]

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Big news today was that Warren Buffet was taking a $5-10 billion stake in Goldman Sachs. Two important points to point out is over the last few days Goldman has repeatedly stated that it was in no need of equity and sufficiently capitalized. The second point is not to get too excited. Yes Warren Buffet is the greatest investor of all time and yes he is very shrewd and yes he makes a ton of money on his investments but I would not go as far as the media to say that his investment marks the bottom and would not follow his lead just yet.

Listening to the media there has been 3 prior bottoms as well. His $10 billion is protected to the tune of a guaranteed return of 10% a year. So the bottom is a lot closer for him than us little guys. But this is a good this as a vote of confidence in the sense that the investment community is more willing to make investments in the financial sector…and this could be a turning point. But probably not THE turning point.

On the flip side  Fed Chairman Bernanke and Treasury Secretary Paulson had some trouble selling the $700 billion bailout to the Senate Banking Committee. There is a lot uncertainty regarding this bailout funding and the market will be very reluctant to go higher until it can see the plan come together.

So once again we are in a hurry up and wait mentality.

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With the current market real estate investors have to look at other “back to basics” ways to move investor properties. The three alternative options for investors below are not new but seem to be forgotten, great ways to rethink the marketing and selling of your properties and get your asking price and even more. First you can move your property very quickly. Second, you can name your selling price and most often it can be much higher than the general market will bear. Third, all of these strategies can actually increase your investment return exponentially more than just out right selling your property on the market.

Seller Held Seconds – This is a great option for those rehab investors to get their initial capital out of their property and move on to the next project and also opens the market to many more potential buyers. Let’s say you buy a property for $150,000 and spend $15,000 in renovations. Let’s say after renovations the property is worth $200,000.

The potential home buyer secures a conventional 1st deed loan at 80% of the value of the home and takes out a mortgage for $160,000. This pays your loan off and also you’re out of pocket expense renovating or updating the property. It’s essential, that there is a down payment from the buyer of at least 3% to 5 %. In this instance, you hold a second deed for $30,000.

You become the second deed of trust with all the rights of any 2nd trust deed holder. Most often the terms of the loan are higher rates and shorter balloon terms; let’s say a 36 month balloon (36 months is typically the shortest balloon term a first deed lender will accept) at 12% interest rate with an interest first payment option. So during the 36 months you’re receiving interest payments of 12% and by the end of 36 months the buyer needs to refinance the property to pay your loan off. [Read more →]

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First off I want to stress that I am not a licensed Real Estate Agent nor am I a licensed Appraiser but I want to take a quick view at the 3 most recent home sales in a neighborhood in Midlothian, VA. I just could not resist posting this as its such a glaring example of hiring a professional not only for real estate but hiring a professional in any field. Its so much cheaper in the long run.

There were three recent home sales in the Lenox Forest Section of Riverdowns. Two of the sales were full service listed homes and one was For Sale by Owner. Riverdowns subdivision is located off Robious Rd. in Midlothian, VA about a .5 mile east of Rt 288. [Read more →]

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For those in the market to buy a home in the next 6 months you better act fast because its about to get more expensive. Already mortgage lenders have cut back dramatically and totally removed loan programs off the market and now Freddie Mac and Fannie Mae are starting to increase fees on loans making buying a home more expensive and maybe even pricing out some home buyers altogether.

Freddie Mac states “In response to continuing volatility and turmoil in the mortgage market, including the deteriorating performance of higher-risk mortgage products, we are expanding our use of risk-based pricing by adding fees based on Indicator Score and loan-to-value ratio. We are also increasing our delivery fees for certain Mortgages with increased risks.”

Reason 1: Starting in March 2008 there is going to be a .25% delivery fee called a Market Condition Delivery Fee. So for a $200,000 purchase price this would equate to a charge of $500. The Market Condition Delivery Fee is in addition to the announced Indicator Score/Loan-to-Value delivery fee.

Reason 2: The Indicator Score/Loan-to-Value Delivery Fee is the most significant. You will see by the chart below that depending on your credit score this fee can range from a fee of $1,000 to $4,000 based on a hypothetical $200,000 purchase price, this is IN ADDITION to normal closing costs.

[Read more →]

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It’s not a surprise to investors out there that properties are staying on the market for what seems like a lifetime, if they sell at all. The Census Bureau estimated that there are approximately 2.1 million vacant homes for sale nationwide, up over 7% from a year ago. The total number of vacant properties not for sale or rent is estimated an astounding 17.9 million units.

For many the one option may be to wait out the market downturn and rent out the properties until the inventory glut clears out. For those that have no history of renting properties be prepared for a whole new world. Mike Mulligan of Property Managers of Virginia states that “investing in real estate is serious business and a big investment. Knowing and keeping up with regulations, legal issues and liabilities in the State of Virginia can seem overwhelming.”

Its is true, there is a whole new world out there of fair housing requirements, landlord tenant laws that may vary from county to county, tenant screening, property maintenance and expense and pricing your property for rental. For those that are not prepared with professional help and professional advice can be set up for disaster.

Of course just by hiring a property manager does not mean that you will be trouble free. But it does mean that you can have a life outside of managing your properties.

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There is a debate going on between those that feel the Federal Government, Mortgage Lenders, Builders and Banks are under an obligation to assist homeowners whose loans are getting ready to and have adjusted and to assist those that are already facing foreclosure. The other side of the debate says that there should be no assistance and let the cards fall where they may, that a government bailout is a free license to go out without caution and the government will save you.

Side One: What are the government leaders saying by bailing out these borrowers? These home owners were given an opportunity; an opportunity that they otherwise would not have had. Subprime loans where designed, in theory anyway, to help those with bad credit get a loan and over the course of the next 2 to 3 years repair their credit and get into a low rate good credit loan. Problem with that is 90% of the people with bad credit have bad credit because they never pay their bills and can not manage their debt. The majority of subprime borrowers did nothing once the loan closed to repair their credit. They already have bad credit let them go to foreclosure. Bailing them out is just giving a green light to go out and mismanage their finances again. Give them tough love do not enable them. Screw ‘em. Let them drown. These borrowers need to learn from their mistakes. [Read more →]

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Image Courtesy of Indymedia Ireland

The writing is on the wall for discount realty companies……..Foxtons, the fourth largest real estate company in New Jersey (and one of the largest in the NYC Metro area) is closing up shop for good. What happened to them?This company arrived on the scene in 2000 with a big splash, promising rock bottom commissions from their agents. Sellers lined up quickly to get their home sold on the cheap. Everything looked great - until the downturn, when it went south in a hurry. Now they are looking for someone to take over the 4,400 listings left in the dust.

The reason Foxtons came and went so quickly is that the lowest possible commission is a promise that is full of problems. Low prices always mean that you have to make it up on volume, which is to say the pressure to “churn
and burn” felt by Realtors is even stronger. There isn’t as much incentive to get the best possible price for the client, but there’s a lot of incentive to move houses quickly. The seller is the loser, and it’s all because they were too cheap to realize that the investment in a house has to be matched by a small investment in the best Realtor possible. Now whose going to take and market 4,400 listings in this market at a 2% commission?

What did Foxtons in is the simple fact that we are in a market where you can’t make it up in volume. A few bad months were bound to break them, and now they are gone. Clearly, being the rock bottom on commissions didn’t make for a good business model. Sellers need to understand that they aren’t in their own best interest, either. You usually do get what you pay for.

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Consumer confidence came out this morning. The figure at 105, down from 111.9 in July but up from August 2006. Of course the doom and gloom headlines to quote “Consumer Confidence Falls To Lowest Level in a Year”, I mean come on, expectations were for 104.5 so how come the headline does not say “consumer confidence comes in much better than expected.” Listen to the media as an investor and you will be sure to go broke. That I can GUARANTEE you!

What I can tell you is,,,,,,,, 105 is a far cry from a recession (so far), considering the consumer is 1/3 of GDP, wages are another component and wages are growing at 4% and corporate profits are expected to be in the low double digits so I think the chances of a recession are slim, unless the consumer confidence number falls another 35 points. What this does show is the resiliency of the American consumer in wake of the so called “subprime crisis” or mortgage meltdown or any other name the media has created. Gas prices are still high although a lot lower than the highs, food costs increasing and mortgage rates have ticked up a bit. So IMO, I think the number is strong considering the environment.

The biggest worry for the number is that it was not worse and may be a reason for the stock sell off. Obviously over the next month or so this number could be dramatically lower and with back to school coming we will see if the retail sales numbers are any indication. But as always the media plays a big role in consumer sentiment so we will see how they spin the recession talk and what effect this has on the number going into the coming months.

The 10 year note is trading off its highs up .25bps and less effected is the 6% mortgage backed securities trading up .6bps and seems to be hitting a ceiling of resistance at 100.16. Bond prices have been on a tear since the end of July and rates have came down nicely but may be running out of steam.

At 2pm ET today the Fed will release the Minutes from the August 7th meeting. It will be interesting to get the Fed’s views on the credit crunch, since it was just beginning to unfold at the time they met. The Fed Fund Futures are currently showing a 72% probability of a .25% cut at the September 18th meeting, with some predicting a chance of a .50% rate cut.

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