Under current law, if a lender forgives all or some portion of a mortgage debt at the time of a short sale or in a foreclosure proceeding (or under any other circumstances), the borrower must recognize the amount of the forgiven debt as taxable income. This is true even if the borrower has received no cash. In addition, the lender is required to provide information to the IRS identifying the borrower and stating the amount of the forgiven debt.
NAR has long-standing policy opposing this harsh rule. In 1999 and in 2000, a relief provision passed the House and Senate in different tax bills, but was never finally enacted. Now, NAR is renewing its efforts to secure this tax relief in light of a possible wave of foreclosures and short sales that could occur in a slowing market or if interest rates were to rise. Legislation has been drafted but not yet introduced in the House to provide this relief.
~~ NAR Washington Report, March 2007
Thursday, March 29, 2007
FTC Encourages Consumers to File Complaints of unfair or Deceptive Practices involving 'Trigger Lists"
In response to comments made by National Association of Realtors at a roundtable hosted by the National Association of Mortgage Brokers on Tuesday, March 20, 2007, the Federal Trade Commission encouraged NAR members and consumers to file complaints with the FTC if they encounter unfair or deceptive trade practices relating to the use of trigger lists by lenders and/or lead generators. The practices include "bait and switch" on interests rates, terms, or loan products, deceptive presentation of fees, deception with regard to who the caller or solicitor represents and deceptive presentation of actual services available.
Numerous NAR members and their affiliates have complained that their clients or customers have been victimized by unfair or deceptive practices that are the result of lead generation through so called "trigger lists." Trigger lists are generated when a credit inquiry is made, usually upon application for a mortgage or other credit product. The credit reporting bureaus compile information (prescreening) and sell it to other lenders or lead generators who then use it to contact consumers with solicitations. The process is permitted under the Fair Credit Reporting Act as long as a "firm offer of credit" can be made. In the case of phone solicitations, FTC and credit reporting industry sources, assert that lenders and lead generators must comply with the "Do Not Call" as well. However, many NAR members report that this is often not the case with regard to firm offers of credit and/or "Do Not Call" compliance.
Individuals may "opt out" of receiving prescreened offers of credit by visiting www.optoutprescreen.com.
If one would like to report an unfair trade practice related to trigger lists or prescreened offers of credit, please fill out the FTC Consumer Complaint Form.
~~ NAR Washington Report, March 2007
Numerous NAR members and their affiliates have complained that their clients or customers have been victimized by unfair or deceptive practices that are the result of lead generation through so called "trigger lists." Trigger lists are generated when a credit inquiry is made, usually upon application for a mortgage or other credit product. The credit reporting bureaus compile information (prescreening) and sell it to other lenders or lead generators who then use it to contact consumers with solicitations. The process is permitted under the Fair Credit Reporting Act as long as a "firm offer of credit" can be made. In the case of phone solicitations, FTC and credit reporting industry sources, assert that lenders and lead generators must comply with the "Do Not Call" as well. However, many NAR members report that this is often not the case with regard to firm offers of credit and/or "Do Not Call" compliance.
Individuals may "opt out" of receiving prescreened offers of credit by visiting www.optoutprescreen.com.
If one would like to report an unfair trade practice related to trigger lists or prescreened offers of credit, please fill out the FTC Consumer Complaint Form.
~~ NAR Washington Report, March 2007
Saturday, March 24, 2007
Reality-Based Real Estate
It's time for a little rant...
Three of my fellow Realtors have approached me about 'The Secret' in the last few weeks. For those of you who are busy during 'Oprah', this movie and book is the new self-help mantra that is part spiritualism, part hucksterism, and just another income stream for Oprah and her groupies who are selling the snake oil, DVDs and the artfully packaged book and associated products to a gullible, and sometimes desperate, public. Yes, the Universe is just waiting to make your personalized wish-list manifest, and if it doesn't, it is your fault. All of the answers are in the book and on the DVD, yes, The Secret itself is there, and if Oprah says it worked for her and it will work for you. Guaranteed. Sure.
I think Carolyn Burnham, the Realtor in the film 'American Beauty', used 'The Secret' to prep herself for her open house near the beginning of the movie. She used all of the techniques in 'The Secret'. Unfortunately, Annette Benning's portrayal was very close to completely accurate for far too many in the business.
The best batch of critical reviews can be found HERE. I really urge you to take a few moments to read it through, especially if you have fallen for this latest twist on the power of positive thinking. Here's a little snippet from Skeptico:
Take a look at the whole site. There is commentary on 'The Secret' from The LA Times, Newsweek, The Onion, Salon, and others.
One can dependably predict a tough year or more in real estate when these types of crazes sweep the industry. It happened in the early 90's, and it looks like deja vu all over again. Three of the major real estate companies in our local area have their core believers of the Waiting Genie, and my own company has a small but growing hive of buzz followers. It is kind of embarrassing. Let me give you a small dose of this altered reality...
If your house doesn't sell, it is because the seller and the agent didn't visualize the sale sincerely enough... never mind market forces such as proper pricing, condition, location, supply and demand... it was the negative thoughts themselves that were the cause. This is the corollary to The Secret's Law of Attraction, which is that if you visualize the buyer buying the house, it will happen.
Hocus Pocus. Smoke and Mirrors.
Now I don't want to offend those followers of the one and true path, but if you are one of the newly-minted faithful, aren't you a little old for the Tooth Fairy?
As for the regular people who want to buy a great home for the least amount possible, or for those sellers for whatever reason you have in selling, a piece of advice: If your real estate agent shows any inclination at all in this latest scheme called 'The Secret', it is time to switch agents and call me.
And speaking of switching agents...
I know people who have bought houses in the last couple of years at the very top of the market, who had agents then who slammed them into the homes and who sat idly by while predatory lenders screwed them over, who now are listing their homes that they now cannot afford with THOSE SAME AGENTS!!!
People, are you completely out of your minds???
Reality-based real estate. What a concept. Call me.
Three of my fellow Realtors have approached me about 'The Secret' in the last few weeks. For those of you who are busy during 'Oprah', this movie and book is the new self-help mantra that is part spiritualism, part hucksterism, and just another income stream for Oprah and her groupies who are selling the snake oil, DVDs and the artfully packaged book and associated products to a gullible, and sometimes desperate, public. Yes, the Universe is just waiting to make your personalized wish-list manifest, and if it doesn't, it is your fault. All of the answers are in the book and on the DVD, yes, The Secret itself is there, and if Oprah says it worked for her and it will work for you. Guaranteed. Sure.
I think Carolyn Burnham, the Realtor in the film 'American Beauty', used 'The Secret' to prep herself for her open house near the beginning of the movie. She used all of the techniques in 'The Secret'. Unfortunately, Annette Benning's portrayal was very close to completely accurate for far too many in the business.
The best batch of critical reviews can be found HERE. I really urge you to take a few moments to read it through, especially if you have fallen for this latest twist on the power of positive thinking. Here's a little snippet from Skeptico:
So, what is the big Secret?
The Secret is what they call the Law Of Attraction – the idea that you become or attract what you think about the most. Or as one person expressed it: “Thoughts become things.”
This is presented as a literal truth – a law just like the laws of gravitation. And it is stated that this: “Always works every time” Note: always. And every time. No exceptions. It’s a Law, you see.
Examples are given. A man is shown worrying about being late, and so he gets stuck in a traffic jam. Another man is shown locking up his bicycle, presumably because he is worried about it being stolen; he returns later to find it has been stolen. The absurdity of these examples should be obvious. Are we supposed to believe the traffic jam wouldn’t have happened if it were not for this one guy worrying about being late? And what about the other people in the traffic jam? Were they all thinking negative thoughts about being late? Were there no positive-minded people in the area, thinking about being on time? And if there were, doesn’t that debunk the “always works every time” mantra? And what about the guy getting his bike stolen? Are we to assume that if another guy had left an identical unlocked bike at the same location, the bike thief would still have stolen the locked bike of the person worried about theft? Has anyone done a controlled study on this? (Hey, these were the examples used in the film – don’t blame me if they make no sense.)
As with What The Bleep, it is implied that there is science behind these revelations. For example, there was this from the self-proclaimed "visionary" Rev. Dr. Michael Beckwith:"It has been proven scientifically now that an affirmative thought is hundreds of times more powerful than a negative thought."
Really? Proven by which scientists? And written up where? Because I couldn’t find it.
Not a Law
Of course, the basic flaw in all this is that the Law Of Attraction is not a Law like the Law Of Gravitation that they compare it to. Newton’s Law’s can be demonstrated by anyone – drop an object and its acceleration will be exactly as the Law predicts. And this really does “always work every time” – that’s why it’s a Law. The “Law Of Attraction” as they call it just doesn’t work that way. Although having a positive attitude, being confident, believing in your own success etc is a definite advantage, and should be encouraged, having positive thoughts will not send out magic brainwave frequencies that change reality around you. This brainwave “magnetic signature” as one person called it, never goes out, any time. Not in the real world.
Take a look at the whole site. There is commentary on 'The Secret' from The LA Times, Newsweek, The Onion, Salon, and others.
One can dependably predict a tough year or more in real estate when these types of crazes sweep the industry. It happened in the early 90's, and it looks like deja vu all over again. Three of the major real estate companies in our local area have their core believers of the Waiting Genie, and my own company has a small but growing hive of buzz followers. It is kind of embarrassing. Let me give you a small dose of this altered reality...
If your house doesn't sell, it is because the seller and the agent didn't visualize the sale sincerely enough... never mind market forces such as proper pricing, condition, location, supply and demand... it was the negative thoughts themselves that were the cause. This is the corollary to The Secret's Law of Attraction, which is that if you visualize the buyer buying the house, it will happen.
Hocus Pocus. Smoke and Mirrors.
Now I don't want to offend those followers of the one and true path, but if you are one of the newly-minted faithful, aren't you a little old for the Tooth Fairy?
As for the regular people who want to buy a great home for the least amount possible, or for those sellers for whatever reason you have in selling, a piece of advice: If your real estate agent shows any inclination at all in this latest scheme called 'The Secret', it is time to switch agents and call me.
And speaking of switching agents...
I know people who have bought houses in the last couple of years at the very top of the market, who had agents then who slammed them into the homes and who sat idly by while predatory lenders screwed them over, who now are listing their homes that they now cannot afford with THOSE SAME AGENTS!!!
People, are you completely out of your minds???
Reality-based real estate. What a concept. Call me.
Friday, March 23, 2007
7 Tips to Radically Update Your Home
Everyone loves to update their homes, and if you live in an older home in an appreciating neighborhood, it can be a fantastic investment. There are some pitfalls to avoid, which can cost a homeowner quite a bit of money because of no return on investment. However, it's better to focus on what TO do and stay the course.
1. Raise the Roof!!!
Not literally, but gut the attic, and raise the ceiling in, at least, the living room. Older homes typically have 8 foot ceilings, and it's one of the first characteristics that buyers notice. It's relatively inexpensive, when you compare your return on investment, to demolish the ceilings of your older home and sheetrock over your new, vaulted ceiling. It's amazing how much larger and lighter your home will feel.
2. Knock Down Walls
Literally, knock down as many walls as you can and still retain the integrity of the home, and the NECESSARY separation of rooms. If you compare older homes to newer homes, you'll notice that older homes are typically "choppy" while newer homes feel "open and flow well." This is due to "line of sight." Newer homes opt for less separation in rooms. You can create this same feeling by demolishing a half-wall that separates your kitchen from the living room or knocking down the wall between the living room and dining room to create one grand room. You'll be AMAZED at the difference it makes.
3. Overhaul Your Kitchen and/or Master Bathroom
These are the two rooms in the house that you can ALMOST go overboard and still get your money back when you sell the home. Refinish or replace the cabinetry, put in new tile and sinks - even install a new, stand-up shower! When (or if) you put your home on the market, you should see a GREAT return on investment.
4. Add a Master Bathroom
The 1-Bathroom houses from the 1970's and earlier are now obsolete. Americans have decided that we like a private bathroom for ourselves and another bathroom for our guests and children. While 90% of the house additions are bad ideas because they don't flow well or create poorly usable space, a master bathroom addition is a fantastic way to add more square footage, and more value to your home. Make SURE that your builder ties in the new slab to the old, and make sure that the addition is done properly. A poorly designed or executed addition never adds value - most buyers immediately imagine demolishing the work.
5. Xeriscape Your Lawn
It's trendy, it's cheap - it should be a go! Your homes curb appeal is the first thing that buyers notice, and it's how buyers decide whether or not they'll "click on your house" online to further investigate the interior. You can xeriscape a ¼ acre lot for around $3000, and you'll more than make up for that when your home goes on the market. Furthermore, it's environmentally & fiscally responsible. Stop wasting water!
6. Paint!!!
It's fairly obvious, but painting your home modern, neutral colors makes a HUGE difference in the appearance of the home. And when you factor in the cost - roughly $0.75/s.f. - it would be a HUGE mistake to forego painting your home when you decide it's time to modernize it. If you're planning on staying in the home for some time, paint it whatever colors you wish, but plan on repainting right before it's time to put it up for sale. If you plan on updating your home in order to sell it, go with neutral colors so that it will appeal to the widest audience.
7. Put in Wood Floors
You won't ALWAYS get your money out of installing wood floors. If you're in a great area, and it's time to replace the floors, look at the cost difference between tile, pergo, and wood. If your home will sell for $250k+ then forget about pergo and, if you choose tile, make sure it's not cheap tile. If the cost difference between wood and your other options is negligible, then go with wood - it appeals to the most buyers.
Updating your older home can be very fun, very rewarding, and potentially very lucrative. Older homes in established neighborhoods are ripe for updating and can draw a premium on the marketplace. Make sure and follow these guidelines, and you should see a great return on your investment.
1. Raise the Roof!!!
Not literally, but gut the attic, and raise the ceiling in, at least, the living room. Older homes typically have 8 foot ceilings, and it's one of the first characteristics that buyers notice. It's relatively inexpensive, when you compare your return on investment, to demolish the ceilings of your older home and sheetrock over your new, vaulted ceiling. It's amazing how much larger and lighter your home will feel.
2. Knock Down Walls
Literally, knock down as many walls as you can and still retain the integrity of the home, and the NECESSARY separation of rooms. If you compare older homes to newer homes, you'll notice that older homes are typically "choppy" while newer homes feel "open and flow well." This is due to "line of sight." Newer homes opt for less separation in rooms. You can create this same feeling by demolishing a half-wall that separates your kitchen from the living room or knocking down the wall between the living room and dining room to create one grand room. You'll be AMAZED at the difference it makes.
3. Overhaul Your Kitchen and/or Master Bathroom
These are the two rooms in the house that you can ALMOST go overboard and still get your money back when you sell the home. Refinish or replace the cabinetry, put in new tile and sinks - even install a new, stand-up shower! When (or if) you put your home on the market, you should see a GREAT return on investment.
4. Add a Master Bathroom
The 1-Bathroom houses from the 1970's and earlier are now obsolete. Americans have decided that we like a private bathroom for ourselves and another bathroom for our guests and children. While 90% of the house additions are bad ideas because they don't flow well or create poorly usable space, a master bathroom addition is a fantastic way to add more square footage, and more value to your home. Make SURE that your builder ties in the new slab to the old, and make sure that the addition is done properly. A poorly designed or executed addition never adds value - most buyers immediately imagine demolishing the work.
5. Xeriscape Your Lawn
It's trendy, it's cheap - it should be a go! Your homes curb appeal is the first thing that buyers notice, and it's how buyers decide whether or not they'll "click on your house" online to further investigate the interior. You can xeriscape a ¼ acre lot for around $3000, and you'll more than make up for that when your home goes on the market. Furthermore, it's environmentally & fiscally responsible. Stop wasting water!
6. Paint!!!
It's fairly obvious, but painting your home modern, neutral colors makes a HUGE difference in the appearance of the home. And when you factor in the cost - roughly $0.75/s.f. - it would be a HUGE mistake to forego painting your home when you decide it's time to modernize it. If you're planning on staying in the home for some time, paint it whatever colors you wish, but plan on repainting right before it's time to put it up for sale. If you plan on updating your home in order to sell it, go with neutral colors so that it will appeal to the widest audience.
7. Put in Wood Floors
You won't ALWAYS get your money out of installing wood floors. If you're in a great area, and it's time to replace the floors, look at the cost difference between tile, pergo, and wood. If your home will sell for $250k+ then forget about pergo and, if you choose tile, make sure it's not cheap tile. If the cost difference between wood and your other options is negligible, then go with wood - it appeals to the most buyers.
Updating your older home can be very fun, very rewarding, and potentially very lucrative. Older homes in established neighborhoods are ripe for updating and can draw a premium on the marketplace. Make sure and follow these guidelines, and you should see a great return on your investment.
Monday, March 19, 2007
Staging a Home for Sale: Vacant Homes Invite Questions
What's A Buyer Thinking?
1.Why are they selling?
If you choose to show your listing vacant, potential buyers will probably start wondering why your home has already been vacated! Is it a divorce situation? Relocation? Bankruptcy? Has the owner moved out already because they have a new payment on another home? Alot goes through a buyers mind while viewing listings. This could result in a lower offer to you! A staged home keeps the buyers mind on your listing and off of your personal business!
2. Is this home right for me?
When potential buyers are viewing a vacant home, it can be very difficult for them to distinguish each living space for what it is...such as an "eat in kitchen", "bonus room" or that much needed "office space". Rooms in a vacant home blend together and everything starts to look the same. Furnishing your listing will invite buyers to experience each space separately and visualize themselves living there!
3. Is this everything or did I miss something?
It's not very inviting for a potential buyer to view a vacant home. When vacant, there's nothing in the main living spaces or bedrooms that invites them to walk into a certain area and experience the space. Standing there looking at a vacant bedroom does nothing to draw the buyer into the space. They may even miss that extra large bathroom around the corner with the jetted tub or double vanitys!
4. Is this "The One"?
Its simple....you want a potential buyer to make an "emotional connection" with your listing. This can occur at any time. Maybe its made when their viewing the master bathroom filled with luxury bath accessories, reminding them of relaxing in a warm tub. Maybe it's made when their viewing the formal dining room, complete with beautiful linens and dishes, reminding them of holidays with family. Maybe its made when stepping outside and viewing a backyard thats ready for summer entertaining. An "emotional connection" can bring you that offer!
5. Who's selling this place anyway?
Showing a vacant property can seem like abandonment to a buyer. Overgrown vines and bushes, old newspapers and flyers, dusty floors, bathtubs and sinks, a "stuffy" closed up smell upon entry and no furnishings are all warning signs to a buyer that the home has been vacated and forgotten! A major turn off! If you don't want to be there, why should they? Home staging can give your listing new life!
Home Staging services and other Home Services and Contractors can be found at www.SCVhometeam.com
1.Why are they selling?
If you choose to show your listing vacant, potential buyers will probably start wondering why your home has already been vacated! Is it a divorce situation? Relocation? Bankruptcy? Has the owner moved out already because they have a new payment on another home? Alot goes through a buyers mind while viewing listings. This could result in a lower offer to you! A staged home keeps the buyers mind on your listing and off of your personal business!
2. Is this home right for me?
When potential buyers are viewing a vacant home, it can be very difficult for them to distinguish each living space for what it is...such as an "eat in kitchen", "bonus room" or that much needed "office space". Rooms in a vacant home blend together and everything starts to look the same. Furnishing your listing will invite buyers to experience each space separately and visualize themselves living there!
3. Is this everything or did I miss something?
It's not very inviting for a potential buyer to view a vacant home. When vacant, there's nothing in the main living spaces or bedrooms that invites them to walk into a certain area and experience the space. Standing there looking at a vacant bedroom does nothing to draw the buyer into the space. They may even miss that extra large bathroom around the corner with the jetted tub or double vanitys!
4. Is this "The One"?
Its simple....you want a potential buyer to make an "emotional connection" with your listing. This can occur at any time. Maybe its made when their viewing the master bathroom filled with luxury bath accessories, reminding them of relaxing in a warm tub. Maybe it's made when their viewing the formal dining room, complete with beautiful linens and dishes, reminding them of holidays with family. Maybe its made when stepping outside and viewing a backyard thats ready for summer entertaining. An "emotional connection" can bring you that offer!
5. Who's selling this place anyway?
Showing a vacant property can seem like abandonment to a buyer. Overgrown vines and bushes, old newspapers and flyers, dusty floors, bathtubs and sinks, a "stuffy" closed up smell upon entry and no furnishings are all warning signs to a buyer that the home has been vacated and forgotten! A major turn off! If you don't want to be there, why should they? Home staging can give your listing new life!
Home Staging services and other Home Services and Contractors can be found at www.SCVhometeam.com
Sub-Prime Loan Market: What you need to know
The headlines are once again full of news from the mortgage and real estate front...and this time, the "subprime meltdown" is taking center stage. What exactly is going on, and what does it mean to you?
A "subprime" home loan is a loan where the client has some significant credit issues, or was otherwise unable to qualify for a standard, conventional loan. Due to the fact that these loans tend to be quite risky for the lender...they also bear higher interest rates to match, as well as often being adjustable rates that likely have recently hiked sky high, not to mention the steep prepayment penalties they generally carry.
These loans have been around for years - so why all the drama now?
Many subprime and other adjustable home loan rates have moved dramatically higher, due in part to the Federal Reserve Boards recent rate hike cycle. So as these rates are adjusting higher - and the payment right along with it - the homeowners are finding that they are unable to keep up with the dramatic increase in payment.
In the past, homeowners in this situation would simply throw the house on the market, realize enough of a profit to cover any prepayment penalties, and literally move on. But the soft real estate market isn't making this quite so easy any more - houses are not selling as quickly, and the home appreciation rates enjoyed in the past have moderated.
So the subprime homeowner is stuck - and many of these homes are falling into foreclosure, causing even more problems. As more and more loans are defaulting, mortgage lenders are forced to tighten up their lending standards across the board in response...making it tougher for a troubled homeowner to even refinance to get out of trouble. Many subprime lenders are feeling the pain, and in some cases, actually being forced to close their doors as they are hit with all the defaulted loans and foreclosed properties coming back home to roost.
How does this impact you?
In the short term, home loan rates are benefiting, as the stock market is taking a beating, causing money to flow into Bonds and Mortgage Backed Securities, which benefits home loan rates. But the longer term picture may spell higher interest rates ahead, as lenders have to absorb the cost of the loans that went belly-up, combined with the cost of increased compliance and accountability standards.
Now in many cases, the advice and loan strategy given to the client was perfectly appropriate for the client at the time they took out the loan...but the "perfect storm" of colliding economic events may have just worked against them. Yet unfortunately, many homeowners are paying a very steep price for what may have been poor advice and counsel given them at the time of their home purchase or refi. Now more than ever before, it is clear that it pays to work with a true professional, especially when your home is on the line. If you've ever thought it's too expensive to work with a real professional...just wait until you work with an amateur. The price paid is clear - and in this case, it's a very painful one.
Because of these events, credit and lending standards are tightening across the board, so it's a great time to get a "financial check up" - both you personally, as well as your clients, friends, family members and coworkers - even if they are not immediately in need of any home loan financing.
You know that I want to build relationships for the long run, not just to provide a "transaction" - so although you may not have a need for my team's home loan services at this time, I'd like to invite you to contact my friend and SCV Team member Adam Ford of the Mortgage Advisor's Group in Valencia (661-254-3744 x19) for a review of your current credit and financial situation. There may be recommendations he can make now, that will ensure you are in the best possible shape to obtain the most favorable financing terms when the need does arise.
Feel free to forward this newsletter directly, or print out copies for your clients, friends and coworkers who are asking about the headlines. As always, simply give me a call or email - I am always glad to hear from you, and happy to answer any questions regarding this matter or any other way we can be of service to you.
A couple of other tips:
Avoid getting a sub prime loan: It is more important than ever to have good credit as you have fewer loan options so be prepared, give my friend Adam a call if you have had ANY credit issues long BEFORE you get into escrow that way we can help you solve them or hire a company to help you with your credit issues. A recent collection can lower your scores by as much as 100 points.
Follow the “RULES” of credit: Never close an account, Never pay a collection off UNLESS THEY WILL DELETE IT (remember they only want the money), Never allow your credit card balances to go above 50% of the limit, Avoid finance accounts (no interest no payments for a year) they are have the highest default rate consequently they effect the credit scores the most.
A "subprime" home loan is a loan where the client has some significant credit issues, or was otherwise unable to qualify for a standard, conventional loan. Due to the fact that these loans tend to be quite risky for the lender...they also bear higher interest rates to match, as well as often being adjustable rates that likely have recently hiked sky high, not to mention the steep prepayment penalties they generally carry.
These loans have been around for years - so why all the drama now?
Many subprime and other adjustable home loan rates have moved dramatically higher, due in part to the Federal Reserve Boards recent rate hike cycle. So as these rates are adjusting higher - and the payment right along with it - the homeowners are finding that they are unable to keep up with the dramatic increase in payment.
In the past, homeowners in this situation would simply throw the house on the market, realize enough of a profit to cover any prepayment penalties, and literally move on. But the soft real estate market isn't making this quite so easy any more - houses are not selling as quickly, and the home appreciation rates enjoyed in the past have moderated.
So the subprime homeowner is stuck - and many of these homes are falling into foreclosure, causing even more problems. As more and more loans are defaulting, mortgage lenders are forced to tighten up their lending standards across the board in response...making it tougher for a troubled homeowner to even refinance to get out of trouble. Many subprime lenders are feeling the pain, and in some cases, actually being forced to close their doors as they are hit with all the defaulted loans and foreclosed properties coming back home to roost.
How does this impact you?
In the short term, home loan rates are benefiting, as the stock market is taking a beating, causing money to flow into Bonds and Mortgage Backed Securities, which benefits home loan rates. But the longer term picture may spell higher interest rates ahead, as lenders have to absorb the cost of the loans that went belly-up, combined with the cost of increased compliance and accountability standards.
Now in many cases, the advice and loan strategy given to the client was perfectly appropriate for the client at the time they took out the loan...but the "perfect storm" of colliding economic events may have just worked against them. Yet unfortunately, many homeowners are paying a very steep price for what may have been poor advice and counsel given them at the time of their home purchase or refi. Now more than ever before, it is clear that it pays to work with a true professional, especially when your home is on the line. If you've ever thought it's too expensive to work with a real professional...just wait until you work with an amateur. The price paid is clear - and in this case, it's a very painful one.
Because of these events, credit and lending standards are tightening across the board, so it's a great time to get a "financial check up" - both you personally, as well as your clients, friends, family members and coworkers - even if they are not immediately in need of any home loan financing.
You know that I want to build relationships for the long run, not just to provide a "transaction" - so although you may not have a need for my team's home loan services at this time, I'd like to invite you to contact my friend and SCV Team member Adam Ford of the Mortgage Advisor's Group in Valencia (661-254-3744 x19) for a review of your current credit and financial situation. There may be recommendations he can make now, that will ensure you are in the best possible shape to obtain the most favorable financing terms when the need does arise.
Feel free to forward this newsletter directly, or print out copies for your clients, friends and coworkers who are asking about the headlines. As always, simply give me a call or email - I am always glad to hear from you, and happy to answer any questions regarding this matter or any other way we can be of service to you.
A couple of other tips:
Avoid getting a sub prime loan: It is more important than ever to have good credit as you have fewer loan options so be prepared, give my friend Adam a call if you have had ANY credit issues long BEFORE you get into escrow that way we can help you solve them or hire a company to help you with your credit issues. A recent collection can lower your scores by as much as 100 points.
Follow the “RULES” of credit: Never close an account, Never pay a collection off UNLESS THEY WILL DELETE IT (remember they only want the money), Never allow your credit card balances to go above 50% of the limit, Avoid finance accounts (no interest no payments for a year) they are have the highest default rate consequently they effect the credit scores the most.
Monday, March 12, 2007
Mortgage Excesses: The New Century Story
At a Mortgage Lender,Rapid Rise, Faster Fall
Wall Street Fueled Growth at New Century;
A Party-Hard Culture
By JAMES R. HAGERTY, RUTH SIMON, MICHAEL CORKERY and GREGORY ZUCKERMAN
March 12, 2007;
Wasll Street Journal, Page A1
Ruthie Hillery was struggling to make the $952 monthly mortgage payment for her three-bedroom home in Pittsburg, Calif., last summer when a mortgage broker called. The broker persuaded the 70-year-old Ms. Hillery to refinance into a "senior citizen's" loan from New Century Financial Corp. that she thought would eliminate the need to make any payments for several years, according to her lawyer.
Instead, the $336,000 adjustable-rate loan started out with payments of $2,200 a month, more than double her income. In December, Ms. Hillery received notice that New Century intended to foreclose on the property. Then, earlier this month, after a formal demand by the lawyer, New Century agreed to refund all its fees and cancel the loan once Ms. Hillery gets refinancing elsewhere.
The lawyer, Alan Ramos, says the loan never should have been made. "You have a loan application where the income section is blank," Mr. Ramos says. "How does it even get past the first person who looks at it?"
New Century, an 11-year-old company that billed itself as "a new shade of blue chip," has become a symbol of excess in lending to subprime borrowers, people with weak credit records or high debt in relation to their income. The company has imploded over the past few months as defaults surged and accounting misdeeds surfaced. New Century's share price last week dropped 78% to $3.21 as some traders bet a bankruptcy-court filing is near.
MORE
Wall Street Fueled Growth at New Century;
A Party-Hard Culture
By JAMES R. HAGERTY, RUTH SIMON, MICHAEL CORKERY and GREGORY ZUCKERMAN
March 12, 2007;
Wasll Street Journal, Page A1
Ruthie Hillery was struggling to make the $952 monthly mortgage payment for her three-bedroom home in Pittsburg, Calif., last summer when a mortgage broker called. The broker persuaded the 70-year-old Ms. Hillery to refinance into a "senior citizen's" loan from New Century Financial Corp. that she thought would eliminate the need to make any payments for several years, according to her lawyer.
Instead, the $336,000 adjustable-rate loan started out with payments of $2,200 a month, more than double her income. In December, Ms. Hillery received notice that New Century intended to foreclose on the property. Then, earlier this month, after a formal demand by the lawyer, New Century agreed to refund all its fees and cancel the loan once Ms. Hillery gets refinancing elsewhere.
The lawyer, Alan Ramos, says the loan never should have been made. "You have a loan application where the income section is blank," Mr. Ramos says. "How does it even get past the first person who looks at it?"
New Century, an 11-year-old company that billed itself as "a new shade of blue chip," has become a symbol of excess in lending to subprime borrowers, people with weak credit records or high debt in relation to their income. The company has imploded over the past few months as defaults surged and accounting misdeeds surfaced. New Century's share price last week dropped 78% to $3.21 as some traders bet a bankruptcy-court filing is near.
MORE
Saving for a Down Payment
Saving for a Down Payment
Lenders are shying away from offering riskier "subprime" mortgages amid worries about rising defaults.
As a result some would-be home buyers with little savings are being turned away.
WHAT TO DO: If you don't qualify for a loan because you have no down payment, stop shopping for homes and start getting your house in order. To save more, spend as if you've already bought a home. If your mortgage payment would be $2,500 and your rent is $1,500, deposit the $1,000 difference automatically into a high-yielding savings account each month. (You can find yields of 5% or more on savings accounts. Sock away sudden windfalls, such as tax refunds, bonuses and reimbursements from flexible-spending accounts.
Another way to save more is to earn more -- here are some tips to boost your pay. For more ways to save, click here. --Terri Cullen, 2/26/07
Lenders are shying away from offering riskier "subprime" mortgages amid worries about rising defaults.
As a result some would-be home buyers with little savings are being turned away.
WHAT TO DO: If you don't qualify for a loan because you have no down payment, stop shopping for homes and start getting your house in order. To save more, spend as if you've already bought a home. If your mortgage payment would be $2,500 and your rent is $1,500, deposit the $1,000 difference automatically into a high-yielding savings account each month. (You can find yields of 5% or more on savings accounts. Sock away sudden windfalls, such as tax refunds, bonuses and reimbursements from flexible-spending accounts.
Another way to save more is to earn more -- here are some tips to boost your pay. For more ways to save, click here. --Terri Cullen, 2/26/07
Thinking Conservatively About Your #1 Asset
HOME SWEETER HOME
Here are five things you can do to better manage your number one asset
• THINK DIFFERENTLY
It's a house, not a retirement fund. Stop thinking of your house as an investment, and recognize it for what it really is: an expensive installment-plan purchase that promises you a hefty rebate down the line. The best way to make a true profit on a home is to pay as little for it as you can. That means buy cheaper, buy quicker, buy smarter.
• PAY EARLY, PAY OFTEN
Speed up your mortgage payments. A typical home today will end up costing its buyer $1 million over the next 30 years. The first way to significantly cut that cost is to reduce interest costs. Add $100 a month to a 6.25%, $300,000 loan payment, and you will shave almost four years of loan payments and save $57,000 of interest. Add an extra $500, and you will pay off the house in just 17 years and save $170,000. Caution: Don't defer retirement savings in favor of rapid mortgage payments. Do both.
• SHARE THE BURDEN
Buy a two-family house or a house with a rental unit as your first home. [I wish we had these kinds of properties in our local market area. ~~ RK] Pay it off quickly, bulking up your monthly payments with your tenants' rent and paying off your mortgage early. Then use that house to buy your dream home. You will get out of debt more quickly, have more money to pay for your new home, save more in your retirement fund and use less of your regular income for future housing costs.
• WATCH THE RENOVATING
Build a new kitchen -- or bath or bedroom -- because you want it or need it, not because it will make you a profit or enhance the value of your home. According to Remodeling magazine's annual report on the costs and value of home renovations, a top-of-the-line kitchen remodel like you see on TV or in shelter magazines will cost you $108,000 and return just $82,000 -- a loss of $26,000. Borrow the money, and your loss will be worse.
• DON'T MOVE SO OFTEN
It's the best way to build equity and enjoy the benefits of rising values. According to a study by Harvard's Joint Center for Housing Studies, 15% of homeowners move every year -- or the equivalent of every U.S. homeowner buying and selling a home every seven years. Few homeowners have paid off more than 10% of their loan principal by that point. But they will have paid four times as much in interest. When they buy their new house, they start the mortgage clock all over again.
--David Crook
Here are five things you can do to better manage your number one asset
• THINK DIFFERENTLY
It's a house, not a retirement fund. Stop thinking of your house as an investment, and recognize it for what it really is: an expensive installment-plan purchase that promises you a hefty rebate down the line. The best way to make a true profit on a home is to pay as little for it as you can. That means buy cheaper, buy quicker, buy smarter.
• PAY EARLY, PAY OFTEN
Speed up your mortgage payments. A typical home today will end up costing its buyer $1 million over the next 30 years. The first way to significantly cut that cost is to reduce interest costs. Add $100 a month to a 6.25%, $300,000 loan payment, and you will shave almost four years of loan payments and save $57,000 of interest. Add an extra $500, and you will pay off the house in just 17 years and save $170,000. Caution: Don't defer retirement savings in favor of rapid mortgage payments. Do both.
• SHARE THE BURDEN
Buy a two-family house or a house with a rental unit as your first home. [I wish we had these kinds of properties in our local market area. ~~ RK] Pay it off quickly, bulking up your monthly payments with your tenants' rent and paying off your mortgage early. Then use that house to buy your dream home. You will get out of debt more quickly, have more money to pay for your new home, save more in your retirement fund and use less of your regular income for future housing costs.
• WATCH THE RENOVATING
Build a new kitchen -- or bath or bedroom -- because you want it or need it, not because it will make you a profit or enhance the value of your home. According to Remodeling magazine's annual report on the costs and value of home renovations, a top-of-the-line kitchen remodel like you see on TV or in shelter magazines will cost you $108,000 and return just $82,000 -- a loss of $26,000. Borrow the money, and your loss will be worse.
• DON'T MOVE SO OFTEN
It's the best way to build equity and enjoy the benefits of rising values. According to a study by Harvard's Joint Center for Housing Studies, 15% of homeowners move every year -- or the equivalent of every U.S. homeowner buying and selling a home every seven years. Few homeowners have paid off more than 10% of their loan principal by that point. But they will have paid four times as much in interest. When they buy their new house, they start the mortgage clock all over again.
--David Crook
Your Home as an Investment
Nest Egg
Why Your Home Isn't the Investment You Think It Is
Too many people rely on their home as their primary savings strategy.
That's a mistake.
By David Crook
Wall Street Journal
March 12, 2007;
Page R1
Planning your retirement? Don't bet the house on it.
Your home means a lot of things to you, most of them good. Your home gives comfort and protection to you and your family, and it could well embody all your material hopes and dreams.
But houses have become much more than just places to live. Your home is probably your biggest asset, and the price you could ask for it today is almost certainly much higher than what you paid for it back whenever.
As a result, houses have become substitute credit cards, as profligate owners borrow their equity to finance everything from cars to vacations. Among thriftier owners, the equity they have built up in the family home has become a vital part of retirement planning -- a "fourth leg" of the now-unstable "company pension/personal savings/Social Security" stool that was long the model for a financially secure old age.
More
Why Your Home Isn't the Investment You Think It Is
Too many people rely on their home as their primary savings strategy.
That's a mistake.
By David Crook
Wall Street Journal
March 12, 2007;
Page R1
Planning your retirement? Don't bet the house on it.
Your home means a lot of things to you, most of them good. Your home gives comfort and protection to you and your family, and it could well embody all your material hopes and dreams.
But houses have become much more than just places to live. Your home is probably your biggest asset, and the price you could ask for it today is almost certainly much higher than what you paid for it back whenever.
As a result, houses have become substitute credit cards, as profligate owners borrow their equity to finance everything from cars to vacations. Among thriftier owners, the equity they have built up in the family home has become a vital part of retirement planning -- a "fourth leg" of the now-unstable "company pension/personal savings/Social Security" stool that was long the model for a financially secure old age.
More
Saturday, March 10, 2007
Cockroach Principle and the Subprime Mortgage Market
from John Mauldin's e-letter...
The Cockroach Principle says there is never just one cockroach. If you see one running across the room, that means there are many more in the walls and behind the counters. I have been highlighting the problems in the subprime space for a long time. As I wrote months ago, this is going to be a major scandal. It is the main (and almost only) reason that I think we are going to have a recession in the US.
Last week www.lenderimplode.com listed 28 subprime mortgage firms that were shut down or taken over. The count is now 34. Yesterday the third largest lender of subprime mortgages, New Century, stopped accepting new loan applications. The shares were once at $50. Now they are under $4 and falling. The Financial Times reports that they cannot meet their margin calls from their lenders.
Essentially, New Century has been shut out of the capital markets. They are being hit with a wave of lenders who are demanding they take back the mortgages they sold, and my guess is that they do not have the capital they need. Maybe they can sell assets and get them. Who would take their paper or their mortgages today, knowing the problems? The money available to subprime lenders is rapidly evaporating, and until the lending standards are tightened considerably, it will remain that way. Many of the buyers of the Mortgage Backed Securities are going to lose some money.
Option One is an Irvine, California-based subprime lender. Yesterday they stopped doing 100% loans on the value of a home. CEO Steve Nadon pointed to an increase in loan submissions as a result of many of the company's competitors running into funding problems. "We are getting a lot of 80/20s and 100% CLTV deals that used to go to our competitors," the letter said. "While there is nothing inherently wrong with those types of loans from a pure credit standpoint, right now they have a fundamental flaw that we simply cannot overcome. That is the almost complete lack of appetite for the product by the bond market... To originate a loan product that no investor, in today's market, wants to buy is irresponsible."
Consider even a lender like Countrywide which only had about 10% of its portfolio in subprime. They can probably weather the storm, as their main business is prime mortgages. But the founder and CEO, Angelo Mozilla, has sold $140 million of his personal holdings, and almost $600 million of insider stock at Countrywide has been sold in the past two years.
I have highlighted this problem before, so will not go into it in detail again. Subprime mortgages are pooled and divided into different risk tranches, with the most risky being the "equity" portion of the pools, typically about 4%, and these equity portions are again put into pools with 80% of these equity portions now getting investment-grade ratings. These latter pools are going to lose money, if not go bust outright. The rating agencies are going to have major heartburn over this failure to adequately see the risks. Cue the lawyers, stage right.
If you would like to reproduce any of John Mauldin's E-Letters you must include the source of your quote and an email address (John@FrontLineThoughts.com)
The Cockroach Principle says there is never just one cockroach. If you see one running across the room, that means there are many more in the walls and behind the counters. I have been highlighting the problems in the subprime space for a long time. As I wrote months ago, this is going to be a major scandal. It is the main (and almost only) reason that I think we are going to have a recession in the US.
Last week www.lenderimplode.com listed 28 subprime mortgage firms that were shut down or taken over. The count is now 34. Yesterday the third largest lender of subprime mortgages, New Century, stopped accepting new loan applications. The shares were once at $50. Now they are under $4 and falling. The Financial Times reports that they cannot meet their margin calls from their lenders.
Essentially, New Century has been shut out of the capital markets. They are being hit with a wave of lenders who are demanding they take back the mortgages they sold, and my guess is that they do not have the capital they need. Maybe they can sell assets and get them. Who would take their paper or their mortgages today, knowing the problems? The money available to subprime lenders is rapidly evaporating, and until the lending standards are tightened considerably, it will remain that way. Many of the buyers of the Mortgage Backed Securities are going to lose some money.
Option One is an Irvine, California-based subprime lender. Yesterday they stopped doing 100% loans on the value of a home. CEO Steve Nadon pointed to an increase in loan submissions as a result of many of the company's competitors running into funding problems. "We are getting a lot of 80/20s and 100% CLTV deals that used to go to our competitors," the letter said. "While there is nothing inherently wrong with those types of loans from a pure credit standpoint, right now they have a fundamental flaw that we simply cannot overcome. That is the almost complete lack of appetite for the product by the bond market... To originate a loan product that no investor, in today's market, wants to buy is irresponsible."
Consider even a lender like Countrywide which only had about 10% of its portfolio in subprime. They can probably weather the storm, as their main business is prime mortgages. But the founder and CEO, Angelo Mozilla, has sold $140 million of his personal holdings, and almost $600 million of insider stock at Countrywide has been sold in the past two years.
I have highlighted this problem before, so will not go into it in detail again. Subprime mortgages are pooled and divided into different risk tranches, with the most risky being the "equity" portion of the pools, typically about 4%, and these equity portions are again put into pools with 80% of these equity portions now getting investment-grade ratings. These latter pools are going to lose money, if not go bust outright. The rating agencies are going to have major heartburn over this failure to adequately see the risks. Cue the lawyers, stage right.
If you would like to reproduce any of John Mauldin's E-Letters you must include the source of your quote and an email address (John@FrontLineThoughts.com)
Thursday, March 08, 2007
Sub-Prime Lender Woes Continue
CNBC is reporting that New Century Financial may be filing for bankruptcy later today, and their stock price has taken a 25% interday hit this afternoon. This follows on the heels of problems with Fremont General, another large sub-prime lender, who a couple of days ago told its staff in Anaheim to clean out their desks and take an extended leave of absence.
An increasing level of late payments and defaults in the sub-prime loan industry is spreading, and while foreclosures are not as yet much of a factor in our local market, it has become a factor dragging down home prices in other parts of the nation.
In response, the lending industry including Fannie Mae and the Federal Reserve are urging stricter lending guidelines, with verifications of employment and income, increased levels of down payment and reserves required of borrowers, and in general, a retrenchment to historical standards for making loans. As a result, marginal borrowers and potential home buyers, especially in the starter home market, may be eliminated from the housing market, particularly in the higher priced areas. It is conventional wisdom that without a healthy starter home market, the move-up home seller is unable to sell, thus affecting higher and higher home price levels. Locally, with the starter home being a $250-300,000 condo, we can see some of the effects of restrictions on the entry level home buyers.
Credit availability and loan ability moves the housing market. With the tightening of lending standards, the only other way to stimulate our housing market is in building more affordable housing. A healthy starter home market will ripple up through all home pricing levels.
An increasing level of late payments and defaults in the sub-prime loan industry is spreading, and while foreclosures are not as yet much of a factor in our local market, it has become a factor dragging down home prices in other parts of the nation.
In response, the lending industry including Fannie Mae and the Federal Reserve are urging stricter lending guidelines, with verifications of employment and income, increased levels of down payment and reserves required of borrowers, and in general, a retrenchment to historical standards for making loans. As a result, marginal borrowers and potential home buyers, especially in the starter home market, may be eliminated from the housing market, particularly in the higher priced areas. It is conventional wisdom that without a healthy starter home market, the move-up home seller is unable to sell, thus affecting higher and higher home price levels. Locally, with the starter home being a $250-300,000 condo, we can see some of the effects of restrictions on the entry level home buyers.
Credit availability and loan ability moves the housing market. With the tightening of lending standards, the only other way to stimulate our housing market is in building more affordable housing. A healthy starter home market will ripple up through all home pricing levels.
Wednesday, March 07, 2007
The Buyer's Agent: Why It Makes Sense to Hire One
Top 7 Reasons to Use a Buyer's Agent When Purchasing Your Home
by Eric Bramlett
Purchasing a home is a big step, and a big decision. The average person spends around 1/3 of their income on their home. The home that you choose has a big impact on your life, and can have a big impact on your finances, as well. It always surprises me when Buyers attempt to "go at it alone" because of the possibility of mistakes. A good Buyer's Agent is invaluable to a Buyer, and can be the difference between a wonderful transaction, and a nightmare.
1) Full Access to the MLS
The Multiple Listing Service (MLS) is a powerful tool that only Realtors have access to. When listing agents market a home for sale, they typically allow any Realtor to present the home to potential buyers, and to present contracts for purchase. The MLS is a database of all homes listed by Realtors, and represents roughly 99% of the homes for sale in any given market. As technology advances, so does the MLS. It has evolved into an extremely powerful search engine that allows your buyer's agent to enter in search criteria, and returns only homes that match those specific parameters. Buyers can find a lot of this information online through IDX feeds available on many websites, but this information is a "watered down" version of the MLS because the IDX search engines aren't quite as powerful, and don't return as detailed profiles as the MLS.
2) Maximize Your Time
While driving neighborhoods is an excellent idea to help you decide which locations you prefer, it's not a very efficient way to find your new home. [Plus, not all homes on the market will have a for sale sign on the front lawn.] Gas is expensive, and your time is valuable. Your Buyer's Agent will listen to your needs, make fantastic suggestions based on your likes & dislikes, and provide you with a list of homes that ALL match your wants & needs. Your Buyer's Agent has helped MANY new homebuyers through MANY purchases, and will help you better organize your search & decision making process – saving you valuable time.
3) Representation
Listing Agents enter into legally binding agreements that require them to ALWAYS act in the best interest of the seller. They are the seller's "coach" and will make sure that their clients' best interests are looked after. Luckily, your Buyer's Agent is there to make sure YOUR best interests are accounted for. With your expert Buyer's Agent in your corner, you can rest assured that you're on, at least, even ground with the home seller. A football team would be at a pretty significant disadvantage without a coach – just as you would be without a Buyer's Agent.
4) Negotiating Power
The MLS maintains a record of, not only all homes listed by Realtors in a given market, but also the sales price of those homes. Your Buyer's Agent will run a Comparative Market Analysis (CMA) to determine a prospective home's Fair Market Value (FMV). In simpler terms, your Realtor will look at similar homes in the same neighborhood that have sold recently. This way, you will know whether or not the seller has their home priced fairly. If the home is priced over Fair Market Value, your Buyer's Agent can present your "under asking price" offer with plenty of firepower – and a greater chance that the offer will be accepted.
5) Experience
The average person buys 3-5 homes in their lifetime. A good Buyer's Agent is working full-time in the real estate business. What might seem complicated and intimidating to you is fairly common and familiar to your Realtor. Your Buyer's Agent will know what to expect, and will know when to alert you if anything out of the ordinary occurs.
6) Industry Contacts and the Team approach
It takes a lot of people to close a real estate transaction – Buyer's Agent, Listing Agent, Loan Officer, Escrow Officer, Inspector(s), Appraiser, Insurance Agent, General Contractors, and sometimes more! A good agent will come with a strong closing team that has performed in the past, and will continue to perform. A transaction is only as strong as its weakest link – with your strong Buyer's Agent & their closing team [the SCV Home Team], you can rest assured that you will have plenty of support.
7) Peace of Mind
If you are like most people, your home is the largest purchase you will ever make. The average person spends around 1/3 of their total monthly income on their home. This is a big decision and you don't want to go at it alone. When you use a trusted Buyer's Agent, you know that your best interests are accounted for, and that you can feel confident in your purchase.
Purchasing a home can be a fun and exciting process. However, the home buying process can be intimidating, and mistakes are possible. A Realtor who concentrates on working with Buyers can help alleviate the fears & possibilities for mistakes. Make sure and use a Buyer's Agent on any real estate transaction, and you will help ensure that you are making the right decisions.
Ray Kutylo and the SCV Home Team are ready to go to work for you!
by Eric Bramlett
Purchasing a home is a big step, and a big decision. The average person spends around 1/3 of their income on their home. The home that you choose has a big impact on your life, and can have a big impact on your finances, as well. It always surprises me when Buyers attempt to "go at it alone" because of the possibility of mistakes. A good Buyer's Agent is invaluable to a Buyer, and can be the difference between a wonderful transaction, and a nightmare.
1) Full Access to the MLS
The Multiple Listing Service (MLS) is a powerful tool that only Realtors have access to. When listing agents market a home for sale, they typically allow any Realtor to present the home to potential buyers, and to present contracts for purchase. The MLS is a database of all homes listed by Realtors, and represents roughly 99% of the homes for sale in any given market. As technology advances, so does the MLS. It has evolved into an extremely powerful search engine that allows your buyer's agent to enter in search criteria, and returns only homes that match those specific parameters. Buyers can find a lot of this information online through IDX feeds available on many websites, but this information is a "watered down" version of the MLS because the IDX search engines aren't quite as powerful, and don't return as detailed profiles as the MLS.
2) Maximize Your Time
While driving neighborhoods is an excellent idea to help you decide which locations you prefer, it's not a very efficient way to find your new home. [Plus, not all homes on the market will have a for sale sign on the front lawn.] Gas is expensive, and your time is valuable. Your Buyer's Agent will listen to your needs, make fantastic suggestions based on your likes & dislikes, and provide you with a list of homes that ALL match your wants & needs. Your Buyer's Agent has helped MANY new homebuyers through MANY purchases, and will help you better organize your search & decision making process – saving you valuable time.
3) Representation
Listing Agents enter into legally binding agreements that require them to ALWAYS act in the best interest of the seller. They are the seller's "coach" and will make sure that their clients' best interests are looked after. Luckily, your Buyer's Agent is there to make sure YOUR best interests are accounted for. With your expert Buyer's Agent in your corner, you can rest assured that you're on, at least, even ground with the home seller. A football team would be at a pretty significant disadvantage without a coach – just as you would be without a Buyer's Agent.
4) Negotiating Power
The MLS maintains a record of, not only all homes listed by Realtors in a given market, but also the sales price of those homes. Your Buyer's Agent will run a Comparative Market Analysis (CMA) to determine a prospective home's Fair Market Value (FMV). In simpler terms, your Realtor will look at similar homes in the same neighborhood that have sold recently. This way, you will know whether or not the seller has their home priced fairly. If the home is priced over Fair Market Value, your Buyer's Agent can present your "under asking price" offer with plenty of firepower – and a greater chance that the offer will be accepted.
5) Experience
The average person buys 3-5 homes in their lifetime. A good Buyer's Agent is working full-time in the real estate business. What might seem complicated and intimidating to you is fairly common and familiar to your Realtor. Your Buyer's Agent will know what to expect, and will know when to alert you if anything out of the ordinary occurs.
6) Industry Contacts and the Team approach
It takes a lot of people to close a real estate transaction – Buyer's Agent, Listing Agent, Loan Officer, Escrow Officer, Inspector(s), Appraiser, Insurance Agent, General Contractors, and sometimes more! A good agent will come with a strong closing team that has performed in the past, and will continue to perform. A transaction is only as strong as its weakest link – with your strong Buyer's Agent & their closing team [the SCV Home Team], you can rest assured that you will have plenty of support.
7) Peace of Mind
If you are like most people, your home is the largest purchase you will ever make. The average person spends around 1/3 of their total monthly income on their home. This is a big decision and you don't want to go at it alone. When you use a trusted Buyer's Agent, you know that your best interests are accounted for, and that you can feel confident in your purchase.
Purchasing a home can be a fun and exciting process. However, the home buying process can be intimidating, and mistakes are possible. A Realtor who concentrates on working with Buyers can help alleviate the fears & possibilities for mistakes. Make sure and use a Buyer's Agent on any real estate transaction, and you will help ensure that you are making the right decisions.
Ray Kutylo and the SCV Home Team are ready to go to work for you!
Tuesday, March 06, 2007
Tax Tips, Tax Changes, Retirement Accounts
Tuesday, March 06, 2007
2006 TAX TIPS
The April IRS tax filing deadline is looming. Here are some tax tips from the Senior Advantage Real Estate Council to use as you prepare your own returns.
-Early mortgage and property tax payments-
If you made your January, 2007 mortgage payment before the end of 2006, be sure to deduct the mortgage interest for that January payment on your 2006 taxes. The same goes for pre-paid property taxes.
-Retirement Contributions-
If you're self-employed and have a Simplified Employee Pension (SEP), you have until April 16, 2007 to make contributions for tax year 2006. If you file an extension on your tax returns, you can extend that date to October 15, 2007.
-Home office deductions-
If you're self-employed and qualify for a home office deduction, don't forget to write off a portion of heating and lighting costs and home insurance premiums.
-Energy-efficient renovations-
If you've modified your home with energy efficient products, such as solar panels, energy-efficient windows, and so forth, see whether you're eligible for a tax credit.
-Investment Properties-
Add up receipts associated with investment properties. Repairs to keep the property in good working condition are deductible during the year you pay them. Significant investments, like a major kitchen renovation, get depreciated over 27.5 years for residential real estate.
top
2007 TAX CHANGES
There are a number of changes in the laws affecting estate, gift, and capital gains taxes. Here's some brief information on the changes.
Federal estate tax law amounts-
-For many over age 50, their home is the largest asset in their estate. The amount in an estate that is excluded from Federal Estate Tax is $2 million for 2007 and 2008. The exclusion rises to $3.5 million for 2009.
Gift tax-
-An individual can make a gift of up to $12,000 to any other individual without paying a gift tax or reporting the gift. Just a reminder: The tax on gifts over $12,000 is paid by the donor--the person giving the gift.
Capital Gains Tax-
In 2007 and 2008, the maximum tax percentage is 15% on long-term (over a year) capital gains (sales price minus basis, which varies based on the circumstances). On December 31, 2008, that maximum rises to 20%.
The minimum tax percentage fluctuates. It is 5% in 2007, dips to a zero minimum (0%) in 2008 and then goes up to 10% on December 31, 2008.
In 2007, the capital gains tax exemption amounts remain the same: $250,000 is not subject to tax for an individual, and for couples, the figure is $500,000.
top
NEW LIMITS: RETIREMENT ACCOUNTS
(Most Baby Boomers are still contributing to retirement accounts. For those who are no longer working, the distributions may be their primary source of money to live. The source of money impacts their housing and lifestyle goals.)
Contribution limits: Roth IRAs and traditional IRAs
2007: $ 4,000
2008: $ 5,000
Roth IRA Basics:
-Contributions are made with after-tax dollars
-Contributions are not deductible
-Can contribute even after the age of 70 -1/2
-Money can stay in a Roth IRA for your lifetime
-No tax penalty if you withdraw early
-Qualified distributions are tax free
-No income restrictions
-No income tax on withdrawals during retirement
Roth IRA income limits increase in 2007:
-Single people: A full contribution is allowed if income is $99,000 or less. A partial contribution is allowed if income is up to $114,000.
-Married couples: Contribution limits range from $156,000 to $166,000.
-To convert from a traditional to a Roth IRA, income cannot exceed $100,000, regardless of marital status.
Catch-up contributions: Individuals age 50 and older can make "catch-up" contributions to their retirement plans.
-Regular IRAs: Limits for 2007: $5,000; Limits for 2008: $6,000
-SEP IRAs, 401K, 403(b) and 457 plans: Limits for 2007: $5,000
-SIMPLE plans: Catch-up contributions equal 50% of whatever the current limit is for 401k, SEP, and 457 plans.
Qualified retirement plans: The current contribution limit allowed to be considered when determining contribution amounts and benefits is $250,000.
Defined benefit plans:
-2007 cap on annual benefits is the lesser of $180,000 or 100% of the average compensation for the last three years.
-Annual additions are limited to the lesser of $45,000 or 100% of compensation.
401K, SEP, 403 B, Elective Deferrals: The 2007 limit is $15,500 for elective deferrals for 401k plans, tax sheltered annuities, and salary deduction simplified employee pension plans.
Annual elective deferrals to a SIMPLE plan: The 2007 limit is $10,500.
Annual deferrals under section 457 plans (such as deferred compensation plans or state or local governments or tax-exempt organizations): The 2007 limit is $15,500.
As always, consult with your tax advisor.
2006 TAX TIPS
The April IRS tax filing deadline is looming. Here are some tax tips from the Senior Advantage Real Estate Council to use as you prepare your own returns.
-Early mortgage and property tax payments-
If you made your January, 2007 mortgage payment before the end of 2006, be sure to deduct the mortgage interest for that January payment on your 2006 taxes. The same goes for pre-paid property taxes.
-Retirement Contributions-
If you're self-employed and have a Simplified Employee Pension (SEP), you have until April 16, 2007 to make contributions for tax year 2006. If you file an extension on your tax returns, you can extend that date to October 15, 2007.
-Home office deductions-
If you're self-employed and qualify for a home office deduction, don't forget to write off a portion of heating and lighting costs and home insurance premiums.
-Energy-efficient renovations-
If you've modified your home with energy efficient products, such as solar panels, energy-efficient windows, and so forth, see whether you're eligible for a tax credit.
-Investment Properties-
Add up receipts associated with investment properties. Repairs to keep the property in good working condition are deductible during the year you pay them. Significant investments, like a major kitchen renovation, get depreciated over 27.5 years for residential real estate.
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2007 TAX CHANGES
There are a number of changes in the laws affecting estate, gift, and capital gains taxes. Here's some brief information on the changes.
Federal estate tax law amounts-
-For many over age 50, their home is the largest asset in their estate. The amount in an estate that is excluded from Federal Estate Tax is $2 million for 2007 and 2008. The exclusion rises to $3.5 million for 2009.
Gift tax-
-An individual can make a gift of up to $12,000 to any other individual without paying a gift tax or reporting the gift. Just a reminder: The tax on gifts over $12,000 is paid by the donor--the person giving the gift.
Capital Gains Tax-
In 2007 and 2008, the maximum tax percentage is 15% on long-term (over a year) capital gains (sales price minus basis, which varies based on the circumstances). On December 31, 2008, that maximum rises to 20%.
The minimum tax percentage fluctuates. It is 5% in 2007, dips to a zero minimum (0%) in 2008 and then goes up to 10% on December 31, 2008.
In 2007, the capital gains tax exemption amounts remain the same: $250,000 is not subject to tax for an individual, and for couples, the figure is $500,000.
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NEW LIMITS: RETIREMENT ACCOUNTS
(Most Baby Boomers are still contributing to retirement accounts. For those who are no longer working, the distributions may be their primary source of money to live. The source of money impacts their housing and lifestyle goals.)
Contribution limits: Roth IRAs and traditional IRAs
2007: $ 4,000
2008: $ 5,000
Roth IRA Basics:
-Contributions are made with after-tax dollars
-Contributions are not deductible
-Can contribute even after the age of 70 -1/2
-Money can stay in a Roth IRA for your lifetime
-No tax penalty if you withdraw early
-Qualified distributions are tax free
-No income restrictions
-No income tax on withdrawals during retirement
Roth IRA income limits increase in 2007:
-Single people: A full contribution is allowed if income is $99,000 or less. A partial contribution is allowed if income is up to $114,000.
-Married couples: Contribution limits range from $156,000 to $166,000.
-To convert from a traditional to a Roth IRA, income cannot exceed $100,000, regardless of marital status.
Catch-up contributions: Individuals age 50 and older can make "catch-up" contributions to their retirement plans.
-Regular IRAs: Limits for 2007: $5,000; Limits for 2008: $6,000
-SEP IRAs, 401K, 403(b) and 457 plans: Limits for 2007: $5,000
-SIMPLE plans: Catch-up contributions equal 50% of whatever the current limit is for 401k, SEP, and 457 plans.
Qualified retirement plans: The current contribution limit allowed to be considered when determining contribution amounts and benefits is $250,000.
Defined benefit plans:
-2007 cap on annual benefits is the lesser of $180,000 or 100% of the average compensation for the last three years.
-Annual additions are limited to the lesser of $45,000 or 100% of compensation.
401K, SEP, 403 B, Elective Deferrals: The 2007 limit is $15,500 for elective deferrals for 401k plans, tax sheltered annuities, and salary deduction simplified employee pension plans.
Annual elective deferrals to a SIMPLE plan: The 2007 limit is $10,500.
Annual deferrals under section 457 plans (such as deferred compensation plans or state or local governments or tax-exempt organizations): The 2007 limit is $15,500.
As always, consult with your tax advisor.
U.S. Foreclosures Top 1.2 Million in 2006
RealtyTrac Staff
U.S. Foreclosure Filings Up 42 Percent From 2005
More than 1.2 million foreclosure filings were reported nationwide during 2006, up 42 percent from 2005 and a foreclosure rate of one foreclosure filing for every 92 U.S. households, according to RealtyTrac's year-end U.S. Foreclosure Market Report.
“While foreclosures are not at historically high levels, a 42 percent year-over-year increase is certainly noteworthy,” said James J. Saccacio, chief executive officer of RealtyTrac. “The increase in the number of properties in foreclosure was driven partly by the general slowing of overall housing sales, and partly by the impact of monthly mortgage payments increasing dramatically for homeowners who held some of the riskier types of adjustable rate and sub-prime mortgages. As more and more of these loans re-set, we saw a surge to finish the year, with the fourth quarter producing more foreclosure filings than any of the three previous quarters.”
The number of total foreclosure filings rose from about 885,000 in 2005 to 1,259,118 in 2006. While that is a substantial increase, it is still within the scope of normal historical averages, according to Saccacio.
“It’s true that foreclosures could have a negative impact on the housing market if they continue to increase at this rate. And in some of the more problematic local markets they already may be contributing to slowing home price appreciation and a glut of homes for sale,” he said. “However, most local markets have been able to re-absorb foreclosure homes without seeing any major damage to the local economy.”
U.S. Foreclosure Filings Up 42 Percent From 2005
More than 1.2 million foreclosure filings were reported nationwide during 2006, up 42 percent from 2005 and a foreclosure rate of one foreclosure filing for every 92 U.S. households, according to RealtyTrac's year-end U.S. Foreclosure Market Report.
“While foreclosures are not at historically high levels, a 42 percent year-over-year increase is certainly noteworthy,” said James J. Saccacio, chief executive officer of RealtyTrac. “The increase in the number of properties in foreclosure was driven partly by the general slowing of overall housing sales, and partly by the impact of monthly mortgage payments increasing dramatically for homeowners who held some of the riskier types of adjustable rate and sub-prime mortgages. As more and more of these loans re-set, we saw a surge to finish the year, with the fourth quarter producing more foreclosure filings than any of the three previous quarters.”
The number of total foreclosure filings rose from about 885,000 in 2005 to 1,259,118 in 2006. While that is a substantial increase, it is still within the scope of normal historical averages, according to Saccacio.
“It’s true that foreclosures could have a negative impact on the housing market if they continue to increase at this rate. And in some of the more problematic local markets they already may be contributing to slowing home price appreciation and a glut of homes for sale,” he said. “However, most local markets have been able to re-absorb foreclosure homes without seeing any major damage to the local economy.”
US Foreclosures Up 19 Percent in January
RealtyTrac Staff
Foreclosure Filings Higher Than in Any Month in 2006,
Up 25 Percent From January 2006
A total of 130,511 new foreclosure filings were reported in January, an increase of 19 percent from the previous month and an increase of 25 percent from January 2006. The report also shows a national foreclosure rate of one new foreclosure filing for every 886 U.S. households.
“January’s foreclosure number represented the highest monthly number we’ve seen since we began issuing this report two years ago,” said James J. Saccacio, chief executive officer of RealtyTrac. “The month-over-month increase is similar to what we saw last January, when foreclosures shot up 27 percent from the previous month; however, the year-over-year increase of 25 percent is well below the 45 percent annual increase we saw in January last year.”
Nevada, Michigan, Georgia post top foreclosure rates
Nevada replaced Colorado as the state with the highest foreclosure rate thanks to an 8 percent increase in foreclosure filings from the previous month and a slight decrease in Colorado foreclosure filings. The state reported 2,397 new foreclosure filings during the month, a foreclosure rate of one new foreclosure filing for every 362 households — 2.4 times the national average.
A 70 percent increase in foreclosure activity propelled Michigan’s foreclosure rate to second highest among the states. The state reported 11,554 new foreclosure filings, a foreclosure rate of one new foreclosure filing for every 366 households. The state’s foreclosure total was the fourth highest reported by any state and more than twice the number reported in January 2006.
Georgia’s foreclosure rate — one new foreclosure filing for every 372 households — ranked third highest among the states for the fourth month in a row. The state reported 8,328 new foreclosure filings during the month, up 29 percent from the previous month and up 13 percent from January 2006.
Colorado’s foreclosure rate dropped to fourth highest for the month after claiming the top spot in nine out of 12 months in 2006. Other states with foreclosure rates among the nation’s 10 highest included Arizona, Texas, Ohio, Florida, Illinois and New Jersey.
Texas, California, Florida post most new foreclosure filings
Texas documented the highest foreclosure total of any state for the second month in a row, with 14,728 new foreclosure filings in January — a 4 percent increase from the previous month but an increase of less than 1 percent from January 2006. The state’s foreclosure rate of one new foreclosure filing for every 547 households was sixth highest among the states and 1.6 times the national average.
California’s foreclosure total of 14,430 was the nation’s second highest and represented a 14 percent increase from the previous month. The state’s foreclosure rate of one new foreclosure filing for every 846 households registered slightly above the national average and 14th highest among the states. [Note: local rates are miniscule compared to state average.]
Florida reported 11,709 new foreclosure filings during the month, third highest among the states and a 40 percent increase from the previous month. The state’s foreclosure total was up 13 percent from January 2006, and its foreclosure rate of one new foreclosure filing for every 624 households was the nation’s sixth highest.
Other states with foreclosure totals among the nation’s 10 highest included Michigan, Ohio, Georgia, Illinois, New York, New Jersey and Colorado.
Detroit, Greeley, Atlanta document highest metro foreclosure ratesDetroit documented the nation’s highest metro foreclosure rate, replacing Greeley, Colo., which had claimed the top spot for the five previous months. The Detroit metro area (Wayne County) reported 6,653 new foreclosure filings during the month, more than twice the number reported in the previous month and a foreclosure rate of one new foreclosure filing for every 124 households — more than seven times the national average.
Greeley, Colo., (Weld County) reported a 2 percent decrease in foreclosure activity in January, but the metro area’s foreclosure rate of one new foreclosure filing for every 173 households still ranked second highest among the nation’s metro areas.
The 28-county Atlanta metropolitan area documented a foreclosure rate of one new foreclosure filing for every 214 households — the nation’s third highest metro foreclosure rate. The metro area reported 6,791 new foreclosure filings during the month, up 25 percent from the previous month.
Foreclosure Filings Higher Than in Any Month in 2006,
Up 25 Percent From January 2006
A total of 130,511 new foreclosure filings were reported in January, an increase of 19 percent from the previous month and an increase of 25 percent from January 2006. The report also shows a national foreclosure rate of one new foreclosure filing for every 886 U.S. households.
“January’s foreclosure number represented the highest monthly number we’ve seen since we began issuing this report two years ago,” said James J. Saccacio, chief executive officer of RealtyTrac. “The month-over-month increase is similar to what we saw last January, when foreclosures shot up 27 percent from the previous month; however, the year-over-year increase of 25 percent is well below the 45 percent annual increase we saw in January last year.”
Nevada, Michigan, Georgia post top foreclosure rates
Nevada replaced Colorado as the state with the highest foreclosure rate thanks to an 8 percent increase in foreclosure filings from the previous month and a slight decrease in Colorado foreclosure filings. The state reported 2,397 new foreclosure filings during the month, a foreclosure rate of one new foreclosure filing for every 362 households — 2.4 times the national average.
A 70 percent increase in foreclosure activity propelled Michigan’s foreclosure rate to second highest among the states. The state reported 11,554 new foreclosure filings, a foreclosure rate of one new foreclosure filing for every 366 households. The state’s foreclosure total was the fourth highest reported by any state and more than twice the number reported in January 2006.
Georgia’s foreclosure rate — one new foreclosure filing for every 372 households — ranked third highest among the states for the fourth month in a row. The state reported 8,328 new foreclosure filings during the month, up 29 percent from the previous month and up 13 percent from January 2006.
Colorado’s foreclosure rate dropped to fourth highest for the month after claiming the top spot in nine out of 12 months in 2006. Other states with foreclosure rates among the nation’s 10 highest included Arizona, Texas, Ohio, Florida, Illinois and New Jersey.
Texas, California, Florida post most new foreclosure filings
Texas documented the highest foreclosure total of any state for the second month in a row, with 14,728 new foreclosure filings in January — a 4 percent increase from the previous month but an increase of less than 1 percent from January 2006. The state’s foreclosure rate of one new foreclosure filing for every 547 households was sixth highest among the states and 1.6 times the national average.
California’s foreclosure total of 14,430 was the nation’s second highest and represented a 14 percent increase from the previous month. The state’s foreclosure rate of one new foreclosure filing for every 846 households registered slightly above the national average and 14th highest among the states. [Note: local rates are miniscule compared to state average.]
Florida reported 11,709 new foreclosure filings during the month, third highest among the states and a 40 percent increase from the previous month. The state’s foreclosure total was up 13 percent from January 2006, and its foreclosure rate of one new foreclosure filing for every 624 households was the nation’s sixth highest.
Other states with foreclosure totals among the nation’s 10 highest included Michigan, Ohio, Georgia, Illinois, New York, New Jersey and Colorado.
Detroit, Greeley, Atlanta document highest metro foreclosure ratesDetroit documented the nation’s highest metro foreclosure rate, replacing Greeley, Colo., which had claimed the top spot for the five previous months. The Detroit metro area (Wayne County) reported 6,653 new foreclosure filings during the month, more than twice the number reported in the previous month and a foreclosure rate of one new foreclosure filing for every 124 households — more than seven times the national average.
Greeley, Colo., (Weld County) reported a 2 percent decrease in foreclosure activity in January, but the metro area’s foreclosure rate of one new foreclosure filing for every 173 households still ranked second highest among the nation’s metro areas.
The 28-county Atlanta metropolitan area documented a foreclosure rate of one new foreclosure filing for every 214 households — the nation’s third highest metro foreclosure rate. The metro area reported 6,791 new foreclosure filings during the month, up 25 percent from the previous month.
Is the Housing Market Stabilizing?
Best time to buy or sell depends on key factors
Monday, March 05, 2007
By Dian Hymer Inman News
According to the National Association of Realtors (NAR), the housing market could be stabilizing after months of rising inventories, meager home sale activity and soft prices.
The Pending Home Sale Index, which is a leading indicator for the housing market, rose 4.9 percent in December compared to November. This is the largest monthly increase since March 2004 when the index rose 6.9 percent compared to the previous month.
The December pending sale level was still 4.4 percent lower than it was a year ago. However, inventories of homes for sale -- which peaked at an all time high in July of 2006 -- have been shrinking.
The Pending Home Sale Index is based on new sales that have not yet closed. A listing is pending when a purchase contract has been signed by all parties. Closing takes typically 30 to 60 days.
According to NAR, the improvement in the pending sale index was broad based. It increased 8.1 percent in the Northeast, 5.3 percent in the West, 4.3 percent in the South and 3.2 percent in the Midwest.
It's too soon to tell if the recent increase in pending home sale activity is a trend toward stabilization or merely a fluctuation. A lot depends on interest rates and on the health of the overall economy. Another key variable is the unsold housing inventory; that is, the number of unsold listings.
It's typical for the housing inventory to diminish at the end of the year. It often doesn't build significantly again until March or April. The true test of the health of the market won't be clear until later in the year. The next Pending Home Sale Index will be available on March 6 and will be available online at http://www.realtor.org/research/index.html.
NAR reports are useful, but you need to focus on the local scene if you are thinking of buying or selling this year. For example, even though now is not the typical home-buying season, buyers in the San Francisco Bay Area aren't waiting until spring to start house hunting.
Due to the time of year, the inventory of homes for sale in some East Bay neighborhoods is so low that buyers have to compete to buy a home. A common complaint from real estate agents in the area is that there aren't enough listings coming on the market to satisfy the demand.
HOUSE HUNTING TIP: To find out what's happening to the housing market in an area where you want to buy or sell, talk with local real estate agents. Find out how many listings are on the market in the area? How does this compare with the inventory level of last month, six months ago and a year ago? How long is it typically taking listings to sell? Is the time lengthening or shortening?
Are homes selling with multiple offers? If so, this usually indicates that there are more buyers than sellers in the market. In such a market, listings tend to sell quickly. If prices have been slipping, an inventory shortfall can cause the market to firm up and prices to stabilize.
Another way to find out what's going on in an area is to subscribe to a local newspaper. How fat is the real estate ad section? Are the same home-sale ads running week after week? Or, are listings selling quickly? Are price reductions common or rare?
Other news of interest concerns the local economy. Are new businesses moving into or out of the area? Are employers hiring? Or are they laying people off? A hot job market usually translates into strong home-sale activity due to increased demand.
THE CLOSING: Supply and demand ultimately governs whether the housing market is strong or soft.
Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.
Monday, March 05, 2007
By Dian Hymer Inman News
According to the National Association of Realtors (NAR), the housing market could be stabilizing after months of rising inventories, meager home sale activity and soft prices.
The Pending Home Sale Index, which is a leading indicator for the housing market, rose 4.9 percent in December compared to November. This is the largest monthly increase since March 2004 when the index rose 6.9 percent compared to the previous month.
The December pending sale level was still 4.4 percent lower than it was a year ago. However, inventories of homes for sale -- which peaked at an all time high in July of 2006 -- have been shrinking.
The Pending Home Sale Index is based on new sales that have not yet closed. A listing is pending when a purchase contract has been signed by all parties. Closing takes typically 30 to 60 days.
According to NAR, the improvement in the pending sale index was broad based. It increased 8.1 percent in the Northeast, 5.3 percent in the West, 4.3 percent in the South and 3.2 percent in the Midwest.
It's too soon to tell if the recent increase in pending home sale activity is a trend toward stabilization or merely a fluctuation. A lot depends on interest rates and on the health of the overall economy. Another key variable is the unsold housing inventory; that is, the number of unsold listings.
It's typical for the housing inventory to diminish at the end of the year. It often doesn't build significantly again until March or April. The true test of the health of the market won't be clear until later in the year. The next Pending Home Sale Index will be available on March 6 and will be available online at http://www.realtor.org/research/index.html.
NAR reports are useful, but you need to focus on the local scene if you are thinking of buying or selling this year. For example, even though now is not the typical home-buying season, buyers in the San Francisco Bay Area aren't waiting until spring to start house hunting.
Due to the time of year, the inventory of homes for sale in some East Bay neighborhoods is so low that buyers have to compete to buy a home. A common complaint from real estate agents in the area is that there aren't enough listings coming on the market to satisfy the demand.
HOUSE HUNTING TIP: To find out what's happening to the housing market in an area where you want to buy or sell, talk with local real estate agents. Find out how many listings are on the market in the area? How does this compare with the inventory level of last month, six months ago and a year ago? How long is it typically taking listings to sell? Is the time lengthening or shortening?
Are homes selling with multiple offers? If so, this usually indicates that there are more buyers than sellers in the market. In such a market, listings tend to sell quickly. If prices have been slipping, an inventory shortfall can cause the market to firm up and prices to stabilize.
Another way to find out what's going on in an area is to subscribe to a local newspaper. How fat is the real estate ad section? Are the same home-sale ads running week after week? Or, are listings selling quickly? Are price reductions common or rare?
Other news of interest concerns the local economy. Are new businesses moving into or out of the area? Are employers hiring? Or are they laying people off? A hot job market usually translates into strong home-sale activity due to increased demand.
THE CLOSING: Supply and demand ultimately governs whether the housing market is strong or soft.
Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.
Monday, March 05, 2007
Sub-Prime Lenders Going Under
Breaking News: Fremont Closes Doors
Sub-prime lender Fremont Financial in Anaheim told its employees to clean out their desks and go home this afternoon, in a report seen locally on Channel 4 news. One of the larger lenders in the sub-prime market, which last year comprised 20% of the home mortgage market, Fremont Financial was widely seen as one of the more stable lenders in this now-volatile lending sector. Early defaults leading to foreclosures have negatively impacted this section which provides home loans to marginally qualified buyers. This development portends a continued decline in housing.
While many in my industry continue to sing a happy tune, the gathering storm in the lending buisiness is the natural result of years of a Federal Reserve that was out of control with the printers churning out liquidity, lax lending standards issuing what came to be known as 'liar's loans', and option ARMs and other loan programs that absent strong appreciation, will tend to increase the default and foreclosure rate as those loans adjust to interest rates in the 10 or 12 percent range.
~~R Kutylo
New Century Stock Plunges;Lender Is at Mercy of Banks
By LINGLING WEIMarch 5, 2007 7:31 p.m.
NEW YORK -- Just last summer, New Century Financial Corp. Chief Executive Brad Morrice said his company was poised to "capitalize on" the U.S. mortgage industry's shakeout. Now, it is one of those being shaken out.
New Century, one of the largest lenders to high-risk borrowers, disclosed late Friday that it is the subject of a criminal inquiry into its accounting and trading in its stock. It also said it is at the mercy of the banks that provide it with essential credit lines -- Wall Street firms including Goldman Sachs Group Inc. and Morgan Stanley that also buy loans from the company and repackage them into tradable securities.
But its prospects for finding mercy are anything but promising. Should it fail, New Century would become one of the biggest casualties of the cratering of the mortgage market so far.
The company is "more likely to enter the death spiral than we had feared," Merrill Lynch analyst Kenneth Bruce wrote in a research note to clients Monday. Likely restricted liquidity -- as well as its delay in filing financial statements, the deterioration of its financial conditions and regulatory investigations -- could "conspire to limit its options outside of bankruptcy," Mr. Bruce said.
A New Century spokeswoman declined to comment beyond the company's regulatory filings. Shares in the Irvine, Calif., lender, tumbled $10.09, or 69%, to $4.56. The stock has dropped about 90% since last July -- when New Century traded around $46 and had just racked up a record of raising its dividend six times since its conversion to a tax-beneficial real-estate investment trust in 2004. Standard & Poor's removed New Century from its Standard & Poor's 600 index of small-capitalization shares.
Big shareholders including Greenlight Capital Inc., a New York hedge fund, stand to lose the most in the event of a bankruptcy filing. Earlier last year, Greenlight forged a deal with New Century that placed its president, David Einhorn, on the board, exempted Greenlight from a 9.8% shareholding limit and permitted ownership of up to 19.6%. Greenlight's regulatory filings show the fund owned 6.3% of New Century's outstanding shares as of Dec. 31, a position valued at about $110 million at the time. Today, the stake would be valued at less than $14 million.
The fund's current holdings or economic interest in the company couldn't be determined. A spokesman for Greenlight declined to comment for this report, citing Mr. Einhorn's position as a board member. At the same time, some investors have bet heavily on New Century's downfall, as evidenced by a 30% jump in short interest in the stock to 16.7 million shares last month from January. That represents 37% of the public float of the company's shares.
New Century was founded in 1995 by three mortgage-industry veterans, including Mr. Morrice, Bob Cole and Ed Gotschall. It went public two years later and was named to Fortune magazine's list of the 100 fastest-growing companies in 2003 and 2004. But now, New Century's rapid descent offers a cautionary tale.
The lender is plagued with problems including a surge of bad loans, costly obligations to buy back bad loans already sold to investment banks and inadequate reserves. On top of the financial stress, it faces regulatory probes and shareholder allegations that its officers and directors sold shares at inflated prices. The lender acknowledged Friday that a failure to convince its banks to ease their financing terms could prompt its auditors to warn of "substantial doubt" over its ability to remain in business.
A disruption in liquidity has already forced more than 20 independent mortgage lenders to shutter operations over the past two months. In the late 1990s, when the financial markets were rocked by Russian defaults, New Century and other mortgage lenders encountered a similar liquidity crisis but managed to get through it after U.S. Bancorp extended a lifeline.
Some analysts question the lender's ability to avoid bankruptcy or an outright liquidation this time around. Weakening loan demand and rising delinquencies have forced bigger financial services firms to become more cautious about the risks they take on, as a string of subprime lenders seek to sell out as a last-ditch alternative to closing shop.
New Century said it has $17.4 billion in short-term credit lines and had more than $350 million in cash and immediate liquidity as of Dec. 31. It also said 11 of its 16 financing pacts require it to report at least $1 of net income for two consecutive quarters. But it doesn't expect to meet this requirement for the period ended Dec. 31 and is seeking waivers from its banks, the company said.
Ed Groshans, an analyst at Fox-Pitt, Kelton, like many other analysts, is worried about the ability of the company to get all the waivers it needs.
Late last month, New Century disclosed that it had extended a $250 million uncommitted line of credit with Goldman Sachs for three months -- to May 14 -- as opposed to the more customary one-year extension. The other agreement it has with Goldman, with $1 billion in committed credit, expires in November. Many analysts have viewed the short duration of the extension as a lack of confidence on the part of Goldman about New Century's financial stability. A Goldman spokesman declined to comment.
As of Sept. 30, according to New Century's filings with the Securities and Exchange Commission, the company had a $3 billion credit line with Morgan Stanley and an outstanding balance under that agreement of $1.5 billion. The pact was supposed to expire last month. The New Century spokeswoman declined to comment on the status of the company's renegotiations with Morgan Stanley. The bank also declined to comment.
Other big providers of short-term funding to New Century include UBS AG, Bank of America Corp., Barclays PLC and Deutsche Bank AG.
--James R. Hagerty of The Wall Street Journal contributed to this report
Sub-prime lender Fremont Financial in Anaheim told its employees to clean out their desks and go home this afternoon, in a report seen locally on Channel 4 news. One of the larger lenders in the sub-prime market, which last year comprised 20% of the home mortgage market, Fremont Financial was widely seen as one of the more stable lenders in this now-volatile lending sector. Early defaults leading to foreclosures have negatively impacted this section which provides home loans to marginally qualified buyers. This development portends a continued decline in housing.
While many in my industry continue to sing a happy tune, the gathering storm in the lending buisiness is the natural result of years of a Federal Reserve that was out of control with the printers churning out liquidity, lax lending standards issuing what came to be known as 'liar's loans', and option ARMs and other loan programs that absent strong appreciation, will tend to increase the default and foreclosure rate as those loans adjust to interest rates in the 10 or 12 percent range.
~~R Kutylo
New Century Stock Plunges;Lender Is at Mercy of Banks
By LINGLING WEIMarch 5, 2007 7:31 p.m.
NEW YORK -- Just last summer, New Century Financial Corp. Chief Executive Brad Morrice said his company was poised to "capitalize on" the U.S. mortgage industry's shakeout. Now, it is one of those being shaken out.
New Century, one of the largest lenders to high-risk borrowers, disclosed late Friday that it is the subject of a criminal inquiry into its accounting and trading in its stock. It also said it is at the mercy of the banks that provide it with essential credit lines -- Wall Street firms including Goldman Sachs Group Inc. and Morgan Stanley that also buy loans from the company and repackage them into tradable securities.
But its prospects for finding mercy are anything but promising. Should it fail, New Century would become one of the biggest casualties of the cratering of the mortgage market so far.
The company is "more likely to enter the death spiral than we had feared," Merrill Lynch analyst Kenneth Bruce wrote in a research note to clients Monday. Likely restricted liquidity -- as well as its delay in filing financial statements, the deterioration of its financial conditions and regulatory investigations -- could "conspire to limit its options outside of bankruptcy," Mr. Bruce said.
A New Century spokeswoman declined to comment beyond the company's regulatory filings. Shares in the Irvine, Calif., lender, tumbled $10.09, or 69%, to $4.56. The stock has dropped about 90% since last July -- when New Century traded around $46 and had just racked up a record of raising its dividend six times since its conversion to a tax-beneficial real-estate investment trust in 2004. Standard & Poor's removed New Century from its Standard & Poor's 600 index of small-capitalization shares.
Big shareholders including Greenlight Capital Inc., a New York hedge fund, stand to lose the most in the event of a bankruptcy filing. Earlier last year, Greenlight forged a deal with New Century that placed its president, David Einhorn, on the board, exempted Greenlight from a 9.8% shareholding limit and permitted ownership of up to 19.6%. Greenlight's regulatory filings show the fund owned 6.3% of New Century's outstanding shares as of Dec. 31, a position valued at about $110 million at the time. Today, the stake would be valued at less than $14 million.
The fund's current holdings or economic interest in the company couldn't be determined. A spokesman for Greenlight declined to comment for this report, citing Mr. Einhorn's position as a board member. At the same time, some investors have bet heavily on New Century's downfall, as evidenced by a 30% jump in short interest in the stock to 16.7 million shares last month from January. That represents 37% of the public float of the company's shares.
New Century was founded in 1995 by three mortgage-industry veterans, including Mr. Morrice, Bob Cole and Ed Gotschall. It went public two years later and was named to Fortune magazine's list of the 100 fastest-growing companies in 2003 and 2004. But now, New Century's rapid descent offers a cautionary tale.
The lender is plagued with problems including a surge of bad loans, costly obligations to buy back bad loans already sold to investment banks and inadequate reserves. On top of the financial stress, it faces regulatory probes and shareholder allegations that its officers and directors sold shares at inflated prices. The lender acknowledged Friday that a failure to convince its banks to ease their financing terms could prompt its auditors to warn of "substantial doubt" over its ability to remain in business.
A disruption in liquidity has already forced more than 20 independent mortgage lenders to shutter operations over the past two months. In the late 1990s, when the financial markets were rocked by Russian defaults, New Century and other mortgage lenders encountered a similar liquidity crisis but managed to get through it after U.S. Bancorp extended a lifeline.
Some analysts question the lender's ability to avoid bankruptcy or an outright liquidation this time around. Weakening loan demand and rising delinquencies have forced bigger financial services firms to become more cautious about the risks they take on, as a string of subprime lenders seek to sell out as a last-ditch alternative to closing shop.
New Century said it has $17.4 billion in short-term credit lines and had more than $350 million in cash and immediate liquidity as of Dec. 31. It also said 11 of its 16 financing pacts require it to report at least $1 of net income for two consecutive quarters. But it doesn't expect to meet this requirement for the period ended Dec. 31 and is seeking waivers from its banks, the company said.
Ed Groshans, an analyst at Fox-Pitt, Kelton, like many other analysts, is worried about the ability of the company to get all the waivers it needs.
Late last month, New Century disclosed that it had extended a $250 million uncommitted line of credit with Goldman Sachs for three months -- to May 14 -- as opposed to the more customary one-year extension. The other agreement it has with Goldman, with $1 billion in committed credit, expires in November. Many analysts have viewed the short duration of the extension as a lack of confidence on the part of Goldman about New Century's financial stability. A Goldman spokesman declined to comment.
As of Sept. 30, according to New Century's filings with the Securities and Exchange Commission, the company had a $3 billion credit line with Morgan Stanley and an outstanding balance under that agreement of $1.5 billion. The pact was supposed to expire last month. The New Century spokeswoman declined to comment on the status of the company's renegotiations with Morgan Stanley. The bank also declined to comment.
Other big providers of short-term funding to New Century include UBS AG, Bank of America Corp., Barclays PLC and Deutsche Bank AG.
--James R. Hagerty of The Wall Street Journal contributed to this report
MLS Data Continues Mixed; May Not Be Valid
As reported in an earlier post, the local market data source has changed from Crisnet to SoCalMLS, and that changeover in mid-February has thrown into question the data that I am able to get.
For example, the February data indicates that local closed sales for the Santa Clarita and San Fernando Valley areas had closed prices at and above the current list price. Sorry, but that is not happening in reality. If it were so, sellers would not be worried and buyers would be scrambling to buy anything right now, before prices 'go up'.
You can appreciate the situation, I'm sure. So rather than publish a bunch of data that does not reflect reality, I'm going to hold off until the data provider gets some steadier legs. The new service does not provide as complete or as digestable set of data points as Crisnet did. I may have to make some adjustment in how my data is gathered and presented so that real and meaningful data can be provided to you, my valued clients.
As always, a neighborhood analysis of the current market is best, as that will most accurately provide the information you as a seller need to establish a list price that will be attractive to potential buyers. Conversely, if you are a buyer of property, you also want the real numbers for a neighborhood to ensure that you are not paying too much for a property.
Yes, yes, I know. As a seller, you want the best price (and frankly, so do I) but let's be realistic and maybe a simple analogy will illustrate: when you go out car shopping, are you anxious to pay a Ferrari price for a Saturn? No. probably not. And the buyer for your home doesn't want to pay more than market price for your home, either.
And buyers... while I do want you to get the absolute best home for your hard-earned money, the seller has market information and isn't going to give you a home for nothing just because you want it.
Reality is, both parties will settle for fair pricing in the vast majority of home sales. Coming to that point is as Trump so rightly pointed out, 'The Art of the Deal'.
For example, the February data indicates that local closed sales for the Santa Clarita and San Fernando Valley areas had closed prices at and above the current list price. Sorry, but that is not happening in reality. If it were so, sellers would not be worried and buyers would be scrambling to buy anything right now, before prices 'go up'.
You can appreciate the situation, I'm sure. So rather than publish a bunch of data that does not reflect reality, I'm going to hold off until the data provider gets some steadier legs. The new service does not provide as complete or as digestable set of data points as Crisnet did. I may have to make some adjustment in how my data is gathered and presented so that real and meaningful data can be provided to you, my valued clients.
As always, a neighborhood analysis of the current market is best, as that will most accurately provide the information you as a seller need to establish a list price that will be attractive to potential buyers. Conversely, if you are a buyer of property, you also want the real numbers for a neighborhood to ensure that you are not paying too much for a property.
Yes, yes, I know. As a seller, you want the best price (and frankly, so do I) but let's be realistic and maybe a simple analogy will illustrate: when you go out car shopping, are you anxious to pay a Ferrari price for a Saturn? No. probably not. And the buyer for your home doesn't want to pay more than market price for your home, either.
And buyers... while I do want you to get the absolute best home for your hard-earned money, the seller has market information and isn't going to give you a home for nothing just because you want it.
Reality is, both parties will settle for fair pricing in the vast majority of home sales. Coming to that point is as Trump so rightly pointed out, 'The Art of the Deal'.
Saturday, March 03, 2007
Sub-Prime Lenders Under Pressure
New Century Financial is the target of a federal criminal inquiry into its accounting and trading in its securities, and said its auditors could warn of "substantial doubt" over the home lender's ability to remain in business. Fremont General, another big lender, said it plans to stop making subprime residential loans and is in talks to sell that business.
The news came the same day federal bank regulators announced a crackdown on loose lending standards on subprime home mortgages.
http://online.wsj.com/article/SB117286729439625151.html?mod=djemalert
The news came the same day federal bank regulators announced a crackdown on loose lending standards on subprime home mortgages.
http://online.wsj.com/article/SB117286729439625151.html?mod=djemalert
Thursday, March 01, 2007
Renting vs. Owning: Building Equity and Tax Advantages
Homeowners who have already secured their dream home know what a great investment they’ve made. However, millions of renters continue to have misconceptions about the home buying process, often delaying a home purchase by saying “it’s too complicated” or “interest rates are too high.” What renters don’t realize is that in the long term they can’t afford not to buy a home.
For many Americans, owning a home is the cornerstone of their financial wealth. Building equity in a home, combined with tax advantages offered by both federal and state governments, has driven home ownership to record levels. Currently, according to the U.S. Census Bureau, 68.7 percent of American households have chosen home ownership over renting for these, as well as other reasons. Buying a home is not as complicated as it may seem. As with any large investment, it’s important to thoroughly understand the purchasing process and the obligations associated with taking out a mortgage.
Over the years, reputable mortgage institutions have made the home buying process simple and easy to manage for potential homebuyers, especially first-time buyers.
One of the key steps in determining whether you should become a homeowner versus a home renter, is understanding how the amount you dedicate each month to paying for shelter could better serve you through the building of equity. For example, let’s look at a renter with a monthly rent payment of $600. Over five years, that person will have spent $36,000 on rent. In 10 years, that number rises to $72,000. That’s a large amount paid with no equity in return. Now, if this same amount were applied to paying a mortgage, a portion of each month’s payment would go toward paying down the principle (the price at which you purchased the home less a down payment), which would allow you to build ownership in the property. In addition, the interest that you pay each month, as well as any property taxes, may be deductible on your federal income taxes -- a tax advantage not available to renters (check with a local tax advisor or your local Internal Revenue Service office).
On the flip side, probably the most important advantage of renting is the flexibility it offers in terms of moving. The mortgage industry understands this concern and has created numerous financing products that allow a homeowner to better manage his or her cash flow as it relates to anticipated changes, such as moving to a larger home, relocation, or other financial pressures. A mortgage professional can help you understand the types of financing options that would best suit your individual circumstances.
Historically speaking, interest rates remain at their lowest levels in years. If you’ve ever thought about owning a piece of the American Dream, contact a mortgage professional to learn more about mortgages and to better understand the advantages of owning versus renting.
Courtesy of ARA Content
For many Americans, owning a home is the cornerstone of their financial wealth. Building equity in a home, combined with tax advantages offered by both federal and state governments, has driven home ownership to record levels. Currently, according to the U.S. Census Bureau, 68.7 percent of American households have chosen home ownership over renting for these, as well as other reasons. Buying a home is not as complicated as it may seem. As with any large investment, it’s important to thoroughly understand the purchasing process and the obligations associated with taking out a mortgage.
Over the years, reputable mortgage institutions have made the home buying process simple and easy to manage for potential homebuyers, especially first-time buyers.
One of the key steps in determining whether you should become a homeowner versus a home renter, is understanding how the amount you dedicate each month to paying for shelter could better serve you through the building of equity. For example, let’s look at a renter with a monthly rent payment of $600. Over five years, that person will have spent $36,000 on rent. In 10 years, that number rises to $72,000. That’s a large amount paid with no equity in return. Now, if this same amount were applied to paying a mortgage, a portion of each month’s payment would go toward paying down the principle (the price at which you purchased the home less a down payment), which would allow you to build ownership in the property. In addition, the interest that you pay each month, as well as any property taxes, may be deductible on your federal income taxes -- a tax advantage not available to renters (check with a local tax advisor or your local Internal Revenue Service office).
On the flip side, probably the most important advantage of renting is the flexibility it offers in terms of moving. The mortgage industry understands this concern and has created numerous financing products that allow a homeowner to better manage his or her cash flow as it relates to anticipated changes, such as moving to a larger home, relocation, or other financial pressures. A mortgage professional can help you understand the types of financing options that would best suit your individual circumstances.
Historically speaking, interest rates remain at their lowest levels in years. If you’ve ever thought about owning a piece of the American Dream, contact a mortgage professional to learn more about mortgages and to better understand the advantages of owning versus renting.
Courtesy of ARA Content
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