Opinions are all over the board on what to do [if anything] for the housing market. Please take a look at this article and then post a reply with your opinion! Thanks. Ray
Some view interest rate freeze as more harmful than helpful
Thursday, December 06, 2007
By Glenn Roberts Jr.
Inman News
A plan to freeze interest rates for a segment of homeowners who face the prospect of foreclosure is either political grandstanding, a delaying tactic, a finger attempting to plug a bursting dam, or the right cure for an ailing market, depending on who you talk to in the real estate brokerage community.
Real estate agents and brokers are definitely talking about the Bush administration's effort to bring together mortgage-market players in a program to assist some distressed subprime borrowers to refinance into safer loans and avoid resetting rates that would lead to more defaults.
An estimated 1.2 million subprime borrowers with adjustable-rate mortgages would be eligible to participate in a fast-track process to refinance or apply for modified loan terms under this program, the Treasury Department announced this morning.
The Treasury Department estimated that perhaps 1.8 million owner-occupied subprime mortgage resets will occur in 2008 and 2009. Treasury Secretary Henry M. Paulson Jr. noted that the plan announced today is "a private sector effort, involving no government money."
Even before the details of the bailout plan were revealed, real estate industry professionals were already talking about the potential impact to consumers and the real estate industry.
Some real estate professionals commented in online forums that they preferred to let the market problems run their course and do not favor any efforts to intervene, and some said a rate freeze could potentially do more harm than good to the overall housing market.
"I think it's going to be a negative," said Samuel Marcus, an associate broker for Century 21 Laffey Associates in Long Island, N.Y.
"I don't think it's going to help the market -- I think it's going to hurt the market, and it's going to cost somebody a lot of money, be it taxpayers or buyers who went with a conventional mortgage."
Marcus said he feels for people who were misguided or chose home loans that got them in over their heads, and a bailout program could have short-term benefits but will not likely solve all of the market troubles.
"I would favor no federal intervention. I think we have to lick our wounds and move forward. We should work on changing the system so something like this doesn't happen again," he said.
The program seems to have been brought out through political posturing, he said.
In addition to the Bush administration's efforts to put the rate-freeze plan together for distressed homeowners, Democratic presidential candidates Hillary Rodham Clinton and John Edwards also announced proposals this week to curb foreclosures, and Clinton criticized the Bush plan as too weak.
Clinton's own proposal would have set a 90-day foreclosure moratorium and a five-year rate freeze for some troubled borrowers.
"I think it's grandstanding," said Mike Jaquish, an associate broker for Keller Williams Realty in Cary, N.C.
He said that a plan to freeze mortgage rates might harm liquidity in the mortgage market, as it could sap motivation from investors to purchase mortgage-backed securities.
If investor confidence in the mortgage market sinks further, that could make it harder for entry-level buyers, he said.
"I don't think (this) is going to make things easier for much of anyone," he said.
The principal of interfering with money markets could have a more dire impact on mortgage financing than the foreclosure problem, and he generally favors a hands-off approach to the workings of the market.
But he acknowledged that there are some very real problems with foreclosures. "I'm concerned about the overall status of the market. We've upset the apple cart big time. An adjustment is going to be made. If things get as grim as people say, the (Federal Housing Administration) is going to be the lender of choice."
Ultimately, the mortgage problems may heavily leverage the country, he said.
Realtor Krista Fuchs of Prudential Fox & Roach of Exton, Pa., said, "Something has to be done to stop the cycle of homes going into foreclosure," which can drive up inventory and drive down local home prices, potentially fueling more foreclosures.
But a rate freeze has pitfalls, too. "Freezing the rates will cause problems, possibly lawsuits," she said. "Hopefully, it won't deter future investors from buying mortgages. If that happens then the industry and economy is in much bigger trouble than we are now."
The problem is bigger than a "silver bullet fix," she said, and it appears "it's just the beginning."
Mark Anderson does see a silver lining, though, to a rate-freeze program. "If people are going to be losing homes, and they can keep them at a reduced rate or a current rate, I think it helps everybody. I think it helps Realtors, I think it helps mortgage investors," said Anderson, a Realtor for Keller Williams Classic Realty in Coon Rapids, Minn.
Buyers who were expecting a "huge fire sale" on homes may not like the idea of a rate freeze, Anderson said. "They want the market to continue sinking. But at the end of the day it's going to be helpful for everyone. It certainly beats the alternative of all those folks losing homes over the next five years."
And while there may be worries about lawsuits, Anderson said that was surely a part of the discussion in putting together a rate-freeze plan. "This could only be good for (investors)," he said, "They're not going to lose as much."
He added, "The breathing room and extra time should allow people with marginal credit to qualify and refinance themselves out of their adjusting ARMs."
The National Association of Realtors announced its support for the Bush administration's efforts to curb the rise in foreclosures by allowing loan modifications or a freeze in interest rates for some borrowers.
"The dream of homeownership should not turn into a family's worst nightmare," Richard Gaylord, NAR's 2007 president, said in a statement. "The loan modification program introduced by President Bush and U.S. Treasury Secretary Henry Paulson is a good first step in helping deserving families keep their homes."
The association also supports Fannie Mae and Freddie Mac reforms such as an increase in the conforming loan limit to aid home buyers in high-cost markets and improve mortgage liquidity, and also supports FHA modernization legislation.
Jerry Howard, president of the National Association of Home Builders, said that the plan has "the potential to get us out of this down cycle that we're in," as it could stabilize home prices and renew demand in new homes.
The home-building industry, he said, may start to see that increase in demand manifest itself in the second quarter of the year, with an increase in production by the third quarter.
He said that he didn't know how many owners of new homes might be eligible for the mortgage relief program introduced today.
Jennifer Bukaty, a broker for Bridgetown Realty Inc. in Portland, Ore., said she doesn't believe a rate-freeze plan is ultimately going to succeed because she believes there are too many legal complications.
She said that part of living in a free country is accepting responsibility for your actions.
"I think individual people made individual choices. I'm sorry about the mortgage industry, as well. I think the good ones are writing good, solid loans and doing the right thing," she said.
She acknowledges that the average consumer may not understand the intricacies of mortgage financing, adding that she directs her own clients to stay within their means and does not lead them to seek risky loans.
It might be more worthwhile to focus resources on the perpetrators of mortgage fraud, said Lenn Harley, broker for Homefinders.com, a real estate company that operates in Maryland, Virginia and Florida.
"I can't stand things that are unfair, and there's going to be a great deal of unfairness in this (plan)," she said.
She said any bailout plan will not prevent the inevitable -- properties that are already in a foreclosure process, though it may delay rather than prevent some aspects of the market downturn.
"Sooner or later the market will rule and when the market rules all of those people who didn't make mortgage payments go into foreclosure," she said.
Prices have been rising at a much faster clip than income, she said, and those prices will have to come down. "This isn't going to help," she said. "It's all political."
***
What's your opinion? Send your Letter to the Editor to Ray@SCVhometeam.com .
Friday, December 07, 2007
Friday, November 30, 2007
Bargain Smartly to Get the Best Deal
Bargaining is an art, particularly when the buyer wants to make a rock-bottom bid without insulting the seller.
In this slowing market with dropping prices, sometimes buyers get the idea that all properties on the market will go out at give-away prices, and then proceed to make offers to purchase that are 20% or lower than list price.
This is generally not a winning strategy. In fact, it often shows an immaturity in the marketplace if not an inability to deal with market realities. Most often the buyer is just shopping in a price range above what they can afford. Agents who write these types of offers show a lack of respect for the sellers, the other agents, and first and foremost, their own buyer. In order for the average seller to consider working with the offer, if only to make a counteroffer on price and/or terms, the offer has to be in some way palatable and shows you've done your homework on price comparable sales and/or seller motivation.
Sometimes an unreasonably lowball offer can make a seller so angry they won't make a counter offer or deal with a buyer. Adios is the best word that can describe the reaction, although other words are often said.
This is not to say that there aren't deals to be made. There are. Seller motivation plays a key role in price negotiation. Distress sales or time-specific needs top the list of homes that would be potentially great to make a low-ball offer on, but not all homes on the market are in these categories. Bank-owned properties are generally priced at the very lowest tier of comparable properties, and in a slowing and declining market the institutions don't want to keep them for very long. Unsold inventory costs the servicing companies money. But neither do they give these properties away. After all, they are in business also. Some people tout short sales as buyer opportunities, and sometimes they are. However, in the vast majority of cases, either the list price as a short sale is just so unreasonably low for the bank to consider and is in effect a 'teaser price' just to get people in the door, or the seller is not in a legitimate distress situation financially, in which case the lender will proceed with foreclosure and deny the short sale. This last situation is particularly prevalent in our area, where people think they can continue to game the system to their advantage.
But getting back to making offers on properties...
Here are their suggestions for coming up with a number that is competitive and compelling.
-- An offer that is more than 10 percent off the list price isn’t customary and is likely to be rejected.
-- Understand that there are other attractive homes on the market and don’t be shattered if the sellers reject their lowball offer. Move on.
-- Recognize the home’s strengths as well as its weaknesses.
-- Make a list of reasons to share with the seller for offering less than list price.
-- Instead of asking for the price to be lowered, negotiate other tangibles such as repairs, closing dates, and closing costs.
Treat others as you would want to be treated. Buyers should be respectful whenever he or she is around the sellers. Sellers, rather than getting upset about the offers that are made, should be concerned about all of the potential buyers who see their home, and then choose not to make an offer. Realistic pricing up front is the best way to negotiate a successful sale.
Some of the material for this piece was developed from an article by
Source: Star-Tribune, Lynn Underwood (11/17/07)
In this slowing market with dropping prices, sometimes buyers get the idea that all properties on the market will go out at give-away prices, and then proceed to make offers to purchase that are 20% or lower than list price.
This is generally not a winning strategy. In fact, it often shows an immaturity in the marketplace if not an inability to deal with market realities. Most often the buyer is just shopping in a price range above what they can afford. Agents who write these types of offers show a lack of respect for the sellers, the other agents, and first and foremost, their own buyer. In order for the average seller to consider working with the offer, if only to make a counteroffer on price and/or terms, the offer has to be in some way palatable and shows you've done your homework on price comparable sales and/or seller motivation.
Sometimes an unreasonably lowball offer can make a seller so angry they won't make a counter offer or deal with a buyer. Adios is the best word that can describe the reaction, although other words are often said.
This is not to say that there aren't deals to be made. There are. Seller motivation plays a key role in price negotiation. Distress sales or time-specific needs top the list of homes that would be potentially great to make a low-ball offer on, but not all homes on the market are in these categories. Bank-owned properties are generally priced at the very lowest tier of comparable properties, and in a slowing and declining market the institutions don't want to keep them for very long. Unsold inventory costs the servicing companies money. But neither do they give these properties away. After all, they are in business also. Some people tout short sales as buyer opportunities, and sometimes they are. However, in the vast majority of cases, either the list price as a short sale is just so unreasonably low for the bank to consider and is in effect a 'teaser price' just to get people in the door, or the seller is not in a legitimate distress situation financially, in which case the lender will proceed with foreclosure and deny the short sale. This last situation is particularly prevalent in our area, where people think they can continue to game the system to their advantage.
But getting back to making offers on properties...
Here are their suggestions for coming up with a number that is competitive and compelling.
-- An offer that is more than 10 percent off the list price isn’t customary and is likely to be rejected.
-- Understand that there are other attractive homes on the market and don’t be shattered if the sellers reject their lowball offer. Move on.
-- Recognize the home’s strengths as well as its weaknesses.
-- Make a list of reasons to share with the seller for offering less than list price.
-- Instead of asking for the price to be lowered, negotiate other tangibles such as repairs, closing dates, and closing costs.
Treat others as you would want to be treated. Buyers should be respectful whenever he or she is around the sellers. Sellers, rather than getting upset about the offers that are made, should be concerned about all of the potential buyers who see their home, and then choose not to make an offer. Realistic pricing up front is the best way to negotiate a successful sale.
Some of the material for this piece was developed from an article by
Source: Star-Tribune, Lynn Underwood (11/17/07)
California Tenants Displaced by Foreclosures
by Dean Preston‚ Nov. 27‚ 2007
“A foreclosure doesn’t differentiate between a homeowner and a renter residing in a defaulting property,” said U.S. Senator Chris Dodd in a recent statement supporting protections for residents of foreclosed property. This is an important recognition of the fact that both defaulting homeowners and tenants are impacted by foreclosure. It is time for California’s policymakers and media to acknowledge and address the impact of the mortgage crisis on California’s tenants.
California foreclosure rates are particularly high. Cities such as Sacramento, Bakersfield, Riverside and Stockton have been among the hardest hit in the nation. Stockton is one of the top-three cities in the nation for foreclosures, with rates increasing by over 250% from 2006 to 2007. In a press release just last week, Governor Schwarzenegger noted that California has been “impacted more than any other state by the national home foreclosure crisis.”
Homeowners are not the only people displaced by foreclosures. Banks typically evict tenants upon foreclosure because they prefer to sell the property vacant. The resulting displacement of tenants is a largely untold story of the mortgage crisis.
There is currently no definitive data as to exactly how many tenants are being displaced due to foreclosures. According to a recent survey by the Mortgage Bankers Association, one in seven foreclosures nationwide was property that was not owner-occupied.
In California, the rate of foreclosure on non-owner-occupied properties is even higher than the national rate. An estimated 22% of foreclosures in California this year involved properties that are not owner-occupied. (Plus, some of the “owner-occupied” properties also include tenants, either because the property contains more than one unit or because an owner-occupant sublets rooms to tenants.)
The media have covered the mortgage meltdown by its impact on homeowners and on the economy. Missing from the story are the tenants who are forced to leave their homes because of foreclosures.
The San Francisco Chronicle, for example, has covered the impact of foreclosures on defaulting owners in recent articles about Bay Area hotspots like Vallejo, but the paper has largely ignored the impact on tenants.
The one Chronicle piece referencing tenants in this context was a profile of a local real estate agent whose business is booming because she specializes in acquiring foreclosed properties. (“Realtor specializes in selling foreclosed homes,” September 9, 2007). The article treats tenants as if they were nothing more than an inconvenience to the agent’s lucrative business: “If it's occupied - about a third of the properties are, often by renters - she offers ‘cash for keys’ (about $500) to get the tenants to move out. Only rarely does she need to bring in the sheriff for an eviction.”
On November 18, the New York Times changed the media landscape on this issue with a front-page article entitled “As Owners Feel Mortgage Pain, So Do Renters.” John Leland’s article poignantly begins as follows: “In the foreclosure crisis of 2007, thousands of American families are losing their homes without ever missing a payment. They are renters in houses whose owners default on their mortgages — a large but little noticed class of casualties.”
Fortunately, California tenants in certain rent control jurisdictions are entitled to continue to occupy their homes despite foreclosure. Under a 1985 Court of Appeals decision (Gross v. Superior Court), the bank steps into the shoes of the former owner, and must comply with local eviction laws that limit the grounds for eviction. But this only helps tenants who live in cities where local “just cause” ordinances do not allow eviction due to foreclosure.
In most of California, banks are free to evict tenants in foreclosure cases with just 30 days notice to the tenants. Statewide legislation is necessary to provide greater protections to tenants living in these properties.
There have been recent developments at the federal level that could offer some relief. On October 22, Reps. Brad Miller (D-NC), Mel Watt (D-NC) and Barney Frank (D-MA) introduced HR 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007. Among other provisions, the bill contains limited foreclosure protections for renters. Under the bill, a successor owner would have to honor pre-existing leases, and tenants without leases would have at least 90 days before being required to vacate.
The bill passed the House on November 15th by a vote of 291-127. It is now before the U.S. Senate.
With federal legislation pending and a recent front-page New York Times article highlighting this issue, the plight of tenants in foreclosed properties may finally receive more of the media attention it deserves. Tenant advocates must actively push for coverage of this important situation. Otherwise, tenants will remain “a large but little noticed class of casualties” of the mortgage crisis.
Dean Preston is an attorney currently launching Tenants Together, a statewide tenant organization. He can be reached at dean@tenantstogether.org
“A foreclosure doesn’t differentiate between a homeowner and a renter residing in a defaulting property,” said U.S. Senator Chris Dodd in a recent statement supporting protections for residents of foreclosed property. This is an important recognition of the fact that both defaulting homeowners and tenants are impacted by foreclosure. It is time for California’s policymakers and media to acknowledge and address the impact of the mortgage crisis on California’s tenants.
California foreclosure rates are particularly high. Cities such as Sacramento, Bakersfield, Riverside and Stockton have been among the hardest hit in the nation. Stockton is one of the top-three cities in the nation for foreclosures, with rates increasing by over 250% from 2006 to 2007. In a press release just last week, Governor Schwarzenegger noted that California has been “impacted more than any other state by the national home foreclosure crisis.”
Homeowners are not the only people displaced by foreclosures. Banks typically evict tenants upon foreclosure because they prefer to sell the property vacant. The resulting displacement of tenants is a largely untold story of the mortgage crisis.
There is currently no definitive data as to exactly how many tenants are being displaced due to foreclosures. According to a recent survey by the Mortgage Bankers Association, one in seven foreclosures nationwide was property that was not owner-occupied.
In California, the rate of foreclosure on non-owner-occupied properties is even higher than the national rate. An estimated 22% of foreclosures in California this year involved properties that are not owner-occupied. (Plus, some of the “owner-occupied” properties also include tenants, either because the property contains more than one unit or because an owner-occupant sublets rooms to tenants.)
The media have covered the mortgage meltdown by its impact on homeowners and on the economy. Missing from the story are the tenants who are forced to leave their homes because of foreclosures.
The San Francisco Chronicle, for example, has covered the impact of foreclosures on defaulting owners in recent articles about Bay Area hotspots like Vallejo, but the paper has largely ignored the impact on tenants.
The one Chronicle piece referencing tenants in this context was a profile of a local real estate agent whose business is booming because she specializes in acquiring foreclosed properties. (“Realtor specializes in selling foreclosed homes,” September 9, 2007). The article treats tenants as if they were nothing more than an inconvenience to the agent’s lucrative business: “If it's occupied - about a third of the properties are, often by renters - she offers ‘cash for keys’ (about $500) to get the tenants to move out. Only rarely does she need to bring in the sheriff for an eviction.”
On November 18, the New York Times changed the media landscape on this issue with a front-page article entitled “As Owners Feel Mortgage Pain, So Do Renters.” John Leland’s article poignantly begins as follows: “In the foreclosure crisis of 2007, thousands of American families are losing their homes without ever missing a payment. They are renters in houses whose owners default on their mortgages — a large but little noticed class of casualties.”
Fortunately, California tenants in certain rent control jurisdictions are entitled to continue to occupy their homes despite foreclosure. Under a 1985 Court of Appeals decision (Gross v. Superior Court), the bank steps into the shoes of the former owner, and must comply with local eviction laws that limit the grounds for eviction. But this only helps tenants who live in cities where local “just cause” ordinances do not allow eviction due to foreclosure.
In most of California, banks are free to evict tenants in foreclosure cases with just 30 days notice to the tenants. Statewide legislation is necessary to provide greater protections to tenants living in these properties.
There have been recent developments at the federal level that could offer some relief. On October 22, Reps. Brad Miller (D-NC), Mel Watt (D-NC) and Barney Frank (D-MA) introduced HR 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007. Among other provisions, the bill contains limited foreclosure protections for renters. Under the bill, a successor owner would have to honor pre-existing leases, and tenants without leases would have at least 90 days before being required to vacate.
The bill passed the House on November 15th by a vote of 291-127. It is now before the U.S. Senate.
With federal legislation pending and a recent front-page New York Times article highlighting this issue, the plight of tenants in foreclosed properties may finally receive more of the media attention it deserves. Tenant advocates must actively push for coverage of this important situation. Otherwise, tenants will remain “a large but little noticed class of casualties” of the mortgage crisis.
Dean Preston is an attorney currently launching Tenants Together, a statewide tenant organization. He can be reached at dean@tenantstogether.org
How to Take the Sting Out of Falling Property Values
If you own a residential property that is declining in value, here are some ways to make the losses less depressing.
Trim property taxes. If a house has lost value, have it reappraised by the municipal assessor. Consider petitioning — or even suing — to get back taxes overpaid in the last few months.
Deduct a home office. Some people avoid the home office deduction because it requires deducting depreciation, but if the property has lost value, this isn’t an issue.
Sale-leaseback with a relative. If you're convinced your property is due for a big price correction and you have equity in the home, then sell now. For example, if you have a $1 million home that has been appraised at $1.8 million, you can sell it and take home $500,000 of the $800,000 gain tax free — due to an exemption on profits from the sale of personal residences. Sell the property to a trusted friend or wealthy relative and then become a tenant and pay the buyer rent at market rates — a much more attractive amount than Treasury bonds are paying now. When the housing market corrects, buy the property back.
Invest in housing futures. The Chicago Mercantile Exchange sells investment instruments that trade based on house price indexes for each of the 10 largest U.S. cities. You can sell futures, buy puts, or sell calls on this market to hedge losses in the value of your home.
Source: Forbes, Stephanie Fitch (12/10/07)
Trim property taxes. If a house has lost value, have it reappraised by the municipal assessor. Consider petitioning — or even suing — to get back taxes overpaid in the last few months.
Deduct a home office. Some people avoid the home office deduction because it requires deducting depreciation, but if the property has lost value, this isn’t an issue.
Sale-leaseback with a relative. If you're convinced your property is due for a big price correction and you have equity in the home, then sell now. For example, if you have a $1 million home that has been appraised at $1.8 million, you can sell it and take home $500,000 of the $800,000 gain tax free — due to an exemption on profits from the sale of personal residences. Sell the property to a trusted friend or wealthy relative and then become a tenant and pay the buyer rent at market rates — a much more attractive amount than Treasury bonds are paying now. When the housing market corrects, buy the property back.
Invest in housing futures. The Chicago Mercantile Exchange sells investment instruments that trade based on house price indexes for each of the 10 largest U.S. cities. You can sell futures, buy puts, or sell calls on this market to hedge losses in the value of your home.
Source: Forbes, Stephanie Fitch (12/10/07)
Monday, November 26, 2007
Holiday Shoppers on the Market
I've seen a resurgence of buyer activity in the last few weeks, with serious buyers coming out, calling on properties, making offers, making deals, and closing escrows.
For individuals and families, particular circumstances, needs, and financial fortunes are always the drivers of decisions, but after a few months of sluggish activity this resurgence is welcome.
Could it be that deep price cuts have dropped prices on enough properties to entice some of the buyers sitting on the sidelines? Could be. Maybe its a little higher level of knowledge about the price/interest rate inverse relationship... that is, in general when prices drop interest rates tend to rise. The result? A wash in affordability. Maybe its the last sweep of the sponge on less than prime mortgages, where the late comers are picking up the crumbs of liberal loan offerings, thinking that tightened lending standards in the near future will eliminate them from the buyer pool. Maybe its a growing awareness that the system will not allow the housing market to crash, and that between Fed infusions of cash, the potential for raising the limits on conforming loans, or any number of politically motivated proposals leading up to the 2008 election may bail out any buyers in trouble (this last belief is largely mistaken IMO), everything will turn out fine in the end.
Then again, maybe it's just my business, going up contrary to some larger market trends. If so, it's fine with me! Keep it coming!!
Whatever the individual motivation for taking action, give the SCV Home Team a call at 661-287-9164 and let's work out the best path for you!
For individuals and families, particular circumstances, needs, and financial fortunes are always the drivers of decisions, but after a few months of sluggish activity this resurgence is welcome.
Could it be that deep price cuts have dropped prices on enough properties to entice some of the buyers sitting on the sidelines? Could be. Maybe its a little higher level of knowledge about the price/interest rate inverse relationship... that is, in general when prices drop interest rates tend to rise. The result? A wash in affordability. Maybe its the last sweep of the sponge on less than prime mortgages, where the late comers are picking up the crumbs of liberal loan offerings, thinking that tightened lending standards in the near future will eliminate them from the buyer pool. Maybe its a growing awareness that the system will not allow the housing market to crash, and that between Fed infusions of cash, the potential for raising the limits on conforming loans, or any number of politically motivated proposals leading up to the 2008 election may bail out any buyers in trouble (this last belief is largely mistaken IMO), everything will turn out fine in the end.
Then again, maybe it's just my business, going up contrary to some larger market trends. If so, it's fine with me! Keep it coming!!
Whatever the individual motivation for taking action, give the SCV Home Team a call at 661-287-9164 and let's work out the best path for you!
Wednesday, October 31, 2007
Forgiveness of Debt and Capital Gains on Distress Sales
Forgiveness of Debt On Short Sales & Capital Gains on Trustee Sales:
This topic is so important today because of the number of homeowners receiving Notices of Default and the value of their property is less than their loans. These people need as much information as possible when they are evaluating short sale versus foreclosure, etc. Anyone who is not a tax professional should not offer tax or legal advice. I am not giving you tax or legal advice. I am giving you sources of information that can be given to friends and associates to help them.
Just Off the Press:
The IRS homepage at www.irs.gov has a new section heading, “Questions & Answers in Home Foreclosure and Debt Cancellation”. Tell everyone about this section, it will help someone, somehow, somewhere.
A Quick Summary of Foreclosure:
When a taxpayer loses a home at a Trustee Sale, the bid amount at the sale is considered their sales price and gain is calculated as in a normal sale (Sales price – Basis). If the property is a home, any capital gain can be excluded under the provisions of the $250K/$500K rules of Section 121. For more information on this calculation download page 4 from Publication 523 on the IRS website. Second thought, download all of Pub 523. It will answer many of your future questions. Short Sales & Forgiveness of Debt: Many ex-homeowners who sell their home under a lender-approved short sale are surprised when they receive a Form 1099 listing the amount forgiven as ordinary income. In my research I am amazed at the different opinions given about this situation by pundits, columnists and other experts. I strongly believe that anyone can have their own opinion but they cannot have their own set of facts. Accountants use a phrase “Safe Harbors.” My opinion is that if I see something on the IRS website it is safer to follow the IRS than some civilian’s opinion.
Is Cancellation of Debt Always Taxable:
What does IRS say? Not always. There are some exceptions. The most common situation when cancellation of debt income is not taxable involve:
•
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
•
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets. Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.
•
Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income. The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.
•
Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.
California Law: A debt is considered “nonrecourse” when a loan is made under either one of the following two circumstances:
---When the loan is made to purchase a one-to-four unit property and the borrower intends to occupy at least one of the units, or
---When the seller carries back financing for all or a portion of the purchase price of any real property. (Cal. Code Civ. Proc. §580b.)
Another Info Sources: On September 24th CAR published an outstanding new Q & A, "Taxation of Foreclosures, Deeds in Lieu of Foreclosure and Short Sales". Ask me about getting a copy of this publication.
Finally: According to Inman News, a bill in Congress, HR 3648, The Mortgage Forgiveness Debt Relief Act of 2007 would eliminate a provision of the tax code that allows the IRS to tax debt that's forgiven as ordinary income. To balance the loss of tax dollars IRS would tighten the rules for counting a second home, vacation or rental property as a primary resident for tax exclusion. Let's keep an eye on this bill that recently received unanimous approval from the House Committee on Ways and Means and has the support of NAR and the National Association of Homebuilders.
This topic is so important today because of the number of homeowners receiving Notices of Default and the value of their property is less than their loans. These people need as much information as possible when they are evaluating short sale versus foreclosure, etc. Anyone who is not a tax professional should not offer tax or legal advice. I am not giving you tax or legal advice. I am giving you sources of information that can be given to friends and associates to help them.
Just Off the Press:
The IRS homepage at www.irs.gov has a new section heading, “Questions & Answers in Home Foreclosure and Debt Cancellation”. Tell everyone about this section, it will help someone, somehow, somewhere.
A Quick Summary of Foreclosure:
When a taxpayer loses a home at a Trustee Sale, the bid amount at the sale is considered their sales price and gain is calculated as in a normal sale (Sales price – Basis). If the property is a home, any capital gain can be excluded under the provisions of the $250K/$500K rules of Section 121. For more information on this calculation download page 4 from Publication 523 on the IRS website. Second thought, download all of Pub 523. It will answer many of your future questions. Short Sales & Forgiveness of Debt: Many ex-homeowners who sell their home under a lender-approved short sale are surprised when they receive a Form 1099 listing the amount forgiven as ordinary income. In my research I am amazed at the different opinions given about this situation by pundits, columnists and other experts. I strongly believe that anyone can have their own opinion but they cannot have their own set of facts. Accountants use a phrase “Safe Harbors.” My opinion is that if I see something on the IRS website it is safer to follow the IRS than some civilian’s opinion.
Is Cancellation of Debt Always Taxable:
What does IRS say? Not always. There are some exceptions. The most common situation when cancellation of debt income is not taxable involve:
•
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
•
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets. Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.
•
Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income. The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.
•
Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.
California Law: A debt is considered “nonrecourse” when a loan is made under either one of the following two circumstances:
---When the loan is made to purchase a one-to-four unit property and the borrower intends to occupy at least one of the units, or
---When the seller carries back financing for all or a portion of the purchase price of any real property. (Cal. Code Civ. Proc. §580b.)
Another Info Sources: On September 24th CAR published an outstanding new Q & A, "Taxation of Foreclosures, Deeds in Lieu of Foreclosure and Short Sales". Ask me about getting a copy of this publication.
Finally: According to Inman News, a bill in Congress, HR 3648, The Mortgage Forgiveness Debt Relief Act of 2007 would eliminate a provision of the tax code that allows the IRS to tax debt that's forgiven as ordinary income. To balance the loss of tax dollars IRS would tighten the rules for counting a second home, vacation or rental property as a primary resident for tax exclusion. Let's keep an eye on this bill that recently received unanimous approval from the House Committee on Ways and Means and has the support of NAR and the National Association of Homebuilders.
Friday, October 26, 2007
Assistance for Area Fire Victims Offered
Updated Thursday, October 25th at 6:45pm
Fire Update
Current containment numbers on the Ranch (Castaic) Fire:
55,756 acres burned, 70% containment.
Residents may see smoke in the Santa Clarita area as a result of interior burning happening on the Buckweed fire. This is intentional, as the Fire Department continues to clear out the aftermath of the Buckweed fire. Please do not be alarmed.
Vasquez Bridge is closed due to fires : The County is estimating that the bridge will be re-opened by November 12th.
BE AWARE OF SCAMS- Some people are taking advantage of our residents by offering services for a large deposit to clean up debris but are not performing any services. If you are offered any home improvement services and are asked to receive the permit yourself by the contractor beware; that could mean the contractor is not licensed.
Assistance Agencies
FEMA:
A local assistance center will be established by FEMA from Oct 26th - Nov 8th (M-F) 8am- 6pm (Sat- Sun) 8am- 3pm at the City of Santa Clarita Sports Complex in the Activities Center
Please pre-register by telephone (800) 621-FEMA (3362) or TTY (800) 462-7585 or online at fema.gov
American Red Cross
The Red Cross has been working hard to assist those impacted by this disaster here in Santa Clarita. If you, or someone you know lost their home or needs Red Cross Disaster assistance, you can call their temporary family services number at 661-222-3191. Their permanent main office line is 661-259-1805. The ARC is located in the Atrium Building at 23838 Valencia Blvd, Valencia.
Other Assistance:
The SCV Disaster Coalition is now prepared to accept donations that will go to help the families who were impacted by this disaster. Here's how you can help:
They are asking for donations of either gift cards or money. There are three drop off locations here in town, or you can mail your donation. You may also donate online at scvcoalition.com.
If you would like to mail your donation, please mail it to:
(make sure to make the check out to the SCV Disaster Coalition...not KHTS. )
SCV Disaster Coalition
Care Of KHTS AM 1220 Radio
27225 Camp Plenty Rd, Suite 8
Santa Clarita, CA 91351
Or you can drop a donation off at one of these locations:
Santa Clarita Senior Center
22900 Market Street
Santa Clarita, CA 91321
(661) 259-9444
Santa Clarita City Hall
23920 Valencia Boulevard,
Santa Clarita, California 91355
KHTS AM 1220 Radio
27225 Camp Plenty Rd, Suite 8
Santa Clarita, CA 91351
Fire Update
Current containment numbers on the Ranch (Castaic) Fire:
55,756 acres burned, 70% containment.
Residents may see smoke in the Santa Clarita area as a result of interior burning happening on the Buckweed fire. This is intentional, as the Fire Department continues to clear out the aftermath of the Buckweed fire. Please do not be alarmed.
Vasquez Bridge is closed due to fires : The County is estimating that the bridge will be re-opened by November 12th.
BE AWARE OF SCAMS- Some people are taking advantage of our residents by offering services for a large deposit to clean up debris but are not performing any services. If you are offered any home improvement services and are asked to receive the permit yourself by the contractor beware; that could mean the contractor is not licensed.
Assistance Agencies
FEMA:
A local assistance center will be established by FEMA from Oct 26th - Nov 8th (M-F) 8am- 6pm (Sat- Sun) 8am- 3pm at the City of Santa Clarita Sports Complex in the Activities Center
Please pre-register by telephone (800) 621-FEMA (3362) or TTY (800) 462-7585 or online at fema.gov
American Red Cross
The Red Cross has been working hard to assist those impacted by this disaster here in Santa Clarita. If you, or someone you know lost their home or needs Red Cross Disaster assistance, you can call their temporary family services number at 661-222-3191. Their permanent main office line is 661-259-1805. The ARC is located in the Atrium Building at 23838 Valencia Blvd, Valencia.
Other Assistance:
The SCV Disaster Coalition is now prepared to accept donations that will go to help the families who were impacted by this disaster. Here's how you can help:
They are asking for donations of either gift cards or money. There are three drop off locations here in town, or you can mail your donation. You may also donate online at scvcoalition.com.
If you would like to mail your donation, please mail it to:
(make sure to make the check out to the SCV Disaster Coalition...not KHTS. )
SCV Disaster Coalition
Care Of KHTS AM 1220 Radio
27225 Camp Plenty Rd, Suite 8
Santa Clarita, CA 91351
Or you can drop a donation off at one of these locations:
Santa Clarita Senior Center
22900 Market Street
Santa Clarita, CA 91321
(661) 259-9444
Santa Clarita City Hall
23920 Valencia Boulevard,
Santa Clarita, California 91355
KHTS AM 1220 Radio
27225 Camp Plenty Rd, Suite 8
Santa Clarita, CA 91351
Thursday, October 18, 2007
Statewide California Home Sales Hit 20-Year Low In September
Statewide California Home Sales Hit 20-Year Low In September
DOW JONES NEWSWIRES
October 18, 2007 5:26 p.m.
LOS ANGELES (AP)--September home sales throughout California sank to their lowest level in two decades as mortgages became harder to get, a real estate research firm said Thursday.
A total of 24,460 new and resale houses and condos were sold statewide last month. That was down 45.2% from September of 2006 and 26.8% from August, according to DataQuick Information Systems.
DOW JONES NEWSWIRES
October 18, 2007 5:26 p.m.
LOS ANGELES (AP)--September home sales throughout California sank to their lowest level in two decades as mortgages became harder to get, a real estate research firm said Thursday.
A total of 24,460 new and resale houses and condos were sold statewide last month. That was down 45.2% from September of 2006 and 26.8% from August, according to DataQuick Information Systems.
Tuesday, October 16, 2007
How to lose your home in a few easy steps
San Diego woman chased American dream, now lives in a garage
By Helen Kaiao Chang
MSNBC contributor
Updated: 5:04 p.m. PT Oct 9, 2007
SAN DIEGO - Delia Toothman once pursued the American dream of owning her own home.
Now, she is living the American nightmare.
In just three years Toothman, 30, a former Navy officer and bioscience technician in San Diego, went from $18,000 in savings to $16,000 in credit-card debt. She once lived in a home she co-owned; now she lives in her father's garage.
Toothman is just one of thousands or even hundreds of thousands of Americans who find themselves homeless and broke in the aftermath of the housing bust. Hers is a cautionary tale of hard-working and well-intentioned young woman who got swept up in the real estate madness of Southern California, helped along by what she describes as bad advice from industry professionals.
“I feel like my life is ruined,” she said in an interview, wiping away tears. “I only wanted a house. I wanted my own property."
Toothman's story began when she left the Navy in 2004 and returned to San Diego at what turned out to be the peak of the city's real estate boom. By mid-2004 the median price of a home in the metro area had risen to $520,000, up 30 percent from a year earlier. Condo prices also were up 30 percent year-over-year to a median of $368,000.
Fearful of missing out, she and her younger sister decided to buy a home together. “We just wanted to get a piece of land, something we could own, so we weren’t paying rent; we were buying,” said Toothman.
While Toothman was only qualified to buy a $360,000 home, Toothman's agent showed her properties in the $400,000 range. Her mortgage broker urged her to finance 100 percent of the purchase price with interest-only loans that would adjust in two years.
Any talk of a housing bubble was dismissed.
“I got pressure from the real estate agent and officer,” Toothman said. “The loan officer was saying, 'Oh, prices always rise on houses.' ... The thing, is get into the house and I can always refinance you after that into another loan."
“I was like, ‘I don’t know,’ but he kept on saying, ‘If you’re renting, you’re losing this much money, but the way housing prices are going up, it’s really a good investment and you get your money back in taxes,’” recalls Toothman. “I was convinced it was a good thing.”
Toothman was hardly alone.
“It’s the American dream and they got caught up in it,” said Gary Aguilar, a vice president at Springboard Non-profit Consumer Credit Management, an advisory agency based in Riverside, Calif. “Even if it didn’t make sense, a lot of people just passed ‘Go’ and went straight to the dream home.”
Now Springboard and similar agencies are being deluged with phone calls from desperate owners trying to save their homes or stave off bankruptcy.
At Springboard, representatives handled 11,000 phone calls in August, up from about 2,000 a month last year, said Aguilar.
Toothman ended up buying a $415,000 condo in June 2004. The mortgage was entirely under her name, since her sister could not qualify. But the two agreed to split the monthly payments of $2,400.
For a year, Toothman struggled with her half of the payment. Her monthly take-home pay was $2,000. She started eating at her savings to pay the mortgage.
Toothman tried to refinance the loan to lower the monthly payment, but she was unable to qualify.
In late 2005, Toothman decided to sell. But prices were already falling, and by early 2006, the condo was worth less than the outstanding balance of the mortgage, putting her "under water." Toothman’s real estate agent found a buyer who offered $350,000 – $65,000 less than what was owed.
The only way she could sell was if the two lenders agreed to a "short sale" — taking less money than what they were owed. The principal lender, Countrywide, agreed, but Wells Fargo, which held a second loan worth $82,000 rejected the terms because the lender would have gotten only $10,000.
Then the agent found another buyer, who also offered $350,000. This time, Countrywide said yes if Toothman would come up with another $10,000 to pay Wells Fargo more. But Wells Fargo declined the offer.
“They figured I would make more money eventually, and they could take it out of me,” said Toothman, “because if they agreed to a short sale, then they had no (legal) recourse to come after me for the $82,000.”
Executives from Wells Fargo and Countrywide did not return several messages seeking comment.
Toothman’s nightmare got worse. In July 2006, the monthly payment on the two loans jumped nearly 50 percent to $3,600. For two months, Toothman maxed out her credit cards to meet the payments. The sisters planned to keep making the monthly payments until a sale went through.
But after two months, “I couldn’t pay my bills,” said Toothman. “I’m like, ‘Do I stop paying my other loans, my other credit cards, everything else?’ I just started paying my other bills instead of my mortgage, because it was impossible, it was just too much.”
In March of this year, Toothman lost the house in foreclosure, and, like many others, she now is considering bankruptcy.
Pacific Law Center, one of the biggest bankruptcy law firms in San Diego, handled almost 1,000 such cases in the first eight months of the year, up from 626 in all of 2006.
Danielle Donovan, a broker at Clarion Mortgage who has been in the industry for 27 years, said attitudes changed around 2000 when mortgage lenders began offering "subprime" loans to borrowers with less-than-stellar credit as home prices were soaring. “People stopped being interested in buying homes and more in having an investment,” she said.
Now thousands of Americans are facing the same nightmare as Toothman.
“If they don’t have the wherewithal to keep the home, it’s a matter of how are you going to support the family,” said credit counselor Aguilar.
Many are simply choosing to walk out on their mortgages. More people filing bankruptcy these days have perfect credit, zero consumer debt and no missed house payments, said Don Bokovoy, supervising attorney of Pacific Law Center. They are filing bankruptcy because they cannot afford impending higher payments on adjustable mortgages.
For many homeowners, said mortgage broker Donovan, “The question is ‘How far do I wreck myself? Do I make myself penniless and then lose the house? Or do I just walk away now and have something to start over?’”
For Toothman, the nightmare continues. She cannot qualify for a car loan. Her credit card interest rates jumped from 5 percent to 22 percent, due to missed payments while juggling mortgage bills. She wonders who will date a woman with $82,000 in debt.
“I feel burned,” she said. “I’ve always been one who paid the bills on time. I always did things the right way. If they had counseled me (correctly), I could’ve made my payments.”
Helen Kaiao Chang is a freelance business journalist. She can be reached at hchangwriter@gmail.com.
By Helen Kaiao Chang
MSNBC contributor
Updated: 5:04 p.m. PT Oct 9, 2007
SAN DIEGO - Delia Toothman once pursued the American dream of owning her own home.
Now, she is living the American nightmare.
In just three years Toothman, 30, a former Navy officer and bioscience technician in San Diego, went from $18,000 in savings to $16,000 in credit-card debt. She once lived in a home she co-owned; now she lives in her father's garage.
Toothman is just one of thousands or even hundreds of thousands of Americans who find themselves homeless and broke in the aftermath of the housing bust. Hers is a cautionary tale of hard-working and well-intentioned young woman who got swept up in the real estate madness of Southern California, helped along by what she describes as bad advice from industry professionals.
“I feel like my life is ruined,” she said in an interview, wiping away tears. “I only wanted a house. I wanted my own property."
Toothman's story began when she left the Navy in 2004 and returned to San Diego at what turned out to be the peak of the city's real estate boom. By mid-2004 the median price of a home in the metro area had risen to $520,000, up 30 percent from a year earlier. Condo prices also were up 30 percent year-over-year to a median of $368,000.
Fearful of missing out, she and her younger sister decided to buy a home together. “We just wanted to get a piece of land, something we could own, so we weren’t paying rent; we were buying,” said Toothman.
While Toothman was only qualified to buy a $360,000 home, Toothman's agent showed her properties in the $400,000 range. Her mortgage broker urged her to finance 100 percent of the purchase price with interest-only loans that would adjust in two years.
Any talk of a housing bubble was dismissed.
“I got pressure from the real estate agent and officer,” Toothman said. “The loan officer was saying, 'Oh, prices always rise on houses.' ... The thing, is get into the house and I can always refinance you after that into another loan."
“I was like, ‘I don’t know,’ but he kept on saying, ‘If you’re renting, you’re losing this much money, but the way housing prices are going up, it’s really a good investment and you get your money back in taxes,’” recalls Toothman. “I was convinced it was a good thing.”
Toothman was hardly alone.
“It’s the American dream and they got caught up in it,” said Gary Aguilar, a vice president at Springboard Non-profit Consumer Credit Management, an advisory agency based in Riverside, Calif. “Even if it didn’t make sense, a lot of people just passed ‘Go’ and went straight to the dream home.”
Now Springboard and similar agencies are being deluged with phone calls from desperate owners trying to save their homes or stave off bankruptcy.
At Springboard, representatives handled 11,000 phone calls in August, up from about 2,000 a month last year, said Aguilar.
Toothman ended up buying a $415,000 condo in June 2004. The mortgage was entirely under her name, since her sister could not qualify. But the two agreed to split the monthly payments of $2,400.
For a year, Toothman struggled with her half of the payment. Her monthly take-home pay was $2,000. She started eating at her savings to pay the mortgage.
Toothman tried to refinance the loan to lower the monthly payment, but she was unable to qualify.
In late 2005, Toothman decided to sell. But prices were already falling, and by early 2006, the condo was worth less than the outstanding balance of the mortgage, putting her "under water." Toothman’s real estate agent found a buyer who offered $350,000 – $65,000 less than what was owed.
The only way she could sell was if the two lenders agreed to a "short sale" — taking less money than what they were owed. The principal lender, Countrywide, agreed, but Wells Fargo, which held a second loan worth $82,000 rejected the terms because the lender would have gotten only $10,000.
Then the agent found another buyer, who also offered $350,000. This time, Countrywide said yes if Toothman would come up with another $10,000 to pay Wells Fargo more. But Wells Fargo declined the offer.
“They figured I would make more money eventually, and they could take it out of me,” said Toothman, “because if they agreed to a short sale, then they had no (legal) recourse to come after me for the $82,000.”
Executives from Wells Fargo and Countrywide did not return several messages seeking comment.
Toothman’s nightmare got worse. In July 2006, the monthly payment on the two loans jumped nearly 50 percent to $3,600. For two months, Toothman maxed out her credit cards to meet the payments. The sisters planned to keep making the monthly payments until a sale went through.
But after two months, “I couldn’t pay my bills,” said Toothman. “I’m like, ‘Do I stop paying my other loans, my other credit cards, everything else?’ I just started paying my other bills instead of my mortgage, because it was impossible, it was just too much.”
In March of this year, Toothman lost the house in foreclosure, and, like many others, she now is considering bankruptcy.
Pacific Law Center, one of the biggest bankruptcy law firms in San Diego, handled almost 1,000 such cases in the first eight months of the year, up from 626 in all of 2006.
Danielle Donovan, a broker at Clarion Mortgage who has been in the industry for 27 years, said attitudes changed around 2000 when mortgage lenders began offering "subprime" loans to borrowers with less-than-stellar credit as home prices were soaring. “People stopped being interested in buying homes and more in having an investment,” she said.
Now thousands of Americans are facing the same nightmare as Toothman.
“If they don’t have the wherewithal to keep the home, it’s a matter of how are you going to support the family,” said credit counselor Aguilar.
Many are simply choosing to walk out on their mortgages. More people filing bankruptcy these days have perfect credit, zero consumer debt and no missed house payments, said Don Bokovoy, supervising attorney of Pacific Law Center. They are filing bankruptcy because they cannot afford impending higher payments on adjustable mortgages.
For many homeowners, said mortgage broker Donovan, “The question is ‘How far do I wreck myself? Do I make myself penniless and then lose the house? Or do I just walk away now and have something to start over?’”
For Toothman, the nightmare continues. She cannot qualify for a car loan. Her credit card interest rates jumped from 5 percent to 22 percent, due to missed payments while juggling mortgage bills. She wonders who will date a woman with $82,000 in debt.
“I feel burned,” she said. “I’ve always been one who paid the bills on time. I always did things the right way. If they had counseled me (correctly), I could’ve made my payments.”
Helen Kaiao Chang is a freelance business journalist. She can be reached at hchangwriter@gmail.com.
Friday, October 12, 2007
Profile of Buyer Home Feature Preferences from NAR
by Paul C. Bishop, Ph.D
Harika “Anna” Barlett
Jessica Lautz
National Association of Realtors®
Purchasing a home involves countless decisions about financing, options, where to buy, and the specific features and amenities buyers value most in a home. Many of the preferences are related to the buyer’s age and income —
younger buyers just purchasing their first home or older buyers looking to trade down perhaps in anticipation of retirement. Other features in a home are embraced by most home buyers of all ages, while still other preferences depend on how long the buyer expects to remain in their home.
The desirability of some features is also reflected in the buyer’s choice of a new or previously owned home.
Once a home purchase is completed, many buyers invest in their home by upgrading kitchens and bathrooms, replacing appliances or adding landscaping. Differences in the types of improvements are evident between those buyers who purchased newer and older homes or those that expect to own their home for a number of years or only a short period of time. Home improvements not only add value to the home that can often be recaptured upon sale, but also enhance the desirability of the home for the new owner.
To more accurately assess these variations in preferences for home features and the types of home improvements buyers undertake, the National Association of Realtors® conducted a survey of home buyers who purchased a home in the period from late 2005 to early 2007. The survey gathered information about those features that buyers considered very important when searching for a home and whether or not these features were present in the home they purchased. The survey also queried recent buyers about the home improvements that they undertook during the first three months following the purchase.
The information gathered from this survey confirms many of the observations that real estate professionals make each day when working with home buyers. More importantly, however, the information gleaned from this survey provides insights into the priorities of home buyers. This information can be used by Realtors® to assist home buyers who are searching for a home, including first-time buyers or buyers transitioning to a new location. The analysis in this report will also help home sellers and real estate professionals evaluate the desirability of various features when marketing a home for sale.
CHARACTERISTICS OF HOMES PURCHASED
• The typical home purchased during the survey period was 12 years old, 1,840 square feet in size, and had three bedrooms and two bathrooms.
• First-time buyers typically purchased smaller and older homes than repeat buyers and were more likely to purchase a home in an urban/central city area.
• More than 80 percent of homes purchased had central air conditioning and garages, and less than half had basements.
• More than 90 percent of home buyers were satisfied with the home they purchased, and nearly two-thirds of all buyers were very satisfied.
SEARCHING FOR A HOME
• Nearly four out of five home buyers worked with a real estate agent to purchase their home.
• When searching for a home, the most desired features were central air conditioning, an oversized garage, a walk-in closet, and a backyard or play area.
• The most desired rooms/spaces were garages, living rooms and laundry rooms.
• Repeat buyers placed more importance than first-time buyers on almost all home features.
• Home buyers that purchased a home without a desired feature or room would be willing to pay extra for central air conditioning (typically $1,880), two or more full bathrooms (typically $2,040) and hardwood floors (typically $1,900). [Remember, these are national averages, not SoCal numbers.]
• Over 90 percent of recent home buyers thought energy efficiency was an important consideration when searching for a home to purchase.
• When comparing the home they recently purchased to their ideal or preferred home, most home buyers were satisfied with regard to their home’s age, overall size, size of the kitchen, number of bedrooms and bathrooms, and closet and storage space.
HOME IMPROVEMENT AND REMODELING
• About six-in-ten recent home buyers took on remodeling or home improvement projects within three months of their home purchase.
• The typical buyer spent $4,350 on home improvement projects within the first three months of buying their home. Repeat buyers spent more than first-time buyers.
• Nearly half of home buyers remodeled or made improvements to their kitchen, and close to half remodeled or improved a bathroom in the first three months following the home purchase.
HOME PURCHASE, INVESTMENT, AND FINANCING
• The median home price was $205,000, and over 90 percent of home buyers used a mortgage to finance their home purchase. [Again, this is a national average not SoCal]
• Over half of home buyers believe their home has high investment potential.
• Older buyers are more optimistic about their home’s investment potential; more than 60 percent of buyers 55 or older rate their home’s investment potential as high.
Harika “Anna” Barlett
Jessica Lautz
National Association of Realtors®
Purchasing a home involves countless decisions about financing, options, where to buy, and the specific features and amenities buyers value most in a home. Many of the preferences are related to the buyer’s age and income —
younger buyers just purchasing their first home or older buyers looking to trade down perhaps in anticipation of retirement. Other features in a home are embraced by most home buyers of all ages, while still other preferences depend on how long the buyer expects to remain in their home.
The desirability of some features is also reflected in the buyer’s choice of a new or previously owned home.
Once a home purchase is completed, many buyers invest in their home by upgrading kitchens and bathrooms, replacing appliances or adding landscaping. Differences in the types of improvements are evident between those buyers who purchased newer and older homes or those that expect to own their home for a number of years or only a short period of time. Home improvements not only add value to the home that can often be recaptured upon sale, but also enhance the desirability of the home for the new owner.
To more accurately assess these variations in preferences for home features and the types of home improvements buyers undertake, the National Association of Realtors® conducted a survey of home buyers who purchased a home in the period from late 2005 to early 2007. The survey gathered information about those features that buyers considered very important when searching for a home and whether or not these features were present in the home they purchased. The survey also queried recent buyers about the home improvements that they undertook during the first three months following the purchase.
The information gathered from this survey confirms many of the observations that real estate professionals make each day when working with home buyers. More importantly, however, the information gleaned from this survey provides insights into the priorities of home buyers. This information can be used by Realtors® to assist home buyers who are searching for a home, including first-time buyers or buyers transitioning to a new location. The analysis in this report will also help home sellers and real estate professionals evaluate the desirability of various features when marketing a home for sale.
CHARACTERISTICS OF HOMES PURCHASED
• The typical home purchased during the survey period was 12 years old, 1,840 square feet in size, and had three bedrooms and two bathrooms.
• First-time buyers typically purchased smaller and older homes than repeat buyers and were more likely to purchase a home in an urban/central city area.
• More than 80 percent of homes purchased had central air conditioning and garages, and less than half had basements.
• More than 90 percent of home buyers were satisfied with the home they purchased, and nearly two-thirds of all buyers were very satisfied.
SEARCHING FOR A HOME
• Nearly four out of five home buyers worked with a real estate agent to purchase their home.
• When searching for a home, the most desired features were central air conditioning, an oversized garage, a walk-in closet, and a backyard or play area.
• The most desired rooms/spaces were garages, living rooms and laundry rooms.
• Repeat buyers placed more importance than first-time buyers on almost all home features.
• Home buyers that purchased a home without a desired feature or room would be willing to pay extra for central air conditioning (typically $1,880), two or more full bathrooms (typically $2,040) and hardwood floors (typically $1,900). [Remember, these are national averages, not SoCal numbers.]
• Over 90 percent of recent home buyers thought energy efficiency was an important consideration when searching for a home to purchase.
• When comparing the home they recently purchased to their ideal or preferred home, most home buyers were satisfied with regard to their home’s age, overall size, size of the kitchen, number of bedrooms and bathrooms, and closet and storage space.
HOME IMPROVEMENT AND REMODELING
• About six-in-ten recent home buyers took on remodeling or home improvement projects within three months of their home purchase.
• The typical buyer spent $4,350 on home improvement projects within the first three months of buying their home. Repeat buyers spent more than first-time buyers.
• Nearly half of home buyers remodeled or made improvements to their kitchen, and close to half remodeled or improved a bathroom in the first three months following the home purchase.
HOME PURCHASE, INVESTMENT, AND FINANCING
• The median home price was $205,000, and over 90 percent of home buyers used a mortgage to finance their home purchase. [Again, this is a national average not SoCal]
• Over half of home buyers believe their home has high investment potential.
• Older buyers are more optimistic about their home’s investment potential; more than 60 percent of buyers 55 or older rate their home’s investment potential as high.
Sunday, October 07, 2007
Beware Legislative 'Fixes' to Housing
Some of the so-called 'reforms' being proposed will create worse problems for the housing market.
Democrats Move to Further Destabilize Housing
Friday, October 05, 2007 - By Staff Writer, National Realty News
WASHINGTON, D.C. – This week the House Judiciary Committee's Subcommittee on Commercial and Administrative Law passed HR 3609, by a party-line vote of 5-4. The legislation would allow bankruptcy judges to modify the terms of a mortgage contract during bankruptcy proceedings. While the sponsors of the bill claim that it would help up to 600,000 people from losing their homes, opponents of the legislation claim that the legislation as written would drive interest rates up for everyone seeking a home loan.
According to their press release, Rep. Brad Miller (D-NC) and Rep. Linda Sánchez (D-CA) who introduced the bill said the legislation “will treat home mortgages the same as mortgages on investment properties and family farms. The bill repeals a provision that prohibits a bankruptcy court from modifying a home mortgage, but allows a bankruptcy court to modify any other secured debt, including mortgages on other properties.”
By repealing the current provision for owner occupied loans, proponents to the bill claim the legislation will push interest rates on owner occupied properties significantly higher. Currently, typically investment loans carry a higher interest rate to offset the losses sustained by lenders caused by the treatment of these type of loans during a bankruptcy proceeding. Typical investment loans can be up to 1 percent higher than an owner occupied loan.
"Giving judges free rein to rewrite the terms of a mortgage would further destabilize the mortgage backed securities market and will exacerbate the serious credit crunch that is currently hindering the ability of thousands of Americans to get an affordable mortgage," said Kurt Pfotenhauer, Senior Vice President for Government Affairs and Public Policy for Mortgage Bankers Association (MBA). "The current legislation gives no guidance as to the proper parameters for judges to modify existing loan contracts."
By allowing judges to rewrite loan contracts and provide whatever relief they individually deem appropriate, HR 3609 would cast doubt on the value of the asset against which the mortgage loan is secured. As a result, lenders and investors would likely demand a higher premium for offering these loans. This premium could come in the form of higher fees, a higher interest rate or the requirement for a larger downpayment, all of which would serve to make the American dream of homeownership less attainable for many Americans, said the MBA
"The reason you only pay six percent on a mortgage loan, where another type of consumer loan may cost ten percent or more, is that the mortgage loan is secured by an asset - the home," explained Pfotenhauer. "When a judge can unilaterally reduce the amount that the lender can get when the home is sold, it devalues the asset securing the loan and the lender and investor will either not fund a loan, or will increase the cost of the loan. Either way, consumers are the ones who pay the price."
Democrats Move to Further Destabilize Housing
Friday, October 05, 2007 - By Staff Writer, National Realty News
WASHINGTON, D.C. – This week the House Judiciary Committee's Subcommittee on Commercial and Administrative Law passed HR 3609, by a party-line vote of 5-4. The legislation would allow bankruptcy judges to modify the terms of a mortgage contract during bankruptcy proceedings. While the sponsors of the bill claim that it would help up to 600,000 people from losing their homes, opponents of the legislation claim that the legislation as written would drive interest rates up for everyone seeking a home loan.
According to their press release, Rep. Brad Miller (D-NC) and Rep. Linda Sánchez (D-CA) who introduced the bill said the legislation “will treat home mortgages the same as mortgages on investment properties and family farms. The bill repeals a provision that prohibits a bankruptcy court from modifying a home mortgage, but allows a bankruptcy court to modify any other secured debt, including mortgages on other properties.”
By repealing the current provision for owner occupied loans, proponents to the bill claim the legislation will push interest rates on owner occupied properties significantly higher. Currently, typically investment loans carry a higher interest rate to offset the losses sustained by lenders caused by the treatment of these type of loans during a bankruptcy proceeding. Typical investment loans can be up to 1 percent higher than an owner occupied loan.
"Giving judges free rein to rewrite the terms of a mortgage would further destabilize the mortgage backed securities market and will exacerbate the serious credit crunch that is currently hindering the ability of thousands of Americans to get an affordable mortgage," said Kurt Pfotenhauer, Senior Vice President for Government Affairs and Public Policy for Mortgage Bankers Association (MBA). "The current legislation gives no guidance as to the proper parameters for judges to modify existing loan contracts."
By allowing judges to rewrite loan contracts and provide whatever relief they individually deem appropriate, HR 3609 would cast doubt on the value of the asset against which the mortgage loan is secured. As a result, lenders and investors would likely demand a higher premium for offering these loans. This premium could come in the form of higher fees, a higher interest rate or the requirement for a larger downpayment, all of which would serve to make the American dream of homeownership less attainable for many Americans, said the MBA
"The reason you only pay six percent on a mortgage loan, where another type of consumer loan may cost ten percent or more, is that the mortgage loan is secured by an asset - the home," explained Pfotenhauer. "When a judge can unilaterally reduce the amount that the lender can get when the home is sold, it devalues the asset securing the loan and the lender and investor will either not fund a loan, or will increase the cost of the loan. Either way, consumers are the ones who pay the price."
Major Discount Broker Calls It Quits
[Shades of the early 1990's! This is exactly what happened then, both nationally and locally. If you are a struggling small broker or franchise that just isn't making it in this market, we invite you to give us a call at 661-287-9164 and we can help get you going again with Keller Williams Realty, a national real estate company with over 70,000 agents. Each office is independently owned and operated.]
Friday, October 05, 2007 - By Staff Writer, National Realty News
WEST LONG BRANCH, NJ - Discount brokerage firm Foxtons announced on October 2nd that it will liquidate its business and file for bankruptcy. After 7 years in the real estate business serving the tri-state New York City area, vice president of sales, Mark Horvat, stated that “this action is a direct result of the down turn in residential real estate.”
While many full service brokers welcome the news, it does illustrate the continued difficulty for the industry. The National Association of Realtors’ (NAR) September 2007 outlook predicts continued softness into the 3rd quarter of this year with a 10% decline in year over year sales of existing homes. NAR’s outlook for the 4th quarter of 2007 is only marginally better with a 6% decline in year over year sales.
Foxtons was considered one of the leading discount brokerage firms in the United States. The company started in New Jersey with 40 employees and 2000 square feet of office space and grew to 500 employees and 50,000 square feet in just over 7 years. Until the shut down, the company had planned to expand to major markets around the US but fell well short of that lofty goal.
Industry experts say that discount brokerages are the most vulnerable during a downturn since they operate on smaller margins.
A press release on their website stated that Foxtons is going to ask the bankruptcy court to allow them to authorize the assumption and assignment of their current inventory of listings. This means if the request is granted current customers of Foxtons would be bound by the terms in their listing agreements, regardless of the broker that assumes the listings.
While their listings are still under contract, many clients are asking themselves - What now? For those in the real estate business the real question is who’s next?
Friday, October 05, 2007 - By Staff Writer, National Realty News
WEST LONG BRANCH, NJ - Discount brokerage firm Foxtons announced on October 2nd that it will liquidate its business and file for bankruptcy. After 7 years in the real estate business serving the tri-state New York City area, vice president of sales, Mark Horvat, stated that “this action is a direct result of the down turn in residential real estate.”
While many full service brokers welcome the news, it does illustrate the continued difficulty for the industry. The National Association of Realtors’ (NAR) September 2007 outlook predicts continued softness into the 3rd quarter of this year with a 10% decline in year over year sales of existing homes. NAR’s outlook for the 4th quarter of 2007 is only marginally better with a 6% decline in year over year sales.
Foxtons was considered one of the leading discount brokerage firms in the United States. The company started in New Jersey with 40 employees and 2000 square feet of office space and grew to 500 employees and 50,000 square feet in just over 7 years. Until the shut down, the company had planned to expand to major markets around the US but fell well short of that lofty goal.
Industry experts say that discount brokerages are the most vulnerable during a downturn since they operate on smaller margins.
A press release on their website stated that Foxtons is going to ask the bankruptcy court to allow them to authorize the assumption and assignment of their current inventory of listings. This means if the request is granted current customers of Foxtons would be bound by the terms in their listing agreements, regardless of the broker that assumes the listings.
While their listings are still under contract, many clients are asking themselves - What now? For those in the real estate business the real question is who’s next?
Monday, October 01, 2007
Housing-market recovery still several years away
Housing-market recovery still several years away
By Glenn Roberts Jr.
Inman News
While several economists maintained in the early descent from the real estate boom that a "soft landing" was in store, the latest UCLA Anderson Forecast predicts a very bumpy ride for the housing market and a near-miss with a recession.
David Shulman, senior economist for the quarterly University of California, Los Angeles, forecast, stated in his outlook that the nation's economic performance is expected to be "almost as close as you can get to avoid the technical definition of a recession." That means low growth in the nation's gross domestic product -- about 1 percent in fourth-quarter 2007 and in first-quarter 2008, according to Shulman's "A Near Recession Experience" report.
There are dangers, too, that things could get worse. "When the economy slows to a 1 percent pace, it runs the risk of falling into an actual recession just as when an airplane's velocity dips down to its 'stall speed' and falls out of the sky," Shulman states in the report. "In that sense our forecast can be viewed as somewhat optimistic."
While an earlier Anderson Forecast called for housing starts to bottom-out at an annual rate of 1.2 million to 1.3 million, the forecast report released today expects a range of 1 million to 1.1 million for housing starts "and perhaps more importantly we now believe that the recovery will be far more tepid with starts barely recovering to a 1.4-million-unit annual rate by the end of 2009."
Housing starts are projected to experience a 55 to 60 percent peak-to-trough decline, Shulman said, with home prices falling 10 percent to 15 percent. The decline in housing starts would resemble a similar drop-off in 1986-91, he said. "I hope we're done lowering our numbers," he said.
Home-price declines are expected to drop through the end of 2009 and perhaps further out, Shulman said. Florida, California, Arizona, Nevada and parts of the Northeast are probably most susceptible to larger price drops, he said.
Credit tightening in the mortgage market has complicated property purchases in high-priced states such as California, he said, and the mortgage industry is moving toward "more full documentation, real cash down payments and more serious income standards -- and that's going to take a lot of people out of the market at the current price structure." The problems in the mortgage market could lead to some painful adjustments in home prices, he said.
"I don't think lending standards were ever as lax ... and that's the cause of the problems," Shulman said.
The national scope of the real estate foreclosure problem in some ways resembles the Great Depression, he said.
Consumer spending is projected to drop, and auto sales, for example, are expected to hit the lowest level next year since 1998.
"Although it has taken longer than what we had previously forecast, the effect of housing weakness has finally spilled over into consumer spending on durable goods," the report states. "Nevertheless, we are still sticking to our story that we will not have a classic recession."
Shulman's report notes that the nation's trade sector is improving and a strong global economy should increase exports.
But he also states that "'Star Wars' buffs would characterize the August seizing up of financial markets as 'a disturbance in the force,' " and mortgage defaults have spread to Alt-A and prime home loans.
The Federal Reserve has taken steps to patch up the market, Shulman states in his report. "It seems to us that what the Fed is trying to accomplish is simultaneously restore liquidity to the financial markets without reinforcing the notion of what was called the 'Greenspan put' where aggressive market participants can lay off their pain on to the Federal Reserve. Simply put, the Fed wants to avoid the problem of what economists call 'moral hazard' by putting risk back into the system where risk takers are both rewarded and punished for their actions."
The Anderson Forecast expects the Fed to cut the federal funds rate from 5.25 percent to 4.5 percent by the end of this year. "The cuts will be undertaken to support the economy, not specifically to bail out the financial [or housing]markets," the report states.
While some people are comparing the mess in the financial markets in August to the 1987 stock market crash or the 1998 Long Term Capital Management crisis, Shulman states in his report that "both analogies are wrong ... the economy in both 1987 and 1998 was much stronger than it is today." And because the crisis this time around has its origins in the domestic mortgage market, "we believe the impact on the real economy will be far greater this time than the prior two events."
Given the approaching presidential election year, Shulman said the mortgage crisis will provide some high theater, including "clear heroes, clear villains and ... ritual sacrifices." He said, "A lot of people are going to be very embarrassed before this is over."
And with all of the legislation in process now to address the mortgage problems, it's possible that the country will get "a whole new mortgage finance system when it's all over," he said.
Shulman's report concludes, "We forecast that it will take years for the housing market to recover to 'normal,' and the situation will be exacerbated in the short-run by changes in legislation affecting the mortgage industry."
A separate Anderson Forecast report focusing on California's economy predicts that the state is also expected to escape a recession, though the report's author states that the difference between a sluggish economy and a recessionary economy "is getting smaller all the time."
That report also notes that mortgage defaults and foreclosures "continue to occupy center stage in any discussion of local housing markets," and that most mortgage defaults have occurred in owner-occupied homes. The California counties with the highest foreclosure rates are those with "middle-of-the-pack home prices, but extremely high usage of adjustable-rate mortgages -- exactly the combination we'd expect when working families stretch beyond their means to buy a home," the report states.
By Glenn Roberts Jr.
Inman News
While several economists maintained in the early descent from the real estate boom that a "soft landing" was in store, the latest UCLA Anderson Forecast predicts a very bumpy ride for the housing market and a near-miss with a recession.
David Shulman, senior economist for the quarterly University of California, Los Angeles, forecast, stated in his outlook that the nation's economic performance is expected to be "almost as close as you can get to avoid the technical definition of a recession." That means low growth in the nation's gross domestic product -- about 1 percent in fourth-quarter 2007 and in first-quarter 2008, according to Shulman's "A Near Recession Experience" report.
There are dangers, too, that things could get worse. "When the economy slows to a 1 percent pace, it runs the risk of falling into an actual recession just as when an airplane's velocity dips down to its 'stall speed' and falls out of the sky," Shulman states in the report. "In that sense our forecast can be viewed as somewhat optimistic."
While an earlier Anderson Forecast called for housing starts to bottom-out at an annual rate of 1.2 million to 1.3 million, the forecast report released today expects a range of 1 million to 1.1 million for housing starts "and perhaps more importantly we now believe that the recovery will be far more tepid with starts barely recovering to a 1.4-million-unit annual rate by the end of 2009."
Housing starts are projected to experience a 55 to 60 percent peak-to-trough decline, Shulman said, with home prices falling 10 percent to 15 percent. The decline in housing starts would resemble a similar drop-off in 1986-91, he said. "I hope we're done lowering our numbers," he said.
Home-price declines are expected to drop through the end of 2009 and perhaps further out, Shulman said. Florida, California, Arizona, Nevada and parts of the Northeast are probably most susceptible to larger price drops, he said.
Credit tightening in the mortgage market has complicated property purchases in high-priced states such as California, he said, and the mortgage industry is moving toward "more full documentation, real cash down payments and more serious income standards -- and that's going to take a lot of people out of the market at the current price structure." The problems in the mortgage market could lead to some painful adjustments in home prices, he said.
"I don't think lending standards were ever as lax ... and that's the cause of the problems," Shulman said.
The national scope of the real estate foreclosure problem in some ways resembles the Great Depression, he said.
Consumer spending is projected to drop, and auto sales, for example, are expected to hit the lowest level next year since 1998.
"Although it has taken longer than what we had previously forecast, the effect of housing weakness has finally spilled over into consumer spending on durable goods," the report states. "Nevertheless, we are still sticking to our story that we will not have a classic recession."
Shulman's report notes that the nation's trade sector is improving and a strong global economy should increase exports.
But he also states that "'Star Wars' buffs would characterize the August seizing up of financial markets as 'a disturbance in the force,' " and mortgage defaults have spread to Alt-A and prime home loans.
The Federal Reserve has taken steps to patch up the market, Shulman states in his report. "It seems to us that what the Fed is trying to accomplish is simultaneously restore liquidity to the financial markets without reinforcing the notion of what was called the 'Greenspan put' where aggressive market participants can lay off their pain on to the Federal Reserve. Simply put, the Fed wants to avoid the problem of what economists call 'moral hazard' by putting risk back into the system where risk takers are both rewarded and punished for their actions."
The Anderson Forecast expects the Fed to cut the federal funds rate from 5.25 percent to 4.5 percent by the end of this year. "The cuts will be undertaken to support the economy, not specifically to bail out the financial [or housing]markets," the report states.
While some people are comparing the mess in the financial markets in August to the 1987 stock market crash or the 1998 Long Term Capital Management crisis, Shulman states in his report that "both analogies are wrong ... the economy in both 1987 and 1998 was much stronger than it is today." And because the crisis this time around has its origins in the domestic mortgage market, "we believe the impact on the real economy will be far greater this time than the prior two events."
Given the approaching presidential election year, Shulman said the mortgage crisis will provide some high theater, including "clear heroes, clear villains and ... ritual sacrifices." He said, "A lot of people are going to be very embarrassed before this is over."
And with all of the legislation in process now to address the mortgage problems, it's possible that the country will get "a whole new mortgage finance system when it's all over," he said.
Shulman's report concludes, "We forecast that it will take years for the housing market to recover to 'normal,' and the situation will be exacerbated in the short-run by changes in legislation affecting the mortgage industry."
A separate Anderson Forecast report focusing on California's economy predicts that the state is also expected to escape a recession, though the report's author states that the difference between a sluggish economy and a recessionary economy "is getting smaller all the time."
That report also notes that mortgage defaults and foreclosures "continue to occupy center stage in any discussion of local housing markets," and that most mortgage defaults have occurred in owner-occupied homes. The California counties with the highest foreclosure rates are those with "middle-of-the-pack home prices, but extremely high usage of adjustable-rate mortgages -- exactly the combination we'd expect when working families stretch beyond their means to buy a home," the report states.
Sunday, September 30, 2007
4 Indicted in $8 Million Straw Buyer Scheme
[Note from the SCV Home Team: This is the latest in an increasing number of prosecutions of lenders, appraisers, and real estate agents for cases of fraud. The sooner the bad actors get caught, fined, and put away, the better it will be for the industry and the consumers.]
SACRAMENTO, CA - According to United States Attorney McGregor W. Scott, Three defendants will appear in federal court to face charges that they engaged in a straw buyer mortgage fraud scheme that involved at least 19 homes with loans of more than $8 million.
A federal grand jury returned an indictment last Thursday, sealed until this week, charging James Roy Martin, 36, Mario Fellini, III, 38, Gabriel Richard Viramontes, 44, and Joseph Salvatore Gallo, 34, all from the Sacramento area, with bank fraud and conspiracy to launder money. In addition, Martin, Fellini, and Gallo were indicted on charges of making false statements in loan applications, and Martin, Fellini and Viramontes were indicted on mail fraud charges. Martin was arrested at about 9:00 p.m. Monday at a family member’s house, Fellini self-surrendered to federal authorities Tuesday morning at approximately 10:00 a.m., and Gallo self-surrendered in federal court at 2:00 p.m. It is expected that Viramontes will voluntarily appear in court next week.
The case is the product of an extensive investigation conducted by the Federal Bureau of Investigation, the Internal Revenue Service Criminal Investigations, and the California Department of Real Estate.
According to Assistant United States Attorney Matthew Stegman, who is prosecuting the case, the indictment charges that from June 2006 through October 2006, the defendants individually and through VFM Investment Group, Esnian Mortgage Realty, and Freedom Capital Mortgage, engaged in a mortgage fraud scheme by asking people they solicited to act as straw purchasers of single family homes on behalf of others with bad credit who wished to purchase homes. Those solicited were told they would benefit financially from the transactions. The defendants then defrauded lenders such as Washington Mutual Bank and Fremont Investment and Loan by submitting fraudulent loan applications, representing straw purchasers of homes as actual purchasers of homes. The indictment further charges that the defendants submitted fraudulent loan applications on behalf of these straw purchasers, which falsely inflated the buyers’ income, falsely stated that a buyer was employed at a specific job, and falsely stated that the properties would be owner-occupied. The indictment alleges that the purpose of the scheme was to ensure that the home purchase transactions closed, so that defendants would receive substantial loan broker commissions and illegal kickbacks from real estate sales commissions.
If convicted, the maximum penalty for bank fraud is 30 years in prison and a fine of up to $1 million, for mail fraud is 20 years in prison and a fine of up to $250,000, and for money laundering is ten years in prison and a fine of up to $250,000 or twice the value of the money laundered, which ever is greater. However, the actual sentence will be determined at the discretion of the court after consideration of the Federal Sentencing Guidelines, which take into account a number of variables, and any applicable statutory sentencing factors.
~~ from National Realty News, Sept. 26, 2007
SACRAMENTO, CA - According to United States Attorney McGregor W. Scott, Three defendants will appear in federal court to face charges that they engaged in a straw buyer mortgage fraud scheme that involved at least 19 homes with loans of more than $8 million.
A federal grand jury returned an indictment last Thursday, sealed until this week, charging James Roy Martin, 36, Mario Fellini, III, 38, Gabriel Richard Viramontes, 44, and Joseph Salvatore Gallo, 34, all from the Sacramento area, with bank fraud and conspiracy to launder money. In addition, Martin, Fellini, and Gallo were indicted on charges of making false statements in loan applications, and Martin, Fellini and Viramontes were indicted on mail fraud charges. Martin was arrested at about 9:00 p.m. Monday at a family member’s house, Fellini self-surrendered to federal authorities Tuesday morning at approximately 10:00 a.m., and Gallo self-surrendered in federal court at 2:00 p.m. It is expected that Viramontes will voluntarily appear in court next week.
The case is the product of an extensive investigation conducted by the Federal Bureau of Investigation, the Internal Revenue Service Criminal Investigations, and the California Department of Real Estate.
According to Assistant United States Attorney Matthew Stegman, who is prosecuting the case, the indictment charges that from June 2006 through October 2006, the defendants individually and through VFM Investment Group, Esnian Mortgage Realty, and Freedom Capital Mortgage, engaged in a mortgage fraud scheme by asking people they solicited to act as straw purchasers of single family homes on behalf of others with bad credit who wished to purchase homes. Those solicited were told they would benefit financially from the transactions. The defendants then defrauded lenders such as Washington Mutual Bank and Fremont Investment and Loan by submitting fraudulent loan applications, representing straw purchasers of homes as actual purchasers of homes. The indictment further charges that the defendants submitted fraudulent loan applications on behalf of these straw purchasers, which falsely inflated the buyers’ income, falsely stated that a buyer was employed at a specific job, and falsely stated that the properties would be owner-occupied. The indictment alleges that the purpose of the scheme was to ensure that the home purchase transactions closed, so that defendants would receive substantial loan broker commissions and illegal kickbacks from real estate sales commissions.
If convicted, the maximum penalty for bank fraud is 30 years in prison and a fine of up to $1 million, for mail fraud is 20 years in prison and a fine of up to $250,000, and for money laundering is ten years in prison and a fine of up to $250,000 or twice the value of the money laundered, which ever is greater. However, the actual sentence will be determined at the discretion of the court after consideration of the Federal Sentencing Guidelines, which take into account a number of variables, and any applicable statutory sentencing factors.
~~ from National Realty News, Sept. 26, 2007
Monday, September 24, 2007
Liquidity Crisis Increases Demand for Credit Repair
As the nation experiences the effects of the recent mortgage liquidity crisis and lenders raise their minimum required credit scores, many borrowers are scrambling to qualify for any mortgage loan—when in weeks past a wide variety of loan programs would have been available to them. As a result, demand for credit restoration services are on the rise.
“Just in the past 60 days, public interest in credit repair has risen 33 percent,” says Edward Jamison, founder of Jamison Law Group and CreditCRM.com. “That’s because credit restoration is the fastest way to increase the chances of getting a higher quality mortgage loan, and for some, it’s the fastest way to qualify for a loan at all.”
Of the factors impacting the mortgage underwriting decision, the credit score is the only variable that can be adjusted in time to impact the final determination. Unlike the property’s value and the borrower’s income and employment status, credit scores can be increased with a few simple steps and in as little as 60 to 90 days.
“Many borrowers erroneously believe that there’s nothing they can do to affect an underwriting decision in a timely manner,” explains Jamison. “This assumption is simply not true. Borrowers have much more control over the approval process than they may believe. There are several very quick action steps borrowers may take that can positively impact their credit scores. However, these actions are often overlooked because most borrowers don’t understand how the credit scoring process works. These steps may be as simple as asking for higher credit limits on credit cards, and making sure that maximum credit limits on each credit line are reported. Simple actions, much like these, have the ability to make a huge difference in the final score.”
According to Jamison, credit restoration is the legal and legitimate process of eliminating derogatory credit information from an individual’s credit report, and can result in an increased credit score in a matter of weeks. Borrowers of all levels can utilize credit restoration to increase their credit scores and impact the underwriting decision to better their chances of not only getting a loan approval, but also securing higher quality loans.
“In today’s volatile market, it makes sense for borrowers to ensure that they have obtained the highest possible credit scores available to them,” adds Jamison.
~~ from National Realty News
“Just in the past 60 days, public interest in credit repair has risen 33 percent,” says Edward Jamison, founder of Jamison Law Group and CreditCRM.com. “That’s because credit restoration is the fastest way to increase the chances of getting a higher quality mortgage loan, and for some, it’s the fastest way to qualify for a loan at all.”
Of the factors impacting the mortgage underwriting decision, the credit score is the only variable that can be adjusted in time to impact the final determination. Unlike the property’s value and the borrower’s income and employment status, credit scores can be increased with a few simple steps and in as little as 60 to 90 days.
“Many borrowers erroneously believe that there’s nothing they can do to affect an underwriting decision in a timely manner,” explains Jamison. “This assumption is simply not true. Borrowers have much more control over the approval process than they may believe. There are several very quick action steps borrowers may take that can positively impact their credit scores. However, these actions are often overlooked because most borrowers don’t understand how the credit scoring process works. These steps may be as simple as asking for higher credit limits on credit cards, and making sure that maximum credit limits on each credit line are reported. Simple actions, much like these, have the ability to make a huge difference in the final score.”
According to Jamison, credit restoration is the legal and legitimate process of eliminating derogatory credit information from an individual’s credit report, and can result in an increased credit score in a matter of weeks. Borrowers of all levels can utilize credit restoration to increase their credit scores and impact the underwriting decision to better their chances of not only getting a loan approval, but also securing higher quality loans.
“In today’s volatile market, it makes sense for borrowers to ensure that they have obtained the highest possible credit scores available to them,” adds Jamison.
~~ from National Realty News
Wednesday, September 19, 2007
Looking Down
Sep 18th 2007
From Economist.com
The Fed's bold cut
IS THE Federal Reserve running scared of the financial markets—or the housing market? On Tuesday September 18th America’s central bank cut its target for the federal funds rate by half a point, to 4.75%, the first reduction for more than four years. Financial markets had thought a quarter-point cut a shade more likely, but prayed fervently for a half. Rejoicing, the S&P 500 jumped by nearly 3% after the Fed’s announcement and the Dow Jones index closed more than 300 points up.
Once the cheering stops, it may be worth reflecting on what the Fed’s action—and words—say about the state of the economy, especially the housing market. The “tightening of credit conditions”, said the Fed, “has the potential to intensify the housing correction and to restrain economic growth.” The Fed seems to be trying to act before things get worse: the cut, it said, “is intended to help forestall some of the adverse effects on the broader economy”.
This argument is close to that laid out by Frederic Mishkin, a Fed governor, at the Jackson Hole central bankers’ symposium a fortnight ago. If a central bank cuts rates swiftly, Mr Mishkin argued there, it can soften the effects of even a sharp drop in house prices—not least because falling house prices translate only slowly into lower spending. The arguments of Janet Yellen, head of the San Francisco Fed, also seem to have been persuasive, says Adam Posen of the Peterson Institute for International Economics in Washington, DC: “the San Francisco Fed is one of the only regional Feds to have independent full-scale forecasts”. She gave warning this week that “financial market turmoil seems likely to intensify the downturn in housing”.
The Fed will have been helped towards its half-point cut by benign data on both consumer and producer prices: the latter, released on the day of the Fed’s decision, showed a 1.4% fall in August. More bad news from the housing market, published the same day, will have added weight to the argument for a bigger cut. An index of homebuilders’ confidence fell to match the lowest level reached since its inception. And the rate of foreclosures has more than doubled in the past year.
To some, it will seem as if the Fed has caved in to Wall Street. The emphasis on the housing market may help to dispel that impression. So might the Fed’s insistence that “some inflation risks remain” and that it will “continue to monitor inflation developments carefully.” So too, notes Mr Posen, will recent data on inflation, housing and jobs. Even so, the Fed will have to keep choosing its words carefully in the months ahead.
From Economist.com
The Fed's bold cut
IS THE Federal Reserve running scared of the financial markets—or the housing market? On Tuesday September 18th America’s central bank cut its target for the federal funds rate by half a point, to 4.75%, the first reduction for more than four years. Financial markets had thought a quarter-point cut a shade more likely, but prayed fervently for a half. Rejoicing, the S&P 500 jumped by nearly 3% after the Fed’s announcement and the Dow Jones index closed more than 300 points up.
Once the cheering stops, it may be worth reflecting on what the Fed’s action—and words—say about the state of the economy, especially the housing market. The “tightening of credit conditions”, said the Fed, “has the potential to intensify the housing correction and to restrain economic growth.” The Fed seems to be trying to act before things get worse: the cut, it said, “is intended to help forestall some of the adverse effects on the broader economy”.
This argument is close to that laid out by Frederic Mishkin, a Fed governor, at the Jackson Hole central bankers’ symposium a fortnight ago. If a central bank cuts rates swiftly, Mr Mishkin argued there, it can soften the effects of even a sharp drop in house prices—not least because falling house prices translate only slowly into lower spending. The arguments of Janet Yellen, head of the San Francisco Fed, also seem to have been persuasive, says Adam Posen of the Peterson Institute for International Economics in Washington, DC: “the San Francisco Fed is one of the only regional Feds to have independent full-scale forecasts”. She gave warning this week that “financial market turmoil seems likely to intensify the downturn in housing”.
The Fed will have been helped towards its half-point cut by benign data on both consumer and producer prices: the latter, released on the day of the Fed’s decision, showed a 1.4% fall in August. More bad news from the housing market, published the same day, will have added weight to the argument for a bigger cut. An index of homebuilders’ confidence fell to match the lowest level reached since its inception. And the rate of foreclosures has more than doubled in the past year.
To some, it will seem as if the Fed has caved in to Wall Street. The emphasis on the housing market may help to dispel that impression. So might the Fed’s insistence that “some inflation risks remain” and that it will “continue to monitor inflation developments carefully.” So too, notes Mr Posen, will recent data on inflation, housing and jobs. Even so, the Fed will have to keep choosing its words carefully in the months ahead.
The Bernanke Put
Yesterday the FOMC cut the Fed funds rate and the discount rate 1/2 point, or 50 basis points. Wall Street went nuts, with a one day gain of over 300 points in the NYSE. There was yelling and trading and a good time was had by all.
Yesterday was followed by today's trading with what looks like a another rise, with the Dow in triple digit gain for much of the day but falling off to a gain of 76 at close of trading.
Party on, Wall Street!
American consumers will not see tangible benefits for a few months, with lenders expecting to reduce interest rates modestly, with credit card holders saving maybe $25 per year in interest costs, and adjustable mortgage rate hikes dropping back a little.
Honestly, if individuals were in trouble before the rate cuts, they will likely remain in trouble. For those who weren't in trouble before the cut, they will be paying a little less in interest, but not appreciably so.
The rate cut was a macro-move that bailed out high-end players in the economy, at least for a while. It's a reprieve, not a salvation. Think of it as a little breathing room as the market tries to re-allocate risk of too much money in the system offered to too many people who couldn't handle repayment over the long-term. For the housing market, there is little direct relief.
Mr. Bernanke and the Federal Reserve have told the economy that they will kick the excess can down the road and will deal with it later. In the meantime, the dollar valuation has cheapened about 10% in the last month, the Canadian dollar is at par and rising against the USD, foreign investment in the US continues a sharp decline, and foreign banks are dumping Treasuries at a faster rate. That can't be a good combination.
I expect that the Fed will continue to reduce interest rates another half or three-quarters of a point over the next four or five months in a continuing effort to shore up the economy. However, there are forces building that indicate inflation will rise, thus forcing up interest rates at about six to eight months. There will be a huge rise at that time.
At least that's the view from here right now.
We have a fairly narrow window for home purchases as interest rates are at good lows, particularly for conforming loans under $417,000. For those who want to wait for housing prices to collapse, they may see that eventually, but that will be when interest rates rise so high and that they quickly erode most people's purchasing power.
We are indeed in a golden time for buyers right now: low interest rates, high housing inventories, and fear and/or distress among some sellers. For now the indication is Buy-Buy-Buy if you want to buy within the next few years. Now. Right now is the right time. If you wait, you will likely lose. Or in other words, you will remain renters.
For sellers, it is also the time to Sell-Sell-Sell. Why? We are in that same window of opportunity. Wait and home prices will drop as interest rates bounce quickly higher on inflation fears. Interest rates will get higher than buyers can afford, and with more foreclosures coming on the market, home prices will drop and when that local trickle become a flood, they will drop fast.
Yes, the Fed has given a little breathing room. But it is not a lot of room. The time to act is now. Renters: become buyers while you can still afford to buy. Sellers, get serious. Get it done.
Party on, Wall Street! But it is Last Call!
Yesterday was followed by today's trading with what looks like a another rise, with the Dow in triple digit gain for much of the day but falling off to a gain of 76 at close of trading.
Party on, Wall Street!
American consumers will not see tangible benefits for a few months, with lenders expecting to reduce interest rates modestly, with credit card holders saving maybe $25 per year in interest costs, and adjustable mortgage rate hikes dropping back a little.
Honestly, if individuals were in trouble before the rate cuts, they will likely remain in trouble. For those who weren't in trouble before the cut, they will be paying a little less in interest, but not appreciably so.
The rate cut was a macro-move that bailed out high-end players in the economy, at least for a while. It's a reprieve, not a salvation. Think of it as a little breathing room as the market tries to re-allocate risk of too much money in the system offered to too many people who couldn't handle repayment over the long-term. For the housing market, there is little direct relief.
Mr. Bernanke and the Federal Reserve have told the economy that they will kick the excess can down the road and will deal with it later. In the meantime, the dollar valuation has cheapened about 10% in the last month, the Canadian dollar is at par and rising against the USD, foreign investment in the US continues a sharp decline, and foreign banks are dumping Treasuries at a faster rate. That can't be a good combination.
I expect that the Fed will continue to reduce interest rates another half or three-quarters of a point over the next four or five months in a continuing effort to shore up the economy. However, there are forces building that indicate inflation will rise, thus forcing up interest rates at about six to eight months. There will be a huge rise at that time.
At least that's the view from here right now.
We have a fairly narrow window for home purchases as interest rates are at good lows, particularly for conforming loans under $417,000. For those who want to wait for housing prices to collapse, they may see that eventually, but that will be when interest rates rise so high and that they quickly erode most people's purchasing power.
We are indeed in a golden time for buyers right now: low interest rates, high housing inventories, and fear and/or distress among some sellers. For now the indication is Buy-Buy-Buy if you want to buy within the next few years. Now. Right now is the right time. If you wait, you will likely lose. Or in other words, you will remain renters.
For sellers, it is also the time to Sell-Sell-Sell. Why? We are in that same window of opportunity. Wait and home prices will drop as interest rates bounce quickly higher on inflation fears. Interest rates will get higher than buyers can afford, and with more foreclosures coming on the market, home prices will drop and when that local trickle become a flood, they will drop fast.
Yes, the Fed has given a little breathing room. But it is not a lot of room. The time to act is now. Renters: become buyers while you can still afford to buy. Sellers, get serious. Get it done.
Party on, Wall Street! But it is Last Call!
Friday, September 14, 2007
How Bad Could It Get?
There have been lots of discussions these days about where the housing market is going. I read a lot from a variety of sources, from those who think that the markets and the players will take whatever actions are needed to preserve some order and rationality in the system, to those who think it is all out of control and headed for a dark and scary period of collapse.
Many people have asked me directly what is going to happen. Whatever my answer, if it agrees with your opinion at the time, I'm a genius. If I vary high or low, I'm an idiot or worse.
This Blog provides information that you can use to hopefully have a more informed opinion and make more intelligent decisions.
That said, the following is an argument against bailing out over-leveraged homeowners and Mortgage Backed Securities. Safehaven is pretty over-the-edge but if you think the Fed is the center of all evil, safehaven is the place for you!
RK
http://www.safehaven.com/article-8263.htm
It's a Shoe In
Excerpts by Peter Schiff
In order to breathe life into the dying secondary market for non-conforming mortgages, some have suggested that Fannie Mae and Freddie Mac be allowed to buy jumbo mortgages. Others, such as bond guru Bill Gross, have suggested that the Federal government itself establish a fund to bail out homeowners who cannot afford their mortgages. Gross maintains that such a move would be necessary to prevent the biggest real estate price collapse since the Great Depression. If he truly harbors such fears, then he should know that creating such a fund will not prevent the disaster. Even if it means that millions of foreclosures do not occur, real estate prices will still have to fall substantially to return to normal levels and to be in conformity with traditional lending standards.
Setting aside the constitutional or ethical arguments against it, the cost of such a bail out would be staggering. My guess is that the price tag would exceed one trillion dollars (Gross estimates the cost at only around $200 billion). Even if Gross' numbers are accurate, it still represents a significant sum which we would likely have to borrow from abroad. What Gross fails to consider is the moral hazard implicit in such a bail out. Were the government to create a program whereby anyone falling behind on their mortgage could have their loan restructured to some lesser amount with lower payments, one would have to be an idiot not to take advantage of it. If such a nutty plan were ever implemented, it would not be 2 million homes going into foreclosure as Gross fears, but 20 million.
Many people have asked me directly what is going to happen. Whatever my answer, if it agrees with your opinion at the time, I'm a genius. If I vary high or low, I'm an idiot or worse.
This Blog provides information that you can use to hopefully have a more informed opinion and make more intelligent decisions.
That said, the following is an argument against bailing out over-leveraged homeowners and Mortgage Backed Securities. Safehaven is pretty over-the-edge but if you think the Fed is the center of all evil, safehaven is the place for you!
RK
http://www.safehaven.com/article-8263.htm
It's a Shoe In
Excerpts by Peter Schiff
In order to breathe life into the dying secondary market for non-conforming mortgages, some have suggested that Fannie Mae and Freddie Mac be allowed to buy jumbo mortgages. Others, such as bond guru Bill Gross, have suggested that the Federal government itself establish a fund to bail out homeowners who cannot afford their mortgages. Gross maintains that such a move would be necessary to prevent the biggest real estate price collapse since the Great Depression. If he truly harbors such fears, then he should know that creating such a fund will not prevent the disaster. Even if it means that millions of foreclosures do not occur, real estate prices will still have to fall substantially to return to normal levels and to be in conformity with traditional lending standards.
Setting aside the constitutional or ethical arguments against it, the cost of such a bail out would be staggering. My guess is that the price tag would exceed one trillion dollars (Gross estimates the cost at only around $200 billion). Even if Gross' numbers are accurate, it still represents a significant sum which we would likely have to borrow from abroad. What Gross fails to consider is the moral hazard implicit in such a bail out. Were the government to create a program whereby anyone falling behind on their mortgage could have their loan restructured to some lesser amount with lower payments, one would have to be an idiot not to take advantage of it. If such a nutty plan were ever implemented, it would not be 2 million homes going into foreclosure as Gross fears, but 20 million.
Tuesday, September 11, 2007
NAR Projects More Severe Decline in Housing
National Association of Realtors Getting a Clue
[Note: The NAR provides numbers that are national averages. Local numbers may, and do, vary widely from the numbers given in this press release.]
Home values and housing sales will take an even bigger hit than previously forecast and will not recover to their earlier levels throughout all of 2008, according to the latest economic outlook from the National Association of REALTORS released this week.
While the trade group sees gains in prices in 2008 from the current weak levels, it projects that the median existing-home price will be $224,600 in the fourth quarter of next year. That would still put the price slightly below the record price reading of $225,000 in the third quarter of last year.
The trade group now says it expects a 3.7 percent decline in existing-home prices in the third quarter of 2007 compared to a year earlier, which is worse than the previous forecast of a 2.2 percent decline. And the fourth quarter should see prices down 1.3 percent from a year ago, rather than the one percent drop that was previously forecast.
The group also sees continued weakness in new-home prices, with values down 2.2 percent this year, and down three percent in the first quarter of 2008 compared to the first quarter of this year. The median new-home price is estimated to drop to $241,100 in 2007, and then increase 1.7 percent next year to $245,100.
The group is now forecasting an 8.6 percentage drop in the pace of existing-home sales this year, which is not only worse than its previous estimate of a 6.8 percent decline, but also would top the 8.5 percent drop seen in 2006. While the group believes existing-home sales should rebound 5.8 percent in 2008, that would still leave the volume of sales more than 11 percent below the record sales of 7.1 million seen in 2005. Existing-home sales are projected at 5.92 million this year and then rise to 6.27 million in 2008, compared with 6.48 million in 2006.
New-home sales volume is expected to drop even more sharply, posting a 23.8 percent drop this year, and another 7.4 percent drop in 2008. New-home sales should total 801,000 in 2007 and 741,000 next year, below the 1.05 million in 2006. Housing starts are expected to post similar declines each year.
[Note: The NAR provides numbers that are national averages. Local numbers may, and do, vary widely from the numbers given in this press release.]
Home values and housing sales will take an even bigger hit than previously forecast and will not recover to their earlier levels throughout all of 2008, according to the latest economic outlook from the National Association of REALTORS released this week.
While the trade group sees gains in prices in 2008 from the current weak levels, it projects that the median existing-home price will be $224,600 in the fourth quarter of next year. That would still put the price slightly below the record price reading of $225,000 in the third quarter of last year.
The trade group now says it expects a 3.7 percent decline in existing-home prices in the third quarter of 2007 compared to a year earlier, which is worse than the previous forecast of a 2.2 percent decline. And the fourth quarter should see prices down 1.3 percent from a year ago, rather than the one percent drop that was previously forecast.
The group also sees continued weakness in new-home prices, with values down 2.2 percent this year, and down three percent in the first quarter of 2008 compared to the first quarter of this year. The median new-home price is estimated to drop to $241,100 in 2007, and then increase 1.7 percent next year to $245,100.
The group is now forecasting an 8.6 percentage drop in the pace of existing-home sales this year, which is not only worse than its previous estimate of a 6.8 percent decline, but also would top the 8.5 percent drop seen in 2006. While the group believes existing-home sales should rebound 5.8 percent in 2008, that would still leave the volume of sales more than 11 percent below the record sales of 7.1 million seen in 2005. Existing-home sales are projected at 5.92 million this year and then rise to 6.27 million in 2008, compared with 6.48 million in 2006.
New-home sales volume is expected to drop even more sharply, posting a 23.8 percent drop this year, and another 7.4 percent drop in 2008. New-home sales should total 801,000 in 2007 and 741,000 next year, below the 1.05 million in 2006. Housing starts are expected to post similar declines each year.
Monday, September 10, 2007
Removing the Seven Most Deadly Common Buyer Objections
by Jim Remley, Pro Performer Seminars
Horriblize - it's not really a word but it's exactly what many buyers do when they walk through a home for the first time. They look for the negatives, the reasons they can eliminate a home from consideration. Even the smallest flaw in your listing can be seen as a much bigger problem that what it really is. A classic example of this is a ceiling stain.
Countless times over the years as I've walked a buyer through a home they have looked up and noticed a stain on the ceiling. Inevitably they will point up and say something to the effect of "Uh-oh, look at that." Translated, "Scratch this home off the list."
Now a ceiling stain is definitely something to be concerned with as it might indicate that the roof is leaking, or the gutter system is failing, but in the vast majority of these cases what has happened is that there was a previous problem that has since been fixed. The problem is the homeowner didn't take the next step and repair or repaint the ceiling. To be clear this is not a matter of hiding a problem as most states require that homeowners disclose any known defects in a home with a standard disclosure statement. Instead this boils down to a buyer's over zealous imagination. Once they see that stain, they picture the whole attic full of water, a gaping hole in the center of the roof, and rain clouds on the horizon.
Buyers horriblize problems.
Now it might be natural to think that a real estate agents job is to convince a buyer to overlook these small flaws. Wrong. A listing agent's job is to expose a home to the maximum number of buyers through marketing and promotion, and one inescapable truth in marketing is that top condition equals top dollar, and less than top condition equals less than top dollar. When a home has flaws one of two things has to happen - either the sellers will have to pay a buyer to ignore them by reducing their price or the seller will have to fix them.
So what areas of a home are buyers most concerned with? Let's take a look at the seven most deadly buyer objections.
(Don't be alarmed you might notice that the intended reader is actually the homeowner - I stole these recommendations from my new book Sell Your Home in Any Market - 50 Surprisingly Simple Strategies to Sell Your Home Fast and For Top Dollar! )
Ceiling Stains
Since we already cracked the shell on this rotten egg let's deal with it first. If your home has any roof leaks, seeping around vents, chimneys, or additions, or if your home's gutter system is blocked or failing, these items must be fixed in order to secure top dollar. If you don't happen to be a licensed roofing contractor, it may be wise to have the work done by someone who can provide a certification that the work was done to local building code standards.
But as important as fixing the source of the problem is repairing any damage done inside of the home is just as important. These repairs could include new sheet rock, wood paneling, paint or wallpaper. Just be sure your repair fully matches the rest of the homes finish.
Kitchens
The kitchen is the center point of most homes, the hub around which the family wheel spins. It's no wonder then that a kitchen can make or break a home sale. While a buyer may be willing to overlook a small bedroom, or a missing closet, if a kitchen does not measure up to a buyers standards all bets are off. To improve your kitchen you may want to follow the advice of home improvement experts by looking at these top five ideas:
Top Five Kitchen Improvements
Sinks and Faucets - Even the best quality sinks, and faucets can get beaten up over time. When it's time to sell it's a good idea to, at the very least, clean the faucets, re-caulk the sink, and if your sink is chipped take a trip to Home Depot for a low cost fix. If your sink or faucet is beyond repair it may be a great time to upgrade to a more modern sink system.
Appliance Upgrade - Although not cheap, new or updated appliances can excite a buyer who may be leaving older appliances. In addition matching the appliances by color will provide continuity to the kitchen. Obviously small home appliances that are rarely used but take up counter space like bread makers and toaster ovens should be packed and stored.
New or Refaced Cabinets - When selling many homeowners make the choice to invest in new cabinets or opt for the less expensive option of re-facing older cabinets. Re-facing cabinets means that you leave the cabinets in place but add a new veneer to the exterior. Can't decide what to do - replace or reface? Visit www.thisoldhouse.com for ways to make your decision easier.
New Lighting - According to www.homefocused.com - "Bright, airy lighting makes working in the kitchen easier. Fluorescent lighting on the ceiling provides a bright, but soft light. Fluorescent lighting can also be installed under cabinets for task lighting, throwing light directly onto the countertop below them."
New Counter Tops - A kitchen counter is the face of your kitchen, sure you can have the best cabinets, appliances, lighting, flooring, and paint but if the counter top doesn't hit a home run your still three bases short of a win. The counter top ties every piece of your kitchen together. Ask yourself - Do my counter tops live up to the rest of the kitchen, if not consider an upgrade. Also don't forget the back splash, a worn out back splash can make even the best counter tops seems dull or dated.
If you have the notion of going big by completely remodeling your kitchen, or perhaps building a new home from scratch to resell check out the top items buyers are looking for in a new kitchen.
Upper End Appliances 65%
Increased Pantry Space 64%
Renewable Flooring 53%
Wine Refrigerators/Storage 53%
Integration with Living Space 53%
Recycling Center 48%
** Based on 2006/2007 American Institute of Architects Poll
Declining Neighborhood
In a 2006 study of home buyers and sellers conducted by the National Association of REALTORS® it was found that buyers rated neighborhood quality as the number one factor in purchasing a home. So what if your neighborhood lacks a little (or a lot) to be desired? Check out this quick list of ideas compiled by Trish a REALTOR® from Mississippi:
Cleaning Up the Neighborhood
Strike a Deal - If your neighbor's homes are dragging your listing down why not spring for a landscaper to give their yard a makeover? Why pay for a neighbors yard to be improved? So you can sell your home for top dollar!
Call the City or Chamber of Commerce - Ask them if they are any neighborhood clean up programs available. Many volunteer organizations pick an area each month to clean or improve. Why not your neighborhood?
Team Up - If there are other homeowners attempting to sell their homes in the neighborhood why not team up to tackle the problem? A combined effort over one weekend - picking up trash, cleaning out storm drains, or painting over graffiti could inspire others to follow your lead.
Age of home
Because many buyers perceive an older home to be a potential money pit some sellers find it wise to invest in minor home improvement projects. For instance many sellers replace their cabinet hardware with updated styles. The same is true of lighting fixtures, and even plumbing fixtures. For bigger projects sellers have been known to replace windows, front doors, appliances, and even garage doors to update a homes appearance.
Anticipating Buyer Concerns
When considering the purchase of a vintage home many home buyers understandably will want to know more about the homes systems. Wise sellers are prepared to answer questions on everything from plumbing, to insulation and wiring. Remember anything left unknown for a buyer is a black hole, something they fear and will do almost anything to avoid.
Bathrooms
Your bathroom is about to have a top to bottom inspection so be sure to re-caulk around the tub and toilet, replace rusted or worn out fixtures, and remove all of the unnecessary items taking up space on the counter. The tub and shower are of critical concern, if they are chipped or damaged cancel your golf game and head down to your nearest hardware store. Buyers also hate to see leaking faucets, or drains that don't, you know drain, and don't be surprised if they flush the toilet to watch how fast the bowl refills.
If you plan to remodel or add a bathroom to your home check out this list of what home buyers want in a new bathroom:
Radiant Heated Floors 62%
Multi-Head Showers 62%
Accessibility/Universal Design 48%
Door-less Showers 47%
Linen Closet Storage 36%
** Based on 2006/2007 American Institute of Architects Poll
Smells
If you are a smoker, who actually smokes in your home, be warned your home could take a lot longer to sell. Why? Only 25% of the American population smokes and of that group a big percentage don't smoke in their homes. Of course smells can come from other sources as well - cooking odors, oven fires, trash or compost, and one of the worst animal odors. To remove smells from your home take a look at these tips from home cleaning expert Linda Miller of Hermiston, OR.
Ten Ways to Breathe Easier
Open windows and doors and place a large fan where it can blow fresh air in and a second fan to exhaust the odors out.
Replace attic insulation. The odors from cooking rise in the heat and are trapped in the attic insulation. The insulation cannot be cleaned or effectively deodorized and must be discarded. Completely clean the entire attic and allow it to dry, and then replace the insulation with new material.
Use a steam extractor for cleaning carpets and upholstered furniture. A commercial steam extractor can be rented from an equipment rental facility. Hiring a professional truck mounted steam extractor is much more powerful and is worth the money if the odors are deeply imbedded and persistent. It is nearly impossible to get odors out of mattresses and foam pillows, these may need to be discarded and replaced.
Clothing, bedding, and drapes will need to be laundered or dry cleaned. Be sure to check the tags for care instructions and follow the directions.
Clothing may need to be washed several times to remove some odors; particularly stale cigarette smoke.
Take care of the air circulation. Change the furnace or air conditioning filters once a day until you no longer smell offensive odors when you come into the house. The odor causing particles will be in all the ducting and you may need to have a professional duct cleaning service come clean your ducting to completely remove the particulates.
Ceilings, walls and floors need to be washed down.
Unplug and wash your stove and refrigerator inside and out (including the back of the stove and the coils of the refrigerator) with a dish washing liquid, then rinse with a solution consisting of one cup vinegar, the juice of three lemons, and a gallon of warm water.
Take all the drawers out of your cabinets and open all the cupboard doors, wash inside and out paying attention to the drawer slides and around the hinges. Allow to dry completely before replacing drawers and closing the cupboard doors.
When you have totally washed, and rinsed everything, allow it to dry completely. Place small dishes of vanilla extract, baking soda, sliced lemons or potpourri throughout the house to capture the odors and replace them with a better alternative.
Floor Coverings
Often the first item a buyer will notice when they step into your home is the floor coverings. Carpets that are in good condition, clean, and match the style of the home will add to a buyer's favorable first impression. On the other hand floor coverings that are worn, torn, dirty, or just plain ugly will turn off a buyer faster than a terrarium full of pet vipers (something I've actually seen in a buyer's home).
I know the argument - We don't want to pick a carpet the buyer won't like so will just let them do it after they move in. Come on, we both know this is really code for: "I don't want to spend money carpeting a home I'm about ready to sell." The problem is buyers are notoriously bad at visualizing a home in some future state of repair and they are even worse about buying a home that is not turn key ready. Because of this many sellers do their homework and find a floor covering company that will install new flooring but will also agree to wait 30, 60, or 90 days for payment. Best case the home sells before the bill comes due and the invoice gets paid in escrow worse case you get to enjoy new carpets and a new second mortgage.
Horriblize - it's not really a word but it's exactly what many buyers do when they walk through a home for the first time. They look for the negatives, the reasons they can eliminate a home from consideration. Even the smallest flaw in your listing can be seen as a much bigger problem that what it really is. A classic example of this is a ceiling stain.
Countless times over the years as I've walked a buyer through a home they have looked up and noticed a stain on the ceiling. Inevitably they will point up and say something to the effect of "Uh-oh, look at that." Translated, "Scratch this home off the list."
Now a ceiling stain is definitely something to be concerned with as it might indicate that the roof is leaking, or the gutter system is failing, but in the vast majority of these cases what has happened is that there was a previous problem that has since been fixed. The problem is the homeowner didn't take the next step and repair or repaint the ceiling. To be clear this is not a matter of hiding a problem as most states require that homeowners disclose any known defects in a home with a standard disclosure statement. Instead this boils down to a buyer's over zealous imagination. Once they see that stain, they picture the whole attic full of water, a gaping hole in the center of the roof, and rain clouds on the horizon.
Buyers horriblize problems.
Now it might be natural to think that a real estate agents job is to convince a buyer to overlook these small flaws. Wrong. A listing agent's job is to expose a home to the maximum number of buyers through marketing and promotion, and one inescapable truth in marketing is that top condition equals top dollar, and less than top condition equals less than top dollar. When a home has flaws one of two things has to happen - either the sellers will have to pay a buyer to ignore them by reducing their price or the seller will have to fix them.
So what areas of a home are buyers most concerned with? Let's take a look at the seven most deadly buyer objections.
(Don't be alarmed you might notice that the intended reader is actually the homeowner - I stole these recommendations from my new book Sell Your Home in Any Market - 50 Surprisingly Simple Strategies to Sell Your Home Fast and For Top Dollar! )
Ceiling Stains
Since we already cracked the shell on this rotten egg let's deal with it first. If your home has any roof leaks, seeping around vents, chimneys, or additions, or if your home's gutter system is blocked or failing, these items must be fixed in order to secure top dollar. If you don't happen to be a licensed roofing contractor, it may be wise to have the work done by someone who can provide a certification that the work was done to local building code standards.
But as important as fixing the source of the problem is repairing any damage done inside of the home is just as important. These repairs could include new sheet rock, wood paneling, paint or wallpaper. Just be sure your repair fully matches the rest of the homes finish.
Kitchens
The kitchen is the center point of most homes, the hub around which the family wheel spins. It's no wonder then that a kitchen can make or break a home sale. While a buyer may be willing to overlook a small bedroom, or a missing closet, if a kitchen does not measure up to a buyers standards all bets are off. To improve your kitchen you may want to follow the advice of home improvement experts by looking at these top five ideas:
Top Five Kitchen Improvements
Sinks and Faucets - Even the best quality sinks, and faucets can get beaten up over time. When it's time to sell it's a good idea to, at the very least, clean the faucets, re-caulk the sink, and if your sink is chipped take a trip to Home Depot for a low cost fix. If your sink or faucet is beyond repair it may be a great time to upgrade to a more modern sink system.
Appliance Upgrade - Although not cheap, new or updated appliances can excite a buyer who may be leaving older appliances. In addition matching the appliances by color will provide continuity to the kitchen. Obviously small home appliances that are rarely used but take up counter space like bread makers and toaster ovens should be packed and stored.
New or Refaced Cabinets - When selling many homeowners make the choice to invest in new cabinets or opt for the less expensive option of re-facing older cabinets. Re-facing cabinets means that you leave the cabinets in place but add a new veneer to the exterior. Can't decide what to do - replace or reface? Visit www.thisoldhouse.com for ways to make your decision easier.
New Lighting - According to www.homefocused.com - "Bright, airy lighting makes working in the kitchen easier. Fluorescent lighting on the ceiling provides a bright, but soft light. Fluorescent lighting can also be installed under cabinets for task lighting, throwing light directly onto the countertop below them."
New Counter Tops - A kitchen counter is the face of your kitchen, sure you can have the best cabinets, appliances, lighting, flooring, and paint but if the counter top doesn't hit a home run your still three bases short of a win. The counter top ties every piece of your kitchen together. Ask yourself - Do my counter tops live up to the rest of the kitchen, if not consider an upgrade. Also don't forget the back splash, a worn out back splash can make even the best counter tops seems dull or dated.
If you have the notion of going big by completely remodeling your kitchen, or perhaps building a new home from scratch to resell check out the top items buyers are looking for in a new kitchen.
Upper End Appliances 65%
Increased Pantry Space 64%
Renewable Flooring 53%
Wine Refrigerators/Storage 53%
Integration with Living Space 53%
Recycling Center 48%
** Based on 2006/2007 American Institute of Architects Poll
Declining Neighborhood
In a 2006 study of home buyers and sellers conducted by the National Association of REALTORS® it was found that buyers rated neighborhood quality as the number one factor in purchasing a home. So what if your neighborhood lacks a little (or a lot) to be desired? Check out this quick list of ideas compiled by Trish a REALTOR® from Mississippi:
Cleaning Up the Neighborhood
Strike a Deal - If your neighbor's homes are dragging your listing down why not spring for a landscaper to give their yard a makeover? Why pay for a neighbors yard to be improved? So you can sell your home for top dollar!
Call the City or Chamber of Commerce - Ask them if they are any neighborhood clean up programs available. Many volunteer organizations pick an area each month to clean or improve. Why not your neighborhood?
Team Up - If there are other homeowners attempting to sell their homes in the neighborhood why not team up to tackle the problem? A combined effort over one weekend - picking up trash, cleaning out storm drains, or painting over graffiti could inspire others to follow your lead.
Age of home
Because many buyers perceive an older home to be a potential money pit some sellers find it wise to invest in minor home improvement projects. For instance many sellers replace their cabinet hardware with updated styles. The same is true of lighting fixtures, and even plumbing fixtures. For bigger projects sellers have been known to replace windows, front doors, appliances, and even garage doors to update a homes appearance.
Anticipating Buyer Concerns
When considering the purchase of a vintage home many home buyers understandably will want to know more about the homes systems. Wise sellers are prepared to answer questions on everything from plumbing, to insulation and wiring. Remember anything left unknown for a buyer is a black hole, something they fear and will do almost anything to avoid.
Bathrooms
Your bathroom is about to have a top to bottom inspection so be sure to re-caulk around the tub and toilet, replace rusted or worn out fixtures, and remove all of the unnecessary items taking up space on the counter. The tub and shower are of critical concern, if they are chipped or damaged cancel your golf game and head down to your nearest hardware store. Buyers also hate to see leaking faucets, or drains that don't, you know drain, and don't be surprised if they flush the toilet to watch how fast the bowl refills.
If you plan to remodel or add a bathroom to your home check out this list of what home buyers want in a new bathroom:
Radiant Heated Floors 62%
Multi-Head Showers 62%
Accessibility/Universal Design 48%
Door-less Showers 47%
Linen Closet Storage 36%
** Based on 2006/2007 American Institute of Architects Poll
Smells
If you are a smoker, who actually smokes in your home, be warned your home could take a lot longer to sell. Why? Only 25% of the American population smokes and of that group a big percentage don't smoke in their homes. Of course smells can come from other sources as well - cooking odors, oven fires, trash or compost, and one of the worst animal odors. To remove smells from your home take a look at these tips from home cleaning expert Linda Miller of Hermiston, OR.
Ten Ways to Breathe Easier
Open windows and doors and place a large fan where it can blow fresh air in and a second fan to exhaust the odors out.
Replace attic insulation. The odors from cooking rise in the heat and are trapped in the attic insulation. The insulation cannot be cleaned or effectively deodorized and must be discarded. Completely clean the entire attic and allow it to dry, and then replace the insulation with new material.
Use a steam extractor for cleaning carpets and upholstered furniture. A commercial steam extractor can be rented from an equipment rental facility. Hiring a professional truck mounted steam extractor is much more powerful and is worth the money if the odors are deeply imbedded and persistent. It is nearly impossible to get odors out of mattresses and foam pillows, these may need to be discarded and replaced.
Clothing, bedding, and drapes will need to be laundered or dry cleaned. Be sure to check the tags for care instructions and follow the directions.
Clothing may need to be washed several times to remove some odors; particularly stale cigarette smoke.
Take care of the air circulation. Change the furnace or air conditioning filters once a day until you no longer smell offensive odors when you come into the house. The odor causing particles will be in all the ducting and you may need to have a professional duct cleaning service come clean your ducting to completely remove the particulates.
Ceilings, walls and floors need to be washed down.
Unplug and wash your stove and refrigerator inside and out (including the back of the stove and the coils of the refrigerator) with a dish washing liquid, then rinse with a solution consisting of one cup vinegar, the juice of three lemons, and a gallon of warm water.
Take all the drawers out of your cabinets and open all the cupboard doors, wash inside and out paying attention to the drawer slides and around the hinges. Allow to dry completely before replacing drawers and closing the cupboard doors.
When you have totally washed, and rinsed everything, allow it to dry completely. Place small dishes of vanilla extract, baking soda, sliced lemons or potpourri throughout the house to capture the odors and replace them with a better alternative.
Floor Coverings
Often the first item a buyer will notice when they step into your home is the floor coverings. Carpets that are in good condition, clean, and match the style of the home will add to a buyer's favorable first impression. On the other hand floor coverings that are worn, torn, dirty, or just plain ugly will turn off a buyer faster than a terrarium full of pet vipers (something I've actually seen in a buyer's home).
I know the argument - We don't want to pick a carpet the buyer won't like so will just let them do it after they move in. Come on, we both know this is really code for: "I don't want to spend money carpeting a home I'm about ready to sell." The problem is buyers are notoriously bad at visualizing a home in some future state of repair and they are even worse about buying a home that is not turn key ready. Because of this many sellers do their homework and find a floor covering company that will install new flooring but will also agree to wait 30, 60, or 90 days for payment. Best case the home sells before the bill comes due and the invoice gets paid in escrow worse case you get to enjoy new carpets and a new second mortgage.
Home Sellers: Reality Bites
The psychology of buyers and sellers in the real estate marketplace is important to properly price and sell properties. With the current upheaval in the market, it is more important than ever if sellers are to price their properties for sale, and for buyers in making a rational decision to buy.
For sellers, the following points are key:
Home values will (best case) stay stagnant or decrease.
Qualified borrowers are looking for deals.
Fewer borrowers are qualifying for home loans.
Rising foreclosures tend to negatively affect home values.
Increased "days on the market" (DOMs) increases the likelihood that buyers will aggressively negotiate prices down.
Continued stress in the financial markets will affect consumer confidence.
Loans may take longer to close.
Appraisals at sales price are becoming more difficult to obtain.
For buyers, properties should be funded before contract contingencies are removed.
It's critical to encourage sellers to price homes to sell -- and sell quickly -- decreasing the need for price reductions.
While price is important, it is not the only consideration for buyers. Location as always is a factor... 'good' location better than 'bad' location, whatever the specifics are. Unfortunately, location is what it is. If there are negatives to the location, re-pricing downward will come into play.
Condition is another important consideration, and one that the seller does have some or absolute control over. In addition to paint and carpet, cleanliness, curb appeal, and deferred maintenance, there may be other factors that affect the buyer's decision to buy. Such factors might include outdated and old (but working) appliances, unpermitted additions or other unpermitted features of the property, excess possessions, showing restrictions, or inadequate incentives offered such as paying buyer costs and/or increasing commission or paying for loan buydowns.
Sellers should be thinking long and hard about ANY factor that would tend to push a prospective buyer away from a decision to buy, and reduce or eliminate it from the equation. And once a buyer gets involved with a property and makes an acceptable offer, the work doesn't stop there. Homes are falling out of escrow at an alarming rate, whether the buyer's reason is disclosure or inspection of property condition, inability to qualify for financing, or just 'cold feet' because the buyer let relatives talk him or her out of the purchase. While not much can be done about this last condition, it is a significant factor these days. Again, sellers should be addressing those factors they actually have an effect on like condition and pricing.
In re-reading the above, the general climate of the real estate market can best be described as 'unsettled'. As has always been the case, in a declining market many sellers dig in their heels (at first) and loudly declare that they will not, absolutely will not, give their homes away. I have sympathy for their feelings, but if they seriously want to sell, they need to recognize market realities. Home prices are on a declining trend, and reality is, buyers don't want their hard-earned down payments and equity in a home that they have purchased to disappear in a depreciating asset, just as sellers don't like to see their equity disappear. Plus it is pretty difficult to rationally make an argument that it's OK to preserve the equity for sellers at highly appreciated levels, while having the buyer take on the risk of equity decline. Another way to put it for sellers is: what makes you so special and immune from the swings of the housing market? Prices go up... prices go down. In general and historically, housing appreciation has been about 5% per year on average over a long time. But not every year in particular.
If you are a seller, you might think I am being unnecessarily tough on you. No, I am just re-introducing you to reality. If you don't really want or need to sell, then don't. Stay in your home, make your housing payments if you are secure in your ability to do so over the next four or five years no matter what the larger economy does or how it affects interest rates, pay down your mortgage balance and build equity over time. Re-capture a traditional view of home ownership. Don't whine about the swings of the market and what your home used to be worth. Be happy.
But if you don't know if you will be able to make the mortgage payments over the next year or two or three as your interest rate adjusts for the mortgage terms that you have, you should seriously consider selling right now. The market has swung, and foreclosures are going to go up as the conditions for a 'perfect storm' for housing develops. If you were counting on home price appreciation to bail you out, as it has bailed out so many people over the last five years, you should re-think your plan.
We can help. As always, the SCV Home Team and I want the best for you. We really do. We want to help you make rational decisions in your own best interests. If the best decision for you and your family is to stay in your home and wait some years for the market to work out the excesses, that is great. If the more prudent course is to 'downsize' from where you are, it is best to do that by choice and rationally, rather than wait a few months or years for an NOD, a foreclosure, and then either the Sheriff's knock at the door or a moving van in the middle of the night.
Yes, reality can bite. Just don't let it bite you.
If you live in the Santa Clarita Valley, or the adjacent San Fernando or Antelope Valleys, and we need to have a serious discussion about your particular circumstances, call us at 661-287-9164.
For sellers, the following points are key:
Home values will (best case) stay stagnant or decrease.
Qualified borrowers are looking for deals.
Fewer borrowers are qualifying for home loans.
Rising foreclosures tend to negatively affect home values.
Increased "days on the market" (DOMs) increases the likelihood that buyers will aggressively negotiate prices down.
Continued stress in the financial markets will affect consumer confidence.
Loans may take longer to close.
Appraisals at sales price are becoming more difficult to obtain.
For buyers, properties should be funded before contract contingencies are removed.
It's critical to encourage sellers to price homes to sell -- and sell quickly -- decreasing the need for price reductions.
While price is important, it is not the only consideration for buyers. Location as always is a factor... 'good' location better than 'bad' location, whatever the specifics are. Unfortunately, location is what it is. If there are negatives to the location, re-pricing downward will come into play.
Condition is another important consideration, and one that the seller does have some or absolute control over. In addition to paint and carpet, cleanliness, curb appeal, and deferred maintenance, there may be other factors that affect the buyer's decision to buy. Such factors might include outdated and old (but working) appliances, unpermitted additions or other unpermitted features of the property, excess possessions, showing restrictions, or inadequate incentives offered such as paying buyer costs and/or increasing commission or paying for loan buydowns.
Sellers should be thinking long and hard about ANY factor that would tend to push a prospective buyer away from a decision to buy, and reduce or eliminate it from the equation. And once a buyer gets involved with a property and makes an acceptable offer, the work doesn't stop there. Homes are falling out of escrow at an alarming rate, whether the buyer's reason is disclosure or inspection of property condition, inability to qualify for financing, or just 'cold feet' because the buyer let relatives talk him or her out of the purchase. While not much can be done about this last condition, it is a significant factor these days. Again, sellers should be addressing those factors they actually have an effect on like condition and pricing.
In re-reading the above, the general climate of the real estate market can best be described as 'unsettled'. As has always been the case, in a declining market many sellers dig in their heels (at first) and loudly declare that they will not, absolutely will not, give their homes away. I have sympathy for their feelings, but if they seriously want to sell, they need to recognize market realities. Home prices are on a declining trend, and reality is, buyers don't want their hard-earned down payments and equity in a home that they have purchased to disappear in a depreciating asset, just as sellers don't like to see their equity disappear. Plus it is pretty difficult to rationally make an argument that it's OK to preserve the equity for sellers at highly appreciated levels, while having the buyer take on the risk of equity decline. Another way to put it for sellers is: what makes you so special and immune from the swings of the housing market? Prices go up... prices go down. In general and historically, housing appreciation has been about 5% per year on average over a long time. But not every year in particular.
If you are a seller, you might think I am being unnecessarily tough on you. No, I am just re-introducing you to reality. If you don't really want or need to sell, then don't. Stay in your home, make your housing payments if you are secure in your ability to do so over the next four or five years no matter what the larger economy does or how it affects interest rates, pay down your mortgage balance and build equity over time. Re-capture a traditional view of home ownership. Don't whine about the swings of the market and what your home used to be worth. Be happy.
But if you don't know if you will be able to make the mortgage payments over the next year or two or three as your interest rate adjusts for the mortgage terms that you have, you should seriously consider selling right now. The market has swung, and foreclosures are going to go up as the conditions for a 'perfect storm' for housing develops. If you were counting on home price appreciation to bail you out, as it has bailed out so many people over the last five years, you should re-think your plan.
We can help. As always, the SCV Home Team and I want the best for you. We really do. We want to help you make rational decisions in your own best interests. If the best decision for you and your family is to stay in your home and wait some years for the market to work out the excesses, that is great. If the more prudent course is to 'downsize' from where you are, it is best to do that by choice and rationally, rather than wait a few months or years for an NOD, a foreclosure, and then either the Sheriff's knock at the door or a moving van in the middle of the night.
Yes, reality can bite. Just don't let it bite you.
If you live in the Santa Clarita Valley, or the adjacent San Fernando or Antelope Valleys, and we need to have a serious discussion about your particular circumstances, call us at 661-287-9164.
Tuesday, September 04, 2007
President Bush Proposes Mortgage Relief
The White House is proposing to expand the role of the federal government to stem a wave of mortgage defaults, President Bush said last week, unveiling a series of steps including allowing refinancing into government-insured mortgages. Under the plan, the Federal Housing Administration's mortgage insurance program will be changed to allow more people to refinance with FHA insurance if they fall behind on adjustable-rate mortgages. People who have missed mortgage payments are now ineligible for FHA insurance.
The President's plan would allow them to be eligible for FHA insurance if the amount they are required to pay each month increases, as has happened on many adjustable loans with so-called "teaser" introductory rates. However, Bush is rejecting a wholesale bailout of borrowers and lenders alike, saying it's not Washington's role to provide such a backstop.
"It's not the government's job to bail out speculators or those who made the decision to buy a home they knew they could never afford," Bush said. But he said many homeowners could be helped if their lenders are flexible with mortgage terms and the government offers them modest help.
The president wants to work with Congress to temporarily suspend the tax liability that can take effect when borrowers lose their homes through short-sales, and when lenders forgive mortgage debt. That will enable borrowers to more easily re-work their loans.
Bush also discussed putting together a coalition of community groups, government agencies and government-sponsored enterprises, such as Freddie Mac, to help homeowners refinance onerous loans. That would include making credit available as well as counseling borrowers on credit issues.
Another of the president's goals is to increase transparency in lending practices so consumers would better understand the true risks and costs of loans for which they sign up. That could reduce the number of borrowers facing the loss of their homes in the future.
The President's plan would allow them to be eligible for FHA insurance if the amount they are required to pay each month increases, as has happened on many adjustable loans with so-called "teaser" introductory rates. However, Bush is rejecting a wholesale bailout of borrowers and lenders alike, saying it's not Washington's role to provide such a backstop.
"It's not the government's job to bail out speculators or those who made the decision to buy a home they knew they could never afford," Bush said. But he said many homeowners could be helped if their lenders are flexible with mortgage terms and the government offers them modest help.
The president wants to work with Congress to temporarily suspend the tax liability that can take effect when borrowers lose their homes through short-sales, and when lenders forgive mortgage debt. That will enable borrowers to more easily re-work their loans.
Bush also discussed putting together a coalition of community groups, government agencies and government-sponsored enterprises, such as Freddie Mac, to help homeowners refinance onerous loans. That would include making credit available as well as counseling borrowers on credit issues.
Another of the president's goals is to increase transparency in lending practices so consumers would better understand the true risks and costs of loans for which they sign up. That could reduce the number of borrowers facing the loss of their homes in the future.
Monday, September 03, 2007
Six Ways to Quickly Boost Credit Scores
Daily Real Estate News | July 20, 2007
6 Ways to Quickly Boost Credit Scores
As lenders tighten their underwriting guidelines, borrowers are wise to raise their credit scores to qualify for loans, secure better loan terms, and receive lower interest rates.
"Individuals can positively affect their credit scores in as little as three weeks," says Edward Jamison, a Los Angeles based credit attorney. "It's just a matter of getting educated and focused on the best, fastest, and most reliable course of action."
Jamison, who you may know as a credit expert on the NBC show, “Starting Over,” offers these six tips for improving credit strength quickly.
1. Know your limits. Borrowers should first check their credit limits and evenly distribute the balances they're carrying to help increase their credit scores, or better yet, pay them off in full to get the highest score increase. "Make sure your
maximum limit is reported," Jamison says. "When no limit is reported, credit scoring software presumes the account is maxed out."
2. Bring the balances near zero. The credit scoring software scores more favorably to those with a closer balance to zero. Balances over 70 percent damage credit the most, followed by the next tier of 50 percent and then 30 percent of the maximum credit limit. "Rather than carrying a large balance in an unfavorable tier, redistribute outstanding balances over several credit cards," advises Jamison.
3. Don’t cancel your cards. "Closing credit card accounts can hurt your score unless the accounts were opened less than two years ago, and you have over six credit cards," Jamison says. Fair Isaac's credit scoring software assumes that people who have had credit for a longer time are at less risk of defaulting on payments.
4. Eliminate late payments (but ask nice). Get rid of late payments listed on the credit report. "Contact the creditors that report late payments and request a good faith adjustment that removes the late payments reported on your account," Jamison says. The creditor may work with you, but it may require more than one phone call; patience is required. Your odds of success will dwindle if you're rude or unclear about your request, he adds.
5. Get rid of collection accounts. But only if the collection agency agrees to delete them in return. Paying them off can otherwise actually lead to a decreased credit score due to the date of last activity getting updated to the current date when you pay. The consumer should contact the collector and request a letter explicitly stating the agreement to delete the account upon receipt or clearance of the payment, Jamison says. Not all collection agencies will delete reporting, but it's certainly worth the effort.
6. Pay off past due amounts on accounts that are not in charge-off status. After that, Jamison advises getting rid of charge-offs and liens that are less than two years old. "Charge-offs and liens that are older than 24 months do not affect your credit score nearly as much as ones under 24 months," says Jamison. "But if they're newer than 24 months, they can seriously damage your credit." If you have both charge-offs and collection accounts, but have limited funds, pay off the
past due balances first, then pay collection accounts as long as the collectors agree to remove all references to credit bureaus.
— REALTOR® Magazine Online
6 Ways to Quickly Boost Credit Scores
As lenders tighten their underwriting guidelines, borrowers are wise to raise their credit scores to qualify for loans, secure better loan terms, and receive lower interest rates.
"Individuals can positively affect their credit scores in as little as three weeks," says Edward Jamison, a Los Angeles based credit attorney. "It's just a matter of getting educated and focused on the best, fastest, and most reliable course of action."
Jamison, who you may know as a credit expert on the NBC show, “Starting Over,” offers these six tips for improving credit strength quickly.
1. Know your limits. Borrowers should first check their credit limits and evenly distribute the balances they're carrying to help increase their credit scores, or better yet, pay them off in full to get the highest score increase. "Make sure your
maximum limit is reported," Jamison says. "When no limit is reported, credit scoring software presumes the account is maxed out."
2. Bring the balances near zero. The credit scoring software scores more favorably to those with a closer balance to zero. Balances over 70 percent damage credit the most, followed by the next tier of 50 percent and then 30 percent of the maximum credit limit. "Rather than carrying a large balance in an unfavorable tier, redistribute outstanding balances over several credit cards," advises Jamison.
3. Don’t cancel your cards. "Closing credit card accounts can hurt your score unless the accounts were opened less than two years ago, and you have over six credit cards," Jamison says. Fair Isaac's credit scoring software assumes that people who have had credit for a longer time are at less risk of defaulting on payments.
4. Eliminate late payments (but ask nice). Get rid of late payments listed on the credit report. "Contact the creditors that report late payments and request a good faith adjustment that removes the late payments reported on your account," Jamison says. The creditor may work with you, but it may require more than one phone call; patience is required. Your odds of success will dwindle if you're rude or unclear about your request, he adds.
5. Get rid of collection accounts. But only if the collection agency agrees to delete them in return. Paying them off can otherwise actually lead to a decreased credit score due to the date of last activity getting updated to the current date when you pay. The consumer should contact the collector and request a letter explicitly stating the agreement to delete the account upon receipt or clearance of the payment, Jamison says. Not all collection agencies will delete reporting, but it's certainly worth the effort.
6. Pay off past due amounts on accounts that are not in charge-off status. After that, Jamison advises getting rid of charge-offs and liens that are less than two years old. "Charge-offs and liens that are older than 24 months do not affect your credit score nearly as much as ones under 24 months," says Jamison. "But if they're newer than 24 months, they can seriously damage your credit." If you have both charge-offs and collection accounts, but have limited funds, pay off the
past due balances first, then pay collection accounts as long as the collectors agree to remove all references to credit bureaus.
— REALTOR® Magazine Online
HOA Rules May Override Free Speech Rights
Homeowners who live in a common interest development and are subject to CC&Rs and rules adopted by the HOA (Homeowner Association) are still American citizens (assuming they were to begin with). They don’t give up their rights of free speech, do they?
They can say whatever they want, wherever they want, however they want, right? Well… maybe not. Both residents of common interest developments, HOA directors, and their management companies will want to pay special attention to a recent ruling by the New Jersey Supreme Court. While, technically, the ruling only applies within the state of New Jersey, it is liable to have considerable influence elsewhere.
The case (Committee for a Better Twin Rivers v. Twin Rivers Homeowners Association) arose out of a dispute between certain residents of the Twin Rivers development and the governing homeowners association. These residents (the Committee) brought a lawsuit against the HOA claiming that it had failed to allow them to freely express their views. One count of the complaint “sought to invalidate the Association’s policy relating to the posting of signs. The Association’s sign policy provided that residents may post a sign in any window of their residence and outside in the flower beds so long as the sign was not more than three feet from the residence.” Only one sign per lawn and per window were permitted. No signs were permitted on utility poles or natural features (e.g. trees) within the community. The stated purpose of the sign rules was, among other things, “to preserve the aesthetic value of the common areas.”
Other complaints related to the association’s alleged restrictive use of the development’s community room, and to access restrictions to the community newsletter.
A trial court noted that “the Association asserted considerable influence on the lives of the [the development] residents”, but it observed that much of the impact “was a function of the contractual relationship that residents entered into when they elected to purchase property [there]”. It found that the rules with respect to signs were reasonable and enforceable.
An appellate court then reversed the trial court, holding that “the Association was subject to state constitutional standards with respect to its internal rules and regulations.” That is, it held that the residents’ free speech rights had been unduly curtailed. Then the Association appealed.
The New Jersey Supreme court reversed the ruling of the appellate court. In the words of one analyst, “it framed the issue as to whether the case before it presented one of those limited circumstances where, in the setting of a private community, the Association’s rule and regulations were limited by the constitutional rights of the association’s members.” It pointed out that “private property itself remains protected under due process standards from untoward interference with … regulations upon its reasonable use.” In this case, even though private residences were involved, it found that the rules and regulations were for private purposes, and that government interference was not warranted. It held that the restrictions of the rules were minor and reasonable. Moreover, the court said, the residents had “other means of expression”. They could “walk through the neighborhood, ring the doorbells of their neighbors, and advance their views.”
Key to the ruling was the fact that the court did not find the association to be a “state actor”, and that, therefore, it could not be held accountable to constitutional restrictions that might apply to a state agency.
The New Jersey court also noted that there are plenty of provisions in the state codes that protect residents from arbitrary actions by an HOA, and that void unreasonable provisions of HOA rules or CC&Rs.
The ruling in the Twin Rivers case is yet another one from courts around the country that demonstrate that courts are not going to intervene and overturn reasonable rules that govern those who have contractually committed to follow them.
by Bob Hunt
scbhunt@aol.com
Bob Hunt is a Director of the California Association of REALTORS® and is Chairman of its Legal Affairs Forum.
They can say whatever they want, wherever they want, however they want, right? Well… maybe not. Both residents of common interest developments, HOA directors, and their management companies will want to pay special attention to a recent ruling by the New Jersey Supreme Court. While, technically, the ruling only applies within the state of New Jersey, it is liable to have considerable influence elsewhere.
The case (Committee for a Better Twin Rivers v. Twin Rivers Homeowners Association) arose out of a dispute between certain residents of the Twin Rivers development and the governing homeowners association. These residents (the Committee) brought a lawsuit against the HOA claiming that it had failed to allow them to freely express their views. One count of the complaint “sought to invalidate the Association’s policy relating to the posting of signs. The Association’s sign policy provided that residents may post a sign in any window of their residence and outside in the flower beds so long as the sign was not more than three feet from the residence.” Only one sign per lawn and per window were permitted. No signs were permitted on utility poles or natural features (e.g. trees) within the community. The stated purpose of the sign rules was, among other things, “to preserve the aesthetic value of the common areas.”
Other complaints related to the association’s alleged restrictive use of the development’s community room, and to access restrictions to the community newsletter.
A trial court noted that “the Association asserted considerable influence on the lives of the [the development] residents”, but it observed that much of the impact “was a function of the contractual relationship that residents entered into when they elected to purchase property [there]”. It found that the rules with respect to signs were reasonable and enforceable.
An appellate court then reversed the trial court, holding that “the Association was subject to state constitutional standards with respect to its internal rules and regulations.” That is, it held that the residents’ free speech rights had been unduly curtailed. Then the Association appealed.
The New Jersey Supreme court reversed the ruling of the appellate court. In the words of one analyst, “it framed the issue as to whether the case before it presented one of those limited circumstances where, in the setting of a private community, the Association’s rule and regulations were limited by the constitutional rights of the association’s members.” It pointed out that “private property itself remains protected under due process standards from untoward interference with … regulations upon its reasonable use.” In this case, even though private residences were involved, it found that the rules and regulations were for private purposes, and that government interference was not warranted. It held that the restrictions of the rules were minor and reasonable. Moreover, the court said, the residents had “other means of expression”. They could “walk through the neighborhood, ring the doorbells of their neighbors, and advance their views.”
Key to the ruling was the fact that the court did not find the association to be a “state actor”, and that, therefore, it could not be held accountable to constitutional restrictions that might apply to a state agency.
The New Jersey court also noted that there are plenty of provisions in the state codes that protect residents from arbitrary actions by an HOA, and that void unreasonable provisions of HOA rules or CC&Rs.
The ruling in the Twin Rivers case is yet another one from courts around the country that demonstrate that courts are not going to intervene and overturn reasonable rules that govern those who have contractually committed to follow them.
by Bob Hunt
scbhunt@aol.com
Bob Hunt is a Director of the California Association of REALTORS® and is Chairman of its Legal Affairs Forum.
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